Employee Benefits
What is Insurance & How Does it Work?
Insurance helps provide protection in the case of financial loss and offers reassurance that you and your family will be covered should the unexpected occur. If you experience an accident, natural disaster, loss, or other unexpected circumstances, insurance may (at least partially) cover the costs. It comes in the form of a contract, called a policy, that outlines what a company will pay out for and how much they’ll pay.
Insurance helps cover several of your most important expenses, like those related to your health and wellness, your house, your car, your pets, and even your life. Each situation and/or asset requires its own policy with its own specifications, as different companies and plans offer differing levels of coverage and protection.
Key insurance terminology
- Insurer - the insurance company providing the insurance policy
- Policyholder - the person named on the policy (typically, that's you)
- Policy Limit - the maximum amount of money an insurance provider will pay out
- Premium - the monthly payment you make to the insurance company to keep your policy active
- Deductible - the amount of money you’re responsible to pay out of pocket before insurance will pay out
- Coinsurance - a percentage of costs you pay after meeting a deductible
- Copay - a flat fee paid you pay each time insurance is used
Find more insurance terms and definitions here
How does insurance work?
To put it simply: You pay a monthly premium to your insurance company and, in exchange, the company will pay out for any accidents, routine wellness visits, and many other situations. Once you’re enrolled in your policy and it has taken effect, you’re covered until you stop paying your premiums or your policy ends.
Whether you go to a routine doctor’s visit, experience damage to your home or car, or just need your teeth cleaned, your insurance company will pay for services that fall under the scope of their coverage, either by reimbursing you directly or paying the service provider. However, in order for the insurance company to pay out, you’ll first need to reach your deductible.
Filing a claim
Some instances require you to file a claim in order to collect any money. That means if something happens, you’ll have to submit a request to your insurance company in order to receive a payout. Don’t worry, information on how to file a claim will be included in your policy documents for reference. In many cases, the establishment you visit (e.g., your doctor, dentist, therapist, etc.) will handle communications with the insurance company and very little will be required from you.
Types of Insurance
Insurance can cover a wide variety of situations and incidents. Its offerings range from standard options, like health insurance or dental insurance, to more specific or supplemental policy types, like legal insurance or critical illness insurance. The types of insurance include:
- Health insurance – helps cover medical expenses and treatments, such as routine medical visits, injuries, or hospital stays
- Dental insurance – often covers dental expenses, like regular cleanings and dental procedures
- Vision insurance – typically covers routine eye exams and a portion of out-of-pocket eyewear expenses and occasionally will contribute to LASIK procedures
- Legal insurance – provides access to a network of attorneys for legal help
- Life insurance - pays a set amount to a designated beneficiary when the policyholder dies
- Accident insurance - pays out a lump sum in the instance of certain accidents
- Disability insurance - provides a portion of income payments to a person who can no longer work due to pregnancy, mental health, injury, illness, or accident
- Auto insurance – helps cover collisions, property or personal damage, and comprehensive or no-fault incidents (hitting a deer, storm damage, vandalism, etc.)
- Homeowners insurance – helps cover damage to your home from natural disasters, accidents, and other risks associated with owning property
- Critical illness insurance – helps provide financial assistance for certain illnesses
- Hospital indemnity insurance - helps pay expenses related to hospital stays
- Pet insurance – often covers veterinary costs for instances like injury, illness, and routine vet care
Do I need insurance?
Most people need at least a few types of insurance. The first question you should ask yourself is which types of insurance seem a natural fit for your life. Think of your day-to-day activities and all of the uncertainties that come with them. Car accidents, sudden illnesses, natural disasters, and many other situations can occur unpredictably. Without insurance, you will be responsible for the damage, medical bills, and other costs associated with these stressful circumstances. Insurance policies provide comfort in knowing that if any unexpected expenses come along, you and your family will be better protected.
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This article is intended to provide general information about insurance. It does not describe any Metropolitan Life Insurance company product or feature.