FOR MOST PEOPLE, the right type of life insurance can be summed up in a single word: term. But before we explain why, it's important to understand the differences between the most common types of insurance available.

The basic difference between term and whole life insurance is this: A term policy is life coverage only. On the death of the insured it pays the face amount of the policy to the named beneficiary. You can buy term for periods of one year to 30 years. Whole life insurance, on the other hand, combines a term policy with an investment component. The investment could be in bonds and money-market instruments or stocks. The policy builds cash value that you can borrow against. The three most common types of whole life insurance are traditional whole life policies, universal and variable. With both whole life and term, you can lock in the same monthly payment over the life of the policy.

Forced Savings

Whole life insurance is expensive: You're paying not only for insurance but also for the investment portion. That extra cost might almost be worth it if these policies were a good investment vehicle. But usually they aren't. Insurance agents like to call these policies retirement plans, emphasizing the "forced savings" inherent in forking over the premiums each month "for retirement."

Leaving aside the fact that there are many better ways to save for retirement, these policies come with high fees and commissions, which sometimes lop off as much as three percentage points from the annual return. On top of that, there are up-front (but hidden) commissions that are typically 100% of your first year's premium. Worse, it's often impossible to tell what the return on the investment will be, and how much of what you pay in goes toward the insurance and how much toward the investment.

Premiums for term insurance are downright cheap for people in good health up to about age 50. After that age, premiums start to get progressively more expensive. The same holds true for whole life policies, though people who need coverage starting in their 60s and beyond may have no alternative but to buy whole life. Most companies simply won't sell term policies to people over about age 65.

Term: Where the Value Is

To get a real sense of the value of term, let's compare a term policy and a universal life policy. Say a 40-year-old nonsmoking male has a choice between a $250,000 Met Life universal policy with a $3,000 annual premium and a same amount of renewable term coverage with a 20-year fixed premium of $350. At the end of one year, the universal policy, assuming it paid 5.7% per year, tax-deferred, would have a cash value of exactly zero (cash value is the amount you would get back if you canceled the policy). But say he had instead invested $2,650 (the difference between $3,000 and $350) in a no-load mutual fund that averaged a total return of 10% annually. At the end of the first year, he'd have $2,841, accounting for taxes on the earnings at a 28% rate. At the end of 10 years, he would have accumulated more than $46,000 in after-tax savings in the mutual fund. Over the same period, the cash value of the policy would have climbed only to $31,819.

That's not to say that whole life insurance is always a bad idea. Wealthy people can use whole life in their estate planning by setting up an insurance trust that will pay their estate taxes from the proceeds of the policy. And for the growing number of people in their late 40s or early 50s who are just starting families, whole life is at least worth a look.

Sizing Up a Whole Life Policy

One of the great problems with whole life is only an expert can tell if a policy you own or are considering will ever become a decent investment. James Hunt, actuary for the Consumer Federation of America, who has analyzed thousands of policies, notes that whole life policies hardly ever yield a reasonable return unless held for 20 years or more. So if you buy one be prepared to pay into it for the very long haul.

The key to a whole life policy is its internal rate of return -- the yield on the policy after all fees and charges are subtracted. A competent analysis can determine at a minimum whether the weight of the fees and charges built into one of these policies will ever allow a worthwhile return. Such an analysis will also pinpoint the minimum amount of cash value that you can derive from a policy at any given time interval.

Some financial planners, actuaries and accountants can perform internal rate of return analysis on your policy. The Consumer Federation has a service that will do this, calculating the real return year by year and comparing it with other investments. The fee is $70 for the first policy, $50 for each additional. (Click here for details).

Keep Your Old Policy?

You've been faithfully paying into that whole life policy a good pal of your brother-in-law sold you 10 years ago. And now you're thinking, "Hey wait a minute, I should be bailing out and getting a cheap term policy." Not so fast. First and foremost, keep in mind the substantial sum you've probably paid in over the years. How much will you get if you "surrender" or cash it in now? The answer to that question can be found in the illustrations you got when you signed on the dotted line. If you can't determine the surrender value you may have to -- heaven forbid -- call your agent and ask. But it's worth taking the trouble before you make a decision.

Most policies don't start to build decent a cash value until their 12th or 15th year. So if you cash in after 10 years, you could be out of a lot of money. And you can be sure that if you surrender in the first five years or so, practically every dime you put in will be down the toilet. The next thing you have to consider is whether you are still insurable at a reasonable rate if you switch to term. That's because you'll have to requalify medically. If you are over 50, smoke or have health problems, you may find it's cheaper to hold onto your old policy. Another option worth considering is a tax-free transfer of the value in your old policy into a better one, perhaps from a low-commission company like Ameritas.

How to Check an Insurer's Ratings

If you're looking for whole life coverage or a term policy that you'll want to keep 20 or 30 years, the financial soundness of the insurer is a critical concern. You want some assurance the company will be around in case you aren't. For insurance companies, the major credit agencies like Standard & Poor's rate claims-paying ability.

Fortunately, information on the credit worthiness of insurance companies is easy to obtain. Reports are cheap or free over the Internet. You can always contact the insurance company and ask about its ratings, but it's best to get this information independently. In general, go with an insurer rated A or better; the most financially sound insurers are rated AAA, though some rating agencies use slightly different letter grades.

The premier Web site in terms of detail and ease of use, (best of all, it's free) is insure.com where you can get ratings online from Standard & Poor's as well comprehensive reports on individual insurers. AM Best has a huge database, but you have to pay for it. While you can access ratings free of charge, a detailed company report will set you back $75.

Make sure any report you get is current, say within the last six months. Be extra careful to confirm ratings you'll find on many of the online quote services, which may be stale.

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Many companies now sell life insurance on the Web, as well as give free quotes and advice.

The key to buying on the Web is to shop by price and by the company's rating. Several agencies, including Standard & Poor's and A.M. Best, rate insurers on their claims-paying ability. Stick with companies with low prices, the term you want, and a top rating.

Here are some sites that sell the policies of multiple companies:

- Insure.com has quotes from over 90 companies and plenty of detail on the policies available. The site also supplies ratings for the insurers from the major rating agencies, such as A.M. Best.

- Insweb has some pretty good worksheets and advice, lets you save quotes for later retrieval, and lists an 800 number.

- Accuquote has over 1,600 policies in its database. But you need to fill out a lengthy form to get a quote. The site is an independent service

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The cheapest rates, known in the business as select or preferred, go to those who are in good health and who have a family history of good health.

If you take heart medication or are grossly overweight, you may pay 50 percent more than preferred rates.

If you smoke, have a risky occupation, or engage in risky sports like skydiving, you'll pay even more for life insurance.

If you fall into one of these more expensive categories, it pays to shop around. One company may charge much more than another, depending on how it estimates the risk of your condition (that's called underwriting). This is where a knowledgeable agent may come in very handy. Internet and phone quote services aren't set up to deal with nonstandard policies.

Why, some people might ask, should I tell the insurance company about negative information that will raise my rates? Well, even if you somehow get around the medical tests and other checks done before the policy is issued, it doesn't pay to try to fool the insurer.

Insurers may investigate suspicious claims. If the company finds out you've lied, the claim may be denied, or your heirs could be tied up in court for years.

So there's a good case to be made for getting a policy early in life while you are still in good health. However, it doesn't make much sense to buy one until you have dependents

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Agents like to talk about policies you can keep throughout your life. What they sometimes won't tell you is that you don't need life insurance coverage throughout your life.

The secret to buying a policy with the right term is figuring out how long you need to be insured. You start by estimating when your children will be out on their own and no longer in need of your financial support.

So if your children are 3 and 5 now, you'd probably want a policy that covers you at least until the youngest is 22, so that's about a 20-year term. But this depends somewhat on your age as well.

Say you also want to cover your spouse for your lost income until what would be your normal retirement age, 65, and you're only 35 now. Then you would want a 30-year policy.

Keep in mind that insurance gets very expensive as you leave your 50s. So you may pay more to cover yourself until 65, even if you lock in a level-premium 30-year policy when you are 35. Coverage past age 70 or so may be unattainable.

Life insurance is not a substitute for a retirement plan. You want to plan so that you'll have enough to live on when you retire, and you won't have to keep paying insurance premiums.

There are exceptions, however. People who start families late in life, or who have complex estate-planning issues, may well have a need for life insurance beyond the customary retirement age.

One more thing: Steer clear of so-called mortgage insurance policies, which pay off the balance on your mortgage if you die. The problem is that you are paying for a steadily declining amount of coverage, as you pay down your mortgage. It's best to include the mortgage payments in your calculations when determining how much coverage you need.

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If you're going to buy life insurance, make sure you've got enough.

There is no simple answer to how much coverage is enough.

Some financial planners say you need enough insurance to replace five to seven years of your salary. If you have young children or significant debt, you should bump up your coverage so you have enough to replace as much as 10 years of your salary, they say. That would mean a person making $50,000 a year should have anywhere from $250,000 to $500,000 worth of coverage or more.

Remember, the sole purpose of life insurance is to replace your income in case you die, so that your dependents can maintain their current lifestyle.

Factors to consider include whether the surviving partner will have childcare expenses if one partner is out of the picture. Do you have other assets on which to draw? Will your children be out of the nest soon? These, and many other factors, influence the decision on how much coverage you need.

Buying a whole-life policy doesn't necessarily mean you are fully insured. Because of the investment component of whole life, the policies are much more expensive than term. Don't simply buy less coverage, as it defeats the purpose of buying insurance in the first place: to cover dependents.

Next, you've got to figure out how long you need the policy.

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Life insurance is a highly competitive business, in which the salesforce depends almost entirely on commissions.

Insurance companies pay fat commissions to their agents for selling whole-life policies - perhaps 80 percent of your first year's premium goes to paying the agent's commission - and the premiums for these polices are often five times that of term. By contrast, the typical commission to the agent who sells a term policy is about 10 percent.

It's no wonder, then, that agents push whole-life policies as if their livelihoods depend on it, because, well, they do. If whole-life policies were beneficial to consumers, our story would end here. The fact is the vast majority of those who need insurance should buy term.

Today, the annual premium on a $500,000 term policy for a healthy, nonsmoking forty-year-old male might be about $500. The same policy for a healthy woman, aged 30, might cost about $260 annually.

Not long ago you couldn't buy term policies with level premiums for periods of more than 10 or 15 years. Today you can easily find 20- and 30-year term policies.

Agents will argue that whole-life policies are superior because you can keep them the rest of your life and build up cash in them tax-free, which can then be borrowed.

That's true enough, but they don't tell you about the high fees and commissions built into whole life as well as surrender charges (if you want to cancel the policy) that often leave you with little or no cash value five and even 10 or 15 years after you take out the policy.

The point of a tax-free buildup of cash just isn't that powerful anymore, given the proliferation of IRAs, 401(k)s, and other tax-advantaged savings vehicles that have tiny commissions, much higher yields and complete portability.

So stick with term, and do your investing elsewhere.

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There are two basic kinds of life insurance policies: whole life and term insurance.

Whole-life policies, a type of permanent insurance, combine life coverage with an investment fund. Here, you're buying a policy that pays a stated, fixed amount on your death, and part of your premium goes toward building cash value from investments made by the insurance company.

Cash value builds tax-deferred each year that you keep the policy, and you can borrow against the cash accumulation fund without being taxed. The amount you pay usually doesn't change throughout the life of the policy.

Universal life is a type of permanent insurance policy that combines term insurance with a money market-type investment that pays a market rate of return. To get a higher return, these policies generally don't guarantee a certain rate.

Variable life and variable universal life are permanent policies with an investment fund tied to a stock or bond mutual-fund investment. Returns are not guaranteed.

The other type of coverage is term insurance, which has no investment component. You're buying life coverage that lasts for a set period of time provided you pay the monthly premium. Annual-renewable term is purchased year-by-year, although you don't have to requalify by showing evidence of good health each year.

When you're young, premiums for annual-renewable term insurance are dirt cheap - as low as a few hundred dollars per year for $250,000 worth of coverage.

As you get older, premiums steadily increase. Level-premium term has somewhat higher - but fixed - premiums for longer periods, anywhere from five to 30 years.

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1. All policies fall into one of two camps.

There are term policies, or pure insurance coverage. And there are the many variants of whole life, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

3. Whole life is expensive.

Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can't afford an adequate face value, leaving themselves underinsured.

4. Whole-life policies are built on assumptions.

The returns quoted by the agent are simply guesses - not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.

5. Keep your investing and insurance strictly separate.

There are better places to invest - and without the high commissions of whole-life policies.

6. Buy enough term coverage to fill your needs.

Life insurance is no place to skimp, especially with rates at historic lows.

7. Match the term of the policy to your needs.

You want the policy to last as long as it takes for your dependents to leave the nest - or for your retirement income to kick in.

8. Buy when you're healthy.

Older people and those not in the best of health pay steeply higher rates for life insurance - so buy as early as you can, but don't buy until you have dependents.

9. Tell the truth.

There's no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.

10. Use the Web to shop.

Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes - and avoid the pushy salespeople.

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LIFE INSURANCE COMES IN three flavors. Term insurance offers plain-vanilla protection at a low cost. Then there's whole life, which has a savings component. A third type, the return of premium, is essentially a hybrid of the first two.

Term life is generally recommended, as its low premiums allow consumers to get maximum coverage at little cost. (They can then invest on their own the savings they'll reap by forgoing pricier options.)

But don't just take our word for it. Before you head to an insurance broker's office, you should be familiar with the pros and cons of each policy type. Insurance agents are notorious for their heavy-handed sales tactics. Arming yourself with some knowledge ahead of time is the best way to make sure you wind up with the policy that's right for you.

It's easy to buy. All you need to do is figure out how much you need — and how long you'll need it — and then shop around a bit to find a competitive rate. A broker could help you out, of course, but you also can do quick searches on the Web at sites like TermAssistant.com, AccuQuote or Insure.com. Just make sure the company you ultimately select is financially stable by checking out its rating with a service like Standard & Poor's or AM Best. Go with an insurer that's rated A or better.

It covers a temporary need. Remember, life insurance is meant to provide for your dependents. Later in life — after the kids are in college and you and your spouse have socked away a generous retirement stash — you might not have any dependents. So while you might buy a policy when your first child is born (and you might increase it as you have more children), you may only need life insurance for, say, 30 years.

The Cons:

It expires. There's a dark side to the expiration date of term insurance. If you find that at the end of that term you still need life insurance — maybe your company's pension plan just imploded, leaving your spouse potentially ill-equipped for life without you — you're starting from scratch. The older you are, the tougher the term market is going to be to you: If you're not in good health, you might not be eligible for coverage at all.

If you outlive your policy — or cancel it at any time — you get nothing back. Assuming things go the way you — and the insurance company — plan, you'll still be alive and well when your term insurance policy comes to an end. That means you will have paid thousands of dollars (most likely tens of thousands) for a policy you didn't use. You won't get any refunds for your accomplishment, which makes some folks feel like they've wasted their money.

But think of it this way: If you invested on your own the savings you enjoyed over the years by going with cheaper term insurance rather than whole life, you almost surely came out significantly ahead.

Whole Life Insurance

The Pros:

It's permanent. Provided you pay your premiums, year in and year out, whole life policies never expire. Since death is one of the inevitabilities of life, with a whole life policy, you know you'll have something to leave behind for your heirs.

It's forced savings. Whole life policies don't come cheap, but that's because whole life policies build up a savings account (called a "cash value") that grows tax-deferred, and which can be tapped in retirement. For folks with little or no savings discipline, this can be a lifesaver. (Just keep in mind that your death benefit is reduced by the amount you withdraw.)

It's a great estate-planning tool. For those who fear their estate will bear a hefty tax burden, financial planners often recommend purchasing a whole life policy. The death benefit is tax free, and if other aspects of your estate will be subject to estate tax (which in 2005 applies to estates worth more than $1.5 million), the payout can be used to cover that bill.

The Cons:

It's expensive. Not everyone will be able to afford the premiums required to obtain the amount of coverage they need. If paying the premiums would be a stretch, better to pick up a term policy for the right face value, says TermAssistant.com's Place. Another problem: People scrape together their pennies for the first couple of years of a whole life policy only to ultimately find they can no longer afford the bill. If this happens in the early years, they won't even break even in terms of what they receive as a return of premium. Surrender values (also known as the cash value of your policy) won't equal the premiums until the policy is anywhere from 12 to 15 years old.

Shopping around for the right policy will make your head spin. Whole life policies are very confusing and often sold based on rosy illustrations for how much the company intends to pay in dividends over the lifetime of the policy. These illustrations are only estimates and some companies are going to be more aggressive than others. A good agent can help you analyze the internal rate of return (i.e., the yield on the policy after all the fees and charges are subtracted).

You can most likely do better saving for retirement on your own. Whole life policies are notorious for having higher fees and administrative costs than other investment vehicles. While returns will vary, don't count on doing better than 4% to 5%, says AccuQuote's chief executive Byron Udell. Resist pitches from brokers who might tell you that a whole life policy can substitute for a 401(k) or IRA. It won't.

Return of Premium

The Pros:

It's a compromise. As with all insurance plans, with a return-of-premium policy, a death benefit is paid out should you pass away. But if you live past, say, the 30-year term, you get all of your money back dollar for dollar. So no matter what happens to you — whether you die while covered or outlive the policy — money is distributed.

It's pretty affordable. While a return-of-premium policy isn't as cheap as term life, it's significantly more affordable than whole life. A return-of-premium policy will cost approximately 50% more than a comparable term life plan.

No confusion here. Like term life, return-of-premium policies are easy to shop for. As long as you go with a good company, you can make your selection on price.

The Cons:

Don't expect a return on your investment. If you outlive the initial term, you only get back what you paid in. The insurer keeps whatever interest or investment returns your money made over the, say, 30 years you lent it. So you gave the insurer a free loan.

You most likely could do better on your own. A 0% return on your investment is no great shakes. So you need to think about alternatives, such as buying term life insurance and investing the money saved on premiums. The return on this strategy will depend on market performance as well as your personal investing choices. But it's safe to say that you don't need to be Warren Buffett to come out ahead with a term policy.

If you cancel this policy you get next to nothing in return. On a 30-year policy, if you walk away from your return of premium policy after, say, 10 years, you only get back 9% of the cumulative premiums you paid in, according to AccuQuote's Udell. After 20 years, you'll receive 35% and not until you hit 30 years will you get your full investment. "If you get out early, you get creamed," Udell says.

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The US market-based health care system relies heavily on private and not-for-profit health insurance, which is the primary source of coverage for most Americans. According to the United States Census Bureau, approximately 84% of Americans have health insurance; some 60% obtain it through an employer, while about 9% purchase it directly. Various government agencies provide coverage to about 27% of Americans (there is some overlap in these figures).

Public programs provide the primary source of coverage for most seniors and for low-income children and families who meet certain eligibility requirements. The primary public programs are Medicare, a federal social insurance program for seniors and certain disabled individuals, Medicaid, funded jointly by the federal government and states but administered at the state level, which covers certain very low income children and their families, and SCHIP, also a federal-state partnership that serves certain children and families who do not qualify for Medicaid but who cannot afford private coverage. Other public programs include military health benefits provided through TRICARE and the Veterans Health administration and benefits provided through the Indian Health Service. Some states have additional programs for low-income individuals.

In 2006, there were 47 million people in the United States (16% of the population) who were without health insurance for at least part of that year.About 37% of the uninsured live in households with an income over $50,000.

In 2004, US health insurers directly employed almost 470,000 people at an average salary of $61,409. (As of the fourth quarter of 2007, the total US labor force stood at 153.6 million, of whom 146.3 million were employed. Employment related to all forms of insurance totaled 2.3 million. Mean annual earnings for full-time civilian workers as of June 2006 were $41,231; median earnings were $33,634.)The insurance industry also represents a significant lobbying group in the US. For the 2007-2008 election cycle insurance was the 8th among industries in political contributions to members of Congress, giving $13,411,561, of which 56% was given to Democrats (lawyers and law firms were number 1, giving $59,205,616, of which 80% went to Democrats). The top recipient of insurance industry contributions was Senator Christopher Dodd (D-CT). The leading contributor from the insurance industry — as measured by total political contributions — was AFLAC, Inc., which contributed $907,150 in 2007

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The Uk's National Health Service (NHS) is a publicly funded healthcare system that provides coverage to everyone normally resident in the UK. It is not strictly insurance system because (a) there are no premiums collected, (b) costs are not charged at the patient level and (c) costs are not pre-paid from a pool. However, it does achieve the main aim of insurance which is to spread financial risk arising from ill-health. The costs of running the NHS (est. £104 billion in 2007-8) are met directly from general taxation.

Private health care has continued parallel to the NHS, paid for largely by private insurance, but it is used by less than 8% of the population, and generally as a top-up to NHS services.

The NHS provides the majority of health care in the UK, including primary care, in-aptient care, long-term health care, ophthalmology and dentistry. Recently the private sector has been increasingly used to increase NHS capacity despite a large proportion of the British public opposing such involvement. According to the WHO, government funding covered 86% of overall health care expenditures in the UK as of 2004, with private expenditures covering the remaining 14%.

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In 2006, a new system of health insurance came into force in the Netherlands. This new system avoids the two pitfalls of adverse selection and moral hazard associated with traditional forms of health insurance by using a combination of regulation and an insurance equalisation pool. Moral hazard is avoided by mandating that insurance companies provide at least one policy which meets a government set minimum standard level of coverage, and all adult residents are obliged by law to purchase this coverage from an insurance company of their choice. All insurance companies receive funds from the equalization pool to help cover the cost of this government-mandated coverage. This pool is run by a regulator which collects salary-based contributions from employers, which make up about 50% of all health care funding, and funding from the government to cover people who cannot afford health care, which makes up an additional 5%.

The remaining 45% of health care funding comes from insurance premiums paid by the public, for which companies compete on price, though the variation between the various competing insurers is only about 5%. However, insurance companies are free to sell additional policies to provide coverage beyond the national minimum. These policies do not receive funding from the equalization pool, but cover additional treatments, such as dental procedures and physiotherapy, which are not paid for by the mandatory policy.

Funding from the equalization pool is distributed to insurance companies for each person they insure under the required policy. However, high-risk individuals get more from the pool, and low-income persons and children under 18 have their insurance paid for entirely. Because of this, insurance companies no longer find insuring high risk individuals an unappealing proposition, avoiding the potential problem of adverse selection.

Insurance companies are not allowed to have co-payments, caps, or deductibles, or to deny coverage to any person applying for a policy, or to charge anything other than their nationally set and published standard premiums. Therefore, every person buying insurance will pay the same price as everyone else buying the same policy, and every person will get at least the minimum level of coverage.

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Most health insurance in Canada is administered by each province, under the Canada Health Act , which requires all people to have free access to basic health services. Collectively, the public provincial health insurance systems in Canada are frequently referred to as Medicare. Private health insurance is allowed, but the provincial governments allow it only for services that the public health plans do not cover; for example, semi-private or private rooms in hospitals and prescription drug plans. Canadians are free to use private insurance for elective medical services such as laser vision correction surgery, cosmetic surgery, and other non-basic medical procedures. Some 65% of Canadians have some form of supplementary private health insurance; many of them receive it through their employers.Private-sector services not paid for by the government account for nearly 30 percent of total health care spending.

In 2005, the Supreme Court of Quebec ruled, in Chaoulli v. Quebec, that the province's prohibition on private insurance for health care already insured by the provincial plan could constitute an infringement of the right to life and security if there were long wait times for treatment as happened in this case. Certain other provinces have legislation which financially discourages but does not forbid private health insurance in areas covered by the public plans. The ruling has not changed the overall pattern of health insurance across Canada but has spurred on attempts to tackle the core issues of supply and demand and the impact of wait times.

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The public health system is called Medicare . It ensures free universal access to hospital treatment and subsidised out-of-hospital medical treatment. It is funded by a 1.5% tax levy.

The private health system is funded by a number of private health insurance organisations. The largest of these is Medibank private, which is government-owned, but operates as a governement busineess enterprise under the same regulatory regime as all other registered private health funds.

Some private health insurers are 'for profit' enterprises, and some are non-profit organisations such as HCF Hleaht insurance. Some have membership restricted to particular groups, but the majority have open membership.

Most aspects of private health insurance in Australia are regulated by the Private Health Insurance Act 2007.

The private health system in Australia operates on a "community rating" basis, whereby premiums do not vary solely because of a person's previous medical history, current state of health, or (generally speaking) their age (but see Lifetime Health Cover below). Balancing this are waiting periods, in particular for pre-existing conditions (usually referred to within the industry as PEA, which stands for "pre-existing ailment"). Funds are entitled to impose a waiting period of up to 12 months on benefits for any medical condition the signs and symptoms of which existed during the six months ending on the day the person first took out insurance. They are also entitled to impose a 12-month waiting period for benefits for treatment relating to an obstetric condition, and a 2-month waiting period for all other benefits when a person first takes out private insurance. Funds have the discretion to reduce or remove such waiting periods in individual cases. They are also free not to impose them to begin with, but this would place such a fund at risk of "adverse selection", attracting a disproportionate number of members from other funds, or from the pool of intending members who might otherwise have joined other funds. It would also attract people with existing medical conditions, who might not otherwise have taken out insurance at all because of the denial of benefits for 12 months due to the PEA Rule. The benefits paid out for these conditions would create pressure on premiums for all the fund's members, causing some to drop their membership, which would lead to further rises, and a vicious cycle would ensue.

There are a number of other matters about which funds are not permitted to discriminate between members in terms of premiums, benefits or membership - these include racial origin, religion, sex, sexual orientation, nature of employment, and leisure activities. Premiums for a fund's product that is sold in more than one state can vary from state to state, but not within the same state.

The Australian government has introduced a number of incentives to encourage adults to take out private hospital insurance. These include:

• Lifetime Health Cover: If a person has not taken out private hospital cover by the 1st July after their 30th birthday, then when (and if) they do so after this time, their premiums must include a loading of 2% per annum. Thus, a person taking out private cover for the first time at age 40 will pay a 20 per cent loading. The loading continues for 10 years. The loading applies only to premiums for hospital cover, not to ancillary (extras) cover.

• Medicare Levy Surcharge: People whose taxable income is greater than a specified amount (currently $50,000 for singles and $100,000 for families) and who do not have an adequate level of private hospital cover must pay a 1% surcharge on top of the standard 1.5% Medicare Levy. The rationale is that if the people in this income group are forced to pay more money one way or another, most would choose to purchase hospital insurance with it, with the possibility of a benefit in the event that they need private hospital treatment - rather than pay it in the form of extra tax as well as having to meet their own private hospital costs.
  • The Australian government announced in May 2008 that it proposes to increase the thresholds, to $100,000 for singles and $150,000 for families. These changes require legislative approval. A bill to change the law has been introduced but has not yet been passed. There have been criticisms that this proposed change will cause many people to drop their private health insurance, causing a further burden on the public hospital system, and a rise in premiums for those who stay with the private system. Other commentators believe the effect will be minimal.

• Private Health Insurance Rebate: The government subsidises the premiums for all private health insurance cover, including hospital and ancillary (extras), by 30%, 35% or 40%.

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A health insurance policy is a contract between an insurance company and an individual. The contract can be renewable annually or monthly. The type and amount of health care costs that will be covered by the health plan are specified in advance, in the member contract or Evidence of Coverage booklet. The individual policy-holder's payment obligations may take several forms

• Premium: The amount the policy-holder pays to the health plan each month to purchase health coverage.
• Deductible: The amount that the policy-holder must pay out-of-pocket before the health plan pays its share. For example, a policy-holder might have to pay a $500 deductible per year, before any of their health care is covered by the health plan. It may take several doctor's visits or prescription refills before the policy-holder reaches the deductible and the health plan starts to pay for care.
• Copayment: The amount that the policy-holder must pay out of pocket before the health plan pays for a particular visit or service. For example, a policy-holder might pay a $45 copayment for a doctor's visit, or to obtain a prescription. A copayment must be paid each time a particular service is obtained.
• Coinsurance: Instead of paying a fixed amount up front (a copayment), the policy-holder must pay a percentage of the total cost. For example, the member might have to pay 20% of the cost of a surgery, while the health plan pays the other 80%. Because there is no upper limit on coinsurance, the policy-holder can end up owing very little, or a significant amount, depending on the actual costs of the services they obtain.
• Exclusions: Not all services are covered. The policy-holder is generally expected to pay the full cost of non-covered services out of their own pocket.
• Coverage limits: Some health plans only pay for health care up to a certain dollar amount. The policy-holder may be expected to pay any charges in excess of the health plan's maximum payment for a specific service. In addition, some plans have annual or lifetime coverage maximums. In these cases, the health plan will stop payment when they reach the benefit maximum, and the policy-holder must pay all remaining costs.
• Out-of-pocket maximums: Similar to coverage limits, except that in this case, the member's payment obligation ends when they reach the out-of-pocket maximum, and the health plan pays all further covered costs. Out-of-pocket maximums can be limited to a specific benefit category (such as prescription drugs) or can apply to all coverage provided during a specific benefit year.
• Capitation: An amount paid by an insurer to a health care provider, for which the provider agrees to treat all members of the insurer.
• In-Network Provider: A health care provider on a list of providers preselected by the insurer. The insurer will offer discounted coinsurance or copayments, or additional benefits, to a plan member to see an in-network provider. Generally, providers in network are providers who have a contract with the insurer to accept rates further discounted from the "usual and customary" charges the insurer pays to out-of-network providers.

Prescription drug plans are a form of insurance offered through some employer benefit plans in the US, where the patient pays a copayment and the prescription drug insurance part or all of the balance for drugs covered in the formulary of the plan.

Some, if not most, health care providers in the United States will agree to bill the insurance company if patients are willing to sign an agreement that they will be responsible for the amount that the insurance company doesn't pay. The insurance company pays out of network providers according to "reasonable and customary" charges, which may be less than the provider's usual fee. The provider may also have a separate contract with the insurer to accept what amounts to a discounted rate or capitation to the provider's standard charges. It generally costs the patient less to use an in-network provider.

Health plan vs. health insurance

Historically, HMOs tended to use the term "health plan", while commercial insurance companies used the term "health insurance". A health plan can also refer to a subscription-based medical care arrangement offered through health maintenance organization, HMO, PPO or POS plan. These plans are similar to pre-paid dental, pre-paid legal, and pre-paid vision plans. Pre-paid health plans typically pay for a fixed number of services (for instance, $300 in preventive care, a certain number of days of hospice care or care in a skilled nursing facility, a fixed number of home health visits, a fixed number of spinal manipulation charges, etc.) The services offered are usually at the discretion of a utilisation review nurse who is often contracted through the managed care entity providing the subscription health plan. This determination may be made either prior to or after hospital admission (concurrent utilization review).

Comprehensive vs. scheduled

Comprehensive health insurance pays a percentage (may be 100, 90, 80, 70, 60, 50, percent) of the cost of hospital and physician charges after a deductible (usually applies to hospital charges) or a co-pay (usually applies to physician charges, but may apply to some hospital services) is met by the insured. These plans are generally expensive because of the high potential benefit payout — $1,000,000 to 5,000,000 is common — and because of the vast array of covered benefits.

Scheduled health insurance plans are not meant to replace a traditional comprehensive health insurance plans and are more of a basic policy providing access to day-to-day health care such as going to the doctor or getting a prescription drug. In recent years, these plans have taken the name mini-med plans or association plans. These plans may provide benefits for hospitalization and surgical, but these benefits will be limited. Scheduled plans are not meant to be effective for catastrophic events. These plans cost much less then comprehensive health insurance. They generally pay limited benefits amounts directly to the service provider, and payments are based upon the plan's "schedule of benefits". Annual benefits maximums for a typical scheduled health insurance plan may range from $1,000 to $25,000.

Inherent problems with insurance

Insurance systems must typically deal with two inherent challenges: adverse selection, which affects any voluntary system, and ex-post moral hazard, which affects any insurance system in which a third party bears major responsibility for payment, whether that is an employer or the government. Some national systems with compulsory insurance utilize systems such as risk equalisation and communitu rating to overcome these inherent problems.

Adverse selection

Insurance companies use the term "adverse selection" to describe the tendency for only those who will benefit from insurance to buy it. Specifically when talking about health insurance, unhealthy people are more likely to purchase health insurance because they anticipate large medical bills. On the other side, people who consider themselves to be reasonably healthy may decide that medical insurance is an unnecessary expense; if they see the doctor once a year and it costs $250, that's much better than making monthly insurance payments of $40. (example figures).

The fundamental concept of insurance is that it balances costs across a large, random sample of individuals. For instance, an insurance company has a pool of 1000 randomly selected subscribers, each paying $100 per month. One person becomes very ill while the others stay healthy, allowing the insurance company to use the money paid by the healthy people to pay for the treatment costs of the sick person. However, when the pool is self-selecting rather than random, as is the case with individuals seeking to purchase health insurance directly, adverse selection is a greater concern. A disproportionate share of health care spending is attributable to individuals with high health care costs. In the US the 1% of the population with the highest spending accounted for 27% of aggregate health care spending in 1996. The highest-spending 5% of the population accounted for more than half of all spending. These patterns were stable through the 1970s and 1980s, and some data suggest that they may have been typical of the mid-to-early 20th century as well. A few individuals have extremely high medical expenses, in extreme cases totaling a half million dollars or more. Adverse selection could leave an insurance company with primarily sick subscribers and no way to balance out the cost of their medical expenses with a large number of healthy subscribers.

Because of adverse selection, insurance companies employ medical underwriting , using a patient's medical history to screen out those whose pre-existing medical conditions pose too great a risk for the risk pool. Before buying health insurance, a person typically fills out a comprehensive medical history form that asks whether the person smokes, how much the person weighs, whether the person has been treated for any of a long list of diseases and so on. In general, those who present large financial burdens are denied coverage or charged high premiums to compensate. One large US industry survey found that roughly 13 percent of applicants for comprehensive, individually purchased health insurance who went through the medical underwriting in 2004 were denied coverage. Declination rates increased significantly with age, rising from 5 percent for individuals 18 and under to just under a third for individuals aged 60 to 64. Among those who were offered coverage, the study found that 76% received offers at standard premium rates, and 22% were offered higher rates. On the other side, applicants can get discounts if they do not smoke and are healthy.

Moral hazard

Moral hazard occurs when an insurer and a consumer enter into a contract under symmetric information, but one party takes action, not taken into account in the contract, which changes the value of the insurance. A common example of moral hazard is third-party payment—when the parties involved in making a decision are not responsible for bearing costs arising from the decision. An example is where doctors and insured patients agree to extra tests which may or may not be necessary. Doctors benefit by avoiding possible malpractice suits, and patients benefit by gaining increased certainty of their medical condition. The cost of these extra tests is borne by the insurance company, which may have had little say in the decision. Co-payments, deductibles, and less generous insurance for services with more elastic demand attempt to combat moral hazard, as they hold the consumer responsible.

Other factors affecting insurance prices

A recent study by PriceWaterhouseCoopers examining the drivers of rising health care costs in the US pointed to increased utilization created by increased consumer demand, new treatments, and more intensive diagnostic testing, as the most significant driver. People in developed countries are living longer. The population of those countries is aging, and a larger group of senior citizens requires more intensive medical care than a young healthier population. Advances in medicine and medical technology can also increase the cost of medical treatment. Lifestyle-related factors can increase utilization and therefore insurance prices, such as: increases in obesity caused by insufficient exercise and unhealthy food choices; excessive alcohol use, smoking, and use of street drugs. Other factors noted by the PWC study included the movement to broader-access plans, higher-priced technologies, and cost-shifting from Medicaid and the uninsured to private payers

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CPS Health Insurance Definitions

The Census Bureau broadly classifies health insurance coverage as either Private (non-government) coverage or Government-sponsored coverage.

Private Health Insurance

Private health insurance is coverage by a health plan provided through an employer or union or purchased by an individual from a private health insurance company.

Employment-based plans
Employment-based health insurance is coverage offered through one’s own employment or a relative’s. It may be offered by an employer or by a union.

Own Employment-based plans
Own employment-based health insurance is coverage offered through one’s own employment and only the policyholder is covered by the plan.

Direct-purchase plans
Direct-purchase health insurance is coverage though a plan purchased by an individual from a private company.

Government Health Insurance

Government health insurance includes plans funded by governments as the federal, state, or local level. The major categories of government health insurance are medicare, medicaid, the State Children’s Health Insurance Program (SCHIP), military health care, state plans, and the Indian Health Service.

Medicare
Medicare is the Federal program which helps pay health care costs for people 65 and older and for certain people under 65 with long-term disabilities.

Medicaid
Medicaid is a program administered at the state level, which provides medical assistance to the needy. Families with dependent children, the aged, blind, and disabled who are in financial need are eligible for Medicaid. It may be known by different names in different states.

SCHIP
SCHIP, the State Children’s Health Insurance Program, is a program administered at the state level, providing health care to low-income children whose parents do not qualify for Medicaid. SCHIP may be known by different names in different states.

Military health care
Military health care includes TRICARE/CHAMPUS (Civilian Health and Medical Program of the Uniformed Services) and CHAMPVA (Civilian Health and Medical Program of the Department of Veterans Affairs), as well as care provided by the Department of Veterans Affairs (VA).

TRICARE/CHAMPUS
TRICARE or CHAMPUS is a military health care program for active duty and retired members of the uniformed services, their families, and survivors.

CHAMPVA
CHAMPVA is a medical program through which the Department of Veterans Affairs helps pay the cost of medical services for eligible veterans, veteran's dependents, and survivors of veterans.

VA
The Department of Veterans Affairs provides medical assistance to eligible veterans of the Armed Forces.

State-specific plan
Some states have their own health insurance programs for low-income uninsured individuals. These health plans may be known by different names in different states.

Indian Health Service*
Indian Health Service (IHS) is a health care program through which the Department of Health and Human Services provides medical assistance to eligible American Indians at IHS facilities. In addition, the IHS helps pay the cost of selected health care services provided at non-IHS facilities.

*After consulting with health insurance experts, the Census Bureau modified the definition of the population without health insurance in the Supplement to the March 1998 Current Population Survey, which collected data about coverage in 1997. Previously, people with no coverage other than access to the Indian Health Service were counted as part of the insured population. Subsequently, the Census Bureau has counted these people as uninsured. The effect of this change on the overall estimates of health insurance coverage was negligible.

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Holidays can be dangerous occasions - especially abroad. If someone falls ill it is much more difficult than it would be at home to cope with the situation, so make sure you're covered.

Holiday insurance or travel insurance as it might be known can be bought as a complete package or selectively. Package policies usually include

Cancellation

Protects against the loss of deposits, advance payments, and other charges if a holiday has to be cancelled. The cancellation may be due to death, injury or illness of the traveller or a close relative, business associate, or other member of the party. It may be because of jury service or witness summons. Cancellation cover does not, however, extend to previously existing medical conditions or pregnancy. Some policies also pay compensation if departure is delayed by industrial action or if the holiday has to be curtailed.

Medical Expenses

Even in the EU, where there are special arrangements for British people to have free or cheap medical treatment, it is sensible to take out separate insurance. This not only covers the cost of treatment but also extra travel, accommodation costs, and air ambulances home if necessary. Cover is often for £1 million or more.

Personal Accident

Pays compensation if the policyholder is accidentally injured.

Personal Liability

Pays for any damages the policyholder may incur to another person.

Baggage and Money

Pays for up to £1,000 or more of baggage, with 250 pounds or so for lost money.

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Most people know something about motor insurance. This is because any vehicle driven on public roads must have a certain level of insurance.

This article covers auto insurance or car insurance as it might be known.

The Road Traffic Act ensures that drivers must meet liabilities they incur should they injure other people or cause damage in an accident.

The person who is injured is known as the third party. The first and second parties are the car driver and their insurance company respectively. The third party may be a pedestrian, a passenger in the car driven by the insured person, or the driver or passenger in another vehicle.

The injured third party can claim compensation from the driver of the offending car. The driver then relies on his or her insurers to pay the other person's claim.

Different Types of Motor Policy

The law says that drivers must have insurance against third party injury or damage claims and that the insurer must give to the insured a certificate of motor insurance. However, most motor insurance policies provide far more extensive cover than this. There are four basic types of cover available in Britain:

• Act only - This brings only the minimum required by law - third party liability risks incurred on public roads. Policies of this type are very rarely issued. Few motorists would be content to rely on them unless, because of a poor driving record, they could not obtain any other cover.
• Third party - As well as covering the insured when driving on public roads, this type of policy applies on private property. It covers third party claims and provides protection against other legal liabilities. For example passenger indemnity, covering the possibility that a passenger in the car may cause an accident perhaps by carelessly opening the door and knocking a cyclist over. It also provides cover against certain legal costs.
• Third party fire and theft - In addition to the protection given by third party insurance, this type of policy covers loss or damage to the insurer's own car as a result of fire, theft, or attempted theft.
• Comprehensive - The widest form of cover available, although it cannot protect against every conceivable risk. In addition to the covers described in 1, 2 and 3, comprehensive cover protects in other valuable ways. The most important of these is accidental damage cover -policyholders can have their own damaged vehicle repaired or replaced. Comprehensive policies also include personal accident insurance, providing payments for death and specified serious injuries such as the loss of a limb or sight. Such payments are usually restricted to the policyholder and his or her wife or husband. Other cover with a comprehensive policy can include small amounts of medical expenses cover for anyone in the insured car, who is injured in an accident, and for loss or damage to personal effects in the car.

Different Types of Vehicles

Insurers draw on their statistics and on their experience to issue special policies for various types of vehicle on the roads. There are, for example, private cars, and motorcycles including motor scooters and mopeds. Commercial vehicle insurance covers all vehicles used for transporting goods and passengers for commercial purposes, including hire cars and taxis. The insurance of agricultural and forestry vehicles and special types of vehicle covers a whole range of machines. Then there are vehicles constructed for specific purposes such as mobile cranes, earthmoving equipment and ambulances.

Motor Traders

Motor traders pose a different type of risk and therefore need specialised insurance policies. There are three basic types of motor trader policy.

"Road risks" covers the trader for any vehicles which they own or which are in their custody or control while they are away from the premises of the insured business. "Internal risks" covers them only for liabilities incurred on their own premises. "Combined road and garage" includes both these as well as other risks.

Insurers will only issue motor-trader policies to traders with their own premises. Traders working from home will have difficulty getting cover.

Calculation of Premiums

The cost of claims varies widely, depending on the risk involved. From their claims statistics motor insurers can relate premiums to the degree of risk. This gives fair treatment to all policyholders.

There are four main factors in calculating private car insurance premiums. These are:

• the type of car
• the drivers
• use to which the car will be put
• district in which it is kept

Type of Car

Cars are divided by insurers into 20 groups. The higher the group number, the higher the premium. The groups take account of factors such as the cost of body parts, the ease with which the car can be repaired, its value when new, its top speed, Its acceleration, and the degree to which h resist theft. Sports and high performance cars are more expensive to insure because statistics show that they are involved in more accidents and also that repairs are more costly than with other types of cars. They are therefore given a higher group rating than, for example, a small low-powered saloon.

Drivers

Information about drivers affects the premium significantly. Important factors include drivers' ages and their driving experience. Young drivers - particularly those under 25 - pay a higher premium because statistics show that they are far more often involved in accidents. Young men have more insurance claims than young women. This means that some insurers will charge young women lower premiums than men of the same age.

The premium may also be affected by drivers' occupations. Other factors include the accident record and history of convictions - drivers convicted of drunk-driving will, when they come back to driving, have to pay a very high premium for a policy providing only limited cover

Use

The use to which a car is put also affects the risk. Most insurers recognise three common classes;

• use for social domestic and pleasure purposes and use by the policy holder in person in connection with his business or that of his employer or partner
• use for social, domestic and pleasure purposes and for the business of the policyholder or that of his employer or partner
• all this cover, plus commercial travelling.

All of these types of cover exclude the use of the car for racing, competitions, and rallies or for carrying passengers for hire or reward. However, taking money from passengers in return for a lift (known as "car sharing") is allowed, as long as the lift is not part of a business arrangement.

District

The risk is also influenced by the district in which the car is kept. Areas with a high density of traffic are more risky than a remote country area. Also, some areas have a significantly higher-than-average record of car theft or vandalism. Insurers therefore divide the country up into a number of categories of area according to their experience of the risks involved. Sometimes, theft is not covered where a car is left overnight in the open.

No Claim Discount

Motorists who go for a year or more without making an insurance claim qualify for a no claim discount off the basic premium. Most insurers offer a reduction of around 25% after one claim-free year. This discount rises, year by year, to 60% or 65% after four or five years. If the motorist has to claim off his own policy he may lose some or all of his discount. The discount is allowed for not making a claim and the question of blame for any accident is not relevant. Therefore if motorists make a claim they will lose part of their discount (even if they are not to blame) unless their insurers can recover their claim payment from another motorist who is at fault.

Many insurers issue special policies which allow, say, two claims in three years without the no claim discount being affected. These "protected discount" policies of course cost more to buy.

The Excess

The excess is an arrangement whereby motorists meet the first part of a claim for accidental damage to the car or its theft. The amount of the excess is set out in the policy.

Excesses may be agreed by motorists on a voluntary basis to reduce the level of the premium or they may be imposed by the insurer. Compulsory excesses are often imposed, for example, on learner drivers or those who are young or inexperienced. A motorist with a poor claims record may also have to face a compulsory excess.

These excesses cut down the cost to insurers of small claims and therefore benefit all policyholders.

Motoring Abroad

All private motor policies issued in the UK extend automatically for use in all EU countries, and certain other European countries. The cover, however, is limited to third party liability.

To enjoy the full level of UK cover, such as fire, theft and accidental damage, motorists should tell their insurance company before departure. The company will then arrange to extend cover during the period of the visit.

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There are two basic types of household insurance; contents insurance and building insurance...

Contents insurance covers the contents of a home such as furniture, carpets, clothes, television, refrigerators, jewellery and so on. In other words, what you would take with you if you moved. Buildings insurance protects against damage to the actual structure of the home and to its fixtures and fittings. Contents and buildings policies can be bought separately or together in one package.

Contents Insurance

Everyone needs contents insurance, even if living in rented accommodation or sharing with friends. Tenants are responsible for their own property and they should make sure they have insurance against the risk of damage by fire, storm, or flood. There are of course other dangers which affect rented as well as owner-occupied homes, think of burglary for example. Unfortunately many people, particularly those living in rented property, ignore these dangers. About one in four households in Britain has no contents insurance at all.

Policies vary between insures. They give cover to the contents while they are inside the home and, in some cases, while they are outside in the immediate surroundings of the home. Most policies extend to give limited cover for contents which are temporarily away from the home. For example in the UK they may be at your place of work or at a holiday hotel.

Contents insurance covers damage from a very wide range of risks. These include fire; theft; escape of water from tanks or pipes; oil leaking from fixed heating systems; storm; flood; riot or malicious damage; explosion; lightning may impact by aircraft, vehicles or animals; falling trees; subsidence and earthquake. A contents policy also covers the loss of rent or the additional cost of alternative accommodation if the home is made uninhabitable. Contents cover includes accidental breakage of mirrors and glass in furniture and there is some cover for damage to rented property where the tenant is liable for this.

An important extension of contents insurance covers the legal liability of the occupier. Liability could arise if other people are injured or their property damaged as a result of the occupier's negligence. This is a little known but very important fringe benefit of household insurance. If, for example, a householder carelessly let a dog run free and caused a serious road accident, then the householder ... and not the car drivers ... could be legally liable and face an expensive bill for damages and legal fees. Many household policies also offer cover for any legal expenses to sue someone or if you are sued.

Buildings Insurance

Buildings insurance covers the structure of the house including fixtures and fittings, together with garages and outbuildings. There is limited cover for boundary walls, gates, paths, drives and swimming pools. In general, anything that would be left behind if the occupier moved is included in buildings insurance. If you're renting, buildings insurance is paid by the landlord, not you.

The policy should cover damage caused by fire, explosion, lightning, earthquake, the impact of aircraft vehicles or animals, theft or attempted theft, the breakage of aerials, and oil leaking from a central heating system. It also covers damage caused by riot and malicious persons, storm, flood, the escape of water from tanks or pipes, subsidence, landslip or heave, and falling trees. The cover for subsidence involves an excess and many policies have an excess on other sections such as theft or flood.

Buildings insurance can't cover everything. Exclusions often include storm or flood damage to gates and fences, and frost damage. If the home is left empty or unoccupied for over 30 days malicious damage, water leakage and theft won't be covered. Other exclusions are damage caused by war, rebellion and revolution and damage caused by sonic booms and contamination from radioactive fuel or waste. Householders can be compensated for damage from this last cause through special arrangements with the Government.

The Sum Insured

• When householders buy contents or buildings insurance they must decide the right value to put on the items covered. This amount is known as the "sum insured". The premium to be paid depends upon this amount. Premium rates may be higher for certain special risks - for example for a home in an area where burglary happens frequently or for a thatched cottage.
• The sum insured must be sufficient to cover the total value of the goods and buildings concerned. Many people unfortunately underestimate the cost of replacing or repairing their homes and their contents. If the sum insured is set too low then, when damage occurs, the householder will find that the insurance could cover only a part of the cost.
• For buildings, insurance must cover the full cost of rebuilding the property including architect and surveyors fees and the cost of clearing away the debris and meeting any new building regulations or by-laws. This is not the same as the market value of the house.
• Rebuilding costs often rise at times when house prices are not moving and vice versa. Take the case of two identical houses in the same town. One is next door to a noisy factory in a crowded industrial area while the other house is on the outskirts of town with pleasant country views. The houses will command very different market prices but the rebuilding cost will be the same.
• For contents, the full value is the cost of replacing the house as new. If a everything in new policy is replacement as not taken, then an allowance should be deducted for wear and tear. The sum insured must be reviewed regularly, particularly at times of high inflation. Otherwise the householder will soon find that the sum insured is too low. Most insurance companies offer index-linked policies where the sum insured is automatically adjusted in line with general rises in costs.

Accidental Damage

Policies spell out clearly the risks they cover - like fire, theft and flood. For "accidental damage" cover you have to pay much more premium. Then, you are covered against such risks as spilling paint on a carpet, or dropping a camera and breaking it.

Indemnity or Replace-as-new?

Indemnity policies take full account of the wear and tear on goods so that any claim payment would reflect the age or condition of damaged items. For example the policy would pay less for a ten-year-old carpet damaged by fire than for a carpet which was only a few months old. Replacement-as-new policies provide for the full replacement of badly damaged or destroyed goods with new. There are usually some exceptions such as clothing and household linen.

Clearly, with such a policy, the sum insured (on which the premium is based) must be higher. For a replacement-as-new policy, the contents of the house must all be valued at their new price. Mixed policies can also be bought. These provide replacement-as-new cover for some items such as furniture, carpets and electrical goods which are less than a certain number of years old and indemnity cover for the rest.

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Ever wondered how you'll pay the bills if disaster strikes? You could take out insurance to cover certain debts in the event of an accident or unemployment, but is it worth it?

In a nutshell?

• When you take out a loan, credit or store card, you're often asked to take out an insurance policy. This is meant to cover the loan or card repayments if you become unable to afford them yourself because of illness, unemployment or because you have an accident or become disabled.
• Most policies also include a life benefit which will pay off the outstanding balance on a loan or card if you die. This type of insurance is called 'Payment Protection Insurance' (PPI). It can cover repayment of car finance, personal loans, credit and store cards, catalogue debts and mortgages.
• Very often, payment of PPI is included with the loan repayments. Although they're taken out at the same time, loans and PPI are different things. When a lender sells you PPI, you must be told the price of PPI separately to the cost of the loan or card. You should also be asked to sign for it separately.
• You don't have to take out PPI. However, some companies won't agree to give you a loan unless you do so. So, if you don't want PPI it might be better to go to a different lender.

Do I really need it?

Think carefully before you agree to buy PPI. Here are some questions to consider:

• The cost of the insurance. The cost of PPI can be high, so shop around to get the best deal.
• Do you really need to take out the insurance? You might already be covered under your life insurance or employer's sick pay scheme, which will cover the loan or credit repayments if your circumstances change.
• Does the insurance policy really meet your needs? Many PPI policies won't cover you in certain circumstances, for example if you're self-employed or have a particular medical condition.
• How long does the policy pay out for? Typically, PPI only covers the loan or credit repayments for twelve months. Also, many policies pay out in blocks of 30 days. This means that if you returned to work after 28 days, you wouldn't get a payment.
• Will you be covered for unemployment? PPI will only cover you for unemployment under very specific circumstances.

Other conditions to consider:

• You must normally be in permanent, full-time employment. This usually means you have to work at least 16 hours or more a week.
• If you full-time, but for a number of different employers, you may not be covered. Make sure the insurance company knows the exact details of your working arrangements before you take out PPI.
• Many PPI policies don't cover you if you're on a temporary contract or self-employed. Check the details of a PPI policy before taking it out.
• Some policies won't cover you if you're dismissed from your job or take voluntary redundancy.
• Many PPI policies won't cover you for certain illnesses. For example, policies don't usually cover conditions involving pregnancy, drugs or alcohol. Nor will they provide cover if you fail to disclose any pre-existing conditions.

Cancelling a PPI policy

• You have the right to cancel a PPI policy within 14 days of buying it, or 30 days if the policy includes life cover.
• If you pay monthly premiums for your PPI, you can usually cancel at any time, although you may need to give a period of notice.
• You may also be able to cancel a PPI policy due to mis-selling (see below).

Making a complaint about PPI

If you have problems claiming on a PPI policy, you should first complain to the insurance company. If you aren't satisfied with their response take your complaint to the Financial Ombudsperson service of your country, if applicable.

Mis-selling

If you're unable to make a claim, this could be because you were sold a policy which was wrong for your circumstances. If so, it's worth complaining to the company which sold you the policy as you may be able to get a refund.

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