Insurance is one of those things that we know we need, so we get away without reading what it is we are insuring ourselves for, etc. All we know is that insuring for the future is imperative, and so we just do it.
Simply put, insurance is a transfer of risk. You take the chance of risk (loss of income, loss of life, loss of car, health losses etc), and you transfer it onto an insurer, paying them a premium to insure that risk. So that, when you do lose the thing that you have insured, you are covered by your policy.
Insurance can be divided into two basic categories: Short term and long term insurance
Long term insurance is insurance that covers life-changing events in life, such as death, retirement and disability.
- The purpose of long term insurance is to provide you with an income in the long term (retirement), or a lump sum of money in the event that you become permanently disabled or pass away.
- Long term insurance policies include life insurance, funeral insurance, retirement annuities and endowment policies.
Short-term insurance, on the other hand, is insurance that you take out on your possessions.
- The purpose of short term insurance is to protect you against losses that you may suffer as a result of unforeseen events such as accidents, crime, floods, fires or illness.
- Often, short term insurance policies tend to cover the smaller claims or those things that you may be changing a lot, for example vehicles, household etc.
Simply put, when a life (or anything related to a human being) is insured it is considered to be long term insurance. When it is any other item (ie not related to a human being) it is considered to be short term insurance.
Reading Material & Sources