Insurance
The Insurance domain tests risk transfer: how premiums, deductibles, limits, and exclusions allocate loss. Expect comparisons among auto, homeowners, health, life, and disability coverage, plus calculations involving deductibles and coinsurance.
Policy mechanics
An insured pays a premium for protection. A deductible is the amount the insured pays before insurance responds. A copay is a fixed amount for a service; coinsurance is a percentage of covered costs shared after the deductible. A coverage limit caps payment. Exclusions state what is not covered. Higher deductibles usually lower premiums because the insured retains more risk. Actual cash value pays replacement cost minus depreciation; replacement cost coverage pays to rebuild or replace without that depreciation.
Major coverages
Auto liability pays others for bodily injury or property damage; collision covers the insured vehicle in a crash; comprehensive covers theft, fire, and similar non-collision losses. Homeowners policies typically cover the dwelling, liability, and personal property but exclude flood and earthquake, which require separate policies. Health plans use networks, deductibles, coinsurance, and out-of-pocket maximums; preventive care is often covered without cost sharing. Term life pays a death benefit for a set period; whole life combines insurance with cash value. Disability income replaces part of earned income, and own-occupation is generally broader than any-occupation.
Worked example
A covered health claim is $10,000. The plan has a $1,000 deductible, 20% coinsurance, and a $4,000 out-of-pocket maximum. The member pays the first $1,000. Of the remaining $9,000, coinsurance is 20% × $9,000 = $1,800. Total member cost is $2,800, below the $4,000 maximum, so the insurer pays $7,200. If the claim were larger, the out-of-pocket maximum would cap the member's share.
Traps
Do not confuse coinsurance with a copay. Liability-only auto insurance does not repair the insured's own car. Flood damage is generally excluded from homeowners insurance. A beneficiary designation controls life insurance proceeds, not the will. Choosing the lowest premium can leave inadequate limits or a deductible the insured cannot afford.