What Are the Different Types of Insurance?
27th July 2022
Whether you’re about to start a family or mapping out difficult scenarios in your head, you’ve probably heard that a good insurance policy can secure your future and save you from financial ruin.
But what are the different kinds of insurance out there, and which ones do you need?
This article will give an overview of the different types of insurance, with a focus on the two that provide the best protection for you and your loved ones: health and life insurance. We’ll also briefly touch on travel insurance.
What is health insurance?
Also known as medical insurance, health insurance provides coverage for medical care in the event of illness or injury. Coverage usually includes items like hospitalization, surgery, consultations with medical practitioners, treatment, full-body checkups and prescription medicine.
Although Hong Kong’s public healthcare system boasts affordable, high-quality medical services, wait times can be quite long, not all public medical professionals speak fluent English, and hospital wards can be crowded and noisy with little privacy.
Hong Kong’s private healthcare sector offers shorter wait times, English-language services and more comfortable care – but at a higher cost. The most economic way to enjoy access to Hong Kong’s private healthcare sector is to get health insurance.
Types of health insurance
The main types of medical insurance are group, family and individual.
Group or company medical insurance is provided by the employer to employees or members of a group or organization. Most group plans offer inpatient and outpatient benefits. Employers can decide on the level of cover and elect to add dental, optical, maternity or group life insurance to their group plan.
Family health insurance provides coverage for you, your spouse and children. (Most work group health insurance policies do not cover families of employees.)
Health insurance benefits can be broken down into the following types:
- Inpatient benefits cover medical costs when you are admitted to the hospital, such as hospitalization, surgery, medication, intensive care, doctor consultations, operating theatre costs, anesthesia, diagnostic tests and rehabilitation. Most of the time, inpatient benefits require a pre-authorization letter and a guarantee of payment from your insurer.
- Outpatient or clinical benefits cover medical costs that don’t require an overnight hospital stay, such as doctor consultations, diagnostic tests, medication, checkups, vaccination and minor treatments.
- Dental benefits cover X-rays, fillings, root canal treatment, extractions, medication, routine oral examinations and more.
- Optical benefits cover eye examinations, prescription glasses and lenses.
- Maternity or pregnancy benefits cover the costs of prenatal and postnatal care, vaginal delivery, medically prescribed caesarian sections and newborn care. Comprehensive plans may include fertility treatment and midwifery services. (Maternity benefits are typically excluded from group policies.)
- Mental health care benefits cover psychiatric and psychological care. Most international and local comprehensive health insurance providers offer coverage for both. Mainstream local Hong Kong insurers, on the other hand, provide psychiatric coverage but seldom psychological coverage.
In addition to the above, health insurance plans can also include cover for evacuation, repatriation, checkups and vaccinations.
It is important to be familiar with your policy’s exclusions so you don’t unknowingly undergo treatment that will require you to pay out of pocket. Common exclusions include dental care, optical care, mental health care, cosmetic surgery deemed not medically necessary, maternity and pregnancy care and high-risk sports, if these benefits are not already included in your plan.
Who needs health insurance?
It’s a good idea for everyone to have some form of health insurance.
In 2019, the Hong Kong government launched the relatively affordable Voluntary Health Insurance Scheme (VHIS) to provide basic hospital insurance.
But for those who can afford it, a more comprehensive or international health insurance policy may be a better option. Not only does such a policy give you peace of mind, it also furnishes you with the luxury of choice within Hong Kong’s excellent healthcare landscape.
Learn more: Alea’s guide to health insurance in Hong Kong
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What is life insurance?
Generally speaking, a life insurance policy provides financial security for the insured person’s family members or designated beneficiaries in the event that the insured person passes away. Such a policy can help cover funeral costs, as well as the costs of education and living expenses for any dependents.
Types of life insurance
- Whole life insurance provides lifelong protection or coverage until you reach the age of 100. Whole life policies frequently have a savings component and a fixed premium. Since they can accumulate cash value, whole life policy premiums can cost much more than those of term life policies.
- Term life insurance pays the death benefit if the insured person dies within a specified term. Most term life policies only cover you up to a certain age. Towards the end of the policy, you can choose to extend it or convert it into a whole life policy. Term life insurance is suitable for people exposed to financial risks such as mortgages, loans or debts.
- Critical illness insurance pays out a lump sum upon diagnosis of a critical illness specified by your insurer. This lump sum payment can help you take care of your family’s living expenses and other costs like rent and mortgage while you are ill.
Who needs life insurance?
Whether or not you need life insurance depends on your stage in life. In general, life insurance is suitable for the following groups of people:
- People with dependents
- People with liabilities to repay
- People with plans for retirement
If you’re wondering what type of life insurance policy is best for you, it’s a good idea to talk to a broker, who can give you recommendations based on your specific needs.
Learn more: Alea’s comprehensive guide to life insurance
What is travel insurance?
Travel insurance protects you from any loss you suffer under unforeseen circumstances while you are traveling, providing financial cover for unexpected trip cancellations, travel delays, lost or damaged or stolen luggage, accidents, personal liability, evacuation, emergency medical expenses and more.
Types of travel insurance
The type of travel insurance that’s most appropriate for you depends on how often you travel and where you’re going. The most common types of travel insurance plans are single-trip and annual, though some insurers may provide even more specific plans (for example, a cruise plan, or a plan tailored for a certain destination).
- Single-trip travel insurance is best for people who don’t travel often.
- Annual travel insurance is best for frequent travelers or business travelers, as it spares you the hassle of buying travel insurance for every single trip.
Who needs travel insurance?
Anyone who is about to travel is advised to buy travel insurance before they set out on their journey.
Note: Some credit card companies offer travel insurance to their cardholders, but it’s best to read your policy terms to assess if the coverage is enough.
Other types of insurance
There is a whole host of other types of insurance that protect everyone ranging from dog owners to people running their own businesses. These include property insurance, home insurance, motor insurance, pet insurance, accident and personal injury insurance, business insurance, art insurance, marine insurance, cyber insurance, fire insurance, domestic helper insurance and more.
What is the main type of insurance?
The main types of insurance are life insurance and medical insurance.
What is the purpose of insurance?
The purpose of insurance is to protect you from financial uncertainties and loss.
Which insurance policy is best?
When it comes to insurance, there is no one-size-fits-all solution. Our advice is to consult with an insurance broker that you trust to determine the plan most suitable for you.
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This article was independently written by Alea and is not sponsored. It is informative only and not intended to be a substitute for professional advice and should never be relied upon for specific advice.