Overview
Health events in a individuals lifetime are random in nature for which the individual will incur costs in the form of care. As such, they are a natural fit for being covered by some sort of insurance contract.
The costs that an individual faces over a lifetime can generally be classified in the following ways.
- Low probability (and often high cost) events
- High probability or routine events, such as a regular doctor visits
As a general rule, health care costs will increase with age of the individual being covered.
Types of Health Insurance
- Sickness Insurance - covers the medical costs of the insured when she becomes ill.
- Critical Illness
- Accident Insurance - will possibly cover medical costs in the case of an accident, may provide a death benefit if death occurs, and my also have benefit for temporary or permanent disability
- Income Protection
Insurance Features
Leveling
Because insurance costs rise with the age of the individual, it is sometimes desirable to create a certain degree of leveling, that is, move some of the later costs to an earlier period.
When a company offers leveling, it must also take into account the randomness in the lifetime of the insured.