Initial Terminology

• To understand any insurance, you first must understand the terms policyholder, insured and insurer. The policyholder is the person who pays for and is thus allowed to make decisions regarding the policy. The insured is the person who the policy pays if the insurance is activated. The insurer is the company that issues the insurance policy. A premium is money paid by the policyholder.
  
  

Insurance

• Insurance is a business arrangement between a policyholder and an insurer. The policyholder agrees to pay the insurer a certain amount of money (called a "premium), generally split up into regular payments. In exchange, the insurer agrees to pay the policyholder an agreed upon amount of money in the event that something happens to cause a loss.
  
  

Income

• Income insurance refers to the kind of loss the insured must suffer in order for the insurer to pay out a benefit. In this case, the insured must lose a source of income. The insurer agrees to pay a percentage of the insured's income each month while the insured is unable to earn that income normally. Most income insurance covers loss of job income, but policies exist to cover businesses if they lose the ability to do business, such as during a natural catastrophe.
  
  

Disability

• Disability insurance is insurance that pays out because the insured has become disabled due to illness or injury. Financial guru Dave Ramsey lists disability insurance among the five kinds of insurance he recommends people carry. There are two forms of disability insurance: income replacement and supplemental medical. Supplemental medical disability insurance is designed to cover the expenses associated with the treatment of a disability above and beyond what is covered by standard insurance policies.
  
  

Long-Term

• There are two major categories of disability insurance: long-term and short-term. Short-term disability covers the insured for a brief period immediately after becoming disabled, typically four to eight weeks. Once short-term disability expires, long-term disability kicks in to cover the insured moving forward. Long-term disability usually starts two to three months after the insured becomes disabled. If you purchase short- and long-term disability from the same company, more often than not you can get the long-term policy to start the day after the short-term insurance runs out.
  
  

Group

• Group insurance is negotiated for and purchased by a group, such as an employer representing employees, a trade union or even a hobby organization. Group insurance is usually purchased at a substantially lower rate than an individual could get on his own. Sometimes the group pays for the insurance outright. In other cases, the group simply secures the discount and lets the members pay for the insurance themselves. Some groups split the difference and cover a portion of the premium.