Insurance Explained: Types and How to Choose

Marie Jeanne Kaba, MBA

Oct 13

5 min read

Updated: 23 hours ago

By Marie Jeanne Kaba, MBA | TETEEMA GROUP LLC

Insurance is one of those topics people know they need but often do not fully understand. This guide explains, in plain language, the main types of insurance, what each one does, and a simple framework for deciding which policies make sense for you.

What insurance actually is

Insurance is a contract: you pay a company a premium (usually monthly), and in exchange the company pays for large, unexpected costs if a covered event happens. You are trading a small predictable cost for protection against a large unpredictable one. The goal is never to "win" — it is to make sure one accident, illness, or death does not wipe out your savings or burden your family.

The main types of insurance

Life insurance

Life insurance pays money to the beneficiaries you name when the insured person dies. A spouse or other person can also take out a policy if they have an insurable interest in the insured person (NAIC life insurance overview).

Policies fall into two broad classes (NAIC):

Term insurance covers you for a set number of years. It pays only if you die during the term. It generally has lower premiums early on and gives more coverage per premium dollar, but it builds no cash value. Most term policies can be renewed even if your health has changed, though premiums rise at renewal, and some can be converted to permanent coverage.
Permanent insurance (whole life, universal life, variable life) covers you long-term and includes a savings element that can build cash value. Because of that savings element, premiums tend to be higher.

How much do you need? The National Association of Insurance Commissioners suggests thinking through: how much of your family income you provide, how your survivors would manage without you, whether anyone else depends on you financially, how your family would pay final expenses and debts, and future needs like children's education. Some experts suggest a rule of thumb of five to eight times your current income, but the NAIC recommends working through your actual needs instead. Review your coverage every few years as your family and income change (NAIC).

Term or permanent? Term life is designed to protect people during a defined period — commonly the years children depend on your income — and its lower early premiums buy more coverage per dollar, while permanent insurance fits situations where you want lifelong coverage or the cash-value feature and can carry the higher premium. The right choice depends on how long you need the protection, what you can afford, and which policy features matter to you; some people combine the two, since term coverage can sometimes be converted to permanent insurance later (NAIC).

Health insurance

Health insurance helps pay for medical care: you pay a monthly premium and the insurer helps cover doctor visits, hospital stays, prescriptions, and other health services (NAIC health insurance overview). Coverage can come through an employer, be purchased individually, or come through government programs. When comparing plans, look at the premium (monthly cost), the deductible (what you pay out of pocket before the plan pays), and the copay (a fixed amount per visit or service).

Auto insurance

Auto insurance protects you financially if you are responsible for an accident. New York requires drivers to carry no-fault (personal injury protection), liability coverage for bodily injury and property damage, and uninsured motorist bodily injury coverage to register a vehicle. The minimum liability limits are commonly written as 25/50/10 (NY Department of Financial Services). New York's no-fault coverage pays eligible medical expenses and a portion of lost earnings regardless of who caused the accident, up to $50,000 per person (NY DFS).

Homeowners and renters insurance

Homeowners insurance typically protects the building, your personal belongings, and provides liability coverage if someone is injured on your property. Renters insurance covers the same belongings and liability without covering the building itself — your landlord's policy generally covers only the structure, not your possessions. When comparing policies, ask whether belongings are insured at actual cash value (depreciated) or at replacement cost.

Other types worth knowing

Disability insurance replaces part of your income if illness or injury prevents you from working.
Umbrella liability insurance adds extra liability protection on top of auto and home policies.
Business insurance (general liability, professional liability, workers' compensation) protects business owners from the specific risks of running a business.

These brief descriptions are general overviews; policy details and availability vary by state and insurer.

How to decide which insurance to choose

Use this simple framework:

Identify the risk you cannot afford. Ask: if this happened, could I pay for it out of pocket? If the answer is no, you probably need insurance for it. Most people cannot self-insure against a house fire, a long hospital stay, or dying while young children depend on them.
Start with the essentials. For most families: health, auto (if you drive), home or renters, and life insurance if anyone depends on your income.
Compare premiums against the deductible and coverage limits. A cheap premium with a very high deductible or low coverage limit may not serve you well.
Check exclusions. What a policy does not cover matters as much as what it does.
Work with a licensed agent. A licensed insurance agent can help you compare options and explain trade-offs in plain language.

The bottom line

Insurance works best when you think of it as protection against the risks you cannot afford, not as an investment or a bet. Health, auto, home, and life insurance form the foundation for most families, and the right amount of life insurance comes from understanding what your loved ones would actually need if you were gone.

Sources

The official resources below provide further guidance, and we encourage you to consult them directly.

Have questions about your situation? Call us at 718-880-4485, message us on WhatsApp at 646-852-0774, or visit us at 451 Rockaway Avenue, Brooklyn. We serve clients in English, French and several West African languages.

This article is for general educational purposes only and does not constitute insurance advice. As a New York State licensed insurance broker, we are happy to help you evaluate your specific coverage needs — please contact our office.

About the author

Marie Jeanne Kaba, MBA, is the founder and CEO of TETEEMA GROUP LLC in Brooklyn, New York. She is an IRS Certifying Acceptance Agent, has been NYS licensed for more than 20 years, and holds an MBA in Finance from St. John's University. She serves clients in English and French.

TETEEMA GROUP LLC