Insurance is probably the most ancient (and nowadays the most common) form of risk management. We can define it as the transfer of the risk of a loss from one entity to another in exchange for a premium. In practice the person (the insured or policyholder) is buying protection for an unlikely but devastating loss by paying a premium to the insurer. The premium is a small (in comparison to the possible loss) and known fee. In other words the insured is accepting a predictable small loss (the premium) in order to get protection for a low probability but potentially very costly loss.
Without being exhaustive the most common types of insurance can be grouped in two categories:
- Property insurance, that covers the risks related to objects, property and goods (floods, theft, fire, damage…)
- Personal Insurance that covers the risks related to the physical or monetary integrity of the insured (life insurance, disability, retirement, liability…)
In practice since any risk that is quantifiable can be potentially insured, a single policy can cover many aspects both of property insurance and personal. Example: Vehicle or car insurance would typically cover both property risks (risk of theft or damage to the car) and personal risks (injuries, damage to third parties…)
Vehicle insurance / Car Insurance
Vehicle insurance or most commonly Car insurance protects against the financial loss provoked by a road accident. The policy links the car owner and the insurance company. The car owner agrees to pay the premium and the insurance company agrees to pay the losses defined in the insurance contract. In general Car insurances can cover:
- Medical coverage: medical expenses, rehabilitation and sometimes funeral expenses
- Lost wages: incurred by forced inactivity after an accident
- Property coverage: damage to or theft of your car
- Liability coverage: covers for the legal responsibility of the driver to others for injuries and property damager.
In Spain you are compelled to have at least the liability coverage, but in general it is advisable to look for more extensive coverage, as the increased cost is minimal. Any good insurance broker will be able to help you choose the best deals.
Home insurance covers different kinds of home and household accidents including fire, floods and earthquakes. If your house is located in a high risk area (like a house built on the bank of a river that regularly floods) you will have to be particularly careful regarding the exclusions and the standard risks within the policy. Home insurance policies do not usually cover maintenance related problems which are the homeowner’s responsibility.
House rental insurance
House rental insurance protects the property against damage provoked by the tenants and any homeowner liability. It can include a very precise inventory of the house contents. Even though not strictly mandatory, the house rental insurance is particularly useful for owners renting their property. You can find combined Home insurance that will cover any kind of accident or liability regarding the owner, household (including pets) or tenants.
Spain like many other EU countries offers universal medical care for all its fiscal residents. To get medical coverage if you are not a fiscal resident you will need to present a European Health insurance card (it replaces the E111 form) from your own country, alternatively if you are over 60 or invalided you will be able to get social security identification and universal medical care by presenting the E121 or E106 forms. Depending on your particular situation having private medical insurance in Spain can sometimes be the best option especially when for a reasonable monthly fee (in general starting from 30€/month) you can get very high quality medical coverage.
Dental care is not included in the Spanish social security health service. It is therefore advisable to have Spanish dental Insurance if you are planning to stay in Spain for extended periods of time. Often you can get combined Health and Dental insurance at very competitive prices.
Disability, Accident, Sickness and Unemployment Insurance
Disability insurance policies provide financial help when the policyholder is unable to work because of a disabling illness or injury. The insurance covers obligations like mortgages, credit card bills and overhead expenses while the policy holder is unable able to work. They are very popular with contractors and the self employed (“Autonomos” in Spain). In general the fee and the clauses of the insurance policy are calculated individually by an insurance broker according to the type of profession and probability. Total Permanent Disability Insurance is often additional to life insurance and can ensure that all or part of a worker’s wages and accompanying medical expenses incurred are covered when the disability is due to a job-related injury.
Casualty insurance covers accidents not necessarily tied to a specific property. It is sometimes synonymous with Liability insurance and some forms of industrial property insurance.
Life insurance offers monetary benefits to the family (or any other designated beneficiary) of the deceased policyholder. The benefits depend on the type of policy and can be either a lump sum payment or payments at regular intervals. Certain life insurance policies are used as a form of wealth accumulation as the accumulated fees can be liquidated on request of the policyholder. In many countries the taxation system makes Life Insurance a tax efficient saving method or a way to transfer money to the policyholder’s heirs. Unfortunately in Spain it doesn’t really make a difference since the taxation is the same in all cases. Life insurance is often a complement of mortgages, where the bank is the beneficiary. In the case of policyholder’s death, the mortgage will be paid in its entirety to the bank, and the heirs will inherit the property free of any mortgage burden.
Liability insurance is a broad term covering legal claims against the insured. All the other types of insurances can potentially include an aspect of liability coverage. For example all car insurances indemnify the damage that a car can cause to other people’s lives, health or property.
The protection always comprises of two aspects:
- A legal defence in the event of a lawsuit against the policyholder (of course within the context of the area covered by the policy)
- Payment on behalf of the insured, related to the court verdict or settlement.
One of the most common liability insurance policies is the “professional indemnity insurance”. This insurance protects professionals such as architects, lawyers, Notaries, doctors or builders against claims made by their clients. It is often marketed under “malpractice insurance” or “errors and omissions insurance”. Other typical policyholders are real estate agents, home inspectors, Web developers and IT professionals.
Credit insurance protects the policyholder by repaying part or all of a loan in case of accidents such as disability, unemployment or death. It sometimes overlaps with life insurance. The most common credit insurance in Spain is the “mortgage insurance”, covering the borrower against default. In Spain few banks offer form of payment protection on credit cards that are effectively a form of credit insurance.
As you might imagine the above list is not exhaustive and there are many other types of insurance. As a matter of fact any risk that can be quantified can potentially be insured. Therefore a chat with your insurance broker will clarify any other doubts you might have.