Insurance is a risk management technique that transfers some or all of the potential financial consequences (liability) for certain loss exposures from an insured to an insurer. The goal of insurance is to indemnify (make whole) the insured who has suffered a loss.
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Insurance regulation occurs primarily at the state level and is considered necessary to protect consumers, to maintain insurer solvency, and to avoid destructive competition. Every state has an insurance department, headed by a commissioner, that is responsible for regulating insurance in that state. Insurance regulators belong to a trade association, the National Association of Insurance Commissioners (NAIC), which has no regulatory authority of its own but has substantial influence in coordinating the regulatory activities among the various insurance departments. To learn more about insurance regulation in the State of Texas, go to
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Guarantee Funds are state-established funds that provide for the payment of unpaid claims of insolvent insurers licensed in that state. Under the Guarantee Fund, claims are subject to maximum limits that vary by state (usually the lesser of $300,000 or the policy limit). In most states, a deductible applies to unpaid claims, and the funds do not cover all types of insurance. Also, self-insured groups are not protected by the Guarantee Funds. There is also a significant delay in claim payments from Guaranty Funds.
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There are three traditional marketing systems that insurance carriers use to market their products and services to consumers:
- Independent agency and brokerage system: producers (agents or brokers), who are independent contractors, sell insurance through several carriers
- Exclusive agency system: agents, who are independent contractors, sell insurance exclusively for one carrier
- Direct writer system: uses sales agents who are direct employees of the insurer
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Underwriting is the process of determining what loss exposures will be insured, for what amount of insurance, at what price, and under what conditions. The purpose of underwriting is to develop and maintain a profitable book of business (all in-force policies) for the insurer.
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First an insurer must calculate rate based on the following four components:
- An amount needed to pay future claims and loss adjustment expenses
- An amount needed to pay future expenses , such as overhead, acquisition expenses, and premium taxes
- An amount for profit and contingencies
- An amount earned from investment income
Then the calculated rate is multiplied by the appropriate number of exposure units to produce a premium.
Ultimately, the insurer’s goals in this process are to: a) earn a profit, b) meet customer needs c) comply with legal requirements and d) fulfill duty to society.
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The claim function is to satisfy the insurer’s obligations to the policyholder as set forth in the insurance contract. The claim adjusting process involves four steps:
- Determine whether the loss is covered by the applicable policy
- Determine the cause of loss and legal liability
- Determine the amount of damages or extent of loss
- Settle the claim
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The insured has a duty to do the following:
- Report the loss to the insurance company in a timely manner
- Prevent further loss or damage
- Cooperate with the insurer in evaluating and settling the claim
- Provide proof of loss
- Submit to examination under oath
- Comply with abandonment provision which indicates that the insured has no contractual right to abandon damaged property and turn it over to the insurer
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Subrogation is the process by which an insurer recovers payment from a negligent third party who caused a property or liability loss that the insurer has paid to, or on behalf of, an insured.
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- Personal insurance: home, auto, medical, dental, disability, life, umbrella, boat insurance
- Business insurance: property, general liability, umbrella, commercial auto, worker’s compensation, professional liability, crimes, bonds, ocean marine, inland marine, contractors’ equipment, bailee coverage, builder’s risk, garagekeeper’s, etc...
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Insurable interest is an exposure to financial loss that a person must possess for the property insurance coverage to be legally enforceable. An insurable interest must exist at the time of the loss for coverage to be provided. Without an insurable interest, an insurance contract is a gABMling contract and thus cannot legally be enforced. Insurable interest can be created by property ownerships or legal contracts.
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Every person’s situation is unique. Determine what coverages you want and need in order to avoid a major financial loss should something happen to you, your family member, or your property, but don’t buy more coverage than you need or can afford to pay. Also read insurance policies for exclusions, limitations, or extended coverages.
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BOP is a common type of commercial policy primarily for small businesses. BOP policy combines property and liability coverage in one policy.
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CMP policy combines several coverages -- such as commercial property, liability, inland marine, and commercial auto -- in a single policy. It's typically cheaper to buy a CMP policy than to buy the coverages individually.
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The five factors that affect the property rate are:
- Construction materials. Buildings made of potentially combustible materials will have higher premiums, while those made of fire-resistant materials could earn a discount.
- Location. Buildings in cities or towns with good fire protection -- as assessed by the Texas Commission on Fire Protection -- typically cost less to insure than buildings outside a city where fire protection may be limited.
- Occupancy. A building's use also affects its fire rating. An office building will likely rate better than a restaurant or auto repair shop. In a building with multiple tenants, one hazardous occupant will negatively affect the fire rating of the entire building. If your business is in a building with a more hazardous business, your premiums will be higher.
- Fire protection measures. Automatic sprinklers can reduce a building's fire rating by as much as 50 percent. Buildings with fire extinguishers and automatic alarms and those within 500 feet of a standard fire hydrant will usually have lower ratings.
- Exposure. Nearby hazards increase a building's fire risk. Proximity to external fire hazards, such as a lumberyard or oil storage tank, will affect a fire rating even more. Internal exposure risks might include cluttered buildings and grounds, heavy mechanical or electrical equipment, or on-site storage of volatile materials.
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A CGL policy protects business owners against claims of liability for bodily injury, property damage, and personal & advertising injury (slander and false advertising)
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Hired and non-owned auto coverage can be included in a CGL policy. However, if a business owns a commercial auto then they would need to purchase a commercial auto policy.
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Occurrence policy covers claim arising from injury or damage occurring while the policy is in force, regardless of when the claim is first made.
Claims-made policy covers claim arising from injury or damage occurring during the policy period and reported to the insurer during the policy period. Claims arising from events outside the policy period or claims reported to the insurer outside the policy period are not covered unless special coverage is purchased or arranged with the insurer.
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CGL does not provide coverage for employees’ injuries. To cover injuries for employees, the business would need to purchase a worker’s compensation policy.
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Excess liability insurance pays for covered losses that exceed your CGL policy's dollar limit.
Umbrella liability insurance is excess liability insurance coverage above the limits of automobile liability and CGL policies. The umbrella policy also provides liability coverage for exposures not covered under the primary CGL insurance policies and not excluded by the umbrella liability insurance policy.
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Your auto policy should cover you if you drive in other U.S. states and Canada. Your policy won't cover you in Mexico because Mexico doesn't recognize U.S. auto liability policies.
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Your personal auto policy must pay at least $30,000 for each injured person, up to a total of $60,000 per accident, and $25,000 for property damage per accident. This minimum coverage is called "30/60/25" coverage and if you are at fault, the following expenses will be covered for the people in the other car involved in an accident:
- medical and funeral costs, lost wages, and compensation for pain and suffering
- car repair or replacement costs
- car rental while the other driver's car is being repaired
- punitive damages awarded by a court
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The following are covered:
- You and your family members. (Family members include anyone living in your home related to you by blood, marriage, or adoption. This includes your spouse, children, in-laws, adopted children, and foster children.). Some policies won't cover other people who are residents of your household, including family members, unless they're specifically named in the policy. Your policy's declarations page should list the names of all of the people the policy covers.
- Other people driving your car with your permission
- Family members attending school away from home
- Spouse living elsewhere during a martial separation might be covered.
- You and your family members might be covered when driving someone else's car - including a rental car - but not a car that you don't own but have regular access to, such as a company car.
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Collision pays for your auto repair, less $500 deductible usually, regardless if you are at fault and it provides no coverage for your injuries. If the accident is caused by a motorist who did not have insurance or enough insurance, or a hit-and-run driver then your UM/UIM coverage will pay for your medical bills, lost wages, pain and suffering, disfigurement, and permanent or partial disability as well as your auto repair and rental car with $250 deductible. If you don't want UM/UIM, you must reject it in writing. Acceptance or rejection of the coverage applies to all vehicles in a policy.
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It would be covered under comprehensive (other than collision).
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Medical payment covers your medical and funeral bills resulting from accidents, including an accident involving a pedestrian or bicyclist. You, your family members, and passengers in your car are covered, regardless of who caused the accident.
PIP provides same coverage as medical payments, plus 80 percent of lost income and the cost of hiring a caregiver for an injured person. If you don't want PIP, you must reject it in writing. Acceptance or rejection of the coverage applies to all vehicles in a policy.
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Your current policy will provide coverage for additional cars the same amount of coverage as your car with the most coverage for a limited number of days so you will need to read your policy or check with your agent about adding your new car. For example, if you have two cars - one with liability coverage only and one with liability, collision, and comprehensive coverages - and you buy a third car, the third car will automatically have liability, collision, and comprehensive coverage.
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Your current policy will give replacement car the same coverage as the car it replaced for a limited number of days so you will need to read your policy or check with your agent about adding your replacement car. For example, if you trade in an older car that only had liability coverage, the new car will automatically have only liability coverage.
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Your auto policy may already cover damage to a rental car, but the coverage might be less than the value of a rental car. Check with your agent or read your policy to know what's covered and the coverage limits. If your coverage limit is too low, consider increasing it. You will pay more in premium, but it might be cheaper than buying additional coverage through the rental agency, especially if you rent cars often.
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If you don't own a car, but borrow or rent cars often, you can buy a non-owner liability policy. A non-owner policy pays for damages and injuries you cause when driving a borrowed or rented car, but it doesn't pay for your injuries or damage to the car you are driving.
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Factors that companies typically use to set premiums include:
- Your age and marital status
- Your driving record and claims history
- Where you keep your car
- Your car's type
- Your car's primary use
- Your credit score
- Whether you drove uninsured in Texas
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Discounts vary by company and the following is a list of discounts you can receive:
- defensive driving courses
- students with good grades
- more than one car on a policy
- policy renewal with no claims and good driving records
- a homeowner’s policy with the same company
- cars with airbags and automatic seatbelts, anti-lock brakes, or anti-theft devices
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HO-A policy provides limited actual cash value coverage of your home and its contents. Only the types of damage specifically listed in the policy are covered.
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HO-A amended policy provides more extensive coverage than an HO-A policy but less coverage than an HO-B’s. Coverage provided by these HO-A policies may differ by company.
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HO-B policy provides replacement cost coverage for most types of damage, except those specifically excluded in the policy.
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Companies use various factors in their underwriting guidelines to determine premiums. These include:
- Your home's age and condition
- Construction materials used in your home
- Where you live
- Availability of local fire protection
- Your claims history
- Your credit score
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Most policies cover losses caused by: fire and lightning, sudden and accidental damage by smoke, explosion, theft, vandalism and malicious mischief, riot and civil commotion, aircraft and vehicles, windstorm/hurricane/hail (this coverage may be excluded if you live on the Gulf Coast), sudden and accidental water damage
Most policies do NOT cover losses caused by: flooding, earthquakes, termites, insects, rats, or mice, freezing pipes while your house is unoccupied (unless you turned off the water or heated the building), losses if your house is vacant for the number of days specified by your policy (usually 30 days), wear and tear or maintenance, wind or hail damage to trees and shrubs, mold except what is necessary to repair or replace property damage caused by a covered water loss, water damage resulting from continuous and repeated seepage
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Replacement cost is what you would pay to rebuild or repair your home including removing debris, based on current construction costs. Replacement cost is different from market value and doesn't include the value of your land.
Actual cash value is what you would pay to rebuild or replace your property minus depreciation. Depreciation is a decrease in value due to wear and tear or age. If your home is destroyed and you only have actual cash value coverage, you may not be able to completely rebuild.
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Common endorsements that you can consider adding to your policy include:
- Backup of sewers or drains. Pays for damage caused by sewer or drain backup.
- Extended or additional dwelling replacement coverage. Pays up to a certain amount if your policy doesn't pay enough to rebuild your home.
- Law or ordinance coverage. Pays if repair costs are higher because of local building codes or ordinances.
- Mold remediation. Pays for mold remediation up to a certain amount.
- Replacement cost-dwelling. Pays replacement cost after you repair or replace your property.
- Replacement cost-personal property. Pays replacement cost after you repair or replace your property.
- Water damage from a plumbing, heating, or air conditioning system. Pays for sudden and accidental water damage. Most policies don't provide coverage for continuous and repeated water damage.
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You might be able to get a discount for having:
- impact-resistant or noncombustible roof
- burglar, fire, and smoke alarms
- automatic sprinkler system
- fire extinguishers
- other policies with same company
- no claims for the past three years
- age 65 or older
- newer home
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If you have assets to protect and want more liability coverage than a homeowner’s policy provides, you can buy a separate umbrella policy, typically $1,000,000, $2,000,000 or a higher liability limit as desired.
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The Texas FAIR Plan Association provides basic homeowners insurance to eligible consumers. To be eligible for coverage, you must have been denied insurance by at least two licensed insurance companies writing residential property insurance in Texas and may not have received a valid offer of comparable insurance from a company licensed in Texas.
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Most homeowner’s policies don't cover windstorm and hail damage if you live in any of the 14 coastal counties or parts of Harris County on Galveston Bay. You can buy this coverage from an agent through a windstorm pool offered by The Texas Windstorm Insurance Association (TWIA) as the state's insurer of last resort for windstorm/hail/hurricane coverage.
If you plan to build, add to, or renovate a home or other structure and want to get or maintain TWIA coverage, you must get a certificate of compliance (WPI-8) by having your property inspected during the construction phase. A TDI windstorm inspector can conduct an inspection for free, or you may use a Texas licensed professional engineer appointed by TDI.
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Homeowner’s policy doesn't cover flood damage. To protect yourself from losses caused by most flooding (rising water), you may buy a separate flood insurance policy. If your property is in a special flood hazard area, your lender will require you to have flood insurance. A special flood hazard area has a 1 percent chance of being flooded in any given year.
Some Gulf Coast residents must buy flood insurance to be eligible for a TWIA policy if:
- you constructed, altered, remodeled, or enlarged your property (to the extent that a certificate of compliance is required) on or after September 1, 2009
- any part of your property is in flood zones V, VE, or V1-V30 as defined by NFIP
- flood coverage is available from NFIP.
Property repairs are excluded from the requirement. Repair is defined as the reconstruction or restoration of a structure that is damaged or deteriorated.
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A landlord's insurance doesn't cover a renter's personal property. Renters insurance covers your belongings, provides liability protection, and pays additional living expenses if a fire or other event stated in your policy forces you to move temporarily.
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Condominium insurance covers your belongings, provides liability protection, and pays additional living expenses. It also covers damage to improvements, additions, and alterations to the condo.
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Townhouses may be insured by either an individual homeowner’s policy or an association master policy. If a townhouse is owner-occupied and the townhouse association doesn't have a master policy on the building, you can purchase a homeowner’s policy on your individual unit. If the association has a master policy, you should get a Texas tenant homeowner’s policy to insure your personal property.
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Many companies use the Comprehensive Loss Underwriting Exchange (CLUE) to review your claims history. CLUE reports list the property insurance claims history of people and houses - regardless of who owned them - for the last seven years. You can get a free copy of the report by calling LexisNexis Personal Reports at 1-866-527-2600 or by visiting its website at https://personalreports.lexisnexis.com/index.jsp.
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To make the claim process run smoothly and to protect your rights, follow these steps:
- Know your coverage. Your policy's dollar limits, coverages, deductibles, endorsements, and exclusions appear on your policy's declarations page. If you need help, ask your agent or company representative. If you have a loss, tell your agent or insurance company as soon as possible. Also report losses involving theft or crime to the police.
- Make a list of your damaged property. If possible, photograph or videotape the damage before making any repairs.
- Make only temporary repairs to protect your house and belongings. The insurance company may deny your claim if you make permanent repairs before it inspects the damage. If you are not sure whether a repair is considered permanent, contact the insurance company before beginning repairs. Your policy will cover the cost of these repairs and for storing personal belongings. It is important to only make temporary repairs.
- Keep receipts. For personal property claims, you must provide evidence that you bought the replacement items. If you bought materials for temporary repairs, receipts will help you get reimbursed quickly.
- Try to be there when the insurance company's adjuster inspects your home. You may have your contractor or builder with you. Your contractor or builder may discuss estimates or technical specifications with the adjuster or your insurance company.
- If you have to move because of a disaster, make sure your address is visible. Leave a sign with your temporary address, phone number, and the name of your insurance company.
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Ask yourself the following questions to help you decide if life insurance is right for you:
- Do you need to replace your income to provide for your spouse, children, or other family members?
- Do you have debt, such as a mortgage, credit cards, student loans, or other debt?
- Do you want to help your children pay for college?
- Will your survivors need money to pay for your funeral costs or the cost to settle your estate?
- Do you have a large estate that may be subject to state or federal estate taxes?
If you answered yes to any of these questions, you should consider buying life insurance.
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Term life insurance policies typically only provide a death benefit. You pay a premium and if you die during the term (5, 10, 15, 20, 25, or 30 years), your beneficiaries receive the death benefit. Term policies don't usually include a cash value or a savings component and aren't designed to provide coverage for your entire life. Term life insurance is designed to provide inexpensive coverage during a time when many people need it most, such as when they're starting a family, paying off debt, or saving for college.
Permanent life policies such as whole life and universal life usually have higher premiums because they are designed to provide coverage for your entire life and have other features and benefits. The main feature of most permanent life insurance is a cash value or savings component that grows over time and may be withdrawn, invested, or borrowed against during your lifetime.
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Federal law requires most people to have a health insurance plan that meets minimum federal coverage standards or pay a tax penalty. Health benefit plans provided by your employer and most state or federal government health plans (Medicare, Medicaid, CHIP, TRICARE, and some veterans' health programs) will usually satisfy the requirement.
Federal law exempts some people from the requirement to have insurance or pay a tax penalty. You might be exempt from the penalty if:
- You were uninsured for fewer than three months of the year.
- You qualify for a hardship exemption from the marketplace.
- The only coverage you can get would cost more than 8 percent of your household income.
- You have a household income below the tax-filing threshold ($10,000 for an individual).
There are also exemptions if you are in prison; are in the U.S. illegally; or are a member of certain religious sects, American Indian tribes, or health care sharing ministries.
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You might qualify for a subsidy to help pay for coverage if your income is between 100 percent and 400 percent of the federal poverty level.
If your income is below 100 percent of the poverty level, you aren't eligible for a subsidy. However, you won't have to pay the tax penalty if you don't have health insurance.
Subsidies are available only when you buy a health plan through the marketplace. You can't get a subsidy if you buy directly from an insurance company or if you can get affordable health coverage at work. You can take the subsidy as an advance tax credit to lower the cost of your monthly premiums or wait until tax time for a bigger refund. Make sure you tell the marketplace if your income goes up or down or if your family size changes.
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For an HMO plan you must choose a doctor from the HMO's network to oversee all of your health care. This doctor is called your primary care physician. You must usually get a referral from your primary care physician if you want to see a specialist. One exception is that women don’t need a referral for a routine OB/GYN appointment if the doctor is in their network.
A preferred provider benefit plan (PPO) is a network health plan offered by an insurance company. Although you can usually go to any doctor you choose, your out-of-pocket costs will be lower if you use doctors in the PPO's network.
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The essential health benefits include coverage for health care services in the following categories:
- ambulatory patient services (outpatient care you get without being admitted to a hospital),
- emergency services,
- hospitalization (including surgery),
- maternity and newborn care,
- mental health and substance use disorder services, including behavioral health treatment (including counseling and psychotherapy),
- prescription drugs,
- rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
- laboratory services,
- preventive and wellness services and chronic disease management, and
- pediatric services, including oral and vision care.
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If you don't have access to employer- or government-sponsored health coverage, you can buy an individual plan to cover yourself, or yourself and your family, during open enrollment from November 1 to January 31 of each year. You generally may buy only individual coverage during the open-enrollment period, unless you get married or divorced, have a baby, or experience another qualifying life event.
Health insurance companies must sell a plan to anyone who applies during the open enrollment period. Companies may not deny you coverage or charge you more because of a preexisting condition or disability.
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Short-term health policy provides coverage for a limited period of time, usually six to 12 months. Most people who buy short-term policies do so to protect themselves while they're in between jobs or waiting for other health coverage to start.
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Note: Information provided at this Learning Center is extracted from various text books written by the American Institute for Chartered Property Casualty Underwriters (AICPCU) and from the Texas Department of Insurance (TDI).