Insurance may appear to be overwhelming with all the technical terms. Knowing the most popular insurance terms will help you make the right choices on your coverages and policies. In this guide, we will break down words you need to know into less intimidating words in simple language so that you can be sure you are educated about the world of insurance.
What Are Insurance Terms?
Insurance jargon are the very words and phrases utilized by insurance policies and contracts. They stipulate coverage, exclusions, and details. By learning them, you will be able to better grasp your policy and keep from being shocked by variations.
Important Insurance Terms Explained
1. Premium
Premium is the premium that you pay under your policy. You can pay it monthly, quarterly, or yearly. The cost of the premium will depend on the type of coverage, the risk factor, and your experience.
2. Deductible
Deductible is the amount that you pay initially before your insurance company starts paying for bills. For example, if your deductible is $500 and you incur a bill of $2,000, you pay $500 while your insurance pays $1,500.
3. Policyholder
The policyholder is an individual or a company that has the ownership of the insurance policy. The individual is responsible for paying premiums and following the policy guidelines.
4. Claim
A claim is a written request by the policyholder to the insurer for recovery of an event or loss. The insurer considers the claim and decides if it satisfies policy requirements before accepting or declining payment.
5. Coverage
Coverage is the indemnity provided under an insurance policy. It indicates what type of risks or loss the insurer indemifies, such as medical expenses, car accidents, or damage to property.
6. Exclusions
Exclusions are situations or conditions not included in an insurance policy. They are defined in the policy contract and can include some of the medical illnesses, some kinds of damages, or risky activities.
7. Liability
Liability is your legal responsibility to pay for damages or injuries inflicted upon other individuals. Liability coverage in automobile or property insurance will pay for damages in case you are held liable in a car or property accident or occurrence.
8. Underwriting
Underwriting is the process by which insurers measure risk and decide to insure or not. Underwriting also decides premiums on aspects like health, age, driving history, or condition of property.
9. Beneficiary
Beneficiary is either one or more parties to whom the benefit of the policy is transmitted, i.e., in life cover. The person purchasing the cover has the option to choose for whom the amount needs to be paid in case he dies.
10. Rider
Rider is one of the things that raise or alter an insurance policy. Rider includes a life insurance rider to pay for accidental death and a health insurance rider for paying for specific procedures.
Types of Insurance Policies and Key Terms
Health Insurance Terms
Copayment (Copay)
Copayment is money you pay for health care, such as seeing a doctor or taking medicine. For example, you may need to pay $20 copay when you visit your physician.
Coinsurance
Coinsurance is the percentage of a bill you and the insurer pay after meeting your deductible. For example, your policy could be 20% coinsurance, so you pay 20% of the bill and the company pays 80%.
Auto Insurance Terms
Comprehensive Coverage
Full coverage pays for damage to your vehicle because of non-collision causes, i.e., theft, fire, or natural disasters.
Collision Coverage
Collision coverage will assist in paying for the damage to your vehicle in the event of a collision with objects or other vehicles.
Homeowners Insurance Definitions
Replacement Cost vs. Actual Cash Value
Replacement cost policy pays for repairing or replacing property without the factor of depreciation.
Actual cash value does consider depreciation and thus offers less cash for non-new merchandise.
Loss of Use
Loss of Use Coverage helps to pay for living costs temporarily if your residence becomes uninhabitable due to a covered loss, such as a fire.
Life Insurance Definitions
Term Life and Whole Life Insurance
Term life insurance covers you for a period, such as 10, 20, or 30 years.
Whole life insurance covers you for the duration of your lifetime and contains a savings component.
Cash Value
Some life insurance policies accumulate a cash value, which you can borrow against or tap into under certain conditions.
Why Insurance Terminology is a Component of Knowledge
- Insurance terminology will help you:
- In making intelligent buying choices when you buy insurance.
- In understanding your policy and not being surprised by unexpected costs.
- In being able to compare policies more effectively.
- In getting the benefits that you are entitled to.
Conclusion
Insurance is not easy, but understanding the insurance jargon makes it easier so that you are able to work with your coverages and policies more effectively. Understanding these key terms allows you to make effective decisions and get properly covered in case something happens unexpectedly.
