Break Down Your Understanding of Insurance Terms into Everyday Talk
Typically, the insurance process seems pretty tedious, especially with the specialized industry-specific jargon used. But in order to make the right choice on your own coverage, you need to know the everyday terminology of insurance. This article breaks down those terms so you can face policies with confidence.
Why Insurance Termination is Important
Insurance contracts are legally binding. Misunderstanding one term can mean you have gaps in coverage or surprise costs. Knowing these terms will help you understand what you’re agreeing to and whether the policy is suitable for you.
Common Insurance Terms and Their Meanings
Here are some of the most common insurance terms you’ll encounter, explained simply.
Premium
What it means:
The premium is the amount you pay to keep your insurance policy active, usually on a monthly, quarterly, or annual basis. It’s like your subscription fee for the protection you’re getting.
Why it matters:
Higher premiums usually translate to better coverage, but you should balance cost with your specific needs to avoid overpaying.
Deductible
What it means:
This is the amount you must pay out of pocket before your insurance coverage kicks in.
Example:
If your deductible is $500 and you have a claim for $1,500, you pay $500, and the insurance pays for the remaining $1,000.
Why it matters:
Lower deductibles are less expensive but mean you will be responsible to pay less money during a claim and usually have to pay higher premiums.
Policyholder
What it means:
This is simply the person or group that owns the insurance policy.
Why it matters:
Knowing your status as the policyholder ensures you understand what rights and responsibilities you have under that policy.
This is the maximum amount your insurer pays for a covered loss.
Why it matters:
Having a low limit of coverage would mean paying major out-of-pocket costs after a claim.
Exclusions
What it means:
Exclusions are what the insurance policy won’t cover.
Example
Health insurance may not be able to include cosmetic surgery and experimental treatments within the scope.
Why it matters:
Knowing what is not covered can avoid much surprise from a claim.
A claim is a formal request to your insurer for the payment according to the terms of your policy.
Why it’s important
The timely and correct filing of a claim heightens the chances of reimbursement.
Endorsements (or Riders)
Definition:
These refer to additional or altered provisions on your policy, which provide extra coverage.
Illustration:
You might add an endorsement to your homeowner’s insurance for high-value items like jewelry.
Why it matters:
Endorsements enable you to customize your coverage to meet specific needs.
Technical Terminology in More Detail
Risk
What it means:
The likelihood that a loss will happen – house damage, disease, etc.
Why it’s important:
Understanding risk enables you to pay the right price for your premiums, and it helps you determine the need for coverage.
Underwriting
What it means:
The method through which the insurance company is reviewing your application and determining how risky you are.
Why does it matter:
It determines if your application gets approved or not as well as how much you will have to pay on premium.
Liability
What does it do:
Liability means being lawfully liable for damages or injuries to other individuals.
Example
A person injures himself through falling in your property, and liability coverage will cover his hospital bill.
Why it matters:
It covers you from financial and legal liabilities
The extra time you have to pay your premium after the due date without losing your policy
Why it’s important:
Forfeited claims can happen by losing cover and the grace period cushions the chance of losing your insurance protection
Common Insurance Terms And How To Avoid Forfeiture
Be Questionable
For any vague terms or jargons, ask your agent to interpret them or for explanations over the same terms.
Utilize Internet Tools
Many insurance firms provide glossaries of common terms in their sites.
Know what’s Covered
Read every part of the policy to know what’s in and what’s not covered.
Get Counseling
Consult financial advisors or insurance guidance in case one does not know how to properly make decisions.
De-Mystifying Insurance Vocabulary Helps Everyone
The translation of technical jargon into everyday language demystifies insurance terms. In such a scenario, the consumer is likely to be in a position to make an informed decision about claims or renewals of a policy.
Through this article, you will have better means of protecting your financial future and making sure that in case life turns on you unexpectedly, you will be covered.
