Insurance is confusing, particularly if you are new to it. Policies are full of strange words and legal language. But once you know the common jargon, comprehending it is quite simple. This insurance glossary will make you comfortable when purchasing insurance or reading any policy.
Have you ever read your insurance papers and felt totally lost? You're not alone. That's why being aware of insurance terms and what they mean is so crucial. It helps you understand:
Even if you are a newbie to the insurance game, you don't need to be an attorney to be familiar with your policy. Let's take a look at the definitions of the fundamental terms every policyholder needs to be familiar with.
Your premium is how much you pay for your policy. It can be paid monthly, every few months, or annually. Your membership fee will remain covered.
Example: You'll pay $120 per month for car insurance. That's your premium.
The safer you are (e.g., good driving history), the lower your premium could be.
A deductible is the amount in dollars you have to pay out of pocket before your insurance covers some or all of the bill.
Example: If your health policy has a deductible of $500, you pay the first $500 of charges from physicians before insurance pays.
Deductibles also result in lower premium payments. You should select a balance that suits your budget.
Coverage is what your policy shields you from. It may be damage to your vehicle, physician bills, stolen goods, or even your life. Always know what your policy covers and does not.
Example: Your homeowners policy insures fire damage but not flood damage unless you purchase additional coverage.
Knowing your coverage avoids protection gaps.
A claim is the form you complete when something happens that is paid for by your insurance company. It's a written request for company payment for loss or damage.
Example: When you get into a car wreck, you complete a claim with your automobile insurance company in order to have your car repaired.
Claiming is how you get your insurance. Ensure that you know the method for your policy.
A policyholder is an individual who has an insurance policy. They pay the premium and are in charge of the policy.
Example: You purchase life insurance for your household, yet you are the policyholder, even though your children or spouse could benefit.
It is helpful to understand your role as a policyholder when you're altering or continuing your plan. You will find some of the most significant policyholder definitions in your papers.
A beneficiary is the one receiving the payment from a life insurance policy when the insured individual passes away.
Example: You might name your spouse, children, or another individual as your beneficiary.
This is a critical life insurance decision. Keep your beneficiary details updated at all times.
Exclusion refers to something that your insurance policy does not cover. These are explicitly written in your policy and should be read with care.
Example: An insurance policy for travel may exclude adventure sports such as skydiving or scuba diving.
Being aware of insurance contract exclusions can prevent shock in the future.
In life and health insurance, a term is how long your coverage lasts. A term policy insures you for only a specific number of years.
Example: A 20-year term life insurance policy assures your loved ones' coverage if you were to pass away during the 20-year period.
When the term is up, the policy lapses or has to be renewed.
A limit is the most that your insurance company will pay on a covered claim.
Example: If you have a $25,000 limit on car insurance for property damage, that's what they will pay, even if it costs you more.
Always review the policy limits to ensure you have sufficient coverage.
These are typical of health insurance:
A co-pay is a set amount you pay for some services, such as doctor visits or medication.
Coinsurance is a percentage that you and the insurance company split once you've paid your deductible.
Example: You could pay a $20 co-pay to visit a doctor and 20% coinsurance for surgery.
These are just some definitions of insurance terms you'll see employed in medical coverage.
A rider is an option to your policy that provides additional coverage for a particular need.
Example: You can buy a jewelry rider to insure an engagement ring through your home coverage.
Riders are wonderful if you wish to personalize your coverage beyond the standard plan.
A grace period is an additional time your insurer provides you to pay a late premium before they cancel your coverage.
Example: If your premium is due on the 1st, you may have until the 15th to pay or the policy will expire.
It's better to know this if you ever get behind.
A lapse occurs if your insurance policy terminates because you did not pay your premium within the grace period or at all.
Example: If you don't pay for your health insurance for two months, your policy can lapse, and you'll lose coverage.
Don't let it lapse to remain covered and avoid having to apply again in the future.
Underwriting is the process by which your insurer determines how much you'll pay for your premium or if you can be insured.
Example: If you're a smoker, the underwriting process may raise the price of your life insurance premium.
This is typically done when you're initially taking out a new policy.
Liability is when you're held legally liable for something. Liability insurance protects you when you're the cause of injury or damage.
Example: If a guest at your home trips and falls, your home insurance liability coverage may pay for their medical expenses.
This coverage exists in auto, home, and business insurance.
Insurance policies have legal terms, but don't worry. Here's how you can break it down:
Slowing down to read your policy makes you aware and keeps issues at bay later.
You don't need to be uptight about getting a new policy. Once you know the basic insurance terms, you'll read how frequently those words appear in your papers or online quotes.
Here are a few easy-to-remember tips:
You don't need to be an insurance expert. However, knowing the common insurance terms explained here can make you a more informed, confident consumer.
Insurance is a means of protecting your pocket and peace of mind. But it can only do that if you have some idea of how it works. This insurance glossary details the key words and phrases that you should know if you are a policyholder.
Knowing what the insurance terms are is establishing a foundation for you to comprehend your coverage, file proper claims, and pick the proper policies for your life.
This content was created by AI