Insurance can often seem like a world of its own with its unique language. Here are some of the key terms every policyholder should be familiar with: Premium: This is the amount you pay to the insurance company to purchase a policy. It can be paid monthly, quarterly, semi-annually, or annually. Deductible: The amount you’ll have to pay out-of-pocket for covered losses before your insurance policy begins to pay. For example, if your deductible is $1,000 and you have a covered loss costing $5,000, you’d pay the
first $1,000 and the insurance company would pay the remaining $4,000. Claim: A formal request made by the policyholder to the insurance company for compensation for a covered loss or policy event. Coverage: The protection provided by the insurance policy, which can include different types of risks or losses.
Underwriting: The process insurance companies use to evaluate the risk of insuring a person or asset and to determine the premium that will be charged. Beneficiary: A person or entity named in the policy to receive the benefits in case of a claim. This term is often used in life insurance. Exclusion: Specific conditions or circumstances listed in the policy under which the insurance won’t cover a loss.
Endorsement/Rider: An addition or amendment to an insurance policy that changes the terms or scope of the original policy. Liability: A type of insurance that covers you if you are found responsible for causing damage or harm to another person or property. Claim Adjuster:
A professional employed by the insurance company to evaluate the validity of a claim and to determine how much should be paid out. Actual Cash Value (ACV): A method of valuing insured property, which is calculated by taking the replacement cost and subtracting depreciation.
Replacement Cost: The cost to replace an insured item at today’s prices without deducting for depreciation. Policy Limit: The maximum amount an insurance company will pay out for a covered loss. Co-insurance: A percentage of a claim that the policyholder is responsible for paying.
For example, if your co-insurance is 20%, and you have a covered medical procedure costing $100, you would pay $20 and the insurance would pay $80. Grace Period: The time after the premium due date during which the policyholder can still make a premium payment without the policy lapsing.
Renewal: The continuation of an insurance policy for another term after its current term has ended. Peril: A specific risk or cause of loss covered by an insurance policy, such as fire, windstorm, flood, or theft. Understanding these terms can greatly assist in navigating the complexities of insurance policies, ensuring you get the coverage you need and that you fully understand your responsibilities and rights as a policyholder.
Annuity: A financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. Binder: A temporary insurance contract that provides proof of coverage until a permanent policy can be issued. Catastrophic Event: A major, unexpected event that causes significant losses, often impacting many people and businesses. Examples include hurricanes, earthquakes, and large-scale floods.
Contingent Beneficiary: The party designated to receive life insurance policy benefits if the primary beneficiary is deceased or cannot be located. Death Benefit: The payout amount of a life insurance policy, payable to the designated beneficiary upon the death of the insured. Floater: An additional policy or endorsement that covers valuable items not otherwise included in a standard policy, like expensive jewelry or artwork.
In-network: Refers to healthcare providers that have contracted with an insurance company to provide services at pre-negotiated rates. Going “out-of-network” might mean higher out-of-pocket costs for policyholders. Lapse: The termination of an insurance policy due to non-payment of premium. Mortality Rate: The number of deaths in a particular population or cohort. Used in life insurance to help determine risk and premium rates. No-Fault Insurance: An auto insurance system where, after an accident,
each party’s own insurance covers their losses, regardless of who was at fault. Out-of-Pocket Maximum: The most you would have to pay in a year for covered health services. Once you reach this amount, the insurance company pays 100% of covered costs for the rest of the year. Policyholder: The person or entity that owns the insurance policy. Reinsurance: Insurance purchased by insurance companies to protect them from large losses. It’s like “insurance for insurance companies.”
Subrogation: The process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it. Term Life Insurance: A type of life insurance policy that provides coverage for a specified period or “term” (e.g., 10, 20, or 30 years). If the insured person is still alive at the end of the term, the policy expires with no payout. Whole Life Insurance:
A permanent life insurance policy that remains in force for the insured’s entire lifetime, provided premiums are paid as required. Umbrella Policy: Additional liability insurance that goes beyond the limits of standard policies, providing extra protection in case of major claims or lawsuits. Waiting Period:
The time a policyholder must wait after signing up before some or all of their health care coverages begin. By getting acquainted with these terms, you can make more informed decisions, communicate effectively with insurance professionals, and better understand your insurance coverage and rights.