With insurance being a crucial part of modern life, whether you’re new to the industry or just need a brush up on the terminology, our latest blog brings you the ultimate jargon buster on terminology you need to know.
1. Premium
The premium is the amount you pay for your insurance policy. It can be paid monthly, quarterly, semi-annually, or annually. The premium amount is influenced by various factors including your age, health, type of coverage and the amount of coverage.
Example: If you have a car insurance policy with a premium of £1,200 annually, you might choose to pay £100 per month.
2. Deductible
A ‘deductible’ is the amount you must pay out-of-pocket before your insurance company starts to pay for covered services. Higher deductibles usually mean lower premiums and vice versa.
Example: If your health insurance plan has a £1,000 deductible, you must pay £1,000 for healthcare services before your insurance begins to cover costs.
3. Copayment (Copay)
A copayment is a fixed amount you pay for a covered service, typically at the time of service. Copays are common in health insurance policies.
Example: You might have a £20 copay for each visit to your primary care physician.
4. Coinsurance
Coinsurance is your share of the costs of a covered healthcare service, calculated as a percentage. You start paying coinsurance after you have paid your deductible.
Example: If your coinsurance is 20%, you pay 20% of the cost of a covered service and your insurance pays the remaining 80%.
5. Out-of-Pocket Maximum
This is the most you have to pay for covered services in a plan year. After you spend this amount on deductibles, copayments, and coinsurance, your insurance pays 100% of the costs of covered benefits.
Example: If your out-of-pocket maximum is £5,000, once you’ve paid that amount in a year, your insurance covers the rest of your medical expenses for that year.
6. Policyholder
The policyholder is the person or entity that owns the insurance policy. This person is responsible for paying premiums and has the authority to make changes to the policy.
Example: If you purchase a life insurance policy for yourself, you are the policyholder.
7. Beneficiary
A beneficiary is the person or entity designated to receive the proceeds from an insurance policy, this term is commonly used in life insurance policies.
Example: You might name your spouse as the beneficiary of your life insurance policy.
8. Claim
A claim is a request made by the policyholder or beneficiary to the insurance company for payment of the benefits as covered by the policy.
Example: After a car accident, you would file a claim with your insurance company to cover the repairs.
9. Exclusion
Exclusions are specific conditions or circumstances for which the insurance policy does not provide coverage. It’s important to read the exclusions section of your policy to understand what is not covered.
Example: Many health insurance policies exclude coverage for cosmetic surgery.
10. Endorsement (or Rider)
An endorsement or rider is an amendment to an insurance policy that changes the terms or scope of the original policy, this can add, delete, or modify coverage.
Example: You might add a rider to your homeowner’s insurance policy to cover valuable items like jewellery.
11. Grace Period
The grace period is the time after the premium due date during which a policyholder can pay the premium without losing coverage.
Example: If your life insurance premium is due on the 1st of the month, you might have until the 15th to pay it before the policy lapses.
12. Underwriting
Underwriting is the process by which an insurance company evaluates the risk of insuring a person or entity and determines the premium that will be charged for coverage.
Example: When you apply for health insurance, the insurer will assess your medical history, age, and lifestyle to decide your premium.
13. Adjuster
An adjuster is a person who investigates insurance claims to determine the extent of the insuring company’s liability. Adjusters may work directly for the insurance company or as independent contractors.
Example: After you file a claim for damage to your home, an adjuster will visit to assess the damage and estimate the cost of repairs.
14. Subrogation
Subrogation is the process by which an insurance company seeks to recover the amount it has paid on a claim from the party that is legally responsible for the loss.
Example: If your car insurance company pays for damages caused by another driver, it may pursue that driver or their insurance company to recover the payment.
15. Liability Coverage
Liability coverage protects you against claims resulting from injuries and damage to people and/or property. It covers legal costs and payouts for which you are found legally liable.
Example: If someone slips and falls on your property, liability coverage would pay for their medical expenses and any legal fees if they sue you.
16. Actual Cash Value (ACV)
Actual Cash Value is the value of your property, taking into account depreciation. It’s the cost to replace the item minus depreciation.
Example: If your 5-year-old television is stolen, ACV would pay you the cost of a new TV minus depreciation for the age of the TV.
17. Replacement Cost
Replacement cost is the amount necessary to replace your damaged or stolen property with a new item of similar kind and quality, without deducting for depreciation.
Example: If a windstorm destroys your roof, replacement cost coverage would pay for a new roof of similar quality without factoring in depreciation.
18. Umbrella Policy
An umbrella policy provides additional liability coverage beyond the limits of your home or car insurance policies. It is designed to protect you from major claims and lawsuits.
Example: If you are sued for a large amount that exceeds your car insurance liability limits, an umbrella policy would cover the excess amount.
19. Term Life Insurance
Term life insurance provides coverage for a specific period (the “term”), such as 10, 20, or 30 years. If the insured person dies during the term, the beneficiary receives a death benefit. If the term expires while the insured is still alive, no benefit is paid.
Example: A 20-year term life insurance policy will provide a death benefit if the insured dies within those 20 years.
20. Whole Life Insurance
Whole life insurance is a type of permanent life insurance that provides coverage for the insured’s entire life, as long as premiums are paid. It includes a savings component called cash value, which grows over time.
Example: Unlike term life insurance, a whole life policy does not expire after a set term and can also accumulate cash value that can be borrowed against or withdrawn.
21. Annuity
An annuity is a financial product sold by insurance companies that provides regular payments over a specified period, typically for the rest of the annuitant’s life, in exchange for an initial lump sum or series of payments.
Example: You might purchase an annuity with a portion of your retirement savings to ensure a steady income stream in your later years.
22. Insurable Interest
Insurable interest is a requirement that the policyholder must have a legitimate interest in the continued life or property of the insured. This prevents people from taking out policies on strangers.
Example: You can purchase life insurance for yourself, your spouse, or your business partner because you have an insurable interest in their lives.
23. Grace Period
The grace period is a set amount of time after the due date for a premium during which the policy remains in force without penalty, even though the payment has not been made.
Example: If your health insurance premium is due on January 1st and you have a 30-day grace period, you have until January 30th to make the payment without losing coverage.
24. Indemnity
Indemnity is a principle in insurance that ensures an insured is restored to their financial position before the loss, but not allowed to profit from the insurance.
Example: If your car is damaged in an accident, indemnity means your insurance will pay for repairs to bring it back to its condition before the accident, but not to make it better than it was.
25. Declarations Page
The declarations page is the part of your insurance policy that includes key information such as the policyholder’s name, the property or individuals covered, policy limits, and premium amounts.
Example: When you receive your homeowner’s insurance policy, the declarations page will list the coverage amounts for the dwelling, personal property, and liability.
26. Act of God
An event that is not the fault of any individual, such as a natural disaster.
Most insurance policies do not contain an exclusion for acts of God. The policy will set out what is insured and what the main exclusions are. If loss occurs from an event covered, then the insurer will pay out, in accordance with the policy terms and conditions.
28. Material Fact
Any fact which would influence the insurer in accepting or declining a risk or in fixing the premium or terms and conditions of the contract is material and must be disclosed by a proposer, or by the insurer to the insured.
Understanding insurance jargon is essential for navigating the complexities of insurance policies and making informed decisions about your coverage. By familiarizing yourself with these common terms, you can better understand your policy, communicate effectively with your insurer, and ensure that you have the coverage you need.
Remember to review your policy documents carefully and if you’re looking for help or advice, why not get in touch with our team?
