Every industry has a battery of terms that members in that field use in their day-to-day operations. The field of insurance is no exception. Insurance is a complex industry with its terms and jargon which most people out of the industry struggle to understand. Understanding the terms can mean all the difference between taking the best policy or missing the best insurance coverage for the nature of risks you face.
This article will try to explain 30 basic insurance terms in a simple, clear language for everyone. These terms apply to many types of insurance: life insurance, health insurance, home insurance, etc.
But first, why is it important to know these terms?
Mastering insurance terms will help you understand what you are signing up for. Understanding the fine print of the policy will enable you to make the right decision and avoid costly disappointments down the road.
Understanding insurance terms put you in a great position to sift through the different insurance options sold to you by insurance brokers. Remember, brokers are in it for the commission, and some may mislead you into purchasing the wrong policy.
Insurance claims dispute are commonplace, with policyholders pitted against insurers in protracted litigation. At the heart of the majority of disputes is the wording of the policy. You can avoid the debacle by understanding the terms in the policy documents.
Here are the basic insurance terms you should familiarize with to equip yourself better to navigate the insurance jungle.
Actual Cash Value (ACV) is a common term in Property and Casualty insurance. ACV refers to the amount payable to a policyholder after deduction of depreciation of the property. When signing up for the cover, the value of the property is higher but depreciates with time. In case of property damage or loss, the insurance company will pay you the replacement cost minus depreciation.
When the insured event occurs, an insurance company will dispatch an adjuster your way to determine the loss. An adjuster is an insurance professional who investigates claims, establish whether your policy covers the event, and assess the extent of damage and liability. There are three types of adjuster; public adjusters, staff adjusters, and independent adjusters.
Looking for insurance coverage and the most likely person you are likely to meet is an insurance agent. An insurance agent is a person who sells coverage policies on behalf of an insurance company. Insurance companies rely on agents to expand the geographical scope of their products. There are two types of agents; Independent and captive agents. Independent agents sell policies of different carriers while a captive agent can only sell a single carrier's policies.
The ‘Assured’ refers to the policyholder or the individual under whose name the insurance cover is sought. The assured is protected against different events such as sickness or death. The assured or the appointed beneficiaries receive the benefits outlined in the policy on the event that the insured event occurs. The assured is also known as the Insured.
In the event of an accident, the insurance company will want to establish the person responsible and determine who shall bear liability for the attendant damage. At- fault is being the cause of an accident by your actions or inaction. Insurance companies assess who’s at fault by relying on the legal principle of negligence, that is, acting in a manner not exercising reasonable care in circumstances where you owe another person a duty of care.
If you are at fault in an auto accident, you are likely to cause physical harm to other persons. Bodily injury is the nature of injuries suffered by other people as a result of your actions. Bodily injury liability coverage helps pay for medical costs, loss of income, or legal fees incurred by the injured party.
A carrier is another name for an insurance company that provides coverage. Some insurance companies specialize in one line of coverage, such as auto insurance, health insurance, or property and casualty. Other carriers will have many types of coverage under the same roof.
When you sign up for an insurance policy, you expect to be compensated when the insured event occurs. A claim is a payment request served on an insurance company upon occurrence of the event covered by an insurance policy. For instance, if you insure your pet against injury and the said injury occurs, you are entitled to file a claim with your carrier for compensation. However, the injury must have happened in the manner stipulated in the policy and upon satisfactory investigation by the insurance company or their approved adjusters.
A claimant is an insured person or entity that, upon suffering loss as a result of an insured event, files a claim for compensation from an insurance company in accordance with the policy. For instance, if you insure your car against vandalism, you will be the claimant if you suffer from the vandals' actions.
An insurance policy provides specific protections for you, your property, or other people and their property. The nature of what’s included in the policy is known as coverage. It is simply what the insurance company commits itself to be liable for. If you insure your home against fire, then the coverage is for damage by fire. If a hurricane strikes your home, the event is beyond the insurance policy coverage, and therefore you do not qualify for compensation.
Damages refer to the money one is required to part with for settling the claims of another party. It is the legal term for the sum of money imposed by the law for the injury, violation, or breach of another person's rights.
The declaration page is an integral part of the insurance policy document, which gives a synopsis of the policy. The declarations page comes before the policy wording and carries all the vital information of your contract with the insurance company. In the document, you will find information on what is covered and what is not covered, the coverage amount, the premium payable, coverage period, and how to file a claim. Read the declarations page carefully to point out any discrepancies such as names mismatch.
This is the amount of money you pay out of pocket to cover for the insured event before the insurance plan kicks in. For instance, a deductible of $500 on your car insurance implies you will pay the first $500, and then the insurance company will cater for any amount above that amount.
There are different payment methods that a policyholder can pay insurance premiums, or the carrier can settle claims. Electronic Funds Transfer refers to a payment method where money transactions between a policyholder or a claimant and the insurance company are done electronically into the respective bank accounts.
In the event that a defined event occurs, the insurance company, through a claim’s adjuster, will assess the extent of damage or loss. The adjuster will then provide a figure indicating the amount of money it will cost to replace or repair the damage. The figure arrived at by the adjuster after the assessment of damage is called an estimate.
Insurance coverage is specific - it only covers specified insured events. Those events not under coverage are called exclusions. For instance, if you insure your pet against accidental death and the pet dies from a pre-existing condition, the insurance cover will be out of range since death by disease is excluded from coverage.
This is a window period granted by an insurance company to a policyholder to settle their premium after they fall due. Ordinarily, the insurance premiums will be due on a specific day, as outlined in the policy. If you miss the day due to unforeseen circumstances, the cover will not lapse on the same day. A grace period allows your cover to remain valid for a little while, mostly up to 3 months. After the grace period has lapsed, you are effectively not covered. Take note of the grace period clause in your policy as the period differs across carriers.
The insured is the person, persons, or entity whose risk of loss is protected by the insurance policy. The insured is the subject of insurance coverage. It has the same meaning as assured or policyholder.
The insurer is the carrier or the insurance company that provides you with coverage to protect you against certain risks. See also the definition of carrier above.
When found at fault or responsible for something, then you are liable or in liability. Liability is an obligation you owe to another party for the loss, injury, or damage you inflict on them. A liability policy covers the legal and compensation costs if it is proven that you are indeed liable.
The limit is the amount of money an insurer commits to pay for a specific claim as detailed in the policy document. For instance, if you insure your car for a maximum limit of $40,000, the carrier will only pay up to the stated limit, and you will be responsible for any further expenses.
A loss refers to the reduction in the value of the insured property as a result of an insured peril. Loss also refers to the amount sought by an insured person or entity through a claim. As a policyholder, you can only claim loss incurred in line with the terms of the policy.
This is the amount of pay-out an insurance company pays a policyholder after the maturity of a policy. The amount comprises premiums contributed over the term of the policy, interest, and bonuses. The payment is subject to terms and conditions, such as paying all your premiums. In the unfortunate event of death, your family will receive the pay-out.
The named insured is the person or entity covered by a policy and whose name appears on the declaration page.
An insurance policyholder is an individual or entity protected by a policy from the risk of loss from an insured peril. A policyholder is the policy owner.
This is the amount of money a consumer pays to an insurance company in exchange for coverage. It is the subscription you pay to a carrier in return for the company’s pledge to provide protection in the event that you suffer loss. The premium amount is determined by the insurance company depending on factors such as the nature of risk covered, deductibles, liability limits, etc.
A policy is said to lapse when the policyholder fails to fully or partially fulfill the policy's obligations. In such circumstances, the benefits of coverage are no longer available to the insured. Missed premiums are the main reason for policy lapse. A lapsed policy can be recovered by updating the missed payments.
This is a property valuation method that costs the replacement of damaged property without deduction for depreciation. Unlike actual cost value, which considers depreciation, replacement entails restoring property with an identical model. For this reason, replacement coverage is costly than ACV.
Risk is the essence of the whole insurance business. It has several meanings such as;
The probability of something happening that might lead to injury or loss
Exposure to hazard
Sum assured is the value of coverage provided when signing up for the policy to be paid at the end of the policy tenure. In case of a policyholder's demise, the insurance company pays the amount to nominees or appointed beneficiaries.
Already feeling like an insurance expert? There is still much more to learn, but with knowledge of these terms you are a step closer. To help you navigate the insurance jungle, PolicyScout is your source for expert guidance and insurance advice you can trust. Contact us today for your home, auto, life, pet, and health insurance quotes.