Words when buying insurance can be pretty intimidating. The terms you need to know before buying coverage are key because words make the foundation of your insurance policy. Knowing the term will not only enhance your ability to make a decision but also enable you to make proper choices based on your specific needs. Here is a guide to some of the most crucial insurance terms you should know before buying coverage.
1. Premium
A premium is a cost you pay for your insurance policy, however, it could either be monthly, quarterly or annual. It can be described as the price tag for your insurance plan. The premiums are based on factors such as age, health, lifestyle, and extent of coverage chosen. Greater benefit coverages tend to cost more; however, lower premiums are associated with higher costs.
A deductible is the amount of money you are expected to pay for your expenses before your insurance starts paying for a fraction of it that will assist you in covering the bills for your expenses. In this context, when you have health insurance with a $1,000 deductible; therefore, you pay the first $1,000 of your covered expenses where, after paying them, your insurer starts paying your bills to cover your medical care. The high deductibles save more money at the time of paying the premium but subsequently reduce the percentage share of the insurer when a claim is filed.
3. Co-Payment and Coinsurance
Co-payment, known also as co-pay, and coinsurance are two cost-sharing methods. The Co-payment is the fixed amount you pay for some services, like a $20 fee for a visit to the doctor. Coinsurance refers to the percentage of the cost. For instance, when your policy has a 20 percent coinsurance, this means you will have to pay 20 percent of the expenses after passing the threshold set upon meeting your deductible. These terms are especially very relevant in health and auto insurance policies.
4. Policyholder
The person whose favor the insurance maintains is called a policyholder. A policyholder pays a premium as well as makes changes in the policy. For example: when you buy a homeowner’s insurance policy then you fall in the category of the policyholder, which means you have been covered under this particular policy and also you are in control of the terms and conditions of the policy.
5. Beneficiary
A beneficiary is a person or a group of people to whom the benefits of a policy are supposed to be given. In most cases, it is in life insurance. Suppose you have life insurance. You may name your spouse or child as the beneficiary in it. When you die, they will get the benefits of that policy.
6. Underwriting
Underwriting is the practice the insurers use to evaluate the risk attached to a prospective policyholder. According to underwriting, the insurer will determine whether to issue a policy and at what cost. The process determines the premium on consideration of age, health, occupation, and lifestyle. In this regard, the premium reflects the amount of risk being presented by each policyholder.
7. Liability
Liability refers to one’s legal liability for something, especially costs or damages. Insurance liability coverage helps protect you if you are the one responsible for injuring another individual or damaging someone else’s property. Liability coverage is usually found under auto and homeowner’s insurance because it can offer help in legal fees, medical bills, or repair costs that you do not have to personally pay.
8. Coverage Limit
Coverage limit: It is the amount at which the insurance cover will pay you in case you claim any covered claim. For instance, if your auto insurance coverage offers bodily injury up to $ 100,000, that is the maximum amount your insurance company is going to pay for any form of treatment until such an amount, and the rest going above it you would be held liable for. Ensure you have chosen a coverage that would almost fully cover your assets in case of a major incident.
9. Exclusions
Exclusions: These are specific conditions or circumstances that are not covered in an insurance cover. For example, most health covers contain inclusions that exclude some treatments such as cosmetic surgery. Knowing exclusions is very important since they will tell you what your policy will not cover so that you avoid any unpleasant surprises later.
10. Rider
On the other hand, a rider is considered an add-on and an optional module that would give you further benefits on your standard policy. For example, you may add on to life insurance a rider called critical illness coverage. Even though riders are a cost added to the policy, it gives you customized protection in case of certain specific needs or circumstances that make your coverage more complete.
11. Claim
A claim is a formal requirement submitted by the insured party to the insurer, requesting the latter to cover losses or expenses under the terms of the policy. For instance, after your car accident, you would present a claim to your auto insurer to get reimbursement for repairs; hence, knowing how to make a claim and what kind of documentation would be required is an important prerequisite for the successful processing of your claim.
12. Grace Period
The grace period is the number of days that you are given from the date that you will be supposed to pay the premium which you can do your payment before the policy is forfeited. You could then therefore make a missed payment during the grace period usually 15-30 days and thereby keep the policy in force. Failure to pay within the grace period may however mean the policy will lapse.
13. ACV vs. Replacement Cost
When you are dealing with property insurance, you might hear words like actual cash value and replacement cost. While ACV is the supposed value of an item less any depreciation, which can have occurred at the time of loss, replacement cost is said to be the actual cash value to replace it with a similar item without depreciation. You should know these because they determine what you get from a claim.
14. Subrogation
Subrogation is where the insurance company tries to recover from another party liable to the claim. If your property is damaged by another person, for instance, your insurer may compensate you directly, and then recuperate the money from the third party. That way, the insurer will recover some or all the payout given out on the claim.
15. Actuary
An actuary is a person supposed to determine the cost implications of risks as well as uncertainty. Actuaries use math, statistics, and financial theory in their analysis and forecasting of events together with premium determination. It is useful for an insurance company to have actuaries since their calculations will help in the determination of just and accurate premiums for policies.
16. Reinsurance
Reinsurance is like an insurer buying insurance to spread their high exposure; and if one such insurer experiences an enormous quantity of claims because of some great occurrence, then the reinsurance would help spread some or most of those costs.
Conclusion
The insurance terms will arm you with the knowledge so that you can purchase coverage confidently and make good decisions. Knowing the basic concepts-that is, premiums, deductibles, exclusions, and riders will avert or ensure you are less likely to get sticker-shocked from a confusing situation or an expense you did not budget for. With this, knowing this, you will navigate the entire insurance purchasing process with clarity and certainty that your policy fits perfectly within your needs and your budget.
With this, spend some time learning these basic terms of insurance before you even start thinking about what achievement is in store for you under a well-protected future. Contact us for more details.