Understanding insurance terminology is crucial when choosing the right policy for your needs. Insurance policies can be complex, and knowing the key terms helps you make informed decisions. Below are 20 essential insurance terms you should know to navigate the world of insurance confidently.
1. Insurance Policy
An insurance policy is the contract between the policyholder (the insured) and the insurance company (the insurer). It outlines the coverage, exclusions, premium costs, and terms and conditions.
2. Premium
The premium is the regular payment made by the insured to the insurer to keep the insurance policy active. Premiums can vary based on factors like age, health, and coverage level and are typically paid monthly, quarterly, or annually.
3. Grace Period
A grace period is the additional time allowed for the insured to pay overdue premiums before the policy lapses. Typically, this period lasts up to 30 days, keeping your coverage intact until payment is made.
4. Lapse
When a policy lapses, it means that the coverage has been canceled due to non-payment of premiums. If this happens, the policyholder loses all insurance benefits.
5. Rider
A rider is an add-on to an insurance policy that provides additional coverage beyond the standard terms. For example, a life insurance policy may offer riders for accidental death or critical illness.
6. Claim
A claim is a formal request by the policyholder to receive coverage or compensation for a loss or event covered by the policy. The insurer evaluates the claim before processing the payment.
7. Underwriter
An underwriter is the person or organization that evaluates the risk of insuring the applicant and determines the premium that should be charged for the coverage.
8. Sum Assured
The sum assured is the amount the insurer guarantees to pay upon the occurrence of a covered event, such as death in a life insurance policy.
9. Beneficiary
A beneficiary is a person or entity designated to receive the insurance payout upon the death of the insured or when the terms of the policy are met.
10. Deductible
A deductible is the amount the policyholder must pay out of pocket before the insurance company covers the remaining costs. For instance, in health insurance, the deductible applies before your coverage kicks in.
11. Co-Payment
Co-payment is a fixed percentage or amount the policyholder is required to pay for medical services, with the insurance covering the remaining balance.
12. Endorsement
An endorsement is a written document attached to an insurance policy that modifies the terms or coverage. It can either add, exclude, or change the provisions of the original policy.
13. Exclusion
Exclusions are specific conditions or situations that are not covered by the insurance policy. For example, a health insurance policy may exclude pre-existing conditions.
14. Whole Life Insurance
Whole life insurance provides coverage for the policyholder’s entire life, with guaranteed death benefits and a savings component that can build cash value over time.
15. Term Insurance
Term insurance offers coverage for a specified period, such as 10, 20, or 30 years. If the insured passes away during the term, the beneficiary receives the death benefit.
16. Free Look Period
The free look period allows policyholders to review the terms of their new policy and decide whether to keep it or cancel it for a full refund. This period typically lasts for 10 to 30 days, depending on the insurer.
17. Cash Surrender Value
Cash surrender value is the amount the policyholder receives if they cancel a whole life or universal life policy before it matures. This value is often less than the total premiums paid.
18. Bancassurance
Bancassurance refers to the partnership between a bank and an insurance company, where insurance products are sold through the bank’s distribution channels.
19. Unit-Linked Insurance Plan (ULIP)
A ULIP is a hybrid life insurance product that combines insurance with investment. Part of the premium goes toward life insurance, while the rest is invested in equity or debt instruments.
20. No-Claim Bonus (NCB)
No-claim bonus is a reward offered by insurers to policyholders for not making any claims during the policy term. NCB can result in lower premiums in subsequent years, especially in car or health insurance.
