Insurance Terms Made Simple #
Policy #
A legal contract between you and the insurer. It details what risks are covered, under what circumstances the insurer will make a payment to you, how much money and what type of benefit you will receive if you make a claim.
Policyholder #
The insured or the person covered under the policy.
Coverage #
The amount of protection you have bought. It is also the maximum amount the insurance company will pay you if you make a claim for loss or event covered by your policy.
Benefit #
The amount the insurer will pay you if the insurer accepts your claim.
Premium #
The amount you pay for the insurance.
Rider/Endorsement #
A specific change to a basic policy, intended for somewhat common deviations or to customize a policy to a particular insured
Surcharge #
Extra cost added to the basic premium, usually due to at-fault claims or legal action (a traffic violation often results in a surcharge, which can be added in the middle of a policy period)
Actuary #
A person who determines rates and settlements for an insurance company based on statistics and mathematical models
Adjustor #
A person who assesses the extent of damage in an incident, which is used as the basis for the settlement offer
Cash value #
This is the amount the insurer pays to the policyholder when a life insurance policy is canceled. It can also be an amount added to the death benefit and can be paid upon the insured’s death. This term is used with permanent life insurance policies.
Death benefit #
The amount the insurer will pay the beneficiary or beneficiaries upon the insured’s death.
Claim #
This is the official notice to your insurer to be paid for a loss or event covered by your insurance policy.
Beneficiary #
This is the person or entity the insured names or assigns to receive the proceeds of the policy. A beneficiary can be revocable (can be changed at any time without informing the beneficiary) or irrevocable (can’t be changed without the beneficiary’s written permission).
Deductible #
The amount you agree to pay before the insurer pays the rest.
Exclusions #
Things that are not covered by your policy. For example, some health insurance policies may exclude certain medical conditions you had before you applied for insurance, or a travel insurance policy may exclude claims if you travel to a high-risk country. This is why it is important to read your policy thoroughly to check what it covers and what it doesn’t cover so that there will be no surprises when the time to claim comes.
Risk #
Probability or likelihood that an insured event, such as loss, injury, or death, will happen while the policy is in effect.
Rider #
It is a clause or term added to your insurance policy to provide protection. This has an additional cost because it covers risks not covered in the basic policy.
Term #
The time period you are covered by your policy.
Lifetime Limit #
Upper limit the insurer is required to pay over the policy lifetime
Annual Limit #
Similar to lifetime, except per year
Liability Limit #
Upper limit per claim
Annuity #
Yearly payment (usually a settlement) which spreads a full benefit out over time
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