The Insurance Industry is a huge industry with many intricacies and terms that can be difficult for some people to understand. In this blog post, we will discuss 10 insurance terms that you absolutely must know.
1. Insurance Policy
This is one of the insurance terms that you can never meet. An insurance policy, in the simplest terms, is a contract between two parties. It’s not just any old piece of paper with some words on it. This insurance contract explains how much money will be paid to someone if something bad happens and there is a loss or damage. The information contained within an insurance policy includes:
– Insured party: This can include people as well as businesses, properties, cars, or even pets. Basically, anything or anyone you want to be covered by your insurance needs to go on this list.
– What exactly is being insured? Is it physical property like buildings? Or perhaps equipment used for business purposes? For car insurance, is it just the car only, or does the policy include Personal Injury Protection (PIP) as well?.
– The amount of coverage that’s being provided. This could be a set dollar figure for each occurrence (like in the event of a fire), or it could be a percentage of the total value of whatever is being insured.
– When the coverage begins and ends. Sometimes policies will have an” effective date “, which is when they go into effect. While others may only be valid for a certain period of time (say, six months). There’s also usually a limit on how long after an incident has occurred, you can make a claim.
– How claims are paid out. In most cases, there are “claims procedures” that need to be followed in order for a person to make a claim. This could include filling out forms, providing documentation, etc. A claims period is the amount of time you have following an insured event before making a claim on your policy.
– The specific conditions under which coverage will not apply (or won’t pay as much). These are known as exclusions and usually fall into one of two categories:
Exclusions may also limit what types of losses or damages aren’t covered by the policy–for example, some policies don’t cover flood damage, so if there was water damage from a sewer backup due to flooding at your property, keep in mind that your insurance company probably wouldn’t help with restoring that.
The policy is one of the most used insurance terms.
2. Premium
An insurance premium is an amount you pay to an insurance company for coverage or policy. The premium can either be paid in a lump sum (like when buying car insurance) or it could require monthly payments (like with homeowner’s insurance).
In some cases, like life and health policies, premiums are based on the age and sex of the insured party. The actual value of your property may determine how much you’ll pay per month in other insurances, such as homeowners or renters.
3. Deductibles
Deductibles are also important insurance terms you will come across. These are amounts of money that must you contribute before any claims become payable by the insurer. The deductible will vary depending on what type of policy is being used.
For example, if you have an automobile insurance policy with a deductible of $500. That means you are responsible for paying the first $500 of any covered expenses. The other party pays anything over and above this threshold up to your limit of liability. Once the Deductible is paid, the insurer will step in and pay the claim. This is why deductibles are also known as “self-insured retentions” because they require money that’s coming from somewhere else (usually either personal funds or savings) before being reimbursed by the insurer itself–which can be difficult when trying to afford things like medical treatment!
4. Insured Party
This is someone whose interest/property is insured under the insurance terms in the policy. If the car belongs to you, and you paid for the premium, then you are the insured party. One important thing to note is that you must demonstrate an interest in what you are insuring. How will you justify buying motor insurance for your neighbor? It’s outrageous. In other words, you should possess insurable interests in what you want to be insured. This is one of the most important insurance terms.
5. Calamity insurance terms
This is are unforeseen events that cause damage to the property or person insured. You can take insurance against motor theft or fire. Life covers are important insurance terms you also come across. Insured calamities are usually theft, fire, death, and many others. The insurance company will only pay for the calamity insured. You should always take time to understand all calamities that you need to be covered for before taking insurance.
6. The Insured Amount
This is the maximum payment that the insurer agrees to make in respect of any one occurrence of loss or damage. The insured amount is not always the amount you get paid in event of a calamity. One principle of Insurance is to restore you to where you were before the calamity event occurred . Therefore, you most likely paid based on the value of your car at the time of the calamity. Always get a current valuation of the asset and share it with insurance at the time of taking the policy.
7. Effective Date
The effective date usually coincides with when a policy begins. Some policies have a waiting time period within which the policy is not effective. This can be 30 days from the date premium was paid. You should be aware that in case anything happens during this period, then you do not have protection from the insurance policy.
8. Claim Period
It is the amount of time you have following an insured event before making a claim on your policy. The insurance company will specify for example that all claims must be submitted within 6 months from the date of calamity. You don’t want to be time-barred. Needless to say, claim period is one of the most important insurance terms.
9. Subrogation insurance term
Subrogation is the legal process by which an insurance company takes over another party’s rights and remedies against a third party who caused damages to both parties. Let us put it in a simple way. If there is a road accident and insurance pays out on the same. The Insurance company has the right to step in the shoes of the injured party to pursue the third party who caused the damage through subrogation
10. Utmost Good Faith Insurance Terms
The Principle of Utmost Good Faith in insurance is key to the enforceability of insurance contracts. It simply means that both the insurer and the insured must deal with each other in good faith. That is, they must disclose all material facts to each other and not seek to gain any unfair advantage. This principle underpins the entire industry, and violation of it can lead to a contract being void or unenforceable. If you fail to disclose material facts upfront and then such facts become known when you are in process of claiming, you won’t be paid.
Read about Home Insurance Tips for beginners.
Always engage your Insurance Advisor to understand even more.
That’s it! These are ten insurance terms you should know before taking out a policy. Be sure you understand what each one means and how it might affect you if something happens. Protect yourself by being an informed consumer!
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