42 Important Insurance Terms And Concepts You Need to Understand
Mini Balakrishnan
Before you buy an insurance cover for yourself, you must understand some basic terminologies mentioned in the insurance terms and conditions. This will help you to choose your insurance policy wisely.
Given below is a list of 42 commonly used Life Insurance terms, Health Insurance terms and conditions, Term insurance terms, and also key terms for any other Insurance Policy that requires attention.
1. Policyholder
A person or more than one person whose risk is protected by the policy from any financial loss or damage.
2. Risk
This is a threat or danger that the insurance company has agreed to protect against in the policy wordings or terms. If the insured gets exposed to any of the damages and if a claim is filed, the insurance company has to pay the policyholder the agreed reimbursement amount.
3. Life Assured
This is none else but the insured person for whom the insurance plan is being purchased to cover any risk of an untimely death. Mostly it is the head of the family.
4. Sum Assured
This is the amount that the insurance company agrees to pay on the death of the insured or any other loss that occurred to him as per the insurance cover.
5. Nominee
Normally this is the person next eligible after the policyholder, usually the legal heir who would be nominated by the policyholder who will be availing the benefits of the insurance policy if any untimely event or loss occurs to the insured.
6. Maturity Age
Usually this is the same as the policy tenure but a little bit different from that too. The life insurance company will make it clear in the beginning itself about the maximum age limit of the policy for the insured.
7. Prohibited Risk
This is any class of business that the insurance company will not protect under any circumstances. Usually, this will certainly be mentioned in the policy wordings.
8. Premium
This is the amount of money that an insurance company charges you for the insurance coverage usually taken annually.
9. Reimbursement
This refers to the payment made by the insurance company related to the amount of the loss that occurred to the insured.
10. Reinstatement
The process of restarting a policy back into its active mode after its being lapsed automatically or after cancelling a policy by the policyholder. This might require evidence of insurability and any dues of premium payment in the past.
11. No Claim Bonus
This is a discount in the premiums, offered by the insurance companies if a vehicle owner has not made any claim on their vehicle during their term of the motor insurance policy. It usually is available only for vehicle insurance policies but some health insurance providers also offer this not all.
12. Additional Premium
This refers to an extra charge of premium for any alteration made in the policy during the tenure of the policy as it might increase the financial loss.
13. Accident
Any event which might happen when it’s not expected in the normal course of events.
14. Insurance Brokers
They are either independent persons or even a company who acts on behalf of the insurance company in handling the business with the same. Usually, they collect the premium from the policyholder. But they do not have the authority to decide on any underwriting.
15. Underwriting
This is the major part of any insurance policy which is the actual process of evaluating the risk before issuing the insurance cover for the same.
16. Total Loss
The huge loss occurred to the insured which may not have anything left to claim. This might include the complete destruction of the property or vehicle etc.
17. Renewal
It’s nothing but the continuation of the insurance policy with full effect before the date of expiry.
18. Policy limit
This is the maximum amount the insurer will pay for the insured under a particular coverage or as a whole coverage.
19. Partial loss
Any loss under an insurance policy that is not completely destroyed or damaged.
20. No-Fault Insurance
This is formulated in a way that a person’s own insurance company pays for financial losses like medical expenses or loss of wages due to an accident, no matter who is at fault. But the right to sue the other party may be restricted. This is applicable only under specific conditions in cases like minor claims, minor damages and is usually used to speed up the claims process smoothly.
21. Market value
The money for which something would sell under current market conditions.
22. Comprehensive
The term means the insurance company pays you as well as the third party for the losses due to any accidents or damages.
23. Compulsory insurance
This is any insurance that is required as per the law of that country.
24. Deductibles
The part of a loss that the insured is required to pay while purchasing an insurance policy so when the claim happens on your policy your deductible amount will be counted and the rest of the money will be paid by the insurance company.
25. Depreciation
This refers to the decrease in the value of the property or vehicle due to long time use and wear and tear.
26. Indemnify
This is the process of restoring the insured risk which is subjected to a loss caused due to an unforeseen peril but not caused immediately or directly by anyone or anything.
27. Rider
This is nothing but an add-on to the existing policy. It could be an amendment made to the existing policy too which might include adding or deleting a particular extra cover other than the basic cover.
28. Underwriters
These are people within the insurance companies, who are trained for evaluating risks and deciding on the rates and covers that will be used for a particular risk that is going to be insured with the insurance companies.
29. All Risk
The coverage provided by the insurance company against the loss or damage from all dangers or perils except only those which are specifically excluded.
30. Assurance
This is not to be confused with any other terms. This is the same as Insurance.
31. Co-Insurance
Usually in property insurances and such, there is a clause in which the insured shares expenses of losses.
32. Clause
It’s a term used to identify a particular part of a policy.
33. Endorsement
This is an amendment to the policy used to add or delete a particular cover in the policy.
34. Cancellation
This term is used to refer to the termination of the insurance policy during the tenure of the policy with the insured as a voluntary act of either the insurance company or the insured as a mutual agreement or voluntarily.
35. Effective Date
The date on which a policy will come into effect for the policyholder.
36. Death Benefit
This is the payment that the insurance company will make to the nominee in case of any death occurring to the main policyholder. This amount is different from the Sum Assured as it could be even higher than the sum assured. It includes all other benefits like add-ons etc.
37. Grace period
This is the period after the due date of the premium to be paid by the insured in which an overdue premium may be paid without any penalty. Usually, it’s 15 days to one month depending on the insurance company. The policy will remain active during this period.
38. Free-Look Period
Sometimes the policyholder may not be comfortable with the terms and conditions while on the policy tenure. In such cases, they might choose to return the policy. So the free-look period is the time frame during which a person may choose to return the policy to the company. Usually, it is 15-30 days after receiving the policy documents.
39. Exclusions
This is very crucial to check before you buy a life/health insurance policy especially. The to-be insured may get an impression that everything might be covered under the policy but the exclusions will provide you with a list of things that are not covered. For example, suicide won’t be covered under a life insurance policy and no benefits can be claimed under the same.
40. Lapse
The end or termination of a policy due to a failure in the payment of premium on the expected date. If a policy has a grace period and if the insured has still not paid the premium the policy lapses automatically too.
41. VIN
This refers to the Vehicle Identification Number on your vehicle which is usually found on the dashboard of the vehicle. This helps identify the model, the make, the registration and the title of the vehicle.
42. Revival Period
As we already know if the policyholder does not pay the premium even after the grace period the policy will lapse. But if the policyholder still wants to continue with the same policy details then under subjected terms and conditions the company gives a facility to reinstate the lapsed policy and this must be done within the specified period mentioned by the insurers. This is termed the Revival Period. This process is exclusively done by the underwriters.
