Simply having the basic understanding of terms used in insurance can make the difference between having a plan that will protect you and your property against potential risks and having a plan that will not meet your insurance needs.
This article will help you understand some of the common terms used in insurance.
Insurance
A legal contract in which the insured agrees to pay an amount of money (premium) to the insurer who agrees to pay money to or on behalf of the insured on the happening of an event.
Premium
This is the amount of money the insured pays to the insurance company in exchange for an insurance cover. This could be a one off payment or regular instalments or as per the agreement with the insurer.
Insurer
A company that accepts risks after receiving premium and pays compensation.
Insured
Refers to a person covered under an insurance policy.
Agent
A person who represents an insurance company and sells insurance policies on its behalf.
Broker
A professional who acts as an intermediary between a client and an insurance company, helping the client find a policy that best suits their needs.
Underwriter
A professional who calculates how much premium to charge for various insurance products after evaluating and analyzing the risks involved in insuring people and assets.
Policy
This is written evidence of the contract issued by an insurance company to the insured setting out terms on which the insurance cover has been provided.
Beneficiary
A person who is designated as the recipient of the benefits from your insurance policy.
First/ Second/ Third party
The first party is the insured, the second is insurance company and the third party is any other person(s) who may be affected by the insured actions.
Proposal form
This is an application form completed by a potential client for an insurance cover.
Claim
A formal request to an insurance company asking for a payment based on the terms of the insurance policy.
Excess
This is the amount of money the insured pays when making a claim. It is a way of accepting a small portion of risk yourself. The amount is specified in the policy.
Limits
The highest amount your insurer will pay for a claim that your insurance policy covers.
Exclusions
These are the cases in which the insurance company does not provide coverage.
Riders
This is an additional benefit on an insurance policy.
Loss history
This refers to the numbers of insurance claims previously made by the insured. An insurance company will consider loss history when underwriting a new policy or considering renewal for an existing policy.
While there are many more insurance terms than the ones outlined here, these are some of the more common definitions that will be of help when purchasing an insurance policy.
