The modern way to keep your stuff safe is to insure them. Hence, people worldwide are buying insurance for their buildings, vehicles, and even their lives. It’s easy to imagine you would like to purchase insurance but can’t due to little understanding of insurance terms.
In this post, you’ll get to understand insurance better by going through the ten basic terms it entails. You’ll be getting the definition of these terms to help you understand them and apply them rightly. There’s so much information to gain, so stick with this post to the end so that you won’t miss anything.
Basic Insurance Terms
Like aviation, agriculture, and every other field, insurance has specific terms. These terms define it and aid you when you want to undertake any activity related to insurance. Below are some of the significant insurance terms to understand:
An insurer is a company or organization that provides insurance policies to the insured. This is another term for an insurance company, similar to “carrier.”
The insurer is the entity that pays out the compensation. They’re the ones who devise the insurance policy and negotiate the terms of the contract. People commonly interchange the phrases “underwriter” and “insurer.”
This is the person(s) for whom an insurance policy provides coverage (or, in some situations, the company or business). For example, if you have a vehicle insurance policy, you are the insured in that contract.
The term “insured” refers to anyone or everything legally qualified to receive the benefits of an insurance policy. They primarily claim the payments. Insurers reimburse insureds after a covered loss, damage, or injury that qualifies for payment under the policy’s conditions.
This could include damage to either the named insured’s (the person who purchased the policy) or third property.
A deductible is an amount you, the insured, must pay before the insurance company takes responsibility. It is the amount you would spend on an insurance claim before the coverage kicks in and the insurer pays. Put another way; it’s the money you’d have to pay out of pocket before insurance would cover it.
After you’ve paid your deductible, the insurance company will start paying the rest of the claim amount. The company pays up to the policy’s limits.
For instance, your auto insurance policy has a $1,000 deductible. If you cause $5000 damage in an accident, you will pay $500, and the policy will pay the remaining amount.
A premium is the amount of money the insured pays to an insurance company for coverage. The company can pay this premium in various ways, including monthly installments or a single upfront payment. This part of the arrangement depends on the policy.
Several factors determine the amount of the premium. These factors include the type of insurance, the individual or entity, deductibles, restrictions, etc.
An insurance claim is a policyholder’s formal request to an insurance company for coverage or compensation for a covered loss to an insurance company. The insurance company verifies the claim (or denies the claim). The company will pay the insured or an authorized interested party on the insured’s behalf if they approve the claim.
Insurance claims cover anything from death payments on life insurance plans to basic and extensive medical testing. In some cases, a third party may be allowed to file claims on behalf of the insured person. However, only the policyholder(s) is/are qualified to collect compensation in the great majority of cases.
Electronic Funds Transfer (EFT)
Using this payment method, the insurance company electronically puts the claim money into your bank account. Many claims adjusters can perform inspections on the spot, although this is not always the case. If you complete the claim through a mobile app, you may be able to have the funds directly via EFT.
However, if you apply directly, it might not be the case. EFT can also refer to a method of electronically paying premiums, which anyone can achieve through automatic deductions.
A limit refers to the maximum amount of protection an insurer pays. It is the highest amount an insurance company will agree to pay for a specific plan in any given claim.
Both parties agree on this amount before they issue the policy. Also, they list the amount on the policy declaration page.
For example, your auto insurance policy may have a per-accident limit of $100,000. The insurance provider will pay up to that level, after which the policyholder is responsible for any expenses that exceed.
A quote is an estimate of the cost of a new policy from an insurance provider.
When you call an insurance provider for a new quotation, they will ask for personal information. Also, they will ask for information about the property you want to protect.
Each quote has a specific layout for the person who orders it. Suppose you’re looking for a home insurance quote. The insurance company will ask about your property, such as its location, plumbing system, what roof it has, etc. This is because each factor influences the purchase price, and the insurance firm must be aware of them.
A rider is a form of insurance policy that adds benefits to a basic policy or modifies its terms. Riders may provide additional coverage options for insured parties or restrict or limit coverage. If a party decides to acquire a rider, there will be an additional cost.
Due to the lack of underwriting, the bulk of them is low-cost. A rider is also known as an insurance endorsement. One can add it to life, home, auto, and rental property policies.
This is a legal obligation or responsibility that one person bears when another party is harmed, injured, or dies. For example, imagine you rear-end another car, and the driver and passengers get hurt. They may hold you liable for the damage to the property and individuals.
Your auto insurance’s “liability coverage” may be able to cover the damages up to the policy limit in this case.