Insurance Terms and Definitions You Must Know
People use insurance to cover financial risk as additional protection for uncertain situations in the future. This field has several categories such as general, auto, life health, commercial, and homeowner. Before buying insurance policies, people must understand some insurance terms and definitions. Check the following sections for more explanations.
Auto insurance provides protections related to car, vehicle, and driver. The coverage is protection when a car is collision, stolen, or receiving any issue. More insurance terms and definitions will be at the below list.
A payment a person must pay to get protection from insurance policy. For auto, you must pay for a 6-month installment.
Out of pocket payment that the policyholder will pay before sending back a claim into the insurance company. You pay the cost for repair, maintenance, and any damage then the benefit will replace the money.
● Actual cash value
Fair value or price calculated regarding goods and products including vehicles. When claiming a stolen car, the company will use actual cash value to determine the fair price at the time when the incident occured.
● Collision coverage
You receive financial coverage when a collision happens. It can be various forms such as deductible or cost sharing.
The value of a car that will reduce per year based on several factors. Using depreciation, the company will estimate and calculate how much actual cash value is.
● Grace period
After the due date, the insurance company provides an extension period so that you can pay. This policy might not be available for auto insurance. After 6-month is done, the contract is cancelled automatically.
● Split limit
The insurance limits the amount of benefits per liability such as payment per injured body, property damage, and repair coverage. In general, each will have a maximum threshold that the company must pay.
You buy life insurance as protection upon the death. The benefit is financial coverage that your next-to kin will receive. Insurance terms and definitions related to this one will be explained at the following list.
● Accidental death benefit
It is a benefit that a company gives when a policyholder receives an accidental death. Company will conduct assessment and underwriting to ensure the coverage is sufficient.
You use annuity to get the amount of money per month for the rest of life. This contract requires savings that will be enough to obtain the benefits.
● Term and coverage period
Both refer to the same meaning as period that company will provide coverage and benefit. Term life insurance is various depending on the contract.
● Underwriter and underwriting
Underwriting is a process to determine either a person is eligible to be a policyholder or not. The one who does underwriting is called underwriter. This job is the preliminary stage before signing the policy.
● Life expectancy
The age is likely people will get based on data and analysis. For measuring risk and coverage, life insurance utilizes personal and group calculation.
● Insured and insurer
You buy insurance from the company. It means that you are insured and the company is an insurer. Another name for insured is a policyholder.
Company has a rating to measure the risk. Two people with the same age will have different premiums because one of them lives in a severe situation. The rating uses some factors and data so that the result is objective.
The next list will explain insurance terms and definitions related to health and medical
You pay a premium regularly in exchange to get financial coverage. Health insurance uses several terms such as monthly, 6-month basis, yearly, or single installment period.
PPO is a preferred provider organization that benefits from health insurance to let people choose their own provider. This option is very flexible and useful for vast coverage.
Health maintenance organizations will use a closed network that you cannot choose freely. Policyholders only utilize health insurance in those facilities and practitioners. If they are not available, you pay the medical bill on your own.
Point of service only provides care and treatment from specialists after using referral from primary doctor. With this plan, policyholders have more options than HMO because they can choose any doctor and hospital as long as the referral is valid.
Commercial insurance provides coverage for business as additional protection. This one is useful to ensure there is no issue in the future when business finds difficulty. More insurance terms and definitions will be listed at the below section.
- Employee’s liability
Company protects liability from employees such as a lawsuit because he or she is injured or any issue. The coverage includes handling the court and settlement.
- Professional liability
When professional error happens, the commercial insurance provides coverage in that situation. With the proper coverage, insured do not waste time and money. Insurance company will handle the rest.
- General liability insurance:
General liability insurance is, by far, the most commonly purchased liability insurance for small businesses, as it covers any claims made due to injury, property damage, or advertising. Most types of businesses will be fully covered by this type of insurance.
- liquor liability insurance
The types of businesses that are in the greatest need of liquor liability insurance are bars, pubs, and clubs. Restaurants also do well to have this type of insurance. This is because these are the places where alcohol is most often consumed in large quantities and in groups where there is a potential for conflict or other incidents.
- Third-party liability insurance:
Third-party liability insurance is much like other types of insurance, but instead of protecting you by giving you the money for your damage, loss or injury, it pays to the person who is filing a claim against you!.
Here is an example. In auto insurance, third-party liability insurance would come into play if you are in an accident and are the one at fault. Your auto insurance may pay for damage to your own car or personal injury, but only third-party liability insurance will pay for the third party or the person you hit.
- Risk management
Management handles risk and finds the optimal solution to overcome the issue. This process uses several assessments, data analysis, and statistics. The purpose is to ensure the probability or disruption in the future is relatively low
Companies and businesses have an obligation to complete payment for insurance policy. The entity is usually the company, but the business owner and employer may take initiative.
Solving the dispute does not need the court. Both parties meet, negotiate, and confirm the solution. The process also requires the third party as an arbitrator
The next section will explain some insurance terms and definitions. This kind of insurance utilizes property as an object.
Insurance company sends an adjuster to do an investigation after receiving a claim. After that, the amount of coverage is determined.
● Damage and loss
The house receives physical harm after disaster or incident. The situation also leads to loss of valuable goods. The severity will be adjusted and evaluated after sending the claim.
You make a claim because the minimum requirements to obtain coverage is fulfilled. In this process, insurance companies will pay after investigation and validation.
Company puts back the policy after an insured does not pay a premium for a certain period. Before this process, the contract was put on hold but not terminated.