Basic Insurance Terms to Know for Beginners (Plus Definitions)
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Insurance is an important aspect of managing risks and protecting oneself from financial losses due to unforeseen events.
However, for beginners, understanding the various insurance terms and their meanings can be quite overwhelming.
From premiums to deductibles, policies to coverage, and claims to death benefits, there are many different terms to grasp.
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In this post, we’re going to talk about:
Permanent Insurance
A type of life insurance that provides coverage for the lifetime of the person insured provided the required premiums are paid. Permanent life insurance usually has a cash value. Whole Life, Term to 100, and Universal Life are examples of this type of insurance.
Term Insurance
A type of life insurance that provides coverage for a set period of time. The period (or term) of the coverage can be either a fixed number of years (e.g., 10 years) or to a set age (e.g., age 65). The policy has no cash value.
Premium
The amount of money an individual or business pays to an insurance company to obtain insurance coverage.
Deductible
The amount of money that an insured individual must pay before an insurance company begins to pay for covered services.
Policy
A contract between an insurance company and an individual or business that outlines the terms and conditions of the insurance coverage.
Beneficiary
The person you name to receive the payment from your insurance policy. In the case of life insurance, if you don't name a beneficiary, the payment goes to your estate.
Contingent Beneficiary
If you choose to name more than one person to receive a benefit, you can name some to be primary and others to be secondary (also called contingent). Primary beneficiaries are first in line to receive benefits. Secondary beneficiaries receive a benefit if the primary beneficiary for that specific share has already died when the benefit becomes payable.
A Claim
A request by an individual or business for an insurance company to pay for a covered loss.
Lapsed Policy
An insurance policy has ended because you stopped paying premiums and there was not enough money in the policy (cash value) to keep the payments up to date.
Death Benefit
The amount of money the insurance company guarantees to the beneficiaries identified in the policy when the insured dies. The insured might be a parent, and the beneficiaries might be their children, for example.
Annuity
A contract that pays you income at regular intervals, typically monthly, in exchange for an upfront payment.
Underwriting
The process by which an insurance company evaluates an individual or business for insurance coverage and determines the premium.
Exclusion
Specific circumstances or events that are not covered by an insurance policy.
Suicide Clause
A provision in a life insurance policy states that benefits will not be paid if the person insured commits suicide or dies as a result of self-inflicted injuries.
Understanding basic insurance terms is essential for anyone who wants to make informed decisions about their insurance policies.
With the knowledge of these terms and definitions, you can navigate the insurance world with more confidence and ease.
It's important to always read and understand your policy documents thoroughly, ask questions when in doubt, and consult us, CC & Associates for more information.