Chapter 2. Insurance key terms and terminology

There are hundreds of key insurance terms that prompted the National Association of Insurance Commission (NAIC) Research and Actuarial Department staff to provide a comprehensive glossary of said words. A rule of thumb in making informed financial decisions is to ask any time you encounter a term that you do not understand.

 

Definitions

Here are the absolute basic terms that you will need to watch for.

Comprehensive

• Used in hospital, medical, personal, general, etc
• It means the policy covers all unless specifically excluded in the policy contract
• Your goal:
  • Fully understand what is included and what is excluded

Deductible

• Means what is paid by the policyholder and is usually a portion of the insured loss
• Your goal:
  • Decide if you could tolerate a high deductible or if you would need a low to zero deductible

Enrollment period

• The time duration you are able to make updates or changes to your policy
• Your goal:
  • Review your needs and make all changes during the enrollment period from one year to the next.

Policy

• Written contract ratifying the legality of an insurance agreement
• Your goal:
  • Fully understand the terms in each policy, to continue updating, and to maintain its validity as long as you need it

Premium

• The money that the policyholder pays periodically for insurance coverage reflecting an expectation of loss
• Premiums usually inversely correlate with the amount of the deductible in a policy
  • The higher the deductible, the lower the premium will be, and vice versa.

Term insurance

• Form of a life insurance payable only if the death of the insured occurs within a specified time or before a specified age

Underwriter

• Person or a company who identify the degree of risk to determine whether coverage will be provided or not and at which rate
• Your goal:
  • Strengthen your chances for insurance approval at the lowest possible cost

 

 

Practice

Now you know the basic key terminology and your goal in each situation, think of paying it forward and discuss other key terms with a friend or a family member.

 

Congratulations! You can move on to Chapter 3. How to maintain proper coverage but reduce insurance cost?

To review the full module on Insurance planning, click here.