Insuance Terminology

Life insurance is a safety net that keeps your family financially protected in your
absence. Rightly so, it is an integral part of financial planning. There are
different types of life insurance policies available today with term life insurance
being the most popular one.

Term life insurance is one of the simplest and most cost-effective insurance
plans. That being said, most people get overwhelmed with the complex jargon
and technical phrases used in insurance policy contracts. It is important to be
aware of such terms to make a well-informed decision while buying a policy.
Here’s a glossary of some of the commonly used expressions in term life
insurance policies.

1. Policyholder:

Also known as the policy owner, this is the person who owns the policy.
The policyholder is the one who buys the insurance and pays regular
premiums.

2. Life Assured:

This refers to the person for whom the insurance is bought. This may or
may not be the same as the policyholder. For example, if you buy
insurance for yourself, you will be the policyholder and the life assured.
But, if you buy insurance for a parent, and pay the monthly premiums for
them, then you will be the policyholder while the life assured will be your
parent.

3. Nominee:

The nominee or the beneficiary is the person who inherits the sum
assured in case the life assured passes away during the term of the policy.
This is normally chosen by the policyholder and is usually a family
member or a close relative.

4. Sum Assured:

This is the amount that the insurance company pays to the nominee on
the death of the life assured. For example, let us assume that you buy a
term life insurance policy for yourself and nominate your wife as the
beneficiary. You will be required to fix a sum assured at the time of
purchase. Let us say that the sum assured is ₹ 1 crore. Now in the
unfortunate event of your death during the tenure of the policy, your wife
will receive the sum assured of ₹ 1 crore from the insurance company.
The sum assured is also sometimes referred to as the cover.
5. Policy Term:

This is the period for which the insurance policy is active or valid. This
period can differ from policy to policy and can range from anywhere
between a year to a lifetime. Let us say that the policy term for an
insurance policy is 50 years. Now if the person who is the life assured for
the policy dies during this period, the insurance company will be liable to
pay the sum assured to the nominee. This is also called policy tenure or
policy duration.

6. Premium:

This is a fixed amount that the policyholder pays the insurance company
in return for insurance. You can choose between different plans of
payment like monthly, quarterly, annually, etc. The premium is an
important aspect of an insurance policy.

7. Payment Term/Mode:

The payment term or mode refers to the different ways in which you can
pay the premium to the insurance company. There are primarily three
types of payment modes:

Regular Pay: In this method, the policyholder pays premiums throughout

the policy term.

Limited Pay: In this plan, the policyholder can choose a certain period
for the payment of the premium. For example, if you choose 5 years, then
you have to pay premiums for only 5 years while the policy remains in
force for the entire term selected by you.

Single Pay: In this method, the policyholder pays the premium in one go.
This is usually paid at the time of purchasing the insurance policy.

8. Death Benefit:

The death benefit is the total sum that the insurance company pays to the
nominee in case of the policy holder’s death during the policy term. This is
generally equal to the sum assured. However, in insurance plans where
riders are involved, the death benefit can also be higher than the sum
assured.

9. Maturity Benefit:

Some policies pay the policyholder an amount in case he/she survives the
policy term. This is known as the maturity benefit.
10. Riders:

These are optional add-ons to your existing term life insurance policy.
They are over and above the terms of your policy. They can be benefits
like an accelerated critical illness pack or an accidental death benefit pack.
The policyholder is liable to pay extra for riders at the time of buying the
policy.

11. Claim:

If the life assured dies during the tenure of the policy, the insurance
company does not directly pay the sum assured to the nominee. You are
required to file a claim to the company, after which you receive the
coverage.

12. Free Look Period:

Imagine you buy a term life insurance today, but change your mind about
it later. An insurance policy usually comes with a free look period which is
the duration within which you can terminate the policy without paying
penalties.

13. Actual cash value.

There are a few ways your policy can be set up that impact the amount
you are paid when filing a claim. Actual cash value is one such method,
and it is calculated by subtracting the amount of depreciation from the
initial cost of the property. Depreciation is usually calculated by
subtracting a certain percentage from the property per year. However, not
every insurance company calculates depreciation the same.

In most cases, actual cash value coverage is a less-expensive

insurance option. Another (often more expensive) alternative is called
"replacement cost coverage," which we will cover later on.

14. Actuary.

Actuaries are experts at assessing risks by analyzing statistics and

data. They often work with insurance companies to help set rates for
insurance products.

15. Adjuster.
 Sometimes referred to as a 'claim examiner,' an adjuster is
someone who investigates a claim. They determine if the loss is covered
by the policy, estimate damages, and often write a check to the insured.

16. Agent.

An agent, or insurance agent, is someone who sells insurance

policies for an insurance company or carrier. Their agency may be
exclusive or non-exclusive, meaning they sell insurance for a single
carrier, or a number of carriers.

17. Asset.

A financial or economic benefit controlled by a person or entity. In

other words, these are the things you own that have financial value, or
can generate financial value in the future. Assets like your house, your
vehicle, your savings account, and your investments are taken into
consideration when purchasing certain insurance policies, like life
insurance and liability insurance.

18. Assured.

This is an individual who has an insurance policy, and is another

word for "insured" or "policyholder."

19. At-fault.

In a situation such as an auto accident, "at-fault" refers to the

person who is liable for the damages. In other words, this is the person
who caused the accident, or is otherwise legally responsible for it.

20. Beneficiary.

A beneficiary is a person who is designated as the recipient of payment of

something like a life insurance benefit.

9. Bodily injury.

As the name suggests, this simply refers to an injury a person sustains. In an

auto accident, bodily injury liability coverage is designed to pay for the expenses
that result from such an injury.

10. Carrier.

This is another word for the insurance company that provides you with your
policy.
11. Cause of loss.

Another way you may see 'perils' referenced in policy language.

12. Collision.

In reference to auto insurance, "collision" refers to coverage that pays for

damages to your vehicle after a collision (hence the name), either with another
vehicle or an object, like a traffic sign. This is often an optional coverage unless
you have an auto loan or lease your vehicle, in which case the lender will likely
require it.

13. Claim.

A claim refers to any request for payment within the bounds of an insurance
policy. For example, if you have homeowners insurance, and hail damages your
roof, you would file a claim, requesting that your insurance carrier investigate
and issue a payment if needed.

14. Claimant.

A claimant is any person or entity requesting payment from an

insurer, or insurance company.

15. Commercial.

Commercial Auto, Commercial Property, Commercial General Liability -

there are a number of different types of commercial insurance coverage.
Commercial insurance products are distinct from traditional or personal lines in
that they are designed for certain businesses or business practices.

16. Comprehensive.

Some insurance carriers refer to OTC coverage as "comprehensive"

coverage.

17. Coverage.

Coverage, or coverages, are the specific protections or benefits an insurance

policy provides. These are outlined in your policy or contract, and can be found
on your declarations page.

18. Damage.
This term refers to any loss, destruction, or harm to a person or property, such
as a vehicle or home. For example, if your vehicle's windows are broken by an
attempted theft, this would be considered "damage."

21. Damages.

Not to be confused with "damage," this refers to the actual money

one individual or party is required legally to pay to another.

22. Declarations page.

This page is basically a snapshot of the important information regarding

your insurance policy. It will have policyholder information, such as name,
address, and policy number, as well as coverages, limits, premiums,
deductibles, and dates of coverage.

23. Deductible.

A deductible refers to the amount of money that you, the insured, are
required to pay before the insurance company takes over. For example, if
you have a $500 deductible on your auto insurance policy, and you're
involved in an accident that results in $5000 in damages, you would pay
$500 and the policy would pay the $4500 (or up to the limit of the policy).

24. Dwelling.

When looking through a home insurance policy, you may see the word
"dwelling" mentioned in reference to coverages. This refers to your house!
Specifically, it refers to the actual structure and often structures attached
to it, such as a deck or a garage. This is defined separately from other
structures, like barns, workshops, or detached garages. It is important to
understand what a policy specifically defines as a dwelling, as the dwelling
and other structures are often protected from different perils.

25. Electronic Funds Transfer (EFT).

This is a method of payment where the insurance company electronically

deposits the claim amount into your bank account. While many claims
adjusters are able to write checks on site, there are a variety scenarios
where this may be possible. For example, if the claims process takes place
using a mobile app (as opposed to an in person inspection), you may be
able to have funds deposited directly via EFT.
EFT may also refer to a method by which a policyholder can pay premiums
electronically, sometimes through automatic deductions.

26. Endorsement.

An endorsement is an amendment attached to a base policy which

adjusts the coverage. For example, you can often add an endorsement to
a basic property insurance policy to cover additional perils (more on perils
in a moment).

27. Estimate.

This refers to the amount of money required to repair or replace the

covered property when damaged. This is usually provided by the claims
adjuster following their inspection and evaluation.

28. Exclusion.

On some occasions, an exclusion is a defined scenario or event that an

insurance policy does not provide coverage for. Exclusions are one way
that an insurance company can further specify what a policy covers, but
they can also be a way for a policyholder to customize their coverage. For
example, in some cases a policyholder can use an exclusion to remove
coverages on a policy that may not apply to their situation.

29. Insured.

This refers to the person(s) (or sometimes organization or entity) that an

insurance policy provides coverage for. For example, if you have an auto
insurance policy, you are considered to be the insured in that contract.

30. Insurer.

An insurer is the company or organization that provides insurance policies

to the insured. This is another word for an insurance company, like the
term "carrier."

31. Liability.
 This refers to a legal obligation or responsibility one party has for causing
damage, injury, or loss to another party. For example, if you rear-end
another car, and the driver and passengers are injured, you may be held
liable for the damaged property and persons. In such a case, the "liability
coverage" portion of your auto insurance would potentially pay for the
damages up to the policy limit.

32. Limits.

A limit refers to the maximum amount of protection the insurance

company agrees to pay for a specific coverage in any given claim. This
amount is agreed upon before the policy is issued, and can be found on
your policy declaration page.

As an example, your auto insurance policy may have a limit of

$60,000 per accident. This means that insurance company would pay up
to that limit, after which the policyholder is responsible for paying any
expenses accrued beyond that limit.

33. Loss.

In the context of insurance, "loss" refers to damage caused to an insured

piece of property. A "covered loss" refers to any damage or injury that an
insurance policy specifically provides protection for. For example, hail
damage is a common covered loss for many homeowners insurance
policies, whereas flood damage is typically not a covered loss for many
homeowners policies.

34. Medical Payments.

If you see "medical payments" included in policy language, it refers to

expenses related to medical treatment caused by a particular incident.
You will see this in a personal auto policy, but may also see it in a liability
policy, too.

35. Named insured.

Like the term "insured," this term refers to a named individual or entity
that an insurance policy covers, and is the person or organization listed on
the declaration page. However, there are circumstances where the two
can differ. For example, if a company has general liability insurance, that
company would be the "named insured" as listed on the declaration page.
 Its employees would technically be insured under that policy, but only
while they are performing their duties as an employee. In other words,
they are insured, but not the "named insured."

36. Named Peril (Named Peril Policy).

This refers to a type of insurance policy that provides protection or

coverage for certain perils explicitly outlined in the policy. The opposite of
a named peril policy would be an open peril policy, which provides
coverage for all causes of loss except those excluded in the policy.

37. Other than collision (OTC).

As the name suggests, OTC adds protection against things like hail, fire,
vandalism, and more to your personal auto policy. While it isn't likely to
cover every possible source of damage, it covers most that occur outside
of a collision.

38. Peril.

Lightning, windstorms, fire - just to name a few. Perils are the causes of
damage to your insured property that your policy protects against. A basic
policy will cover a certain set of perils, and endorsements can often add to
that.

39. Policyholder.

This is yet another term you might frequently hear or see that refers to
the person or entity an insurance policy covers, like "insured," and would
appear on the declarations page.

40. Policy Jacket.

In reference to an insurance policy, the policy jacket is a document that

contains all of the details about the specific policy. This includes terms,
conditions, coverages, perils, exclusions, and so on. It does not include
endorsements or a declarations page.

41. Premium.
 This is the amount of money you, the insured, pay to an insurance
company in exchange for coverage. Depending on the policy, the premium
can be paid a variety of ways, such as monthly payments, or possibly in a
single upfront payment. The premium amount is determined by a variety
of different factors, and will be different depending on the type of policy,
the individual or entity, deductibles, limits, and so on.

42. Quote.

When you're searching for a new insurance policy, an insurance agent or

insurance carrier will give you a quote, which is an estimate of the
premium you will pay for the policy. This estimate is based on certain
pieces of information that you provide to the agent or carrier.

43. Replacement cost coverage.

As opposed to the actual cash value, replacement cost refers to the cost
of replacing property without subtracting depreciation due to normal use
or wear and tear. For example, if you have boat insurance, replacement
cost coverage would pay to replace that boat with an identical model, or a
model of comparable quality.

44. Rider.

As you'll see, in the world of insurance, there are often a number of

different words that refer to the same thing. The word "rider" is one such
example. Like an endorsement, a rider is an amendment that can be
added to a basic policy to modify it, typically for an additional premium.

45. Risk.

Risk is the possibility that a loss will occur. For example, the probability
that a home will be damaged, a car will be destroyed, or a piece of
property stolen. Risk is used to calculate coverage costs or premiums and
the level of risk can determine how, or if, coverage is offered.

46. Umbrella Insurance.

A type of liability insurance that expands coverage limits above and

beyond the limits of an underlying liability insurance policy.

47. Underwriting.
The process of underwriting is how an insurance company evaluates risk
and whether or not the company will offer coverage for it. It also helps
determine rate.