Key Insurance Terms You Need to Know if You Don't Want to Waste Your Money

The insurance industry is built entirely on the idea of prevention and caution, but it can be confusing and misleading at times. 

While we all understand the concept of setting money aside for dark days, the process is not that simple. In addition, if you don’t understand the product you bought, you may end up in an uncovered situation, without being aware of this.

To avoid such a grim scenario, here are a few key insurance terms everyone needs to know before making a purchase.

This is how much your insurance plan costs and is calculated on a monthly or yearly basis. Usually, the premium reflects the buyer’s financial possibilities, but it’s best to consider getting a premium that can provide higher coverage (bigger premium).

While it may be a bit pricey, higher coverage also means you’ll have to pay less out of the pocket for the things included in the policy.  

This represents the amount each person needs to pay out of their own pocket before the insurance kicks in. In the case of medical insurance, the deductible affects the amount you’ll have to pay to the hospital or clinic and needs to be paid at the time of the treatment. 

It’s also important to know that, depending on the plan and type of insurance policy, the deductible may have to be paid on an annual basis. 

This is a term that usually pops up in life insurance products, and is applied in the case of adverse risk factors. According to the insurance plan, the extra premium can be temporary or permanent. 

The temporary extra premium charge is applied when the person deals with a specific risk factor (such as a cancer diagnosis). In this case, the charge only applies for a number of years. On the other hand, a permanent extra premium charge is applied in the case of occupational or avocational risk.

Endorsements are attached to an existing policy (as an added provision) and can be used to change a current insurance deal (by either enhancing it or restricting it). To endorse a policy, you can choose to increase the coverage, add to it, or amend the mortgage (among other actions).      

The claim is the formal request, made by a policy owner to the insurance company, asking for coverage or compensation. To be valid, the claim must be filed under a covered loss, damage, or event. 

Once the request is filed, the insurance company must validate it - make sure the policy covers the issues mentioned in the claim. If it’s validated, the company must issue the payment according to the initial agreement. 

However, it’s important to know that certain policies may come with increased raters and premiums once a claim has been filed (like for auto insurance or home insurance).

As you get to learn more about insurance policies, it will also get easier to select the best product for your needs. Sure, it may be a bit confusing at first, but there is a lot of information you can find online and you can always ask for more details from your broker. 

Overall, it’s important to stay informed and keep up to date with any new developments.