Understanding Insurance: Words and Phrases You Need To Know

Intro

You decide you want to get insurance. You find a company you like, go through the detailed application process, and finally get a written contract. You go through the agreement and find yourself turning to Google to figure out the meaning of every single word. Insurance contracts are not the most straightforward, and it can be difficult to understand the technical terms when reading them. And the worst thing you could do is to sign a contract without understanding all of its terms. While we cannot go over the entire contract line by line without boring you to death, we can certainly help you understand the meaning of a couple of confusing insurance terms.

Here Are Some Terms You Need To Know:

Accelerated death benefit:

A benefit available on some life insurance policies that pays you a cash amount before death. The purpose of the benefit is to help cover debts and other costs associated with your illness or burial arrangements.

Annuity:

A contract that guarantees fixed payments to the annuitant for a specific period (term) in exchange for an initial lump-sum payment, called a premium. This type of policy provides income during retirement years when one can no longer work.

Contestability period:

Period after issuance in which coverage cannot be rejected by the insurer nor changed. During this period, premiums cannot be increased due to changes in the insurees’ physical condition unless there has been a substantial change in the risk.

Conversion right:

A provision that allows you to exchange your life insurance policy for another type of investment, such as an annuity or mutual fund. This option would be helpful if you want to transfer ownership and control the money in your cash-value account.

Death benefit:

An amount paid out upon death. This is determined by several factors like age, occupation, level of risk and is decided when applying.

Grace period:

A period, usually 30 days, after an insurance premium is due during which the policy remains in force. If payment has not been received within that time frame, it may be necessary to reapply for coverage or wait until the next open enrollment window.

Insurable interest:

An insurer will require proof that you have a financial stake in someone’s life before they agree to offer them (or you) coverage. This means if your spouse/partner or child passes away-you would financially benefit from their death by receiving money through insurance proceeds.

Living benefits:

Also known as “accelerated death benefits,” where instead of waiting for someone to pass on and receive these funds via inheritance, you can claim up to 80% of the available insurance coverage in a lump sum for your personal use.

Long-term care:

A type of health and daily living assistance provided to people who need help with everyday activities. This may be required on an ongoing basis, depending on how much help is needed.

Permanent life insurance:

This form of protection provides lifetime benefits that you can never outlive because no cash values are involved like traditional term policies (but premiums will increase over time).

Rider:

An endorsement to a life insurance policy that adds benefits or changes the original provisions.

Term life insurance:

A policy that provides coverage for a specified term (i.e., one year, five years) guaranteed to terminate at the end of this period.

Co-insurance:

The amount you must pay for medical services after your deductible has been satisfied.

Exclusions:

The specific circumstances in which an insurance policy will not provide coverage, such as if someone commits suicide or uses illegal drugs.

Premium-only plans:

A type of health care plan that only covers the costs associated with receiving medical treatment and prescription medication but excludes any forms of preventative care like checkups, vaccines, etc.

Underwriting:

A process used by insurance companies to determine if they will offer you life/disability/health coverage and what terms they are willing to accept. This can depend on your age, medical history, etc., so disclosing any pertinent information when applying for new policies is essential.

Insurance is a complicated topic, and each term in your insurance contract has a specific meaning. Consumers need to learn more about the industry if they don’t want to be taken advantage of by their insurers. For this, they need to know what specific terms/phrases mean. It can help customers make smarter decisions regarding their coverage. It is essential to understand what each word or phrase means when going through an insurance contract. These definitions matter in getting adequate protection for yourself and your loved ones.