Making sense of insurance terms
Now that we are familiar with the main types of insurance, the next step is to understand how to read and understand an insurance policy.
At first,
insurance terms may seem technical or complicated.
In reality, most of them describe simple ideas that help us understand:
- what is covered,
- what is not covered,
- what our responsibilities are,
- and what we can expect if we need compensation.
The better we understand these terms, the easier it becomes to compare policies and make informed decisions.
The premium is the amount we pay to keep our insurance policy active.
Depending on the policy, it may be paid:
- monthly,
- quarterly, or
- annually.
The cost depends on factors such as:
- the type of insurance,
- the level of coverage,
- our age or risk profile,
- and the risk taken by the insurance company.
💡 A lower premium is not always better. What matters most is what the policy actually covers.
Coverage refers to the events or circumstances for which the insurance company agrees to provide compensation, as well as any maximum limits specified in the policy.
For example: Two home insurance policies may cost the same, but cover different risks or offer different compensation limits.
That is why
we do not compare premiums (price) alone.
We should always review the coverage.
The deductible, also known as the excess,is the amount we pay ourselves before the insurance company pays the rest following a claim.
Example:
- Total damage: €2,000
- Deductible: €300
- Insurance covers: €1,700 (depending on terms)
In general:
- higher deductible → lower premium
- lower deductible → higher premium
A co-payment is a portion of a cost that we pay alongside the insurer.
It is common in health insurance.
Example: We pay a fixed amount per doctor visit, while the insurer covers the rest.
A claim is a formal request we submit to the insurance company when something happens and we ask for compensation.
To process a claim, we are usually required to provide supporting documents such as:
- invoices,
- medical reports,
- photos,
- or other evidence.
A beneficiary is the person who receives the compensation, as is commonly the case with life insurance
It is important to keep beneficiary details up to date, particularly when our personal circumstances change.
The policyholder is the person who owns the insurance policy.
They are responsible for:
- paying the premium,
- managing the policy,
- and requesting changes if needed.
A rider is an optional extension that adds extra protection to a basic insurance policy.
For example: We may add extra cover to a home insurance for valuable items such as jewellery or collectibles.
Some types of coverage do not take effect immediately after an insurance policy begins.
There may be a waiting period before certain cover becomes active.
That is why it is important to know: when each type of coverage actually begins.
Before
issuing an insurance policy, the insurance company assesses the risk it will
take on.
This process is called underwriting.
It may consider:
- age,
- health condition,
- occupation,
- claims history.
This assessment determines:
- the premium,
- and the terms of coverage.
⚠️ Providing accurate and complete information is essential. Incorrect details may affect compensation or policy validity.
An insurance policy may lapse, or cease to be in force, if it is not renewed on time or if the agreed premiums are not paid.
If an event occurs after lapse:
- the insurer is not required to pay compensation.
This is why it is important to:
- track renewal dates,
- and pay premiums on time.
- Do we know what deductible or excess applies to the insurance policies we currently have?
- Have we read the coverage and exclusions in our policies—or do we rely on memory?
- Can we explain in our words key terms like premium, coverage, and claim?
✓ The premium is the amount we pay to keep our insurance policy in force.
✓ Coverage describes the risks the insurance company agrees to cover.
✓ The deductible or excess is the amount we pay ourselves before the insurance company contributes towards the claim.
✓ A claim is the request for compensation we make when an insured event occurs.
✓ Understanding basic insurance terminology helps us compare policies and choose the protection that best meets our needs.
👉What’s next...
Now that we understand the language of insurance, we are better prepared to evaluate policies.
But understanding the terms is only the first step.
How do
we actually choose the right insurance?
What should we compare, and what mistakes should we avoid?
In the next article, we explore how to select the right policy based on our real needs—and avoid common pitfalls.
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