Represented by a policy, insurance is a contract in which an individual or entity receives reimbursement or financial protection against losses. It is a cushion against the risk of financial losses that may result from the damage to the insured property or injury caused to a third party. The company pools clients’ risks to make payments more affordable for the insured.
That being said, here are some terms that you must familiarize yourself with.
1. ACCIDENT
An accident is an event which occurs by chance. It is unforeseen, unexpected, and unplanned. This results in injury and property damage, which can be covered by the insurance.
2. ADDITIONAL INTEREST
Additional interest refers to the individual, partnership, or corporation other than the actual named insured. This individual, partnership, or corporation has an insurable interest. For instance, adding an employer’s name to an employee’s policy for the company car.
3. APPRAISAL
Appraisal is an estimate of property value or the extent of the property damage. Appraisals are provided by the authorized persons and are performed to determine the value of the property at the time of loss.
4. BENEFIT
The basic principle of insurance is that an individual should not end up in a better financial or physical state because of a loss. Hence, a benefit is partial compensation for lost wages or disability.
5. CANCELLATION
Cancellation is the termination of an insurance policy before the end of the stated period. There are three ways in which cancellation can take effect. These are namely: to surrender the original policy by the insured, to write a notice to the insured by the company or agent, or to sign a “Lost of Policy Release” by the insured.
6. CLAIM
The claim is a request for indemnification or compensation. A first party claim refers to the request for indemnification due to a loss involving only the insured and his or her insurance company. While a third-party claim refers to the indemnification of a loss by someone other than the insured for the damage alleged to have been due to the insured.
7. DEDUCTIBLE
The deductible is the amount a policyholder agrees to pay before the insurance company covers a loss. The insurance company pays the balance of the loss up to the limits of the policy.
8. DEPRECIATION
Depreciation is the allowance taken for age, wear and tear, and obsolescence of any item. The depreciation factor is applied to the replacement value at the time of the loss and not to the original cost of the item.
9. ENDORSEMENT
It is a printed or otherwise written statement attached to the insurance policy to alter, delete, or add coverage, terms, or provisions. Changing circumstances usually require that alterations be made to an existing insurance contract.
10. PREMIUM
Premium is the amount of money an insurance company charges in return for providing coverage at a specified length of time. There are distinct types of premiums such as the additional premium, earned premium, gross premium, and minimum premium.
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When it comes to insurance, there are many terms, words, and phrases that you should know. Use this list of insurance definitions to better understand what each term means.