Top 10 Essential Insurance Terms
Insurance can feel like a whole different language, but once you break it down, it’s much easier to understand. Here are some common insurance terms, explained in a way that sheds some light to some insurance terms you may have wondered what thet mean:
1. Premium
This is the amount of money you pay regularly (monthly, quarterly, or yearly) to keep your insurance cover active. Liken it to a subscription fee for protection. Just like you pay for Netflix, Showmax, DSTV to name but a few…to watch movies, you pay a premium…to keep your subscription active.
2. Excess
This is the amount of money you need to pay first before the insurance company settles the claim costs. Imagine you have car insurance with a deductible of KE.5,000. If you get into an accident that costs KES20,000 to fix, you pay the first KES.5,000, and your insurance covers the remaining KES.15,000. To avoid this inconvenience, you pay a small premium called excess protector.
🔹 Excess Protector: If you had paid extra for this when taking out your policy, the insurer would waive that excess, meaning they cover the full amount from the first shilling.
Why Do Insurers Have Excess/Deductibles?
- i). To Prevent Small Claims: If insurance covered every single scratch or flu treatment, premiums would skyrocket.
- ii). To Encourage Responsibility: Policyholders have some ‘skin in the game,’ discouraging reckless behaviour.
In a nutshell, this is employed in order to keep premiums affordable.
3. Claim
Claim – A request you make to the insurance company asking them to pay for a loss you’ve incurred. If your car gets involved in an accident and is damaged, you file a claim to get the car repaired.
4. Coverage
This refers to what the insurance actually protects. If you have health insurance, it covers hospital bills, medication, and doctor visits. If you have car insurance, it covers damages to your car or someone else’s car in an accident.
5. Policy
This is the agreement or contract between you and the insurance company. It has all the details about what is covered and what is not, how much you pay, and how much the insurance company will pay when a claim arises.
6. Beneficiary
The person who will receive the insurance payout if something happens to you. In life insurance, this could be your spouse, children, or anyone you to have a share of your wealth.
7. Exclusions
These are items that your insurance policy does NOT cover. For example, a car insurance policy might cover accidents but NOT regular wear and tear or mechanical breakdowns!
8. Underwriting
This is the process the insurance company uses to decide how much your premium will be, based on the risk involved. If you’re insuring a house in an area with frequent floods, you might pay more than someone living in non-flood area because your environment carries a higher risk of damages.
9. Grace Period
The extra time you get to make a late payment without losing your insurance. If you forget to pay your premium on time, you might have a few days before they cancel your policy.
10. Act of God
This refers to events that happen naturally, like earthquakes, floods, or hurricanes, which can cause damage. Some insurance policies cover these, but others don’t—so it’s good to check.
This could also be the initial period after you sign your policy – you are normally given a lookin (test-drive) period as you peruse your policy document to make a final decision.
Take Away
This list of insurance terms is not exhaustive, but these are the most common terms that consistently show up nearly in every insurance conversation, no matter the class. Understanding them gives you a solid foundation to navigate policies with more confidence and clarity.
You will agree with me, even if they don’t tell the whole story, they’re a great place to start.