Common Insurance Terms
You are well aware of how important it is to have insurance. Let us now try and understand the insurance vocabulary. Being aware of the meaning of some of the specific terms used in insurance will give you an added advantage. This is in no way an exhaustive list but it covers the most important terms. Hopefully, when you meet an insurance agent you will have no difficulty in understanding his insurance-related jargon.
Insurance Vocabulary Alphabetically
Accident – An unanticipated event.
Actuary –A professional who analyzes statistics and uses them to access the probability of risk.
AD & D – Accidental Death and Dismemberment (cutting off a person’s limb).
Agent – an individual who sells insurance on behalf of an insurance company.
Annuity – it is a contract that provides fixed income for a specified duration or for life.
Beneficiary – a person who becomes eligible to receive payment under terms of the insurance contract.
BI – Bodily Injury or any injury to the body.
Bonds –Bond is a type of debt security. Herein, the insurance company pledges planned payments of interest and principal on any security or a bond. The insurance company pays when there is a default in payment by the issuer of the bond or security.
Broker – an individual who works, on a commission basis, for the insured in obtaining insurance. He is paid by the insurance company with which the sale is finally completed.
Brokerage – it is the fees or commission paid to a broker.
Catastrophe – a loss that occurs to a large extent that is difficult to forecast.
Ceding Company – it is the insurance company that has transferred its risk by getting itself insured.
Certificate of Insurance – it is the final document that is issued once all the formalities for issuing the policy have been completed. Usually, at this stage, all the paperwork has been completed and the risk has been finalized.
Claim – a declaration of loss made by the claimant or insured.
Claimant – the person making a claim. The claimant can be the insured, a third party or a beneficiary.
Claim Adjudicator – he or she is a person who examines reported claims and recommends settlement.
Cover Note – it is a provisional document that is issued whilst the underwriter completes the formalities of risk assessment and completion of paperwork etc.
Dividend – it is a refund that is made on a part of the premium paid by the insured. This discount is paid from the insurer surplus.
DoI – it is the issuance date also known as Date of Issue.
Effective Date – it is the date from which the insurance contract or policy comes into being.
Endorsement – it is an amendment that is made to the existing policy. It is done to add, remove or change the contracted terms. This term is usually used in property or casualty insurance.
Expiration Date – it is the date at which the insurance contract will expire or lapse.
Hazard – it is a situation that increases the chances of loss as well as its severity.
Indemnity – it is the compensation paid or financial reimbursement made in lieu of loss or damage.
Insurable Interest – A person or a company is said to have an insurable interest in something when any damage to it would cause financial implications to the insured. The damage could even be a complete or partial loss.
Insurance – a contract between two parties for pooling or transferring of risk.
Insured – a person, group of people or company whose property or life or both is covered by insurance.
Insurer – it can either be the government or a company who undertakes to pay the insured in case of an eventuality.
Intermediary – he or she is usually a company or an individual who is a go-between the insurer and the insured.
Liability – it is the state of being legally responsible. In case of insurance, the responsibility is financial in nature.
LOB – Line of Business is the basic classification of the business in the insurance industry e.g., life, medical, liability, fire etc.
Malpractice – it is a term most often used in case of the medical profession. However, it applies to all kinds of professions. A malpractice is any suspected transgression or wrong practice.
Negligence – it is the failure to act in a prescribed way and/or omission of duty.
Net Income –it is the insurer’s or the insurance company’s total earnings after deducting the cost of doing business (interest, taxes, expenses etc.).
Occurrence –it is an event that results in loss or damage to the insurable interest. The loss or damage should be such that there are financial repercussions.
Package Policy – when two or more distinctive policies are combined together into one contract.
Policy – it is a written contract between the insured and the insurer. It sanctions the validity of an insurance agreement.
Premium – it is the amount of money which an individual or a company must pay in order to get insurance. This money can be paid as a one-time payment or in installments. The installments can be monthly, quarterly, semi-annual or annual in nature.
Public adjuster – he or she is an independent claim adjudicator. They represent the insured and not the insurance company.
Rate – it is the cost per unit of insurance.
Reinsurance – it is the legal contract between a reinsurer and an insurance company. Herein, the insurance company cedes a portion of its risk to the reinsurer.
Reinsurer – this is a company who is undertaking or assuming a portion of the risk of an insurance company.
Rider – it’s meaning is same as an endorsement. However, a rider is a term used specifically in case of life insurance.
Security – it is a thing deposited or promised as a guarantee. When it comes to insurance, security is an investment or financing instrument. It includes things like bonds, debentures, shares, notes etc.
Treaty – It is a reinsurance agreement between the reinsurer and the ceding company.
Final Thoughts On Insurance Vocabulary
Now that you know what some of the commonly used terms in insurance are, it should be relatively easy for you to understand the insurance agent. The insurance-related jargon used by these agents is so specific that you might find yourself at a disadvantage if you don’t understand the meaning of these specific terms used in insurance. If you wish to add more terms to the Insurance Vocabulary, do leave a word about it in the comments section.