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Important Terms Used in Insurance

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It is essential to know the details of insurance before purchasing or renewing a policy. Technical terms are often used in insurance documents to explain coverage, premiums, exclusions, claims and insurance conditions. If you understand these terms it can help you determine what your policy covers and what are some of the important limitations.

Knowing the basics of insurance terminology can also help you easily find the insurance policy that you can understand and determine whether it is suitable for you. Understanding insurance terminology can help you ensure that you make informed decisions, while also helping to prevent confusion when it comes time to use your insurance policy or file a claim.

What are insurance risks?

Risk in insurance is the possibility of the occurrence of an unexpected or unpleasant event which the insurer agrees to indemnify. Human life cannot be quantified, but life insurance aims to provide a monetary sum based on the possible loss of income.

The types of risk in insurance include

Pure and Speculative Risk - Pure risk, also known as absolute risk, is not controllable, and its outcome is either loss or no loss. In other words, no opportunities for gains exist where pure risk is involved. The risk prevails in natural disasters and death.

Speculative risks exist where the outcome of an event could either be loss or gain, such as gambling. An insurer usually doesn’t cover this risk.

Financial and Non-Financial Risk -When the outcome of an unwanted event can be measured in terms of money lost, it is a financial risk. An example is medical expenses due to injuries in an accident.

When the outcome is not measurable in monetary terms, it is a non-financial risk. Such risks cannot be valued and are non-insurable, hence not covered under insurance.

Fundamental and Particular Risk - Fundamental risks are beyond the control of an ind&ividual, such as natural calamities. In contrast, particular risks are controllable and arise from direct human action, for example motor accidents caused by human negligence.

Buying insurance transfers the risks on to the insurer, who reimburses for the losses taking place during the policy term.

What is a peril in insurance?

Peril is the cause of damage or losses. It is an unfortunate event that causes loss or injury to property or humans. For instance, there could be a loss of life in an accident. The accident here is peril. You buy insurance to avail financial protection against the peril.

What is exposure in insurance?

Exposure is having the cause to undergo loss due to contingencies. For instance, if you are a frequent driver, you have a higher exposure to the risk of accidents. Thus, higher exposures are usually accompanied by higher premium rates.

Important insurance terms

The following table explains some commonly used terms of insurance in simple language. Knowing these insurance key terms can make policy documents easier to understand.

Insurance term	Meaning
Policyholder	The person who owns the insurance policy and is responsible for paying the applicable premium.
Insured	The person or asset covered under the insurance policy. The policyholder and insured may be the same person or different people.
Insurer	The insurance company that provides coverage and pays eligible claims according to the policy terms.
Premium	The amount paid by the policyholder to keep the insurance policy active.
Sum insured	The maximum amount an insurer may pay for covered losses under a general or health insurance policy, subject to the policy terms.
Sum assured	The predetermined amount payable under a life insurance policy upon the occurrence of the insured event, subject to its terms and conditions.
Policy term	The period for which an insurance policy remains in force, provided the applicable conditions are met.
Coverage	The risks, losses or events that are financially protected under an insurance policy.
Exclusion	A condition, event, or expense that is not covered by the policy.
Deductible	The amount the policyholder must pay towards a covered claim before the insurer pays the remaining eligible amount.
Claim	A formal request made to the insurer for payment or benefits following an event covered by the policy.
Claim settlement	The process through which an insurer assesses and pays an eligible claim according to the policy terms.
Beneficiary/Nominee	The person designated to receive the applicable policy proceeds or benefits, as permitted under the policy and applicable law.
Rider	An optional benefit that can be added to a base insurance policy, usually for an additional premium.
Grace period	An additional period provided after the premium due date during which the policy may continue subject to applicable terms.
Waiting period	A specified period during which certain benefits cannot be claimed, depending on the policy conditions.
Maturity benefit	The amount payable when a policy reaches its maturity date, if the policy provides for such a benefit.
Policy lapse	A situation where a policy stops providing coverage because the required premium has not been paid within the applicable period and conditions.
Renewal	Continuing an insurance policy for another period after the existing policy term ends, subject to applicable terms.
Underwriting	The process used by an insurer to evaluate the risk associated with providing insurance and determine applicable terms.

Understanding these terms of insurance can help policyholders read documents more carefully. It is particularly useful to understand exclusions, deductibles, waiting periods, and claim conditions before purchasing a policy.

The terminology used in insurance may vary depending on the type of policy. For example, health insurance may commonly refer to concepts such as co-payment and cashless treatment, while life insurance may use terms such as death benefit, maturity benefit and nominee.

What are the types of insurance?

There are two types of insurance.

General Insurance – It includes financial cover for loss or damage to assets such as house property, car, etc.
Life Insurance -This insurance consists of two variants.
Term Insurance - This is the purest form of insurance where the nominees receive financial assistance during unfortunate times. It contains no investment component.
Endowment insurance - These plans provide life cover and returns on the premiums paid. The returns can be guaranteed, or market-linked as in the case of Unit Linked Insurance Plans (ULIPs). Thus, apart from the death benefit, these insurance products also offer maturity/investment benefits.

Consider your financial and insurance needs when you buy an insurance plan. It is important to avail the coverage from a trustworthy insurance company. A creditable insurer advises on the type and extent of coverage needed and supports a seamless claim filing and settlement process. Hence you need not worry about the completion of the requisite formalities in your absence.

Buy insurance coverage that suits your needs with Tata AIA

TATA AIA Life Insurance provides specially curated life insurance products divided into different categories addressing varying financial & protection goals.

Protection Solutions - Pure form of life insurance through term plans
Wealth Solutions - ULIPs offering a mix of insurance and market-linked investments
Savings Solutions - Non-linked insurance plans independent of the stock market’ performance
Retirement Solutions - Address to post-retirement income needs along with life coverage
Insurance Riders – Extension of coverage for accidental death and disability and life-threatening diseases for a nominal extra premium, along with the option for waiver of premium in case of a contingency

Conclusion

Product knowledge aids in making informed decisions. Besides, understanding the commonly used jargons further simplifies the selection process. Compare policies online and buy one that meets your financial needs best.

Key Takeaways

Understanding insurance terms helps policyholders make informed decisions.
Exclusions, deductibles, and waiting periods affect claim payouts.
Choosing suitable coverage requires understanding key policy concepts.

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What are the three most essential insurance policies?

The three most essential types of insurance are generally health insurance, life insurance and property insurance, depending on an individual’s needs and circumstances.

What are the terms for term life insurance?

Some important terms used in term life insurance include premium, sum assured, policy term, life assured, nominee, death benefit, rider, exclusions and grace period.

What is insurance terminology?

Insurance terminology refers to the specialised words and phrases used in insurance policies and related documents.

This document is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. This document is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
Every effort is made to ensure that all information contained in this document is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.