Insurance can be confusing, especially with all the technical terms used in policies, advertisements, and conversations with agents. If you’ve ever found yourself lost in words like “deductible,” “premium,” or “sum assured,” you're not alone.
This beginner-friendly guide breaks down the most common insurance terms in simple language, so you can better understand your policies, make informed decisions, and avoid costly mistakes.
1. Premium
Definition: The amount you pay to the insurance company to keep your policy active.
Simple Explanation: Think of it like a subscription fee. You pay a certain amount monthly, quarterly, or annually so that the insurance company covers your risks.
Example: If your health insurance premium is ₹10,000 per year, you need to pay that to keep the policy active.
2. Policy
Definition: The contract between you and the insurance company.
Simple Explanation: It’s a document that outlines what is covered, what’s not, how much will be paid in case of loss, and your responsibilities.
Example: Your motor insurance policy will detail the types of damages it covers and any exclusions.
3. Sum Assured / Coverage Amount
Definition: The maximum amount the insurance company will pay you in case of a claim.
Simple Explanation: This is the total amount you’re insured for.
Example: If your life insurance policy has a sum assured of ₹50 lakhs, your family will receive that amount in case of your death.
4. Claim
Definition: A formal request you make to the insurance company to get money or benefits based on your policy terms.
Simple Explanation: When you suffer a loss or damage covered under your policy, you "claim" compensation.
Example: If your insured car gets damaged in an accident, you can file a claim to repair it.
5. Deductible
Definition: The amount you must pay out of your pocket before the insurance company pays the rest.
Simple Explanation: It's your share of the expenses before insurance kicks in.
Example: If you have a ₹5,000 deductible and your hospital bill is ₹25,000, the insurer pays ₹20,000, and you pay ₹5,000.
6. Nominee / Beneficiary
Definition: The person who receives the insurance benefit if something happens to you.
Simple Explanation: This is usually a family member whom you choose to receive the money.
Example: In a life insurance policy, your spouse or child can be named as the nominee.
7. Exclusions
Definition: Situations or conditions that are not covered by the insurance policy.
Simple Explanation: These are the things the insurance won’t pay for.
Example: A health insurance policy may exclude cosmetic surgeries or pre-existing conditions for a certain period.
8. Rider / Add-on
Definition: Extra benefits you can add to your basic policy for a higher premium.
Simple Explanation: Think of it like adding toppings to a pizza—you pay a bit more for added value.
Example: You can add a critical illness rider to your life insurance plan.
9. Grace Period
Definition: The extra time you get after the premium due date to make the payment without losing coverage.
Simple Explanation: A buffer period in case you forget to pay your premium on time.
Example: Most policies offer a 15- or 30-day grace period.
10. Lapse
Definition: When a policy becomes inactive because you missed your premium payment.
Simple Explanation: If you don’t pay on time (even after the grace period), your insurance stops working.
Example: A lapsed health policy won’t pay for your hospital bills.
11. Free-Look Period
Definition: A time frame during which you can cancel your new policy and get a refund.
Simple Explanation: A trial period to review your policy after purchase.
Example: Most insurance plans offer a 15-day free-look period.
12. Underwriting
Definition: The process insurance companies use to assess risk before issuing a policy.
Simple Explanation: It’s like a background check to determine your risk profile.
Example: A person with a medical history may have a higher health insurance premium due to underwriting.
Why Knowing These Terms Matters
Understanding these terms helps you:
- Choose the right policy for your needs
- Read and understand policy documents
- Avoid being misled by agents or fine print
- Make smarter financial decisions
Conclusion
Insurance isn’t as complicated as it seems, once you understand the language. These common terms will help you speak confidently with agents, read your policy documents clearly, and make the best decisions for yourself and your family.
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