Coming to Terms: Essential Insurance Terms to Help You Understand Your Coverage

Insurance Terms

As an average insurance policyholder, it can be overwhelming to try and understand absolutely everything about your life, car, health, or home insurance—especially if you are new to insurance in general. This is why many policyholders merely nod their heads and take the insurance agent’s word for it instead of asking questions. If you are looking at an insurance policy’s paperwork or shopping around for quotes, you’ll probably be confused with some of the vocabulary because not every agency will take the time to explain these terms to you.

The insurance industry has its own unique jargon and few understand what all the terms actually mean. Read ahead for a little explanation of some confusing terms that agents tend to throw around, so that when it is discussed you can truly nod your head in agreement, or better yet—ask some questions.

Life Insurance

Incontestability: A provision that enforces a strict time limit of up to a maximum of two years (three years in some states) on a life insurer’s ability to not pay out a claim due to either the policyholder’s suicide or a misrepresentation on his or her application.

Indexed Life Insurance: A type of whole life insurance that provides for the policy’s face amount and premium rate to rise each year in accordance to increases in the Consumer Price Index (CPI).

Irrevocable Beneficiary: A beneficiary of the decedent who has vested rights to the proceeds of a life insurance policy. These rights can only be canceled by the policyholder if the irrevocable beneficiary offers his or her consent.

Accelerated Death Benefits: A life insurance policy with this type of benefit will pay beneficiaries when the policyholder is still alive if certain conditions are met. Such conditions include proof that the insured is terminally ill with a life expectancy of less than a year or that the insured has a life threatening disease. If the insured is in a long-term care facility, it is also possible for accelerated death benefits to be granted.

Property Insurance

Additional Living Expenses: This term refers to the reimbursement of the insured’s food costs, short term housing costs and other necessary living expenses when the insured’s home or rented living space is damaged and uninhabitable. These expenses are typically limited to 20 percent of the insured’s dwelling coverage.

Underwriting: An underwriter assesses the risks associated with an applicant for insurance. This process will determine the amount of coverage and associated cost of a policy based on the applicant’s application and medical history. Underwriting for property insurance includes an assessment of the property owner as well as the home itself.

Inflation Protection: A type of coverage which involves the adjustment of one’s home insurance policy limits based on increases in costs associated with repairing the property.

Health Insurance

Guaranteed Renewable: An insurance policy that cannot be canceled, except for a few rare instances. An insurance company can only cancel such a policy if the insured commits fraud, misrepresents himself or fails to pay coverage premiums. Also, if the insurance company exits the health insurance industry, a guaranteed renewable policy can be legally canceled.

Indemnity Plan: Although plans vary among insurance providers, an indemnity plan is typically one in which a policyholder can choose his or her own hospitals or doctors, and the insurance provider will pay an agreed-upon portion of the costs. With this type of plan, patients won’t need a referral to see the doctor of their choice.

Gatekeeper: An individual who is sometimes involved with the insurance process, a gatekeeper refers to the person who will manage a patient’s treatments, which is mostly for authorization purposes, and generally refers to primary care doctors or specialists involved with the patient.

Other Common Insurance Terms

Cash Surrender Option: A type of non-forfeiture option that allows the insured to cancel his or her coverage in return for the full net cash value in one lump-sum payment.

Lapse: Failing to pay the full amount of premium when due by the insurer. This can refer to paying less than the full premium, or not paying at all, and will cause a policy to be terminated once the policy’s grace period has ended.

Rescission: The termination of an insurance policy by the insurer if the insured were to intentionally misrepresent him or herself on the insurance application.

If you are looking into a new policy, don’t try to guess at the meaning of insurance terms when you aren’t sure of what they really mean. Take the time to learn the language and grasp the importance of each term in the context of the policy. Do your own research, and don’t be afraid to ask the insurance agency or agent questions about particular terms. This way, you’ll know exactly what your policy entails in terms of coverage, limits and rules. Information for this article was provided by the Calgary insurance brokers at Anthony Clark Insurance Ltd.

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Dixie Somers

Dixie Somers

Dixie Somers is a freelance writer who loves to write about business, finance, and women's interests. She lives in Arizona with her husband and three beautiful daughters who are the inspiration for her writing.