Knowing the right terms can make you an intelligent customer when it comes to coverage and premiums. Right insurance terms get you better places in negotiation via policies, insight into what will be covered, and how you might escape further increasing costs with proper knowledge about them.
Let’s find some of the major insurance terms and their implications in the following lines:.
Premium: Definition
A premium is what one pays to an insurance company to buy protection. Premiums can be paid either monthly, quarterly, or yearly depending on your policy conditions. The cost of your premium varies with different aspects such as coverage level chosen by you, the risk factor for you, and the nature of insurance one wants.
What Factors Determine the Premium?
The risks are factored in by the insurance companies in their determination of premiums. That is, the higher the risks in insuring you or your property, the more likely you will be to pay a premium for such insurance. Taking the above example, you are buying a car and have an accident record; therefore, you will be paying more premiums. On the other hand, if you install an anti-theft system in your car, your premiums may be reduced.
Other determinants of a premium
- Age and Gender: You would normally expect younger drivers or elderly to attract higher premium charges since the probability is higher
- Location: Where you live would normally attribute to the premiums, especially to auto and home insurance, due to the crime rate, weather pattern, and traffic.
- Claims History: If you filed quite a number of claims, your premiums would shoot up
Coverage: What does it entail?
Coverage is the protection an insurance policy. It outlines the types of risks and damage that it covers. The sum you pay as premium is directly proportional to the type of coverage.
Types of Coverages
Liability Coverage This type of cover guards you against the damages done to someone else’s property, or against your hurting someone else. Liability typically pops up in a standard auto insurance policy.
It also encompasses actual damages to your property, such as weather damage, vandalism, or theft.
- Collision Coverage: This insurance will pay for damages your vehicle suffers from a collision with another vehicle or object.
- Health Coverage: Health insurance pays for doctor visits, hospital stays, and surgery costs. Your options depend on the coverage plan you select.
Key Insurance Terms That Impact Your Premiums
Some of the terminologies used in insurance decide premium and coverage; that means it will make you aware and make an effective choice of choosing a good policy.
Deductible.
This is the amount you pay before your insurance kicks in. For instance, if you have car insurance with a deductible of $500 and you file a claim for $2,000 in damages, you pay the first $500, and the insurance company pays the rest, which is $1,500.
How Deductibles Affect Premiums
Higher deductibles entail lower premiums as you are indeed taking the risk of having a claim filed against you. All you need to do is prepare yourself for the payment of the deductible amount in case a claim is filed. If this does not bother you, then you will save much on your premium in the long run.
Coverage limits
The coverage limits are the utmost amount that the insurance provider pays on a claim. Different types of coverages in the policy differ as per the kind of limit; it can be either property damage or personal injury. You will pay the excess if you make a claim that is above the limit.
How Coverage Limits Influence Premiums
Higher coverage limits often result in higher premiums because you’re asking the insurance company to cover more risk. On the other hand, lower coverage limits may help reduce your premiums, but it also increases your financial risk.
Exclusions
Exclusions are specific perils or damages your insurance policy will not pay for. For example, a basic homeowner’s policy may exclude damage from flooding; thus, if you live in a flood zone, you would need to purchase supplemental flood insurance.
How Exclusions Impact Premiums
Knowing what exclusions apply in your policy will prevent you from getting nasty surprises when filing a claim. Although some of these exclusions cut down on your premiums, they increase your risk factor; therefore, reading this carefully and whether one needs extra coverage to be obtained is important.
Other Important Insurance Terms You Should Know
Underwriting
Underwriting is a whole process whereby an insurance company can evaluate its risk and their final decision upon the terms in the policy, which may be premiums to be paid by the customer. Several elements are considered in the process of underwriting, among them including age, health status, driving record, and even the type of coverage pursued.
Effect on Premiums
The underwriting process provides an insurance firm with the leeway to provide quotations for premiums upon the level of risk of an individual. The high-risk client will pay high premium.
One who owns an insurance policy is called a policyholder. The holder of the insurance policy is entitled to pay his or her premia and holds the privilege of exercising claims under his or her own policy.
Role of Policyholder
As a policyholder, you’re responsible for understanding the terms of your coverage, keeping your premiums up-to-date, and filing claims when necessary. Your policyholder status also determines who can make changes to the policy or file a claim on your behalf.
Riders
It is more coverage over an insurance policy by adding some parts to a base policy which allows more protection and coverage over it. In many ways, these riders let a person adjust and customize the rider according to needs.
Rider and their Influence on Premium
Usually, riders add more premiums to your policy. However, for certain instances, such as adding coverage on valuable personal property or adding protection for specific risks, riders prove to be quite worth it.
Conclusion
Insurance terms are essential for deciding how much and how broad your insurance coverage is going to be. Understanding terms like premiums, coverage limits, deductibles, exclusions, and riders will make you even more effective in selecting the best insurance policy for yourself. Review of your policy constantly will determine adjustments that need to be made towards meeting changing needs and costs-cutting measures at every given time. You now have all it takes to give you adequate knowledge on effectively protecting yourself and assets.
