Decoding Your Policy: 10 Key Insurance Terms Explained

Insurance is a critical part of both personal finance and business risk management, but the terminology can be confusing. Understanding the language of insurance policies is essential to ensure you have the right coverage and know what to expect when you need to make a claim. This guide explains 10 fundamental insurance terms.

Mastering this vocabulary will help you navigate policies with confidence. For more related terms, explore the Finance and Business Law decks in the BizVoc app.

Key Insurance Vocabulary

• Premium

  The amount of money an individual or business pays for an insurance policy.

  Our annual insurance premium for the commercial property is due next month.
• Deductible

  The amount of money you must pay out-of-pocket for a covered claim before your insurance company begins to pay.

  We chose a policy with a higher deductible to lower our monthly premium.
• Policy

  The legal contract between the insurer (the insurance company) and the insured (the person or business being covered).

  It's crucial to read the entire policy carefully to understand what is and isn't covered.
• Claim

  A formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event.

  After the warehouse fire, we had to file a claim with our insurance provider.
• Liability

  Legal responsibility for one's acts or omissions. Liability insurance protects against claims resulting from injuries and damage to people and/or property.

  Our general liability insurance covers us in case a customer is injured on our premises.
• Coverage

  The amount of risk or liability that is covered for an individual or entity by way of insurance services.

  Does our current policy provide enough coverage for potential cybersecurity threats?
• Rider (or Endorsement)

  An amendment or addition to a basic insurance policy that adds, alters, or removes coverage.

  We added a rider to our policy to include coverage for the new, expensive equipment.
• Underwriting

  The process that insurance companies use to evaluate the risk of insuring a person or asset and determine the appropriate premium.

  The underwriting process for our new director's liability insurance took several weeks to complete.
• Exclusion

  A provision in an insurance policy that eliminates coverage for certain acts, property, types of damage or locations.

  Flood damage is a common exclusion in standard homeowner's insurance policies; it requires separate coverage.
• Indemnity

  A contractual obligation of one party to compensate the loss incurred by another party. It's the core principle of insurance.

  The purpose of the insurance policy is to provide indemnity against financial loss.

Protect Yourself with Knowledge

Understanding these basic insurance terms is the first step toward making informed decisions about protecting your business and personal assets. It empowers you to ask the right questions and choose the coverage that truly meets your needs.

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