Basic Insurance Terms
What is an "underwriter"?
An underwriter is a person that works inside the insurance company who looks at you, and looks at the risk, and decides whether or not you're insurable. For example, let's say that you're looking to buy a health insurance policy, and you are 5' 3" and you weigh 200 lbs. You're taking all kinds of medications and you have all kinds of serious health problems, and aren't doing well. The insurance underwriter at the home office of that insurance company has to make a decision. Sometimes it's a painful decision, they say, "You're insurable, or you're insurable at a higher premium than the normal", or they say you're non-insurable at all. The underwriter is the person that makes that decision.
What does "risk" mean in the context of insurance?
Risk in the context of insurance is the potential of something bad happening, typically. If you own a car, the risk is that you might have a car accident, or someone might steal it, or somebody might vandalize it. If it's your life, there's a risk that you might pass away. In fact everyone passes away eventually, but there's a risk to a person who's overweight and has had recent cancer of dying sooner than someone who is in perfect health, eating properly, and is a normal height and weight. So the insurance company looks at each person individually, and they look at your risk, because we all have risk. If you are a business and you have worker's compensation insurance, and they see that you have all kind of dangerous things on the floor somebody could trip on, you become a bigger risk to the insurance company and they might charge you a much higher premium, or they may not accept you at all because you haven't satisfied certain requirements.
What is a "deductible"?
A deductible is an amount of money you're gonna pay before the insurance kicks in. So, for example, if you have a health insurance policy and it has a $5. deductible, basically the insurance company's gonna make you pay all that first $500, and then they'll start working. The reason they have these deductibles is that it keeps the cost down. As an example, if you have a $2,000 deductible, it's going to be a lot less expensive premium than if you have a $500 deductible. If you have a $2,500 deductible or a $4,000 deductible, the insurance company says, "We have a customer who is willing to take some of the risk on their own". Now, for a person who's very healthy and rarely ever goes to the doctor, a high deductible makes a lot of sense. Some people save thousands and thousands of dollars having high deductibles. If you're an employee, though, working for an employer, you don't want a high deductible. You want the lowest deductible because the employer might be paying 100%. If you're self-employed and you're working on your own, you have to ask yourself, "is it worth paying the extra premium to have a very low deductible when you've been so healthy all these years?" The main thing that you should really be looking for in a health insurance policy is what's going to happen if you have a catastrophe. My opinion is if you have a $1 million claim, God forbid, who cares about a $5.000 deductible or a $1,000 deductible or $2,000 If the insurance company pays 98% of your claim or 99.9% of your claim, it's all that you really should be looking at.
What is a "claim"?
A claim is the ultimate purpose of having insurance. One day, something happens that is not very pleasant. You have a claim. That's when you ask the insurance company to divvy up for all those insurance premiums you've paid over the years, because now you have a serious problem. If you have had a flood in your house, or the house burned down, you expect that insurance company to come back and take care of your claim. So a claim is basically asking the insurance company to fulfill their promise and pay out the benefits that they promise you on the policy.
What is "coverage"?
Coverage is what the insurance company says they are going to do if you ever have a claim. When you buy a disability insurance policy they might say that after 90 days, we'll start paying you $4000 a month because of your disability which was due to accident or sickness. They are going to spell out every single definition of what a disability is, how long you are going to have to wait, how long they are going to pay you your benefits. The coverage is what you are getting for those hard earned dollars that you pay out in premiums to the insurance company.
What is a "premium"?
A premium is another word for how much you pay for that insurance policy. If you buy a home owner's policy and the insurance agent calls you up and says that the premium is $1000, you're going to write a check for $1000. You can usually pay it usually monthly, quarterly, semiannual, or annual. All that is premium, it's the amount of money you pay out to an insurance company in exchange for the policy that they're going to give you.
What is a "policy"?
A policy is the written contract between you and the insurance company. It's all the pages of the policy, the provisions, that say “this is what we're going to do in exchange for the premiums that you're paying us every year.” A policy is usually 2 or 3 pages. It sometimes has everything you've told the agent as your promise. As an example, if you buy a life insurance policy and you tell the agent that you have perfect health, but if later on they find out that you have a lot of serious health history that you neglected to put down on the application, that can affect whether you get paid on your claim. The policy is your contract--the written contract--plus all the promises of the insurance company.
What does "indemnify" mean?
Indemnify means to insure. It's another name or another word for insurance. If an insurance company says, "I indemnify you," they say, "I'm insuring you." They are protecting you. "You pay us a premium, we will protect you and will pay the claim, if we have one."
