Following is a brief and broad general overview of insurance terms and insurance products as a whole.
Insurance Terms Defined
Insurance is about minimization of risk. An insurance company assumes risk for a fee known as a premium.
In its simplest form, insurance is a bet. The proposed insured bets that a certain peril (danger) or event will occur. The company bets that the peril or event will not occur.
If and when the peril or event occurs, the company loses the bet and must pay the insured a claim or benefit.
There are two main categories of insurance licenses: Property/Casualty (PC), and Life/Disability (LD).
An agent with a PC license generally insures things, such as homes, cars, and other property, as well as liability against certain perils.
An agent with an LD license insures people: Life, disability, and long-term care insurance.
Generally, either agent is able to provide medical insurance.
There are basically two kinds of insurance agents: A captive agent is an agent that represents and is usually tied to one particular company. A non-captive agent is a broker that may represent several companies, allowing the agent to offer more selection to his or her client.
In most cases, a proposed insured must qualify for coverage based on certain conditions.
Policies have certain conditions.
Policies have exclusions, which means certain perils or events are excluded from benefits or claims.
Some policies cannot be canceled by the company as long as the insured pays the premium.
The two types of insurance companies are stock companies, which are owned by the stock holders, and mutual companies which are owned by the policyholders. Mutual companies offer dividends.
There are several terms that pertain to insurance companies, depending on the type of insurance:
Policy owner-generally who pays the premium and makes decisions and makes policy decisions.
Insured– person, corporation, or property covered by the insurance.
Conditions-must be met for insurance company to be responsible for a claim or benefit.
Surrender-is what happens when a policy is canceled by a policy owner.
Claim-request to a company for a benefit to be paid.
Benefit-amount of money someone receives from an insuring company.
Beneficiary-person or entity that receives the benefit from an insuring company.
Deductible-amount the covered person or entity must pay before receiving benefits.
Rider-additional benefit added to and covered by a policy, often for additional premium.
Elimination period-period of time that elapses prior to when benefits begin.
Incontestability period–a company cannot contest a claim after this elapsed period.
This concludes part 1. Part 2 follows.