Insurance

23 common insurance terms explained

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Image Sarah Rigney
Staff Writer

​​In this guide, we’ve outlined 23 common terms that you could encounter when looking into a variety of different insurance types.

As there’s a lot of jargon in the insurance world, when looking into any insurance product you will inevitably encounter terminology that you’re unfamiliar with.

However, don’t worry! To help you gain a better understanding of this jargon, we’ve compiled a list of common terms and explained what they mean.

1. Premium

When you take out an insurance policy, the price you pay for cover is known as the premium. 

2. Policy term

The policy term refers to the period for which your insurance policy will remain active.

3. Policy schedule

A policy schedule is a document which outlines the coverage provided by your insurance policy.

 4. Sum insured

The sum insured refers to the maximum amount that an insurer will pay out in the event of a claim under a contract of insurance. 

5. Insurance broker

An insurance broker acts as an intermediary between a customer and either one or multiple insurance companies, offering advice and selling insurance.

Did you know that bonkers.ie is a life insurance broker? Our team of qualified advisors can help you find the right life insurance, serious illness cover, and mortgage protection.

6. Waiting period

A waiting period is the amount of time you must wait before some or all of your cover comes into effect. This is common when taking out health insurance

During this time, you may not receive benefits for claims filed during the waiting period.

7. An endorsement

This is a written document attached to an insurance policy that outlines an amendment to an existing insurance contract. 

Essentially, an endorsement changes the terms of the original policy and can be applied to extend or reduce your cover.  

8. Special or revised terms

This applies when an insurer is still willing to offer cover, but at a revised higher premium or an exclusion to a particular condition. 

This is applied when a medical condition or certain occupation is disclosed.

9. Underwriting

This is the process whereby an insurer assesses if insurance cover can be provided and what premium should be payable. 

During the underwriting process, the insurer will determine how risky it would be to issue your cover.

10. Reinstatement clause 

Reinstatement is when an insurance company re-starts a lapsed policy within a certain timeframe.

For example, you may need your policy reinstated if you missed payments. If you've only missed the payment by a few days to a week, you likely can reinstate your policy without a lapse in coverage, or other negative consequences.

If you missed a payment, you'll have to pay the amount missed and may have to pay a late fee.

11. Lump-sum

A lump-sum payment is a large sum of money that is paid when a claim is made. It’s made up of one single payment instead of broken up into instalments.

12. Beneficiary

In life insurance, when a claim is made in the event of your death, the person who receives the lump-sum payment is known as the beneficiary. 

13. An assignment 

When you purchase a mortgage protection insurance policy, the policy will be assigned to your bank or lender as collateral for your mortgage

Essentially, the lender becomes the owner of your insurance plan instead of you.

Should you die during the term of the mortgage, the remainder of the mortgage is paid off to the lender.

14. Utmost good faith

This refers to the duty that both the insurer and the policyholder have to act honestly toward one another.

Until 2019, when taking out a policy, you had to voluntarily disclose all relevant information to the risk being insured whether requested or not.

However, in 2019, new rules came into effect in Ireland that meant that this long-standing principle no longer applied to consumer insurance contracts. 

Now, there’s no obligation on the consumer to volunteer any other information than what’s required within the questions. 

Instead, consumers must take reasonable care in answering specific questions asked.

15. Indemnity

This is a principle whereby a person who has suffered a loss is compensated by the insurer to the same financial position that they were in before the loss. 

Indemnity is subject to any contractual limitations as to the amount payable, e.g. if the loss is greater than the policy limit.

It’s commonly seen in car insurance. It offers motorists security against any loss experienced that may come from their car being damaged. 

16. Proximate cause

A proximate cause is the most likely reason that an incident occurred, which resulted in the claimant experiencing loss or damage.

However, an insurer will only be liable to pay a claim if the loss that gives rise to the claim was proximately caused by an event that is covered in the contract.

17. Excess

An excess is the first part of a claim that you will have to pay before the insurer pays the balance. 

Insurers will have a set amount of compulsory excess in place, however, there is also an option of adding a voluntary excess. 

Having a larger excess will help to lower your insurance policy.

For example, if you have an excess of €250 and then make a car insurance claim that amounts to €650, you will be required to pay the first €250, with the insurer paying the balance.

18. Reinstatement value

Reinstatement valuations are primarily used for home insurance

The reinstatement value is effectively an estimation of the likely cost of rebuilding a property to its original condition in the event of it being damaged or destroyed. 

The reinstatement value is derived from the cost of construction at that particular time, rather than the home’s market value.

19. Material facts 

This refers to any fact that would influence the judgement or decision of an insurer in deciding whether to accept an insurance risk.

Material facts can affect the terms, including the level of premium at which the insurer would be willing to offer cover.

If you fail to disclose any necessary information, the insurer may later void the policy, or your claim may not be paid out. 

20. Loading

Loading is an additional cost that may be added to a policy if you’re deemed more ‘risky’ to cover by an insurer. This is commonly seen in both life insurance and health insurance. 

In life insurance, a loading fee may be added to your policy ​​if the insurer thinks you’re more likely to make a claim. This can be for a variety of reasons, including having an existing health condition, being a smoker, or working in a dangerous occupation.

Loadings are also seen in health insurance, where a loading of 2% is applied for every year of age higher than age 34. You can learn more about this here.

Loading may also be added to other forms of insurance, such as motor insurance, due to the number or severity of claims, or convictions, incurred by anyone on the policy. 

Claims made in recent years can affect the premium. Similarly, multiple claims will attract a higher loading.

21. Third party

A third party is a beneficiary of the policy who is someone other than the main two parties involved in the contract; the policyholder and the insurer. 

22. Guaranteed insurability option (GIO)

Guaranteed insurability is an option for life insurance and mortgage protection products that allows you to increase your cover without the need to undergo medical underwriting again.

Usually, this option is only available if certain life events take place, e.g. you give birth or adopt a child. 

For more information on GIO, take a look at our guide on common life insurance terms explained.

23. Cooling-off period

You have the right to withdraw from the policy within a set amount of days after purchasing it, without penalty and without giving any reason. This is known as the cooling-off period. 

Usually for insurance, such as car and home insurance, this cooling off period lasts for 14 days from the policy start date.

For life insurance policies and mortgage protection cover, the cooling off period is 30 days from the start date of the policy.

Get the best value insurance on bonkers.ie

Now that you’ve become acquainted with the most common insurance terms, why not see how much you could save on your insurance costs?

We offer comparison services for life insurance, serious illness cover, mortgage protection, home insurance and car insurance. Find the best value cover to suit your needs!

Don’t forget, we also have comparison services for energy, broadband, and banking products. Take control of your everyday bills with bonkers.ie.

Get familiar with more terminology

If you want to learn more, we have numerous other jargon buster guides:

Head over to our blogs and guides pages to view our full range of articles. 

Get in touch

Do you have any questions about the terms outlined above? If so, let us know! You can contact us on Facebook, Twitter and Instagram.

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