23 common insurance terms explained
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.
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.
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.
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.
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.
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.
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.
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.
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.
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Get familiar with more terminology
If you want to learn more, we have numerous other jargon buster guides:
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- Discover the most common life insurance terms in this guide.
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