Common Insurance Terms You Should Know About
The aim of an insurance policy is to financially protect you in times of distress; it acts as a safety net protecting you and your family in the event of death, injury, loss, etc. With insurance being a complex subject to understand, it is significant that you as a policyholder are aware of several insurance terms that can have a big impact on your policy. Not having a good understanding of these terms can turn out to be quite a disappointment at the time of claim. So before you buy an insurance policy or initiate a claim, it is important to understand important insurance terminologies that will help you make the right choice.
Premium: This is nothing but the amount that a policyholder pays for getting the coverage from the insurance company. Higher the premium, higher the coverage, lower the premium, lower the coverage. The premium can be paid by the policyholder on a yearly or instalment basis depending on the plan. However, the monthly payment option is not available for purchasing a motor insurance policy. The premium amount depends on several factors such as age, sum Insured opted for, medical condition, geography, income, etc.
Insurer: Insurer is the insurance company that is ready to take the risk of bearing any loss caused to the insured in exchange for the premiums that need to be paid regularly by the insured.
Free look period: This is the period of time of 15 days that the insurance company gives the policyholder to re-examine the terms and conditions of the policy. The free-look period of the policy starts from the day the insured receives the policy documents. If the policyholder is not satisfied by the coverage offered under the policy, he can choose to cancel the policy and receive the premium back. Free look period is not applicable for motor insurance policy
Third-party: In insurance, a third-party is anyone other than the two parties who have entered in an insurance agreement. The first party is the insured, the second party is the insurer and the third party is the person for whom the claim is made. For example, in case you meet with an accident and damage Mr. Akash’s car, then in this case, Mr. Akash is the third party.
In case of health: This is the amou nt for which you are eligible to receive the coverage under an insurance policy; it is the maximum value you can claim for. Sum insured is derived upon on the basis of various factors such as age, income, health conditions, etc.
In case of Motor Vehicle: Sum insured, also known as IDV in Motor insurance is nothing but the insured declared value of your Vehicle. IDV depends on the manufacturer’s listed selling price and then it is adjusted for depreciation. This is the maximum sum insured that a policyholder can claim for in case of total loss or theft of the vehicle. IDV is an important factor since the premium of the policy is calculated on the basis of the same. Higher the IDV, higher the premium and lower the IDV lower the premium.
Claim in case of car: In case of your vehicle meets with an accident you can take financial help from your insurance company by registering a claim. Claim is nothing but the amount of loss you are asking your insurer to bear. However, the coverage solely depends on the type of insurance policy you are opting for. It is important to note that the insurance company can reject the claim if the claim amount is more than the IDV in case of car/bike.
Claim in case of health: In case you require hospitalization anytime during the tenure of your health insurance, the insurance company will bear all your hospitalization expenses up to the sum insured. Your claim can get rejected on various grounds including claiming for pre-existing diseases anytime during the waiting period, claiming more than the sum insured, etc. You can either opt for cashless claim settlement or reimbursement claim settlement.
Insurance policy: It is the legal document stating the terms and conditions of an insurance contract.
Pre-existing conditions: Most policies do not cover health condition or damages which date prior to policy inception.
In case of Health- This is the medical condition that the policy seeker is suffering from prior to seeking health insurance coverage. The policyholder can make a claim for a pre-existing condition only after a waiting period of 2-4 years.
In case of Motor- Pre-existing damage inspection is only done when there is a gap in policy renewal. The damages reported in the pre-inspection survey are not payable under the policy.
No claim bonus: This is the reward over and above the base sum insured that a policyholder is eligible to receive from the insurance company for not making a single claim during the tenure of the policy. Depending on the term of the policy, this reward can go up to 50%. For a motor insurance policy, you get a no claim bonus up to a max of 50% and by way of this, you get a discount on own damage premium at the time of renewal.
Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.