Insurance Vocabulary Terms : Premium, Deductible, Claim, Underwriter, Policyholder, Rider, and Floater

Now that you know why insurance companies do what they do, it’s time to take a look at some of the language you’ll need to understand some insurance vocabulary terms before delving into your actual coverage. These are the tools in the well-supplied tool belt you’ll wear while you build your insurance structure.

• Premium. The premium is the price you pay the insurance company for a specific type of insurance policy. The premium is determined by the thing you want to insure (a $100,000 frame house versus a $500,000 brick home), the events that could happen to that thing (fires, windstorms, and earthquakes), and the dollar level of insurance you want ($50,000 to replace the frame house or $300,000 to replace the brick one). The important thing to keep in mind is that premiums charged by different insurance companies, for the exact same life insurance coverage, can vary by more than 100 percent. Thus, when you compare premiums, make sure the insurance coverage is the same.

• Deductible. Most insurance policies do not cover the entire financial replacement cost of what is being insured. Let’s take the example of a tree falling on your house, and the cost to repair the roof is $3,500. You may have to pay $500 of that $3,500 out of your own pocket. That $500 you pay before the insurance coverage kicks in is called your deductible. All insurance policies have deductibles. The higher your deductible, the lower your premium, and vice versa. A good rule of thumb is to buy the policy with the highest deductible you can afford to pay. So if you think you can afford to pay $1,000 of that roof repair, choose a $1,000 deductible. That way you’ll be paying lower monthly premiums.

• Claim. A claim is the request you make to the insurance company to reimburse you for a loss you have had that is covered by a policy. The most common claim is a first-party claim, which involves collecting on a policy that you have purchased. You smash your car into a cement wall and collect money from the insurance company to help pay for the auto repairs. A third-party claim involves collecting from someone else’s insurance company. Let’s say someone smashes his car into your cement wall. You then collect from the company which insures that driver for the damage he did to your wall.

• Underwriter. This insurance vocabulary term is the insurance company that creates the insurance policy. The underwriter sets the terms and premiums of the policy. If you buy a policy and then make a claim, it is the under writer the insurance company that pays you.

• Policyholder. That’s you. The insurance company the underwriter creates a policy. If you choose to buy it, you pay the premiums. Then, you hold the policy. This the exact meaning of policyholder as insurance jargon.

• Rider. This is a special provision that is added to or ”rides” on an insurance policy. Insurance riders can expand or limit the benefits paid to you when you make a claim. Some riders allow you to renew your policy under certain conditions. For instance, a guaranteed purchase rider on a life insurance policy might let you increase the coverage of the policy from a $250,000 death benefit to a $500,000 death benefit without first taking a medical exam. Most policies send you to the doctor before letting you increase your coverage. There are literally hundreds of riders that can be added onto the various insurance policies you may hold. We’ll walk you through most of the options later on.

• Floater. This is a type of insurance policy that covers property that can be moved such as jewellery, artwork, or sports equipment. Thus, the insurance coverage “floats” with the insured item whether you leave it at home or take it on vacation.