Insurance Terms You Need to Understand

Insurance is an important requirement if you want to have stable and healthy personal finances. In addition to adequate emergency funds, ownership of protection is something that should not be delayed. By having insurance, personal finances can be protected from the risks of losses that may occur when dealing with a condition that requires large costs. For example, when you fall ill and need medical expenses or when the family’s backbone dies due to an accident so that the family’s income stops.

The pandemic condition makes the need for insurance even more relevant. The risk of contracting infectious diseases and the threatening risk of death makes insurance an important endeavor to maintain physical and financial health as well as peace of mind apart from social distancing. So, if you are currently considering buying insurance, you should first identify important terms in insurance.

Understanding the terms of insurance will help you find the most appropriate insurance product according to your needs. What insurance terms are important to understand? Check it out below:

1. Insurance Policy

Insurance Policy is a term to refer to a written cooperation agreement contract between the Insurance Provider Company (Insurance Underwriter) and the Policyholder’s customer. All insurance contracts, whether it’s life insurance, health insurance to loss insurance, are called insurance policies.

The contents of the cooperation agreement contained in the Insurance are agreements that the Insurance Provider is willing to bear the risks owned by the Insured whose name is stated in the policy, within a certain period according to the agreement. To get insurance protection from the insurance provider, the policyholder is required to pay an agreed premium fee.

The Insurance Policy also contains the General Terms of the Policy, details of the rights and obligations of the Insurance Provider, Policy Holder, the range of Insurance Benefits provided, articles that mention exclusions of protection, and articles that mention things that can cancel the Policy. In addition, the Insurance Policy usually includes a Coverage Sheet, Special Provisions, as well as a copy of the Insurance Application Letter (Claim Letter).

Insurance policies include important documents that have legal force. Therefore, you must keep it in a special place that you can easily access whenever you need it, for example when you want to claim insurance.

2. Insurance premiums

To get insurance protection, the policyholder is required to pay an amount of premium to the insurance insurer. The insurance premium is defined as an amount of payment determined as a risk transfer fee from the Policyholder to the Insurance Provider. The premium amount is determined by the Insurance Provider and agreed upon by the Policy Holder. The size of the premium will be determined by many factors. Among other things, the scope of protection provided by the Insurance Provider, the age of the Insured, lifestyle or medical records of the Insured, gender, to the Insured’s work sector.

The more comprehensive the coverage of insurance, the premiums are usually more expensive. Likewise, if the insured is considered to have a high risk, the premium will automatically be more expensive. Policyholders are usually given a choice of premium payment options. Namely: Monthly Premium, Quarterly Premium, Semester, or Annual Premium Payment.

3. Insurance insured

The term “Insured” in an Insurance Policy refers to the person or party who obtains compensation for losses from the Insurance Provider when the risk referred to in the Policy occurs. In a Life Insurance Policy, the Insured is the head of the family or a family member who has economic value. In Health Insurance, the insured can be anyone, such as employees, children, wives, parents, and so on. Thus, when there is a risk that is protected in the Policy, the Insured will receive compensation. For example, when the head of the family who is the insured in the life insurance policy dies, the sum insured will be given by the insurance provider to the beneficiaries who have been designated in the policy.

The Insured is not the same as the Policyholder. An Insured is not necessarily a Policyholder. For example, as the head of the family you buy health insurance, you are referred to as the Policy Holder as well as the Insured. The children and wife that you insure are also referred to as the Insured.

4. Insurance Benefits

Insurance Benefit means the protection obtained by the Insured and provided by the Insurance company. For example, health insurance provides benefits for medical care costs, outpatient costs, and surgical benefits. That means, when the Insured falls ill and needs treatment, the Insurance provider will provide reimbursement for medical treatment costs.

There are also insurance benefits in the form of benefits and compensation as contained in health insurance of the hospital cash plan type. While in life insurance, insurance benefits are in the form of a sum assured. Sum Assured (UP) is several funds that will be disbursed and given by the insurance provider to the heirs or beneficiaries designated in the policy when the insured dies.

5. Claim

Claims are claims submitted by the Policy Holder to the Insurance company as the Insurance Underwriter, to fulfill the Policy Holder’s rights as stated in the Policy. An easy example is if you have health insurance that covers typhus illness benefits. When one day you fall ill and have to be hospitalized because of typhus, then you can submit a benefits claim to the Insurance Provider. The Insurance Insurer will pay financial compensation in the form of hospitalization costs and other costs according to the definition of benefits stated in the Insurance Policy.

Insurance providers usually limit the insurance claim period. For Health Insurance, for example, the Insurer gives a maximum claim time of 30 days from the time the Insured is treated.

6. Acquisition Costs

This term refers to the fee that must be paid by the Policy Holder to obtain services as an Insurance customer. In addition to “acquisition costs”, the same fees are usually referred to as policy issuance costs. The cost of issuing a policy includes the cost of paying insurance agent fees and operating costs for insurance companies.

7. Lapses

The Policy Holder is required to pay an amount Premium to the Insurance Provider according to the agreement in the Policy so that the Insurance Benefits can still be obtained during the contract period. So, if the Policy Holder does not pay the required Premium beyond the Grace Period (generally for 45 days), then the Insurance Policy owned will automatically cancel or lapse. Avoid policy cancellations by ensuring premium payments are on time according to the payment term you have chosen.

Lapse makes insurance protection impossible for you to get. When a risk occurs when the Insurance is in lapse status, the Insurance Provider is no longer obliged to bear the loss.

Also read : Choosing the Right Insurance: Understanding the Different Types and Benefits

8. Cash Value

You usually encounter this term in unit-linked life insurance or endowment insurance. Cash value is the amount of money that can be redeemed by policyholders in a certain period. For example, in endowment insurance products such as education insurance, there is usually a cash value that can be disbursed by policyholders when the policy is 3 years old, 6 years old, and so on.

In unit-linked life insurance, namely, life insurance that has protection features as well as investment features, cash value means investment returns that are formed from investment funds that are routinely deposited by policyholders.

9. Additional Insurance (Rider)

This is the term to refer to Additional Benefits that you can add to the Basic Insurance program. Riders usually have cheaper premiums because of their nature as a complement to the Main Insurance. For example, Life Insurance products are generally equipped with a rider in the form of Health Insurance, Critical Illness Insurance, or a waiver of premium.

However, you need to remember, the more riders you take, the wider the insurance benefits you will enjoy. That has consequences for the more expensive premium fees that you have to pay.

10. Premium Holidays

Premium leave refers to a certain period during which a policyholder is allowed not to pay premiums or stop paying premiums without losing insurance benefits. Premium leave does not mean that the policyholder does not pay any premium at all. Premium leave is possible in Insurance that has investment features such as unit links. When the premium leave is implemented, the insurance insurer uses the cash value that has been formed from unit link investments, to cover premium costs. Premium leave is possible if the cash value of a policy is sufficient to pay the premium costs.

So if the cash value that has been formed is insufficient to pay the premium, then the policyholder must pay the premium again or top-up his investment so that the insurance benefits remain valid and prevent a lapse.

So, those are 10 important terms in insurance that you need to understand and can be a guide so that you can better understand the insurance product that you are about to buy or have purchased.