I remember when I was a child, watching my favorite Pokemon or Spongebob Squarepants TV show, and intermittently an advert would come up for insurance. At this point, I would completely zone out and hear “blahblahblah ~adult stuff~ blahblahblah.” I thought to myself, The day I understand and actually pay attention to these adverts is the day I’m old and boring.
Fast forward to present day and I’m actually working in insurance! Although I don’t consider myself old or boring. (What did 6-year-old Declan know anyway?!) I’m aware that the public perception of insurance is that it is stale and dull, which it is, for sure. However, insurance can be an incredibly powerful tool that, when used correctly, can keep you financially stable — and let’s be honest, there is nothing more cool or chic than FiNaNcIaL sTaBiLiTy.
Some of the insurance terms below specifically refer to health insurance, though I have also included some general insurance terms. I truly believe everyone over the age of 18 should be interacting with insurance in some way or another. Insurance can apply to anything from travel to home contents to renters — insurance is like Disneyland, with something for the whole family. So before you jump straight in to the world of insurance, here are some absolutely crucial key-terms to know to make sure you’re not only sufficiently covered, but also getting the best deal.
This is how much you’re paying to be covered by your insurer. This can be a one-off payment or a monthly direct debit, but either way, this is the money you pay in exchange for the promise that the insurer has given you that they will pay any valid claims.
Listen up! This is a very important one. A warranty can refer to two things: a type of contract condition, or a period of time with which you can send back a defective product to the manufacturer/seller and be reimbursed. The type of warranty that refers to a contract condition is far more important, in this instance. A warranty is a condition to the insurance contract, whereby breach of such a condition will lead to suspension of your coverage. For example, say you have homeowner’s insurance, and in your policy, there is a warranty that you have double locked your front door. If you get burgled, but you had only single locked the front door, your insurer will not pay out. By leaving the house without double locking the front door, you were in breach of a warranty, which suspended your coverage. (Obviously, this wouldn’t be the case if you can’t double lock your front door in the first place.)
Warranties can entail many different things, such as regular upkeep of smoke alarms, keeping certain personal possessions in a safe when not on your person, etc. Read your contract — know your warranties!
3. Third party
The “third party” refers to the people who are covered by the policy that aren’t the policy holder. If your car collides with somebody else, and you have third party coverage, your insurance will pay for the repairs to the person whose car you just totaled. While this might seem like an obvious one, it’s important to note that one form of motor insurance is third-party only; this means you have no coverage if you’re in a collision and only those whose cars you damage are covered.
This is the primary amount you have to pay of a claim before your insurance will kick in. If you have a $2,000 medical bill and your health insurance has a $500 deductible, you must pay $500 towards the bill, and your insurer will pay the remaining $1,500. This term can vary quite a lot in insurance contracts; some deductibles are for the year, and you must absorb the cost of all claims up until you have reached your deductible. Some deductibles are smaller, but will apply to each and every claim you make, regardless of how many you’ve made. Some insurance contracts have an annual deductible but will pay for regular prescriptions or treatments without your deductible — so don’t just know how much your deductible is, but also what type.
This is a set percentage of every claim you pay, after your deductible has been applied. If you have a coinsurance clause for 20%, after your deductible has been used up, you will pay 20% of each and every claim you have for the rest of the year until your insurance contract renews. The other 80% of the claim is paid by your insurer, and the percentage difference can vary depending on policies.
7. Copayment (Copay)
This is technically a form of coinsurance, but unlike coinsurance, is usually a flat fee, and is paid before any medical treatment can be accessed. Your insurance may contain a co-payment clause of $50 every time you visit a physician, or $10 every time you collect your prescription. This was introduced to reduce the ethical dilemma of people claiming on their insurance for minor illnesses, such as the common cold.
8. Conditions precedent to liability
This refers to everything you have to do before you can make a valid claim on your insurance policy. This is by far the term that most people neglect to read, and blame the insurance company for not covering them. The most common one is a notification period — the time with which you have to inform your insurer that you’ve had a loss, which is often within a reasonable amount of time, such as a month. However, a common condition precedent to liability on travel insurance is that if you have personal property stolen while abroad, you must notify the local police within 24 hrs. and have a police report before you can make a valid claim on your insurance. Again, this is not always the case, but definitely something that a lot of people trip up on.
This entails everything that is not covered by your policy — make sure there is nothing under your exclusions to which you are expecting to be covered. This could entail anything from accidental damage to your possessions, to pre-existing health conditions — which may be the very reason you’re taking out insurance to begin with! Side note: pre-existing conditions clauses can have a timeframe to which they are pre-existing; for example, you may not be covered if you’re signing up for health insurance, and you’ve known for a year you have a heart condition. Be careful, as some insurance contracts could claim exclusion against knowledge of pre-existing conditions as far back as five years for .
10. All risks policy
These are policies which are defined by their exclusions. As the name suggests, these policies cover ~everything~, unless it is an exclusion — so if something isn’t mentioned on the contract, by default, it is covered.
Now here is the where the magic happens, as the type of insurance you buy should reflect your financial position at the time. For example, if you have a small emergency fund, or are struggling to build one, it may not be a good idea to purchase a high-deductible insurance. Yes, high-deductible insurance is often cheaper, but without the funds to cover the deductible, you may as well not have insurance in the first place. The same can be said vice-versa: if you have a hefty emergency fund, it might be worth increasing the deductible to a figure you know you can cover should you need to, and that will reduce your monthly payments for your insurance.
I’m no financial planner, so always seek out advice when planning what is the best type of insurance for yourself. Hopefully this guide has increased your awareness, and shown that, just like all other financial aspects of your life, you can take control and make insurance work for you.
Declan is a millennial living in London, wondering what his next career move will be in between yoga and playing badminton.
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