Insurance Terms You’ll Need to Know

Sometimes the world of insurance can sound like another planet, with a whole language all its own. Some of the words and phrases used by insurance agents can be hard to understand, but it’s important that you know them so you can make the best decisions about what insurance plans are best for you. 

Here are the most important ones to know:

Coinsurance

In health insurance, this refers to the percentage of costs you will pay for care after you have paid your deductible. For example, if your deductible is $1,000 and you have paid that much during the calendar year, the coinsurance would kick in. Typically, you would then pay 20% of costs above that, and the insurance company would pay 80%.

Copayment (copay)

A fixed amount (such as $25) that you pay for a health care service that is covered by your insurance, usually after you have paid your deductible. In some situations, the insured may only pay the copayment, even before the deductible is fulfilled, and the copay applies toward the deductible.

Coverage

Put very simply, coverage means what losses or services will be paid for by your insurance policy, and how much it will pay for repairing, replacing, or securing those items or services.

Deductible

The amount you must pay out of pocket for a damage, loss, or a health care service before the insurance begins to pay. For auto insurance, you might have a $500 deductible; in that example, if you’re involved in a crash, you’re responsible for paying $500 first, and then the insurance would cover the rest of the cost. For healthcare, the deductible is usually more; it could be $1,000, $2,500, or even $5,000.

Dependent

This term typically refers to taxes — a dependent is a child or other individual that relies on an income provider (such as a parent). That income provider may claim a tax deduction to help them afford to support their dependents. In insurance terms, this refers to people who could be the recipients of life insurance benefits if the insured passes away. Related to the Affordable Care Act, it can also refer to people for whom income providers may receive additional subsidies to obtain those dependents’ health care coverage.

Liability

Liability is another word for responsibility. When you have liability in a car accident, that means you caused it. You are liable, or responsible, for the accident. In insurance terms, liability coverage pays for the damage you are responsible for, whether that damage is to a person, as an injury, or to their property.

Policy

In insurance language, a policy is the written contract stating what is covered by the insurer (and how much) and what is not. A policy usually renews each year, although for some types of insurance, such as life, it may renew every 10 or even 20 years.

Premium

Premium is a fancy word for the amount you pay for insurance. This cost is based on a number of things, including how much coverage your policy offers, your health or lifestyle, and how much of a risk the insurer believes you are — for example, if your driving record includes a lot of speeding tickets or accidents, it is riskier for an insurer to provide you with coverage.

Premiums may be paid monthly (usually auto, life, or health insurance), quarterly, or annually (as with homeowner insurance). This largely depends on your insurer and the arrangements you make with them, based on your finances.

For a more detailed glossary of insurance terms, visit HealthCare.gov or the National Association of Insurance Commissioners (NAIC).