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Key Insurance Terms Explained

This document defines common insurance terminology: Premium is the amount paid periodically for an insurance policy. Coverage is the amount of risk or liability covered by insurance. Coinsurance is the percentage the insured pays, while copayment is the fixed amount they pay. A deductible is the amount paid by the insured before insurance kicks in. Exclusions eliminate coverage for certain risks. Limitations set the maximum coverage amount. Pre-existing conditions deny coverage for problems before the policy. Pure premiums pay for losses, while loading fees cover the insurer's operating expenses.

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456 views10 pages

Key Insurance Terms Explained

This document defines common insurance terminology: Premium is the amount paid periodically for an insurance policy. Coverage is the amount of risk or liability covered by insurance. Coinsurance is the percentage the insured pays, while copayment is the fixed amount they pay. A deductible is the amount paid by the insured before insurance kicks in. Exclusions eliminate coverage for certain risks. Limitations set the maximum coverage amount. Pre-existing conditions deny coverage for problems before the policy. Pure premiums pay for losses, while loading fees cover the insurer's operating expenses.

Uploaded by

Omar Faruk
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Insurance Terminology

1. Premium
Premium is the amount of money paid in regular
installment for an insurance policy.

In other words, premium is an amount paid


periodically to the insurer by the insured for
covering his risk.

If an individual is to pay $50 dollar per installment


for his/her insurance policy, $50 is called premium.

It is cost of insurance to insured people.


2. Coverage
Insurance coverage is the amount of risk
or liability that is covered for an individual
or entity by way of insurance services after
occurring the event.

If an individual gets $5000 after getting sick as


a treatment cost from his/her insurance
company, $5000 is called coverage.
3. Coinsurance and Copayment
Coinsurance is the percentage of total coverage that insured
person is to pay for receiving total coverage. This is usually
found incase of health insurance.
Copayment is the amount of money that insured person is to
pay from his pocket for receiving total coverage.

Example: Let total coverage for an health insurance policy is $150


and the coinsurance rate is 20%. So, in this contract the total
copayment is $30.

Summary: Total coverage: $150


Coinsurance rate: 20%
Copayment: $30
Payment by insurance company: $120
4. Deductible
A deductible is the amount insured person pays for health
care services before his/per health insurance begins to pay.

Example: If you are a insured person and your plan’s


deductible is $1500, you will pay 100% of eligible health
care expenses until the bills total $1500. After that, you
share the cost with your plan by paying coinsurance.

Total health care cost = $5000


Deductible = $1500
Coinsurance rate = 20%
Cost after deductible = $(5000-1500)= $3500
Copayment =$3500×20% = $700
Payment by insurance company=$ (3500-700)= $2800
5. Exclusions
Exclusion is the services or conditions not
provided by insurance policies. It eliminates
coverage for some types of risks. It also
narrow the scope of coverage provided by
the insuring agreement.

Example: Cosmetic surgery, experimental


treatment.
6. Limitations
Maximum coverage provided by insurance policies
is called limitations.
If we file a claim for receiving coverage, our
insurance policy will pay up to a certain amount.
We're responsible for any expenses that exceed
the limit.
Example: A policy may provide a maximum of $3
million lifetime coverage.
7. Pre-existing Condition
Medical problems not received if the
problems existed prior to issuance of
insurance policy.
Examples: We can include pregnancy, cancer,
or HIV/AIDS.
8. Pure Premiums
The pure premium, which is determined by
actuarial losses, consists of that part of the
premium necessary to pay for losses and loss
related expenses.
Pure Premium = Losses ÷ Exposure Units
Example: An average loss of $1 million per year
per 1000 automobiles yields the following pure
premium.
Pure Premium = $1,000,000 ÷ 1000 = $1000 per
automobile per year
9. Loading Fees
The general costs associated with the insurance
company doing business.
Loading cost is the amount included in the
premium charged by an insurance company to
cover its administrative and maintenance costs. In
order to cover for their operating expenses,
the insurance companies include this as a portion
of the total premium payable.
Example: Administrative, maintenance and
operating costs; sales, advertising, and profit
costs.

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