Common insurance terminology

Identify the people and the promise

An insurer is the company undertaking the insurance obligation. The policyowner, or policyholder, holds the contract's ownership rights. The insured is the person whose life or health is covered, or whose covered interest is protected. A beneficiary is designated to receive a benefit, especially a life insurance death benefit. These roles can belong to different people: Elena owns a policy on her own life and names her brother Marco as beneficiary. Elena is owner and insured; Marco is beneficiary. A producer helps arrange coverage but is not thereby the insurer.

The premium is the price paid for insurance. A policy documents the insurance contract. The insuring agreement describes the insurer's coverage promise, exclusions identify matters outside coverage, and conditions state contractual requirements. A rider or endorsement modifies the policy; it can add, restrict, or otherwise change coverage. A claim requests a benefit under the contract; it is not the benefit payment itself.

Separate payment terms

A deductible is an amount of covered expense borne by the insured before applicable insurer payments begin. Coinsurance, in a medical expense example, divides covered costs by percentage. A copayment is a specified payment, often a fixed dollar amount for a service. If an eligible $1,500 medical expense is subject to a $500 remaining deductible and then 80 percent insurer payment, the insurer pays $800 of the remaining $1,000. The insured bears $700. A benefit limit caps a covered benefit under the policy. Actual benefits depend on the policy terms and applicable law; these examples isolate the terminology.

Distinguish loss and benefit concepts

A peril is a cause of loss; a hazard increases the likelihood or severity of loss. Indemnity seeks to compensate covered financial loss rather than create a profit. Life insurance instead ordinarily pays the stated death benefit upon a covered death, rather than reimbursing an itemized financial loss. Cancellation ends coverage before its scheduled expiration; nonrenewal means coverage will not continue for the next term. Lapse commonly describes termination after required premium payment is not made within the applicable time.

Read class names carefully

California's Insurance Code section 101 includes annuities within the life insurance class. Section 106 uses disability insurance broadly for specified accident and sickness coverage. Under California's section 106 definition, health insurance covers hospital, medical, or surgical benefits, while disability income and listed fixed cash benefit products are excluded from that defined term. Disability income replaces part of income lost through covered disability; medical expense insurance addresses covered care costs. Do not confuse either with life insurance's death benefit.