Insurance is one of the important needs 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 loss that may occur when dealing with a condition that requires large costs.
For example, when you fall sick and need medical expenses or when the backbone of your family dies due to an accident, your family income stops.
The pandemic condition makes the need for insurance even more relevant. The risk of contracting infectious diseases and the risk of threatening death, makes insurance an important effort to maintain physical and financial health as well as peace of mind in addition to social distancing. Well, if you are currently considering buying insurance, you should first identify the important terms in insurance.
Understanding the terms in insurance will help you find the most appropriate insurance product according to your needs. What are the insurance terms that are important to understand? Listen below:
1. Insurance Policy
Insurance Policy is a term to refer to a written cooperation agreement contract between the Insurance Provider Company (Insurance Insurer) and the customer of the Policy Holder. All Insurance contracts, whether it is Life Insurance, Health Insurance to Loss Insurance, are referred to as Insurance Policies.
The content of the cooperation agreement contained in the Insurance is an agreement that the Insurance Provider is willing to bear the risks owned by the Insured whose name is listed in the policy, within a certain period of time 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 Policy Terms, details of the rights and obligations of the Insurance Provider, Policy Holder, the range of Insurance Benefits provided, articles that mention protection exceptions, articles that mention things that can cancel the Policy. In addition, the Insurance Policy is usually attached with a sheet of Coverage, Special Provisions, as well as a copy of the Insurance Application Letter (Claim Letter).
Insurance Policy includes important documents that have legal force. Therefore, you must store it in a special place that you can easily access when needed, for example when you want to claim insurance.
2. Insurance Premium
To get insurance protection, the policyholder is required to pay a premium to the insurance insurer. Insurance Premium is defined as the amount of payment determined as the cost of transferring risk from the Policy Holder to the Insurance Provider. The amount of the Premium is determined by the Insurance Provider and agreed by the Policy Holder. The size of the premium will be determined by many factors. Among other things, the coverage of protection provided by the Insurance Provider, the age of the Insured, the Insured's lifestyle or medical record, gender, to the Insured's occupation.
The more complete and broad the coverage of an insurance, the premiums are usually more expensive. Likewise, if the Insured is considered to have a high risk, the premium is automatically more expensive. Policyholders are usually given the choice of the premium payment period. Namely: Monthly Premium, Quarterly Premium, Semester or Annual Premium Payment.
3. Insured Insurance
The term "Insured" in an Insurance Policy refers to the person or party who obtains compensation 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 covered in the Policy, the Insured will get compensation. For example, when the head of the family who is the Insured in the Life Insurance Policy dies, the Life Insurance Sum Assured will be given by the Insurance provider to the beneficiary who has been appointed in the policy.
The Insured is not the same as the Policy Holder. An Insured is not necessarily a Policy Holder. For example, as the head of the family, you buy a health insurance, so you are called a policyholder and the insured. The children and wives you insure are also referred to as the Insured.
4. Insurance Benefits
Insurance Benefit means the protection obtained by the Insured Insurance and provided by the Insurance company. For example, a health insurance provides benefits for medical care costs, outpatient costs and surgical benefits. That means, when the Insured falls sick and requires treatment, the Insurance provider will provide reimbursement for medical care costs.
There are also insurance benefits in the form and compensation as contained in the hospital cash plan type of health insurance. While in life insurance, insurance benefits are in the form of sum assured. Sum Insured (UP) is a sum of funds that will be disbursed and given by the insurance provider to the heirs or beneficiaries appointed in the policy, when the Insured dies.
5. Claim
Claim is a claim submitted by the Policy Holder to the Insurance company as the Insurance Insurer, to fulfill the Policy Holder's rights as stated in the Policy. An easy example, you have Health Insurance that covers typhus disease benefits. When one day you fall ill and have to be hospitalized because of typhus, then you can submit a benefit claim to the Insurance Provider. The 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 period of insurance claims. For Health Insurance, for example, the Insurer gives a maximum claim time of 30 days after the Insured carries out treatment.
6. Acquisition Cost
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 costs are usually referred to as policy issuance costs. The cost of issuing a policy includes the cost of paying the insurance agent's fee and the operational costs of the insurance company.
7. Lapse
The Policy Holder is required to pay a certain amount of Premium to the Insurance Provider according to the agreement in the Policy, so that the Insurance Benefits can still be obtained for the duration of the contract. So, if the Policy Holder does not pay the required Premium beyond the Grace Period (generally 45 days), then the Insurance Policy that is owned will be automatically canceled or lapsed. 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.
8. Cash Value
This term is usually found in unit-linked life insurance or endowment insurance. Cash value is the amount of money that can be redeemed by the policyholder in a certain period of time. For example, in end-of-life insurance products such as education insurance, there is usually a cash value that can be disbursed by the policyholder when the policy is 3 years old, 6 years old and so on.
In unit-linked life insurance, namely life insurance that has both protection and investment features, cash value means investment returns formed from investment funds that are routinely deposited by policyholders.
9. Additional Insurance (Rider)
This is a term to describe the Additional Benefits that you can add to the Basic Insurance program. Riders usually have cheaper premiums because they are complementary to the main insurance. For example, Life Insurance products are generally equipped with riders in the form of Health Insurance, Critical Illness Insurance or waiver of premium.
Only, you need to remember, the more riders you take, the wider the Insurance Benefits you enjoy. That brings consequences to the more expensive Premium Fees you have to pay.
10. Premium Leave (Premium Holiday)
Premium leave refers to a certain period of time during which the policyholder is allowed not to pay premiums or stop paying premiums without losing the insurance benefits. Premium leave actually does not mean that the policyholder does not pay premiums at all. Premium leave is possible in insurance that has investment features such as unitlink. When the premium leave is run, the insurer actually uses the cash value that has been formed from the unit link investment, to cover the 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 not sufficient to pay the premium, then the policyholder must return to pay the premium or top-up his investment so that the insurance benefits remain valid and avoid lapse.
Well, 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 will or have purchased.