When it comes to insurance, its technical aspect cannot be ignored. Insurance policies are built around some technical terms and if policyholders do not understand these terms, they do not understand their insurance policies completely. As a financial advisor to your clients, it is your duty to make sure that your clients understand the different terms and conditions associated with the insurance policies that they buy. So, here are ten of the most common and important terms which you should explain to your clients –
- Deductibles
Deductibles mean the limit up to which a claim is not payable. Only if the claim exceeds the deductible it would be paid. So, if in an insurance policy there is a deductible of INR 1000, claims up to INR 1000 would not be paid. If the claim exceeds INR 1000, the excess claim would be paid while the deductible would be borne by your clients. Thus, deductibles also represent the claim which is payable by the clients and they are found in motor and travel insurance policies.
- Sub-limits
Sub-limits mean the coverage limit for a particular type of benefit. For instance, in a health insurance plan, there might be a limit to which hospital room rent can be covered. If the limit states that the room rent would be covered up to 1% of the sum insured, this limit would be called the sub-limit on room rent. So, if your clients choose a sum insured of INR 5 lakhs, the eligible room rent for which they would be covered would be INR 5000/day.
- Co-payment
Co-payment means sharing the claim and it has a meaning similar to deductibles. If a policy has the feature of co-payment it means that a part of the claim would have to be paid by the policyholder and the insurance company would pay the rest. The full form of co-payment is compulsory payment and it, therefore, represents the compulsory portion of claim payable by the policyholder whenever a claim is made. Co-payment is usually found in senior citizen health plans or in health plans where the insured is aged 61 years and above.
- Riders or add-ons
Riders or add-ons represent additional coverage benefits which are available with an insurance plan. These coverage benefits are offered as an optional feature with the plan. If your clients choose any available rider or add-on, they would have to pay an additional premium for the chosen rider or add-on. Riders or add-ons increase the scope of coverage and should be recommended. The term rider is used for optional coverage benefits under life and health insurance plans while add-ons are used in the context of bike or car insurance plans.
- No claim bonus
General insurance policies, like health and motor insurance plans, do not have any maturity benefit. If there is no claim, no benefit is paid under the plan. However, these plans reward the policyholders if no claims are made in a policy year. This reward is called the no claim bonus. Under health insurance plans, no claim bonus is allowed in the form of an increase in the sum insured or a discount in the renewal premium. Under motor insurance plans, on the other hand, a renewal premium discount is allowed for no claim bonus.
- Insured Declared Value
Insured Declared Value is used in the context of car and bike insurance policies. Under comprehensive motor insurance plans, the sum insured of the policy is called the Insured Declared Value (IDV). This IDV represents the cost of the vehicle after deducting depreciation based on the vehicle’s age. IDV represents the maximum claim payable in case of theft or total loss of the vehicle.
- Day care treatments
Health insurance plans also cover day care treatments which are treatments which do not require hospitalisation for 24 hours. Such treatments are done within hours and the insured is discharged from the hospital because of advanced medical treatments which have been developed.
- Policy exclusions
Policy exclusions are those instances of claims which are not covered under insurance policies. If a claim occurs due a specified exclusion, the claim would be rejected.
- Sum insured restoration
This term is associated with health insurance plans. Nowadays, many health plans offer the feature of sum insured restoration through which the original sum insured is restored back in case of being used up. If, during the policy year, any earlier claim has used up the sum insured, the sum insured would be replaced back to its original value for any future claim which occurs in the same policy year. However, reinstatement would be done if future claims occur for another illness and not the illness for which the insured made an earlier claim. For instance, say the insured undergoes a bypass surgery and uses up the sum insured. In the same year the insured needs an appendectomy which is unrelated to the bypass surgery already availed. In this case, the sum insured would be restored to meet the cost of the appendectomy taken by the insured.
- Networked hospitals or garages
Health and motor insurance policies allow cashless claim settlements wherein the expenses incurred are paid directly by the insurance company and you don’t have to pay anything. The benefit of cashless claim settlement can be availed only if the insured picks a networked hospital or garage for claims. These networked hospitals or garages are tied-up with the insurance company to offer cashless claim facility to the company’s policyholder. Under health insurance plans, if treatments are taken at a networked hospital, your clients can get their medical bills directly settled by the insurance company. Similarly, in case of car or bike insurance policies, if the repairs are carried out at a networked garage, the repair costs are directly settled by the insurance company.
These are some of the common terms which your clients would come across their life, health or motor insurance policies. Educate your clients about these terms so that they can understand their policies. As you make your customers more knowledgeable, they become more confident in buying insurance plans. This would, subsequently, help your business to grow.
