Introduction
Insurance terminology can be complicated. In this article I define the most important terms you will come across when purchasing or using a policy. This is not an exhaustive list, so if you come across a term you don't recognize, feel free to contact me.
General terms
- Policy: a commercial contract in which a risk is transferred to an insurance company in exchange for the payment of an agreed premium. It establishes terms, conditions, coverages and exclusions.
- Insured: the natural or legal person with the insurable interest who transfers the risk to the insurer.
- Insurer: the insurance company to which the risk is transferred through an insurance policy.
- Insured sum: the maximum amount the company will pay in the event of a claim or covered event. It may be fixed or adjustable over time.
- Deductible: the amount the insured must pay out of pocket before the insurer begins to cover expenses.
- Coverage: the scope of protection offered by a policy. It defines which risks, events or expenses are included in the contract.
- Exclusion: conditions, situations or risks that are not covered by the policy. It is important to read them carefully before signing.
- Claim event (loss): an incident or event covered by the policy that results in a loss and entitles the insured to file a claim.
- Claim: a formal request the insured submits to the insurer to obtain compensation or reimbursement after a covered loss.
- Reimbursement: money the insurer returns to the insured after the insured paid out of pocket for a covered service.
- Beneficiary: the person designated in the policy to receive benefits or the insured sum in the event of the insured's death or when the contract conditions are met.
- Endorsement: an amendment or modification to a policy that changes, adds or removes provisions or coverages.
- Assignment: a process by which the insured transfers their rights over the policy to another person or entity. Commonly used to establish a life insurance policy as collateral for a loan.
- Insurance broker: a licensed professional who advises clients and acts as an intermediary between the insured and insurance companies. Unlike an agent, a broker represents the client, not the insurer.
- Renewal: the process of extending a policy's validity for a new period. It may involve changes in premium or coverage conditions.
- Policy term: the period during which the policy is active and its coverages apply. Outside this period, there is no protection.
- Loss ratio: the relationship between claims paid by the insurer and premiums collected. A high loss ratio may result in premium increases at renewal.
Health
- Copay: a fixed amount an insured must pay for a medical service or treatment, detailed by type of service (consultation, lab work, hospitalization, etc.).
- Coinsurance: unlike a copay, this is the percentage of the insured's participation in any expenses incurred. For example, 80/20 means the insurer pays 80% and the insured pays 20%.
- Medical network: a network of providers (doctors, hospitals, clinics, laboratories) with agreements with the insurer to offer services at preferential rates.
- Waiting period: the specific time that must pass after a policy is issued before certain benefits become available.
- Stop loss: the maximum point of medical expenses an insured must reach before the insurer covers 100% of expenses.
- Pre-existing condition: an illness or injury the insured already had before acquiring the policy, commonly excluded from coverage or subject to waiting periods.
- Claim form: a document used to request compensation or reimbursement from the insurer. In Panama, insurers have agreed on a single standardized form.
- Usual and customary use: the appropriate, efficient and effective use of resources and coverage, avoiding abuse in filing claims.
- Critical illness: a serious medical condition that threatens life and warrants a visit to the emergency room.
- Diagnosis code: usually ICD-9: numerical codes representing medical conditions, symptoms and procedures to standardize documentation and billing.
- Global adjustments: adjustments that apply to an entire insurance portfolio and may result from changes in medical costs, claims trends or economic fluctuations. They usually result in a premium increase.
Life
- Term life policy: life insurance that covers a specific period (10, 20, 30 years). If the insured passes away within that period, the beneficiaries receive the insured sum. It typically has lower premiums than a universal policy.
- Universal life policy: permanent life insurance that combines protection with a savings or investment component. Part of the premium goes toward coverage and part toward a savings fund.
- Cash value: the amount accumulated within a universal or permanent life policy that the insured can withdraw or use as collateral for a loan.
- Disability: a condition that prevents the insured from working or earning income. Some life policies include coverage for total and permanent disability.
- Rider (additional coverage): a supplementary benefit added to a base policy for an extra cost. Common examples in life insurance: waiver of premium due to disability, double indemnity for accidental death, critical illness.
Auto and property
- Civil liability: mandatory coverage that protects the insured against damages caused to third parties (people or property) in an accident.
- Collision: coverage that pays for the repair or replacement of the insured's own vehicle after a collision, regardless of who was at fault.
- Roadside assistance: service included in many auto policies that provides help in case of breakdowns, flat tires, lockouts, or the need for towing.