Understanding your insurance policy is just as important as having one in the first place. Insurance contracts are full of terms and phrases that can be easily misinterpreted. As the policyholder, you should have a clear understanding of what these terms mean so that when, as unfortunately sometimes happens, a claim is required you know what is what.
Here are the four most commonly misunderstood insurance terms that one should be familiar with.
1) Insurance Premium – What is an insurance premium?
- An insurance premium is an amount an individual or a business must pay for an insurance policy. This premium is considered an income paid to the insurance company, on a yearly basis which can be used in the event a liability arises on a customer’s policy for which they have claimed. This premium is based on a number of varying factors and sometimes can also depend on the type of insurance requested by the customer.
2) Fully Comprehensive or Third Party Coverage – What is the difference?
- Comprehensive insurance, also known as fully comprehensive, is the highest coverage one can get for their motor insurance. This is where the at fault party’s insurer must pay for repairs to any damages done to both vehicles involved in an unfortunate incident. It is important to note here that the insurer will cover all costs beyond the value of your stated deductible, or excess – see below. Third party insurance on the other hand only offers coverage for the other party’s damage for which you were at fault. So in other words, you’re responsible for the repairs of your own vehicle.
3) Excess/ Deductible – How does it work?
- An excess, sometimes referred to as a deductible, on an insurance policy can be defined as a number of expenses that must be first paid out of pocket before an insurer will pay the remainder. It’s a way of making you the consumer accept a small portion of the liability. If you foresee yourself regularly having access to an amount of money higher than your excess, thus avoiding having to make claims for lower amounts, you should ask for it to be raised. This, in turn, should reduce your premium due and extend your No Claims Discount – see below.
4) No Claims Discount/ No Claims Bonus – What does this have to do with insurance?
- This is the amount of years in which you the customer have not made a claim on your insurance policy. This, in most cases, is determined by the insurer as it may vary depending on the customer. The maximum no claims given is usually 5 years. Unfortunately, some if not all can be lost in the event a claim has been made on your policy and results in your insurer having to pay out.
Now that we’ve explained some of the most frequently asked questions relating to insurance, you can share this valuable information with family and friends!
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