When searching for insurance, the best research you can do is to look at the kinds of terminology insurers use. This is most useful if we are new to buying insurance either as an individual, a manager employed to arrange such things or a business owner.
Websites such as https://www.onesureinsurance.co.uk/ are also useful to look at because in explaining what the cover provided is, you get a sense of what everything means in terms of insurance and how it protects people’s property and their livelihoods. Psychologically, it is a peace of mind where no amount of money paid for insurance can seem too much to provide financial security. Although, the amount of premium will be relative to the amount of the risk and the potential pay-out.
So, what are some of the main terms used by insurers?
This is the amount paid for the insurance. It can be paid in full or by monthly arrangement. The cost of credit will need to be balanced for a business against cash flow. Where money is borrowed to pay for insurance, it will be important that the cost of borrowing is not more than the credit charges insurers offer for paying in instalments.
Insurance Premium Tax (IPT)
Insurance premium tax is a tax that is added to general insurance premiums. These include insurance policies such as car, home, and for pets. Two rates exist in 2021. The standard rate of 12% and then the higher rate of 20%. Policies where the higher rate is chargeable include travel insurance and electrical appliance insurance. Also, some vehicle insurances.
This tax should always be factored in and included when comparing quotations. The good news is that there is no VAT payable on insurance premiums because IPT is instead of it. But then, this is not good news for businesses because, unlike VAT, it cannot be claimed back. It is a level playing field for comparable businesses, though, when they will all have to pay it.
This comes in two types – compulsory and voluntary. It is the amount that the policyholder will have to pay towards any claim. Windscreen excesses on motor insurance policies will be the lowest of the excesses applied.
The compulsory excesses applied to policies can be seen as a way of reducing premiums as much as making the insured more responsible for their actions and reducing the number and amount of insurance claims. A voluntary excess can be chosen by the insured to further reduce the insurance premium as a calculated risk. It is important when we are obtaining insurance quotations that we compare like for like and that a policy is not just cheaper because higher excesses have been applied.
With motor insurance, young driver excesses will be applied because youngsters driving are considered a greater risk to insurers. There is evidence that they have more accidents. Many parents see their insurance premiums shoot up as they add teenagers to their policies. This is a cheaper short-term option than having a separate policy in their name, due to the main user of the vehicle being the parent. What has to be weighed up, though, is that children will not start earning any claims bonus until they have a policy in their own right.
The American equivalent of insurance excess is a deductible, which you might see online as a term used for the part of the claim that the policyholder funds. Typically, in the UK, we see excesses of £100 or £200 applied to policies. Sometimes more, particularly when compulsory and voluntary excesses are added together.
No Claims Bonus (NCB) or No Claims Discount (NCD)
Referred to above, this is a discount off the premium that is a reward to the insured in exchange for claim-free years. The good news is that it is transferrable between policies. For an extra premium, it can also be protected so that 2 years of claim-free history are not wiped because of a single claim.
No claims bonus typically reduces premiums by 40% for two years of claim-free motoring, 50% for three years, and 60% for four. Many insurers even stretch to a 65% discount off premiums for 5 or more claim-free years.
To conclude, there are, of course, many more terms that are used in insurance. These are the main ones, though, and any others can be found from seeking out a glossary of insurance terms.
The only advice we can end with, really, is that it is important to disclose everything to the risk insured and to not be underinsured, which would defeat the object of having insurance to a great extent. Also, bear in mind situations where insurance is compulsory by law as opposed to optional. The optional element is about weighing up how much you have to lose financially should an unpredictable event happen.