Liability, premiums, deductibles… insurance terms can be confusing, even for adults. Most insurers’ websites and policy documents are sprinkled with jargon and insurance-speak. How do you know what your coverage actually covers if you don’t know what the words mean?
Here’s a jargon-busting glossary of insurance terms explained, so kids can understand. Along with a quick run-down of different policies and what they cover.
Related: Financial literacy for kids, Ways to teach kids about money
Why kids need to know how insurance works
Insurance is a useful financial tool. It can help protect your bank balance if things go wrong and get your life back on track if something derails it.
Making sure your kids understand how insurance works is an important part of their financial education. As well as being better prepared when it comes to buying the right policies, they’ll know how to protect themselves financially in the future.
And if you have a budding entrepreneur on your hands, knowledge of business insurance could definitely come in handy.
Related: Teaching kids about money, Teaching teens about money management
What is insurance?
Insurance is protection. It’s a financial safety net if something unexpected happens. Like an accident, a fire, a lawsuit, a burglary or a serious illness.
When you buy insurance, the company providing it gives you a document called a policy. The policy sets out:
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How long your insurance lasts
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Exactly what it covers
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How much the insurance company will pay you if you need to claim.
There are different types of insurance. You can get insurance to cover your home, car, pets, travel, belongings and devices, and more.
To explain what insurance is to your kids, try saying it’s just like wearing a helmet when you ride a bike. It’s there to protect you if something happens. You may never need it, but it’s better to wear it, just in case.
Fun insurance facts for kids
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In Babylon (now Iraq), there was a law called Bottomry. A merchant could borrow money to pay for items to be shipped and pay an extra sum to guarantee he didn’t have to repay the loan if the ship sank.
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The ancient Greeks and Romans first introduced health and life insurance in the 14th century. They created benevolent societies to care for the families of people who had died.
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The first insurance policy dates from 1347 in Genoa, Italy.
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In 1710, Charles Povey formed the Sun, the oldest insurance company in existence, which still conducts business in its own name. It is the forerunner of the Royal & Sun Alliance Group.
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Footballer Lionel Messi is reported to have his legs insured for a phenomenal €750 million.
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The 2008 financial collapse was responsible for the most expensive insurance payout of all time as the financial sector saw countless businesses, financial institutes and economies suddenly fail, requiring a staggering payout of £15.4 trillion in total.
Related: Where does money come from?
Types of insurance
There are many different kinds of insurance. It’s worth your kids knowing about all of them and the various types of coverage, even though they don’t need insurance right now. Here are some of the different kinds of insurance they might need to buy in the future.
Car insurance
Explain to your kids that if they have a car that gets damaged or stolen, their car insurance would pay to fix or replace it. Also, if you accidentally cause damage to someone else’s car, the car insurance will also cover that and any medical expenses.
Homeowners’ insurance
Under UK law, homeowners (not renters) need to buy building insurance. This policy covers the cost of repairing or rebuilding your home in case of fire, flooding or accidental damage.
Contents Insurance
Contents insurance is for anyone, and it covers the cost of replacing or repairing your possessions if they are damaged, destroyed or stolen. It includes everything you would take with you if you moved home, including your furniture, kitchen appliances, bedding, and clothing. For an extra cost, you can insure high-value items like devices and jewellery under contents insurance.
Business insurance
If you run your own business, you'll want to have several different types of insurance. Which policies you need will depend on the kind of business you run.
Professional liability insurance
If clients pay you for a service or your advice, you’ll need professional liability insurance. It protects you if a client sues you, claiming you made a mistake, gave them bad advice or did something wrong.
General liability insurance
If you visit clients or they visit you, you’ll need general liability insurance. It protects you from the cost of medical expenses and repairs if you damage someone’s property or cause them injury.
Cyber liability insurance
Cyber insurance (also referred to as cyber risk or cyber liability insurance) is a form of cover designed to protect your business from digital threats, such as data breaches or cyber hacks on work computer systems.
Life insurance
If someone dies and has life insurance, it pays out a sum to the individuals named on the policy.
Travel insurance
When you go on holiday, it’s a good idea to get travel insurance to cover the cost of flight cancellation, lost or stolen luggage, hotel issues and medical emergencies and repatriation.
Pet insurance
Pet insurance covers medical expenses for family pets. It may also pay for recovery costs if they get lost or stolen.
Insurance words and simple definitions
Premium — the price you pay for your insurance coverage, whether you pay monthly, quarterly or once a year.
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Insurance term |
Meaning |
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Insurance agent |
Insurance agents work for one or more insurance companies and can only sell policies provided by those companies. |
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Insurance broker |
Insurance brokers work for you, the customer. They compare insurance policies on the market and work out which one is best for you. |
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Insurance carrier |
Creates insurance policies, decides what the policy will cover, sets limits and pays claims. |
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Claim |
When you ask your insurance company to pay out for damage to your car, for example, it’s called making a claim. |
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Claimant |
Insurance companies use the word ‘claimant’ to describe the person making a claim. Sometimes other people may claim on your insurance policy. If you damage their car in an accident, for example, it’s your fault. In this situation, they would be the claimant. |
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Coverage |
The specific protection provided by your insurance policy. |
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Damages |
Not to be confused with ‘damage’, ‘damages’ is a legal term. It refers to the money somebody claims you’re responsible for in court cases. |
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Excess |
The amount you agree to pay towards the cost if there’s a claim. Your deductible is always set out in your policy. |
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Endorsement |
A change or addition to your policy. |
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Exclusion |
What isn’t covered by your policy. |
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Insured |
The person(s) the policy protects. |
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Insurer |
The company providing the policy. |
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Liability |
Liability is a legal word. It means responsibility. If someone says you’re liable for something, it’s a fancy way of saying it’s down to you. Lots of business insurance policies have the word liability in their name. Professional liability, general liability, and cyber liability insurance, to name a few. |
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Limit |
The maximum amount your insurance provider will pay for any one claim or the maximum sum for all claims. |
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Policy |
A legally-binding document setting out exactly what your insurance covers. |
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Policy period |
This is how long your policy will last for. You can buy insurance for a day, a week, a month or a year. |
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Premium |
The price you pay for your insurance coverage. Whether you pay monthly, quarterly or once a year the price is known as your insurance premium. |
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Risk |
The likelihood of loss or damage occurring. |
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Quote |
Before you buy a policy, insurance companies will usually give you a quote. That’s the price you’ll pay for your policy based on the information you’ve given them. |
Related: Activities to teach your kids financial literacy
How can GoHenry help?
GoHenry gives you all the tools to nurture financially-savvy kids. A prepaid kids' debit card and app for kids aged 6 to 18. GoHenry comes with Money Missions, our built-in learning tool.
Through fun, interactive games, quizzes and videos, your kids can explore topics from t to insurance, budgeting, saving, and more. As they unlock each mission, they make their way through the K-12 Personal Finance Education National Standards — earning badges as they go.
They can also put their learning into practice using their GoHenry card when they are out and about in-store and online. And through the parent app, you can pay in their pocket money, monitor their spending, and set limits and savings goals.
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