Liability, premiums, deductibles… insurance terms can be confusing, even for adults. Most insurers’ websites and 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: Teaching 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, business, medical treatment, 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 not ever need it, but it’s still 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.
Related: Where does money come from?
Types of insurance
There are many different kinds of insurance. It’s worth your kids knowing about the various types of cover, even if they don’t need insurance right now. That said, if they already have a side hustle or run their own business — especially if it’s online — then business insurance might be wise.
Here are some of the different kinds of insurance you can buy.
Auto insurance
If your car gets damaged or stolen, auto insurance pays to fix or replace it. If you accidentally cause damage to someone else or their car, your insurance can cover repairs to their car and their medical expenses..
Homeowners’ insurance
Homeowners’ insurance covers the cost of repairing or rebuilding your home and its contents in case of damage or loss. That could be from a fire, flooding or theft.
Health insurance
Health insurance provides coverage for medical expenses and treatments, including doctor visits, hospital stays, prescription drugs and surgeries.
Business insurance
If you run your own business there are several different types of insurance you’ll want to have. 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 may 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 with clients or they visit with you, you’ll may decide to get 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 insurance
If you have a website, use email or transfer money online, you might decide you want to get cyber insurance for your business. If you get hacked, your website’s held to ransom, or customer data gets stolen, it pays for your recovery costs and fines.
Life insurance
If someone dies and they have life insurance, it pays out a sum of money to the individuals named on the policy.
Travel insurance
When you go on vacation it’s a good idea to get travel insurance. It usually covers the cost of flight cancellation, lost or stolen luggage and medical emergencies.
Pet insurance
Pet insurance covers veterinary expenses for family pets. It may also pay for recovery costs if they get lost or stolen.
Insurance words and simple definitions
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Premium: the price you pay for your insurance coverage, whether you pay monthly, quarterly or once a year.
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Insurance agent: Insurance agents work for one or more insurance carriers and can only sell policies provided by those carriers.
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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, and 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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Deductible: 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: 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 debit card and app for kids aged 6 to 18 it comes with Money Missions, our built-in learning tool.
Through fun, interactive games, quizzes and videos they can explore topics from investing to insurance, budgeting to 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.
While they put their learning into practice using their kids debit card you get peace of mind. Through the parent app, you can pay in their allowance, monitor their spending, and set limits and savings goals too.
