Insurance Glossary: Premium, Excess, Sum Insured, Exclusion and Other Terms

InsurerHub is an independent insurance reference and comparison site. It is not an insurer, broker or underwriter, and nothing on this page sells, recommends or guarantees any product. Every definition below explains how a term is normally used so you can read your own documents; the signed contract, its disclosure document and the law of the place where the risk sits are what actually govern what gets paid.

Words you hear when you shop for insurance

Premium

The premium is the fee you pay to keep insurance in force, usually monthly or yearly. The amount you pay may change over time for some types of insurance. What you buy with it is the cover described in the policy — not more.

UK / US usage: Identical word and meaning in both. Your documents show whether the premium is quoted for the full year or in instalments.

Risk

Risk is the likelihood that an insured event will happen while your policy is in effect. It is the thing insurers look at when deciding whether to take you on and on what terms, which is why two applicants can be treated differently.

UK / US usage: Same word and meaning in both. In everyday English "risk" often means the danger itself rather than the chance of it happening.

Deductible (excess)

A deductible is the amount of your claim that you must pay before the insurer pays the rest. In the regulator's own example, a claim of $2,000 with a $500 deductible leaves $1,500 for the insurer to cover. Health, dental, home and car policies may require one, and a higher deductible can mean lower premiums — in exchange for bearing more of each claim yourself.

UK / US usage: The same amount is called the excess in the UK. "Deductible" is the standard term in the US and Canada.

Sum insured

Functionally, the sum insured is the maximum amount the insurer has agreed to pay under the policy for a covered loss. It is a ceiling, not an automatic payout: what you actually receive is worked out only after the inclusions, exclusions and excess have been applied. Read it as the limit of the insurer's commitment, not as a sum you are entitled to be handed.

Commonly confused with: The premium, which is what you pay for the policy, and the excess, which is the part of each claim you bear first. The sum insured is neither.

Beneficiary

A beneficiary is the person you name to receive the death benefit. You may name more than one and assign different proportions to each. A revocable beneficiary can be changed at any time without telling them; changing an irrevocable one requires that beneficiary's written permission.

UK / US usage: The term is used in both. If you name no beneficiary at all, your insurer will assume by default that your estate is the beneficiary.

Agent

An insurance agent is someone who represents an insurance company. The practical point is representation: the agent brings that insurer's products to you rather than searching the wider market on your behalf.

Commonly confused with: A broker, who sells the products of several insurance companies rather than representing one insurer.

Broker

An insurance broker is a person or company who sells the products of several insurance companies. Because of that, a broker can put policies from different insurers in front of you — but ask who an intermediary represents and how they are paid before relying on that breadth.

UK / US usage: The term is used in both markets. The label alone does not tell you whose interests come first, so ask directly.

Underwriting

Underwriting is the insurer considering the risk of insuring you and assessing your eligibility for cover before providing a policy. It determines how much cover is offered, which conditions are excluded, if any, and the premium required. On some products you may also need evidence of insurability — proof that you are in good health. Whether credit information affects your premium is strictly jurisdiction-specific: some Canadian provinces have regulations banning the use of credit reports and credit scores to set premiums, while others do not.

UK / US usage: Same term and meaning in both. It can refer both to the assessment process and to the underwriters carrying it out.

Words you hit when you read the contract

Policy

An insurance policy is a legal contract between you, the insured, and the insurance company, the insurer. Together with the policy wording and any disclosure document, it records what each side has agreed to. In the UK, insurance contracts are governed by a dedicated statute, the Insurance Act 2015, which also amended the law on third-party rights against insurers; in other places the applicable law differs.

UK / US usage: The word is used in both. The printed contract may appear as a policy, a policy wording, or part of a package of documents, depending on the market.

Policyholder

The policyholder is usually the person who owns the insurance policy. In some cases the policyholder is not the person covered by it. Ownership and cover can therefore sit with two different people, and each name matters when a claim is assessed.

Commonly confused with: The insured, who is the person covered rather than the person who owns the contract.

Insured

The insured is the person covered by the policy — the "you" in the contract with the insurer. The distinction matters because the person bringing the claim is not always the person who bought the policy.

Commonly confused with: The policyholder. Check your own documents to see whose name appears in each place.

Product disclosure statement (PDS)

A PDS is the document to read before you buy a policy. It tells you what you are covered for (inclusions), what you are not (exclusions), the word definitions, how the claims process works, and what emergency support is provided.

UK / US usage: "PDS" is Australian usage. Other markets issue different pre-contract documents under local rules; whatever yours is called, read it before buying.

Inclusions

Inclusions are the things your policy does cover, set out in the disclosure or policy wording. Read them together with the exclusions and definitions, because the three lists work together to produce one answer.

Commonly confused with: The sum insured. Inclusions tell you which types of loss the policy responds to; they do not tell you how much will be paid.

Exclusions

Exclusions are things your policy does not cover. They include a health policy excluding certain medical conditions you had before you applied, a travel policy excluding claims made if you travel to a high-risk country, and a home policy excluding some types of water damage. Insurers also exclude a lot of activities from standard travel policies.

Commonly confused with: The excess. An exclusion takes that loss out of cover entirely; an excess only reduces what you are paid on a covered claim.

Definition

Every policy defines the words it uses, and those definitions decide what cover means in practice. A definition can pull an ordinary activity into an excluded category — insurers may treat walking in the mountains above a certain altitude as mountain climbing, whatever you would call it.

UK / US usage: The concept is identical in both. Always read the defined meaning rather than assuming everyday usage; where a word has special meaning, it appears in the definitions section.

Endorsement (rider)

An endorsement, also known as a rider, is the ability to buy extra insurance at an additional cost. It covers risks your basic policy does not cover, and that cost attaches to the added piece of cover rather than to the policy as a whole.

UK / US usage: Both words are used, "rider" being the alternative name for the same thing.

Free look period (rescission right)

This is your right to cancel a policy within a set period after taking it out. For life insurance, the Canadian regulator describes this period as usually 10 days and calls it your rescission right. The exact period and what it gives you come from your own documents and the law applying to them, not from a rule you can assume.

UK / US usage: "Free look period" is common North American usage; "rescission right" is the regulator's label. Whatever your documents call it, read the cancellation section itself.

Words that decide whether a claim gets paid

Claim

A claim is the request you make under the policy after an insured event, asking the insurer to pay or to arrange what the policy promises. The disclosure document sets out how the claims process works and what emergency support is available while it runs.

Commonly confused with: A payout. Making a claim starts an assessment against the inclusions, exclusions, definitions and clauses; it does not mean the amount asked for will be paid.

Exclusion clause

An exclusion clause is the part of the contract that removes cover when it operates at claim time — the medical conditions you had before applying, the claims made after travelling to a high-risk country, some kinds of water damage. Whether it bites depends on how the clause and its defined words read in your own policy, not on what the label suggests.

Commonly confused with: An endorsement, which does the opposite by adding back cover your basic policy lacks.

Pre-existing condition clause

You must tell your insurer about all pre-existing health conditions. If you are unsure whether your condition is covered, ask the insurer directly rather than assuming either way.

Commonly confused with: An exclusion. Declaring a condition does not automatically cover it; a health policy may exclude certain medical conditions you had before you applied even after you have declared them.

Stability clause

A stability clause applies when you are to be covered for pre-existing medical conditions for a specific period. During that stability period before your trip you must have no changes to your medical condition, and no new medical conditions, symptoms or medications. Treat it as a test you must satisfy, and read the clause in your own documents to see what it requires.

Commonly confused with: The pre-existing condition clause. That clause obliges you to declare your conditions; the stability clause sets what must hold for cover of them to apply.

Compassion clause

A compassion clause says that an inaccurate statement may not invalidate the entire policy. What it does depends entirely on the wording in your own contract, and it operates only as it is written — it is not a way around answering questions honestly in the first place.

UK / US usage: The term is used particularly in travel insurance wording. Whether your policy contains one, and what it achieves, can be established only by reading your own policy.

Cash value

Cash value is an amount held inside certain permanent life insurance policies; whole life policies often carry a guaranteed minimum cash value. Term policies do not include cash value at all. If you borrow money against the cash value of a policy, the loan must be repaid — if it is not, it may reduce the amount your beneficiary receives.

Commonly confused with: The death benefit. Cash value is not the money paid on death to your beneficiaries, and it exists only on some policy types.

One rule that prevents most disputes

Answer all questions on your application completely and honestly. If you do not, the insurance company could cancel your policy or refuse any claim you make in the future, and you may not be able to get insurance from any company again. The same discipline applies to your health: tell your insurer about all pre-existing conditions, and ask directly if you are unsure whether a condition is covered.

Most claim disputes trace back to something said, or not said, at application stage rather than to the event itself. Reading your documents before you rely on them completes the picture — but remember that the signed contract and the law applying where the risk sits govern what is paid, not any general description such as this one.

FAQ

Q: What is the difference between the premium, the excess and the sum insured?

A: The premium is the fee you pay for the insurance. The excess — the deductible in the US and Canada — is the amount of each claim you pay before the insurer pays the rest. The sum insured is the maximum amount the insurer has agreed to pay for a covered loss. Three separate numbers doing three separate jobs.

Q: Do I have to tell the insurer about a health condition I already have?

A: Yes. Tell your insurer about all pre-existing health conditions, and if you are unsure whether yours is covered, ask the insurer before you rely on the policy. Answering application questions incompletely risks cancellation, refused claims, and difficulty getting insurance later.

Q: What happens if I do not name a beneficiary on a life policy?

A: Your insurer will assume by default that your estate is the beneficiary. You can instead name one or more beneficiaries and assign each a proportion. A revocable beneficiary can be changed at any time without telling them; changing an irrevocable one requires that beneficiary's written permission.

Q: Where do I check whether a specific situation is covered before I ever claim?

A: In the disclosure and contract documents — the PDS or its local equivalent, with the policy wording. They set out inclusions, exclusions, the defined meaning of words, how the claims process works and what emergency support is offered. Check the definitions too: everyday activities are sometimes redefined into excluded categories.