Common Insurance Terms…Deciphered to Easily Understand
Why Is Insurance So Confusing?
Do you know the expression “sounds Greek to me?” Well that’s how most people feel when it comes to insurance terminology. Even terminology is an unnecessarily big word. How about insurance words? That’s better.
We’re going to try to break the code language of insurance and help explain things in a simple way. Whether it’s health insurance, dental insurance, home or auto insurance, many of these same terms will be used. Let’s get started with some common insurance words you may have seen before.
What is a deductible? In simple terms, a deductible is the amount of money a person has to pay first before the insurance plan will begin to pay it’s benefits. It’s your up front cost that often helps to keep your monthly “premiums” lower.
What are premiums? Premiums are the reoccurring payments you make to have an insurance plan. The payments are often monthly, but can be paid quarterly or annually. Just think of it as your monthly payment to get access to your benefits.
This one is a little easier. With a co-pay, there are 2 payments. You pay your part, and the insurance plan will pay it’s part. Often co-pays are smaller payment amounts on a per visit basis. Like a $30 copay for a doctors visit or for prescription medication. But co-pays are different than “coinsurance.”
Ok. This is one of the tricky ones. Remember co-pay meant 2 smaller payments. You can think of coinsurance as 2 bigger payments. Typically coinsurance is a percentage payment. Often when a deductible has been met, there will be a coinsurance payment. For example, a common coinsurance is 80/20%. After the deductible has been met the insurance plan with pay 80% of the bill and you will pay the remaining 20%. I’m not great with math but I believe it even adds up to 100% in the end.
Out of Pocket Max
This one makes sense. It’s the max amount you’ll have to pay out of your pocket for a plan, not including your monthly premiums. Most times, the out of pocket max will include the plan deductible. I like to think of the Out of Pocket max as my worst case scenario if something bad happens. But hey that’s what insurance is for, right?
Annual Benefit Max
We’re almost done as I think you’re getting the picture now. The annual benefit max is the most a plan will pay in a year. Some dental insurance plans may have a $1000, $2000, or even $3000 annual benefit maximums. Most health insurance plans now have unlimited benefit maximums due to healthcare reform. Regardless, the benefit max let’s you know how much you can get from a plan.
Well I think that’s enough for now as we don’t want to go into insurance overload. So whether you’re dealing with health insurance, dental insurance, vision insurance or even home or auto insurance, many of these common terms will come up. Hopefully you now have a better understanding of insurance and will be able to make informed decisions when choosing a plan.
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