Understanding insurance is critical to protecting your finances and planning ahead. Before you can choose the right travel insurance, you need to understand how an insurance policy actually works. This article breaks down every key term you’ll encounter.
How does an insurance policy work?
An insurance policy is a contract between you (the policyholder) and an insurance company (the insurer). The insurer agrees to provide financial protection or reimbursement in the event of a covered loss or damage, in exchange for premium payments from you.
The coverage you receive depends on several factors, including the type of policy you purchase, the premium you pay, and the specific terms and conditions outlined in your policy documents.
What is a premium?
The premium is the amount of money you pay in exchange for insurance protection. For travel insurance, this is typically a one-time payment made when you purchase the policy. Premiums are determined by factors such as your age, health, travel destination, trip duration, and the level of coverage you select.
What is a deductible?
A deductible is the amount of money you must pay out of pocket before your insurance coverage begins. For example, if your policy has a $100 deductible and you file a $500 claim, you pay the first $100 and the insurer pays the remaining $400.
What is excess?
Excess is the amount you are responsible for paying in the event of a claim. While similar to a deductible, excess functions differently depending on the policy structure. Some policies use excess instead of deductibles, and some use both.
Deductible vs. excess: what’s the difference?
Both terms refer to out-of-pocket costs before the insurer pays, but they can apply differently:
- Deductible - typically subtracted from the total claim amount before the insurer calculates their payment
- Excess - the fixed amount you pay per claim, regardless of the total amount
Always read your policy documents to understand which applies to your specific plan and how it affects your potential claims.
How does the claims process work?
When something goes wrong during your trip, the claims process is how you get reimbursed. The typical steps are:
- Notify the insurer - report the loss, damage, or incident as soon as possible
- Provide documentation - supply evidence such as receipts, medical reports, police reports, or airline confirmations
- Claim review - the insurer examines your claim against your policy terms
- Payout - if approved, you receive financial reimbursement or direct payment to providers
With Sitata, you can file claims directly through the app with photos and documents. Straightforward claims are processed within 48 hours.
What are exclusions?
Exclusions are specific circumstances or events that are not covered by your insurance policy. Common exclusions in travel insurance include:
- Pre-existing medical conditions (unless a waiver is purchased)
- Losses caused by intoxication or substance abuse
- Intentional or self-inflicted harm
- High-risk activities without an adventure sports add-on
- Travel to destinations under government advisories (in some policies)
It’s essential to read the exclusions section of any policy before purchasing. If you have specific concerns, contact the insurer to confirm what is and isn’t covered.
Your rights and responsibilities as a policyholder
As a policyholder, you have both rights and responsibilities:
Your rights:
- Receive the protection and reimbursement outlined in your policy
- File claims for covered events
- Cancel your policy within the free-look period for a full refund
- Access your policy documents at any time
Your responsibilities:
- Pay your premium on time
- Provide accurate information when applying
- Report claims promptly with proper documentation
- Read and understand your policy terms
Key terms to know
Your policy documents will include a definitions section that clarifies important terms. Here are the most common ones you’ll encounter:
- Coverage period - the exact dates when your policy is in effect
- Schedule of benefits - a detailed list of what your policy covers and the maximum amounts for each benefit
- Beneficiary - the person designated to receive benefits in certain circumstances
- Underwriter - the insurance company that backs and pays the claims on your policy
Understanding these terms will help you compare policies and make confident decisions about your coverage. In the next article, we’ll look at the different types of travel insurance available.