What common insurance terms really mean

Insurance is supposed to offer peace of mind. But for many Singaporeans, the fine print in an insurance policy creates confusion rather than clarity. Technical language, vague definitions, and unfamiliar phrasing make it harder to understand what’s covered, what’s not, and when protection really kicks in. Whether you’re buying motor coverage for your first car, adding dependents to your hospital plan, or submitting a home insurance claim after water damage, knowing how to read an insurance policy is crucial. And that starts with understanding the core vocabulary.

This article breaks down the 10 most commonly misunderstood terms in insurance—what they mean, why they matter, and how they apply in real-world cases. It’s not just a glossary. It’s your insurance translation guide.

Let’s begin with why this matters. The Monetary Authority of Singapore (MAS) and Life Insurance Association (LIA) have made significant efforts over the years to improve transparency in policy documents. But even with product summaries and benefit illustrations, technical terms still trip up policyholders. For instance, terms like “depreciation” and “deductible” affect how much you actually receive during a claim. “Endorsements” can silently alter your policy coverage without fanfare. “Additional interest” clauses may extend your coverage—or quietly exclude someone you thought was protected.

In short: insurance literacy isn't optional. It's part of your financial defense system.

1. Accident

In insurance, an “accident” is defined as an unintentional, sudden event that causes injury or property damage. It must be unforeseen and unplanned. This definition becomes important when you're dealing with car insurance claims, personal accident coverage, or home policy exclusions.

For example, if a child throws a toy that shatters your neighbor’s window, it might qualify as an accident. But if you knowingly left a window open during a storm, resulting water damage might be excluded. In Singapore, accident clauses are foundational to travel, motor, and even life policies. Knowing what qualifies—and what doesn’t—can make or break your claim.

2. Additional Interest

This refers to an individual or entity other than the primary insured who has a legitimate financial interest in the insured item. A common example is when a leasing company is listed as an additional interest on a car insurance policy.

In Singapore’s commercial property market, landlords often request to be named as additional interests on tenants’ insurance policies. Why? It ensures they’re protected in case a tenant’s negligence causes damage. The term may appear minor, but failing to list the correct additional interest can lead to claim rejections or legal disputes down the line.

3. Appraisal

An appraisal is an independent evaluation of the value of a property—or the extent of its damage—at the time of a claim. It helps insurers determine how much to reimburse. Say you insured your camera for its market value two years ago. After it's damaged, an appraiser assesses its current worth—factoring in depreciation and market demand—to decide how much you’ll get back.

In property insurance or personal item riders (for things like jewelry or collectibles), appraisals ensure payout accuracy. In some disputes, policyholders can commission their own appraisals, which may lead to arbitration.

4. Benefit

Benefits are the amounts payable under a policy when a covered event occurs. These can be fixed (such as a hospital cash benefit of S$100 per day) or variable (such as reimbursement of surgery costs up to a cap).

One key point: insurance benefits are not meant to make you “better off.” Instead, they aim to restore you to your original financial state.

In health and disability plans in Singapore, benefits may include outpatient subsidies, rehabilitation allowances, or income replacement during medical leave. Understanding the schedule of benefits helps you avoid surprises.

5. Cancellation

Cancellation refers to the early termination of a policy before its expiry date. This can happen in three ways:

• You cancel the policy voluntarily.
• The insurer cancels it due to non-payment or misrepresentation.
• Both parties agree to terminate under a “Lost Policy Release.”

In Singapore, some plans—especially single-premium investment-linked policies—carry surrender charges if cancelled early. Terminating motor or travel insurance before the effective period may result in partial refunds, but not always. Check cancellation clauses before switching insurers, especially when bundling new home loans with mortgage insurance.

6. Claim

A claim is your formal request for payment when a covered loss occurs. It might be a first-party claim (e.g. claiming under your own policy after your windshield is damaged) or a third-party claim (e.g. someone else files a claim against you for injury caused by your actions). In Singapore’s Medishield Life and Integrated Shield Plans, claims are often processed directly by hospitals via electronic submission, but patients still receive benefit statements.

Always submit claims promptly with all supporting documentation. Late submissions, missing invoices, or unapproved treatments may cause rejections—even if the event was covered.

7. Deductible

The deductible is the amount you must pay out-of-pocket before your insurer covers the rest. For example, if you have a S$500 deductible on your home insurance and a fire causes S$5,000 in damage, the insurer pays S$4,500.

Higher deductibles often come with lower premiums, but they increase your upfront cost during a claim. This makes them ideal for low-frequency, high-cost risks (like hospitalization), but less useful for everyday coverage (like outpatient visits). In MediShield Life, deductibles increase with age. That’s why many Singaporeans purchase riders to reduce their cash outlay for hospital bills.

8. Depreciation

Depreciation refers to the decrease in value of an item over time due to age, use, or obsolescence. When you claim for a lost laptop or damaged furniture, your insurer may not pay the full replacement cost. Instead, they’ll deduct depreciation and offer the item’s current market value.

In auto insurance, this affects how much you get back after a total loss. Some comprehensive motor plans offer “new for old” coverage within the first 12 months—after which depreciation kicks in. Depreciation protects insurers from overpaying and keeps premiums manageable. But it also means you need realistic expectations about claims.

9. Endorsement

Endorsements are formal amendments to your insurance policy. They can add coverage (e.g. covering your home office setup), exclude certain risks (e.g. flood-prone areas), or update personal details. Endorsements are common in Singapore home insurance, especially in HDB flat coverage. For instance, you might need a rider for renovation works, pet damage, or expensive electronics.

Always review endorsements carefully. Some may reduce your protection subtly—like excluding overseas travel claims during pandemics unless specific endorsements are added.

10. Premium

Your premium is the amount you pay for coverage—monthly, quarterly, or annually. It reflects the insurer’s calculated risk based on your age, health, occupation, and lifestyle. Smokers, for instance, pay higher premiums for life and health insurance.

Premium types include:

• Gross premium: Total paid before deductions.
• Earned premium: Portion of premium covering the elapsed period.
• Minimum premium: The least you must pay regardless of duration.
• Additional premium: Charged when a policy is modified mid-term.

Premiums in Singapore are generally level (fixed) for term insurance and escalate with age for hospital plans. When budgeting, don’t just ask “Can I afford the premium now?” Ask, “Can I afford it five years from now?”

Many Singaporeans skim policy documents, trusting that their agent or insurer will flag anything important. But this passive approach can lead to painful surprises:

• Exclusions hidden in endorsements.
• Insufficient coverage due to misunderstandings of “benefit limits.”
• Lapsed policies from missed payments, especially for single-income families.
• Confusion over integrated plans, where CPF-funded basic coverage overlaps with private add-ons.

With rising medical inflation and complex policy structures, understanding these terms is essential. It’s not just about avoiding claim rejections—it’s about building a reliable financial safety net.

Insurance is often bought emotionally, filed away mentally, and only revisited during stress or emergency. That’s when definitions matter most. What seems like harmless fine print—the deductible you forgot to check, the depreciation you didn’t factor, the cancellation clause you didn’t read—can affect your financial recovery.

But insurance shouldn’t feel impenetrable. Once you understand the core vocabulary, you’re no longer at the mercy of sales brochures or claim forms. You’re informed. And that’s the first step in protecting what matters most.

In the end, reading your policy is just as important as paying for it. Because your real protection begins with knowing what you’ve actually bought—and what you haven’t.