Common Insurance Terms You Should Know
Navigating the world of insurance can be challenging, especially with all the specialized terminology. Here’s a glossary of common insurance terms explained in plain language to help you better understand your policies and make informed decisions.
1. Premium
Definition: The amount you pay for your insurance policy, usually on a monthly, quarterly, or annual basis. Explanation: Think of it as your subscription fee for your insurance coverage.
2. Deductible
Definition: The amount you pay out of pocket before your insurance coverage kicks in. Explanation: If you have a $500 deductible and a claim for $1,500, you pay $500, and the insurance pays $1,000.
3. Policyholder
Definition: The person or entity that owns the insurance policy. Explanation: You are the policyholder if the insurance policy is in your name.
4. Claim
Definition: A request made to an insurance company for payment based on the terms of the policy. Explanation: When you ask your insurance company to cover a loss, you’re filing a claim.
5. Coverage
Definition: The protection and benefits provided by an insurance policy. Explanation: Coverage details what types of incidents the insurance company will pay for and up to what amount.
6. Beneficiary
Definition: The person or entity designated to receive the benefits from an insurance policy. Explanation: In life insurance, your beneficiary is the person who gets the payout if you pass away.
7. Exclusion
Definition: Specific conditions or circumstances that are not covered by the insurance policy. Explanation: Exclusions outline what your insurance policy won’t pay for, like damage from floods if you don’t have flood insurance.
8. Endorsement (or Rider)
Definition: An addition to an insurance policy that changes or adds coverage. Explanation: If you add coverage for jewelry to your homeowners policy, that’s an endorsement.
9. Underwriting
Definition: The process insurance companies use to assess the risk of insuring you and determine your premiums. Explanation: Underwriting evaluates your application to decide how much coverage you can get and at what price.
10. Liability
Definition: Legal responsibility for damages or injury to another person or property. Explanation: Liability coverage helps pay for damages or injuries you cause to others.
11. Copayment (Copay)
Definition: A fixed amount you pay for a covered health care service, usually when you receive the service. Explanation: If your doctor’s visit copay is $20, you pay $20 at each visit.
12. Coinsurance
Definition: The percentage of costs you pay for a covered service after you’ve paid your deductible. Explanation: If your plan covers 80% of a procedure, you pay the remaining 20%.
13. Policy Limit
Definition: The maximum amount an insurance company will pay for a covered loss. Explanation: If your auto insurance policy limit is $50,000, that’s the most they’ll pay for a covered accident.
14. Actual Cash Value (ACV)
Definition: The value of your property minus depreciation. Explanation: If your 5-year-old TV is stolen, ACV pays you what it’s worth today, not what you paid for it.
15. Replacement Cost
Definition: The cost to replace damaged or stolen property without deduction for depreciation. Explanation: Replacement cost coverage pays to replace your items at current prices, like buying a new TV of similar kind and quality.
16. Grace Period
Definition: The extra time allowed after the due date for your premium payment before your policy is canceled. Explanation: If your payment is late, the grace period lets you catch up without losing coverage.
17. Broker
Definition: A licensed individual or firm that sells insurance policies on behalf of multiple insurance companies. Explanation: A broker can help you find the best policy from different insurers.
18. Adjuster
Definition: A person who investigates insurance claims to determine the extent of the insurance company’s liability. Explanation: An adjuster assesses the damage and decides how much the insurance company should pay you.
19. Subrogation
Definition: The process by which an insurance company seeks reimbursement from the responsible party after paying a claim. Explanation: If your insurer pays for your car repairs after an accident, they might seek to recover that cost from the at-fault driver’s insurance.
20. Aggregate Limit
Definition: The maximum amount an insurance company will pay for all claims during a policy period. Explanation: If your policy has a $100,000 aggregate limit, that’s the most it will pay out in total for all claims during the coverage period.
Conclusion
Understanding these common insurance terms can help you make more informed decisions about your coverage and better navigate your interactions with insurance companies. Whether you’re buying a new policy, filing a claim, or reviewing your existing coverage, this glossary should help clarify the often complex language of insurance.
