Insurance Terms Everyone Should Know
Insurance can be an important part of protecting your health, home, car, family, and finances. However, insurance policies often contain terms that can be confusing, especially when you are trying to understand what you are actually paying for.
Knowing common insurance terms can make it easier to compare policies, understand your coverage, and avoid surprises when you need to file a claim. Whether you are purchasing insurance for the first time or simply want to better understand your existing policy, learning the basics is a great place to start.
Do You Really Know What Your Insurance Covers?
Imagine that something unexpected happens—you get into a car accident, your home is damaged by a storm, or you need medical treatment. You turn to your insurance policy for help, only to discover that you are not sure what your deductible is, what your coverage limit means, or whether the situation is even covered.
Understanding a few key insurance terms beforehand can help you feel more prepared when you need your policy most.
1. Premium
A premium is the amount you pay to keep your insurance policy active. Depending on the type of insurance and the insurer, you may pay your premium monthly, quarterly, or annually.
For example, if your auto insurance premium is $150 per month, you pay that amount to maintain your coverage, subject to the terms of your policy.
2. Deductible
A deductible is the amount you generally have to pay out of pocket before your insurance begins paying for a covered claim.
For example, if you have a $1,000 deductible and experience a covered loss costing $5,000, you may be responsible for the first $1,000, while the insurer may cover the remaining eligible amount, subject to your policy.
3. Coverage Limit
A coverage limit is the maximum amount your insurance company will pay for a covered loss or claim.
Understanding your limits is important because having insurance does not necessarily mean every expense will be covered in full. If the cost of a covered loss exceeds your policy limit, you may be responsible for the difference.
4. Policy
Your policy is the contract between you and your insurance company. It explains what is covered, what is excluded, how much coverage you have, and what responsibilities you have as the policyholder.
Reading your policy can help you understand exactly what protection you are purchasing.
5. Claim
A claim is a request you make to your insurance company for payment or coverage after an event that may be covered by your policy.
For example, after a covered auto accident, you may file a claim so the insurer can evaluate the damage and determine what benefits or payments may apply.
6. Exclusion
An exclusion is something that your insurance policy specifically does not cover.
Exclusions can vary significantly between policies. That is why it is important not to assume that every type of damage, loss, illness, or accident is automatically covered.
7. Copayment and Coinsurance
These terms are especially common in health insurance.
A copayment, or copay, is typically a fixed amount you pay for a covered healthcare service.
Coinsurance is generally your percentage share of the cost of a covered service after you meet the applicable deductible.
Because health plans differ, it is important to review your specific policy to understand how copays, coinsurance, and deductibles work together.
8. Out-of-Pocket Maximum
An out-of-pocket maximum is a limit on what you pay toward covered healthcare services during a specific period under a health insurance plan.
Once you reach the applicable maximum, the plan generally pays 100% of covered services for the remainder of that period, subject to the plan’s rules. Premiums and certain non-covered expenses generally do not count toward this limit.
9. Liability Coverage
Liability coverage can help protect you when you are legally responsible for causing injury to another person or damage to their property.
For example, liability coverage is a common component of auto insurance and can help with covered expenses when you are legally responsible for an accident, subject to the policy’s terms and limits.
10. Replacement Cost and Actual Cash Value
These terms are commonly used in property insurance.
Replacement cost generally refers to the amount needed to replace damaged property with a similar item without subtracting depreciation, subject to the policy’s terms.
Actual cash value (ACV) generally takes depreciation into account when determining the value of damaged or lost property.
Understanding which method your policy uses can make a significant difference when you file a claim.
11. Endorsement or Rider
An endorsement, sometimes called a rider, is an addition or change to an insurance policy.
It can modify the coverage provided by the original policy. Depending on the circumstances, an endorsement may add coverage, remove coverage, or change certain policy terms.
12. Underwriting
Underwriting is the process an insurance company uses to evaluate risk and determine factors such as eligibility, coverage terms, and pricing.
The underwriting process can vary depending on the type of insurance and the insurer.
Conclusion
Insurance does not have to be difficult to understand. Learning basic terms such as premium, deductible, coverage limit, claim, exclusion, liability, and coinsurance can make it much easier to understand your policy and make informed decisions about your coverage.
Before purchasing or renewing an insurance policy, take time to review the coverage, limits, deductibles, exclusions, and other important terms. When something is unclear, ask your insurance company or licensed insurance professional to explain it.
The more familiar you are with your insurance policy, the better prepared you can be when you actually need to use it.
You can experience the benefits of being a part of a full-service Independent Insurance Agency today! Simply contact Briggs Agency, Inc. if you are interested in an insurance review at 219-769-4840 or visit our website at www.BriggsAgency.com. We look forward to hearing from you!
Blog post written by: David Stefanoski
