20 Insurance Terms Everyone Should Know
Insurance, like any other field, comes equipped with its own special phrases and jargon that can take years to fully absorb and comprehend. But when individuals debate insurance, the stakes can be considerably higher than those other fields have to navigate. In insurance, these debates center around safeguarding people’s possessions and even their lives, so it’s crucial to comprehend what these terms mean in insurance.
Actual Cash Value
There are a few different ways your policy’s configuration can affect how much money you receive when you file a claim. One such approach is to determine the property’s actual cash value by deducting the amount of depreciation from the purchase price. Depreciation is typically computed by taking an annual percentage out of the asset. Nevertheless, not all insurance companies determine depreciation in the same way.
Asset
A gain in money or resources that is under the authority of someone or something. In other words, these items you own that are currently worth money or have the potential to be worth money in the future. When buying some insurance plans such as life insurance and liability insurance, assets like your home, car, savings account, and investments are taken into account.
Assured
This is another term for “insured” or “policyholder,” which refers to a person who holds an insurance policy.
At-fault
The term “at-fault” refers to the party responsible for harming a person or property. In other words, this is the party that was at fault for the accident or is legally liable for it.
Beneficiary
A beneficiary is chosen to receive a payout, such as a life insurance benefit.
Binder
A binder is a temporary agreement that provides individuals with insurance coverage until their policies can be written or delivered so that they are still protected.
Bodily Harm
As the name implies, this term refers to any physical, bodily harm an individual experiences. Bodily damage liability insurance is intended to cover the costs associated with injuries incurred in car accidents or other similar instances.
Carrier
This is another term for the insurance provider who gives you your policy.
Deductible
The sum of money the insured must pay before the insurance company assumes responsibility is referred to as a deductible. For instance, if your auto insurance policy has a $500 deductible and you’re in an accident that causes $5,000 in damages, you would pay $500. The policy would pay either the remaining $4,500 or the maximum payout they permit, which may come in lower than the necessary $4,500 causing you to pay more out of pocket.
Dwelling
The term “dwelling” largely applies to house insurance policy types and refers to a residence. It specifically refers to the building itself and may include any structures affixed to it, like a deck or a garage but not free-standing structures like barns, workshops, or detached garages as they are insured separately. As the residence and other structures are frequently protected against many risks, it is crucial to understand what a policy precisely defines a dwelling.
Electronic Funds Transfer (EFT)
The insurance company electronically puts the claim money into your bank account using this mode of payment. There are several circumstances in which claim adjusters may be able to write checks on the spot. For example, money may be transferred straight by EFT if the claims procedure is handled through a mobile app rather than a physical inspection.
Exclusion
An exclusion is a predetermined scenario or incident that an insurance policy does not cover. Exclusions can be used by an insurance company to better define the scope of a policy’s coverage, but they can also be used by a policyholder to tailor their protection. For instance, a policyholder may in some circumstances use an exclusion to eliminate coverages from a policy that would not apply to their circumstances.
Grace Period
This term refers to a specified period of time where premium dues can be paid even after their due date passes. It protects against coverage loss when premium payments aren’t met on time, and usually only applies to life and health insurance policies.
Insured by Name
This term, like “insured,” refers to an identified person or organization that an insurance policy covers; this is the individual or business listed on the declaration page. However, there are several situations in which they can be different. For example, the “named insured” as specified on the declaration page might be a firm if it has general liability insurance. Technically, the insurance provided by that policy would apply to the company’s employees, but only while they are working as employees.
Limits
An insurance company’s maximum payment for a particular policy in a given claim is referred to as a limit. This sum is specified on your policy declaration page and is agreed upon before the policy is issued.
Medical Expenses
When the term “medical expenses” appears in policy language, it refers to costs associated with medical care resulting from a specific incident. This can be found in liability coverage as well as a personal auto policy.
Peril
The causes of harm to your insured property that your policy covers are known as perils, like fires, lightning, and earthquakes. Basic insurance will typically cover a specific list of risks, and endorsements frequently expand on that list.
Policy Holder
Another term that frequently pops up in insurance conversations is “policy holder.” This refers to the person or thing that an insurance policy covers, and it’s similar to the term “insured.”
Rider
A rider, like an endorsement, is an add-on to basic insurance that can be made to change, usually for an additional premium.
Risk
Risk determines the likelihood that you will suffer a loss like your house or car being damaged or robbed. The level of risk can affect how or if coverage is supplied, and it is used to calculate coverage costs or premiums.