25 Common Insurance Terms and What They Mean
Every industry has its own unique language and terminology, and insurance is no exception! But whether you’re insuring a new car or settling into a new house, we believe in making the process as easy and stress-free as possible. That’s why we’ve created a guide to 25 commonly used insurance terms to help you navigate everything from deductibles to depreciation with ease.
Why Understanding Insurance Terminology is Important
You work hard to build your assets and want to know they are protected against anything that might take them away or do them harm. Should the unforeseen happen, you’d want to know exactly what needs to be done to get back to living your life to the fullest. The more you know about insurance and how it works, the better equipped you will be to work with your independent insurance agent and ensure your valuable assets are protected.
By identifying your liabilities and protecting you from loss, the right insurance coverage helps you maintain financial well-being and peace of mind. Ensuring your assets doesn’t have to be stressful. Here are some common insurance terms to get you started:
Actual cash value
This term refers to the amount required to fix or replace your insured property, minus the depreciation of that property’s original value due to age or use. Actual cash value represents the amount you could expect to receive for the item if you sold it in its current condition before it was stolen or lost. It is in most cases less than full replacement cost value.
A professional who measures risk and helps the insurance carrier design policies.
A person or business, other than the policyholder, who is covered by an insurance policy. However, the protection granted is often more limited than the policyholder’s protection.
The estimated value of a property, such as real estate or a business, as calculated by a property appraiser.
A request for payment of losses from an insurance company according to the terms of a policy.
The person or entity filing a claim on an insurance policy.
A summary page of the important details of an insurance policy, including the policyholder’s information, the policy number, premiums, limits, coverages, dates of coverage and deductibles.
The amount of money the policyholder must spend on a covered claim before the insurance company begins to contribute.
The amount of value an adjuster will decrease based on the type of property and pre-damage condition, age, and wear and tear.
An amendment to an insurance policy that updates the terms of coverage, either by adding, removing or changing coverage. This is also called a rider.
A provision within an insurance policy that eliminates policy coverage for a specific property, actions, locations or damage.
The time period after the insurance policy premium due date, during which a policyholder can pay the premium without the cancellation of coverage.
A hazard is any factor or condition that increases the chance of loss or accelerates damage.
A contractual agreement that requires the insurance company to compensate for damages or losses up to the covered amount.
An amendment to an insurance policy that updates the terms of coverage, either by adding, removing or changing coverage. Another name for this is an endorsement.
The property, person or entity that is covered by insurance.
The entity that agrees to pay compensation for damages or losses.
The tenant who rents or leases a property from a lessor.
A legal term for the responsibility that creates risk.
A standard component of many insurance policies that helps pay for damages or injuries sustained by others as a result of your liability, or an accident that happens on your property.
Loss of use
May refer to a body part that was permanently damaged or a home that is rendered temporarily uninhabitable. Loss of use coverage pays for certain costs incurred under these circumstances.
Part of an auto insurance policy and also called “medical payments coverage.” This coverage can help pay medical expenses for you, any passengers, pedestrians or anyone else injured in an accident. It can also cover the insured’s injuries sustained as a passenger in someone else’s vehicle.
A specific cause of property damage that results in financial loss. Perils can include storms, wind, fire, water and even theft.
The amount of money the insured pays monthly or annually for an insurance policy.
The process the insurance carrier goes through to determine the degree of risk, terms of coverage and premium to charge to write your insurance policy.
Insurance Terminology & Concepts Overview
Learning how these insurance terms and concepts work will give you a foundation for understanding your policy and coverage. Here’s an example to help you better understand these terms in context:
It is important to know that an actuary does the research to create insurance policies, while your independent insurance agent searches issuers to find the best coverage for you.
It all starts with indemnification, the basic premise behind insurance. The insurance carrier indemnifies you, the policyholder, with a promise to compensate you in the event of a loss. As part of the insurance contract, you agree to pay premiums, typically monthly or annual payments.
When you make a claim, you will pay the deductible on the policy first, and then the insurance company will pay for the damages based on a depreciated value of the property. The amount of the deductible usually has some effect on the premium totals. When you agree to a higher deductible, you could get a lower premium.
In the event you must make a claim on your insurance policy, the insurance company investigates the incident against the terms of the policy. The amount you receive to compensate you for damages is based on a depreciated value, what the property is worth now rather than when you first bought it, and the limits of the policy. In some situations, it is possible to get an insurance policy that pays out the replacement cost, rather than the depreciated value, of your property.
Have Questions About Any of These Terms or Others on Your Insurance Policy?
Reach out to an independent insurance agent to learn more!