10 Insurance Terms Everyone Should Know

10 Insurance Terms Everyone Should Know

1. Policy/Contract: Your policy with an insurance company is a legally binding contract. The coverage being provided by the insurance company is outlined in this document along with any limitations or exclusions. The policy will define what will or will not be covered in the event of a loss.
2. Insured/Policy Holder: The person specifically designated by name as the insured in the policy and offers to that person (or persons) legal rights and responsibilities under the policy.
3. Policy Declarations Page: The declarations page is an abbreviated listing of the coverage afforded on your policy. The page will include the basics of the policy including such items as: the policy start and end dates, individual coverage limits, optional coverage(s) and deductible amounts. A lien holder or mortgage company may also be listed on the declarations page.
4. Liability: This refers to a legal obligation or responsibility one party has for causing damage, injury, or loss to another party. For example, if you rear-end another car, and the driver and passengers are injured, you may be held liable for the damaged property to their car and personal injuries. In such a case, the “liability coverage” portion of your auto insurance would potentially pay for the damages up to the policy limit.
5. Claim/Claimant: A claim refers to any request for payment within the bounds of an insurance policy. For example, you believe you have hail damage to your roof – you would file a claim, requesting that your insurance carrier investigate and issue a payment if the loss is a covered peril under your insurance contract. The claimant is any person or entity requesting payment from an insurer or insurance company.
6. Deductible: A deductible refers to the amount of money that you, the insured, are required to pay before the insurance company takes over. For example, if you have a $500 deductible on your auto insurance policy, and you’re involved in an accident that results in $5000 in damages – you would pay $500 and the policy would pay the $4500 (or up to the limit of the policy).
7. Peril/Loss Settlement: In the context of insurance, “loss” refers to damage caused to an insured piece of property. A “covered loss” refers to any damage or injury that an insurance policy specifically provides protection for. For example, hail damage is a common covered loss for many homeowners insurance policies. Based on the perils that are covered, when a loss occurs the insurance company will offer a loss settlement for the value of the damages, medical or other related expenses taking into consideration the deductible you selected.
8. Comprehensive or Collision Damage Coverage: This refers to the specific type of damage that can occur to your vehicle (car, truck, motorcycle, ATV, boat, etc). Collision coverage pays for damages if your vehicle overturns or it collides with another vehicle or object. Comprehensive (comp) coverage pays for damages caused by an event other than a collision – such as fire, theft, vandalism, hail or flood. Comprehensive also covers damages from hitting an animal.
9. Value/Coverage: When a claim occurs, your policy will define the type of settlement that is afforded: either replacement cost coverage or actual cash value. Replacement cost refers to the cost of replacing your property without subtracting depreciation due to normal use or wear and tear. For example, if you have boat insurance, replacement cost coverage would pay to replace that boat with an identical model, or a model of comparable quality. An actual cash value policy will only pay for the depreciated value of the boat on the day the damage occurred.
10. Lien Holder/Mortgage Clause: If your home, rental properties, or vehicles are financed, the lender will be listed on your policy as a lien holder (for vehicle coverage) or mortgage clause (for property coverage). Due to their financial interest in your vehicle or property, the lender will also have legal rights in the event of an insurance claim.