While having the right insurance can bring peace of mind as well as security for your family, getting the right insurance coverage can be a confusing process. There are so many industry-specific terms and phrases to understand that it can feel like trying to learn a foreign language. It’s easy to feel overwhelmed. Understanding insurance terminology is crucial to making informed decisions about your insurance needs, however. In this blog we will define some of the most common insurance terms to help you get caught up.
Common Insurance Terminology
Let’s begin with some of the terms that you may be familiar with.
Premium - A premium is the amount you pay for your insurance policy. Insurance companies may charge premiums either monthly, quarterly, or annually, depending on your policy. A good way to think of a premium is the subscription fee you pay for keeping your insurance active.
Claim - A claim is a formal petition made to an insurance company asking for a payment based on the terms of the insurance policy. Essentially, it’s how you ask your insurer to cover a loss or an expense.
Deductible - In many instances, when you file a claim on your insurance, you will be required to pay a deductible. This is the amount you pay out of pocket for a claim before your insurance coverage kicks in. For example, if your home is damaged in a windstorm and you file a claim for $3,000, if your deductible is $500, you will pay the first $500, and your insurance will cover the remaining $2,500.
Copay - A copay is an abbreviated form of “copayment,” and it’s most commonly used with health insurance. This is a fixed amount you pay for a covered healthcare service, usually paid when you receive the service. The amount can vary by the type of covered healthcare service you receive.
Beneficiary - Most commonly used with life insurance, the term beneficiary refers to the person or entity designated to receive the death benefit of a life-insurance policy after the policyholder passes away.
Other Insurance Terms
The above terms you may have heard or used when talking about paying for or claiming insurance benefits. Now let’s go over some less familiar, but equally important, insurance words and phrases.
Policy Limit - This term refers to the maximum amount an insurance company will pay under a policy for a covered loss. Policy limits can be set for a time period such as annually, per loss, or over the life of the policy, depending on the insurance type and the insurer.
For example, let’s say you have an auto insurance policy with the following liability coverage limits:
$250,000 for bodily injury per person
$500,000 for total bodily injury per accident
$100,000 for property damage per accident
If you’re found at fault in a car accident, your insurance will cover up to $50,000 for injuries to each individual involved in the accident, with a total limit of $100,000 for injuries to all people involved. Additionally, it will cover up to $25,000 for damage to another person's property (like their car, a fence, or a building)
If the costs of the accident exceed these limits, you would be personally responsible for the additional amount.
Endorsement - Endorsements allow you to customize your insurance policy to best meet your specific needs. This typically means an optional addition to an insurance policy that modifies the terms or coverage of the policy. For example, you might add an endorsement to a life insurance policy to provide additional coverage for accidental death.
Adding an endorsement to an insurance policy usually increases the premium. The cost depends on the additional risk the insurance company takes on with the endorsement.
Exclusion - Exclusions are specific conditions or circumstances that are not covered by the policy. For example, common homeowners insurance exclusions would include:
Flood damage (typically requires separate flood insurance)
Earthquake damage (usually requires a separate policy or rider)
Wear and tear or maintenance issues
Intentional damage caused by the homeowner
Business activities conducted in the home
Understanding the exclusions in your policy is essential to avoid surprises when you file a claim.
Liability Coverage - This is a part of your insurance policy that protects you from being held financially responsible if you are found legally responsible for injuring someone or damaging their property.
Indemnity - This term refers to the principle whereby the insurance company compensates or secures the policyholder against losses or damages. This compensation is provided up to the limit of the actual loss incurred or the policy's maximum coverage limit, whichever is lower. The purpose of indemnity is to restore the insured to the financial position they were in before the loss occurred, without allowing them to profit from the insurance claim.
Underwriting - Insurance companies evaluate the risk of insuring a home, car, or individual’s health or life through the underwriting process which determines whether they will provide coverage and at what cost. Factors like health history, age, or driving record might be considered during this process.
Getting the Right Insurance Coverage
Insurance terminology doesn’t make for exciting reading, but understanding these terms can simplify the process of buying and using insurance. Knowing what the terms mean will help you to choose the right coverage for your needs and to understand what you’re paying for.
If you have any questions about your insurance coverage or coverage you are considering adding, please contact us at Navisure Insurance Group. We will be happy to take the time to discuss your needs with you and help you make the best decision for your family’s safety and welfare.
COREY VANDERMEER | PRESIDENT
Corey started his insurance career in the claims department for a national carrier and learned the basics of insurance coverage and how it’s applied. From there he decided to take the jump into sales and joined an independent insurance agency. Here he learned how to build coverage around the needs of each individual and cater to every client. When Corey decided to start an insurance agency he did so with the intention of simplifying the process of getting insured. With a focus on technology and simplicity; his goal was to create an insurance agency that was different from those currently dominating the market place.
When he’s not working, Corey enjoys golfing, fly fishing and spending time with his wife and kids. Together they enjoy traveling to Northern Michigan and to his wife’s hometown of San Francisco.