Navigating the world of insurance can be daunting, especially when it comes to understanding the jargon. Here’s a simple guide to some common insurance terms you should know.
Premium
This is the amount you pay to the insurance company to buy a policy. Premiums can be paid monthly, quarterly, semi-annually, or annually, depending on the terms of your policy.
Deductible
The deductible is the amount you pay out-of-pocket before your insurance coverage kicks in. For example, if you have a $500 deductible and $2000 in covered damages, you would pay the first $500 and the insurance company would pay the remaining $1500.
Claim
A claim is a formal request to an insurance company asking for a payment based on the terms of the insurance policy. Claims are reviewed by the company for their validity and then paid out to the insured or requesting party.
Coverage
Coverage refers to the protection provided under an insurance policy. In other words, it’s what the insurance company agrees to pay for, depending on the specifics of your policy.
Liability
Liability refers to the responsibility one party has to another. In insurance terms, liability often refers to the responsibility one has to pay for damages caused to another party.
Policy Limit
The policy limit is the maximum amount an insurer will pay under a policy for a covered loss. Limits may apply per term (e.g., annually), per loss or injury, or over the life of the policy, also known as the lifetime maximum.
Underwriting
Underwriting is the process that an insurance company uses to determine the risk of insuring a home, car, driver, or an individual’s health or life. It determines whether it will accept the application for insurance, and if so, what the terms and premium will be.
Conclusion
Understanding insurance jargon can make the process of buying and using insurance a lot easier. If you’re ever unsure about a term, don’t hesitate to ask your insurance agent for clarification.