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The Most Important Insurance Terms to Know

 

The Most Important Insurance Terms to Know

We all reach a point in life where we’re faced with the decision to purchase our own insurance policies. Some people pay for their auto insurance when they buy their first car at sixteen. Others may not have to shop for insurance until buying a home. Whether you’re just beginning to search for insurance or got your first policy in the mail, the terminology used by insurance providers can be downright confusing. We’ve collected some of the most important insurance terms and defined them so you’ll feel confident when reading through your next insurance policy.

 

General Insurance Terms

There are many different types of insurance available to you. Some insurance policies may be required by your state or financing lender, such as auto insurance or homeowners insurance. Others, such as renters insurance, are nice to have as protection against disaster. Of course, there are other types of insurance as well, including health insurance or life insurance.

Even though different insurance policies are used to protect different things, all insurance types have one major thing in common: they provide compensation if you experience a covered loss. Many important insurance terms can be found throughout the various types of insurance.

 

Policy

Your insurance policy is the actual legal document issued by your insurance provider. It outlines the general terms of your particular policy as well as listing what your policy covers and what is not covered.

 

Premium

Your insurance premium is the amount you agree to pay to be covered by your insurance company. Think of your premium as your ticket to insurance. Depending on your policy you may pay your premium in a lump sum each year or in a monthly, quarterly or bi-annual payment. Many companies offer discount on insurance premiums when you combine multiple policies from the same company, such as homeowners and auto insurance.

 

Covered Loss

Covered losses are financial losses that your insurance company will pay for as agreed upon in your insurance policy. For example, you may have a car insurance policy that includes collision coverage. If you accidentally back your car into a tree and cause damage to the bumper, this is likely a covered loss according to your policy. Covered losses will vary between policies, so be sure to read your insurance policies carefully or contact your insurance representative so you know what is and isn’t covered by your policies.

 

Claim

A claim is a formal request you make to your insurance company for compensation when you experience a loss. In other words, you can view an insurance claim as asking your insurance provider to pay for your covered loss. The insurance company will take a look at the information you provide and may send out a representative to inspect your reported damages. If your claim meets the agreed terms in the policy for what’s covered, you’ll receive compensation for the damages you’ve faced.

 

Deductible

The deductible is the portion of a claim you have to pay before your insurance pays for covered losses. Different insurance policies and types usually have different timeframes for deductible coverage. Although it’s important that you check your specific policies, deductibles are usually paid for each claim you make. If you make two separate $2,000 claims over the course of a year and have a $500 deductible, you will likely be required to pay the deductible both times for a total of $1,000.

 

Liability

The term liability refers to legal responsibility for losses suffered by another person. You’ll often hear liability used with the phrase “at fault.” For example, if you are driving through an intersection and another driver ignores a stop sign and hits your vehicle, they are likely liable for the accident.

 

Exclusions

Exclusions are losses or scenarios that are not covered by your insurance policy. Your policy document will include a list of exclusions from coverage. If you have questions about these exclusions, it’s always a good idea to double-check with your insurance representative to confirm what is and isn’t covered by your policy. A basic renters insurance policy, for example, does not include coverage for Earthquakes although the coverage is usually offered as an optional endorsement.

 

Auto Insurance Definitions

Securing auto insurance isn’t just a good idea to protect your vehicle, it’s also required by most states. When you’re shopping for car insurance, you may run across some terms that are specifically used for auto policies. Often these terms describe particular coverages provided by different policies.

 

Property Damage Liability

This type of liability insurance is a required coverage for drivers. Property damage liability coverage generally pays for the repair or replacement of another driver’s car if you are found to be at fault for causing an accident.

 

Roadside Assistance

An additional coverage that can be added to some auto insurance policies, roadside assistance helps you if your car breaks down or faces mechanical issues. Roadside assistance is usually an affordable addition to an existing auto policy.

 

Uninsured Motorist

An uninsured motorist is a driver who does not have auto insurance coverage. If a driver without car insurance hits your vehicle you may not be able to get compensation from them to repair or replace your car. Uninsured motorist coverage is an optional coverage you can add to your car insurance policy to help pay for damages when an uninsured driver is at fault for an accident but cannot, or will not, pay to fix your vehicle.

 

Homeowners and Renters Insurance Definitions

Similar to auto insurance, homeowners and renters insurance policies have specific terms that might be used in a policy.

 

Dwelling

This is the structure that is insured by a homeowners policy. Dwelling usually refers to your home.

 

Replacement Cost

Replacement cost refers to the cost it would take to completely rebuild your home if it were to be completely lost. The replacement cost does not factor in depreciation of your home. Often the replacement cost is thought of as the purchase price of the home, but this is generally not correct. The replacement cost may be higher or lower than the purchase price depending on the features of a home. For example, an older home with custom exotic woodwork might cost more to replace than the cost to purchase the home.

 

Personal Property

One main goal of both homeowners and renters insurance is to provide coverage for your belongings in the case of damage. Personal property is belongings that are not attached structurally to your home. This might include furniture, clothing or electronics. Many standard homeowners or renters insurance policies will cover up to a certain dollar amount of personal property. More expensive items like fine art or antique jewelry may require additional coverage to be fully protected.

 

Understanding Insurance Lingo

The terms used in insurance policies and other documents don’t have to be confusing. With so many different factors in insurance, it’s almost impossible to cover every term you might encounter. This guide, however, should give you a leg up into understanding the language used by insurance providers so you can make better-informed decisions for your next auto insurance, homeowners insurance or renters insurance policy.

 

 

Disclaimer: The above content is for informational purposes only and is not a direct representation of coverages offered by Wawanesa or its policies. The information does not refer to any specific contract of insurance and does not modify any definitions, provisions, exclusions or limitations expressly stated in any contracts of insurance. All references within the above content are illustrative and may not apply to your situation. The terms and conditions of the actual insurance policy or policies involved in a claim are determinative as to whether an accident or other loss is covered. To understand the coverage under your current policy, please log into the account management platform to review your policy or contact an agent directly.

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