Insurance terminology can be intimidatingly complex. No matter whether it’s home, auto, or health coverage that you need, understanding its language may prove challenging. Cars offer quick and convenient travel across long distances, which may open up more job opportunities and social connections. Unfortunately, they also emit greenhouse gases and require regular maintenance in order to run properly.
1. Deductible
Deductibles are an integral component of insurance that help mitigate risk for homeowners, renters, and auto policies. Policyholders must pay this sum before an insurer will cover a loss that occurs within their coverage. Most health plans also feature deductibles with out-of-pocket maximums; some Marketplace plans even pay for preventive care before reaching this threshold.
A deductible can either be expressed in dollars or as a percentage of the insured value of property. Typically, higher deductibles reduce premium costs; policyholders must carefully weigh this decision between the cost of deductibles and their risk tolerance.
2. Premium
Insurance premiums play a pivotal role in your coverage, whether for auto, home, or health policies. They cover an insurer’s risk in case of claims and must be made regularly to keep a policy active.
Understanding insurance terms can be intimidating, but understanding just a few key terms will make your coverage options easier to grasp. Gain more insight into premium costs so that you can select the optimal plan. Our glossary is continually being updated; therefore, the most recent term definitions appear first in this list.
3. Perils
“Perils” refers to events that threaten your property. If a covered peril causes such damage, then you can file a claim with your insurance company and be reimbursed (minus any applicable deductibles) to help cover it.
Homeowners policies typically include coverage against named perils like fire, theft, and wind or hail damage, as well as loss of use expenses associated with moving due to structural or personal property damage caused by an event such as a windstorm or hail storm. Other coverages might also include loss of use incurred as a result of such events causing relocation. Perils should not be confused with hazards, which increase the chance of damage occurring. Understanding this distinction will enable you to choose an insurance policy tailored specifically for you.
4. Exclusions
Exclusions are events or risks not covered by your policy. Many insurers exclude risks such as war and catastrophic events such as floods or earthquakes from standard policies due to low likelihood and high cost; in these instances you can purchase additional coverage or an endorsement to address them.
Be sure to review your policy thoroughly so you understand exactly what is covered; if there are any queries, contact your insurance agent directly.
5. Insured
An insured is defined as anyone with an economic stake in their insurance coverage and who receives claim payments from insurers for losses covered under their policy. An insurer promises to cover losses suffered by their insureds, while in return the latter pay them premiums in exchange for this legal contract that underpins insurance coverage.
Individuals or businesses that need insurance protection are usually insured, with most policies including both named insureds and additional insureds—for instance, a landscaping business may add commercial clients as additional insureds for work performed or employees to fulfill contractual requirements.
6. Rider
Riders are policy provisions that provide additional benefits to an insurance policy, adding flexibility and protection from loss. Riders may be added to policies covering life, homes, vehicles, or more at an extra cost but offer greater flexibility and protection from loss.
Policy riders such as the scheduled personal property rider provide increased coverage limits for valuable items, typically exceeding that provided in a standard homeowners policy (which usually has an allotted limit of $50,000 for personal property coverage). With this rider in place, that amount could rise up to $100,000 or even higher! Flood insurance provides protection from damage caused by flooding and is therefore often necessary in areas prone to extreme weather conditions.
7. Coverage Limits
Coverage limits define the maximum amount that an insurer will cover for any policy-based claim, which can provide peace of mind if there is an accident or loss. While higher limits may lead to higher premium costs, they guarantee coverage against potential issues in your life.
Business owners typically choose higher limits for property damage and liability coverage to safeguard their assets adequately. Insurance terms refer to both per-occurrence limits for each incident as well as aggregate limits that cover an entire policy period (typically one year).
Severe injuries that necessitate substantial medical expenses, permanent disability, and significant lost income often warrant full policy limit claims. To maximize recovery, it is crucial that a detailed demand be filed alongside support documents that prove the extent of losses sustained.
8. Umbrella Insurance
Umbrella insurance provides additional liability protection over and above that provided by your auto, home, and other property policies. It can help guard against claims for libel, slander, and invasion of privacy—typically an inexpensive investment that should be considered if you possess significant assets or are at high risk from litigation.
An umbrella policy provides peace of mind at an extremely reasonable cost and may be beneficial if you coach youth sports, own a pool or trampoline, rent vacation homes, have pets, post on social media or own expensive vehicles.
9. Underwriting
Underwriting is an essential process in the insurance business that involves researching and assessing risk associated with loans, insurance policies, and securities. Underwriting helps set fair borrowing rates for loans, set appropriate premiums for policyholders, and create markets by accurately pricing investment risk—ultimately helping ensure consumers receive fair value when borrowing money or buying securities.
Becoming familiar with these terms will help you better comprehend what’s behind the numbers in your policy. If an underwriter deems an applicant too risky, they may decline coverage, provide a quotation with adjusted premiums, or apply policy exclusions; additionally, they must ensure state and federal compliance and evaluate objective risk metrics.
