What are the Basic Insurance Terminologies You Must Know ?
Are you having a Hard time understanding your insurance documents, are you going to an interview that requires knowledge about Insurance terminologies, or are you about to take an exam on insurance. In this article, you will find various insurance terminologies that you are most likely to come across. . The terminologies are arranged Alphabetically to make it easier for you to locate any word you are looking for.
Basic Insurance Terminologies You Must Know
Actual cash value.
There are a few ways your policy can be set up that impact the amount you are paid when filing a claim. Actual cash value is one such method, and it is calculated by subtracting the amount of depreciation from the initial cost of the property. Depreciation is usually calculated by subtracting a certain percentage from the property per year. However, not every insurance company calculates depreciation the same.
Actuaries are experts at assessing risks by analyzing statistics and data. They often work with insurance companies to help set rates for insurance products.
Sometimes referred to as a ‘claim examiner,’ an adjuster is someone who investigates a claim. They determine if the loss is covered by the policy, estimate damages, and often write a check to the insured.
An agent, or insurance agent, is someone who sells insurance policies for an insurance company or carrier. Their agency may be exclusive or non-exclusive, meaning they sell insurance for a single carrier or a number of carriers.
A financial or economic benefit is controlled by a person or entity. In other words, these are the things you own that have financial value or can generate financial value in the future. Assets like your house, your vehicle, your savings account, and your investments are taken into consideration when purchasing certain insurance policies, like life insurance and liability insurance.
This is an individual who has an insurance policy, and is another word for “insured” or “policyholder.”
A beneficiary is a person who is designated as the recipient of payment of something like a life insurance benefit.
As the name suggests, this simply refers to an injury a person sustains. In an auto accident, bodily injury liability coverage is designed to pay for the expenses that result from such an injury.
This is another word for the insurance company that provides you with your policy.
In reference to auto insurance, “collision” refers to coverage that pays for damages to your vehicle after a collision (hence the name), either with another vehicle or an object, like a traffic sign. This is often optional coverage unless you have an auto loan or lease your vehicle, in which case the lender will likely require it.
A claim refers to any request for payment within the bounds of an insurance policy. For example, if you have homeowners insurance, and hail damages your roof, you would file a claim, requesting that your insurance carrier investigate and issue payment if needed.
A claimant is any person or entity requesting payment from an insurer, or insurance company.
Coverage, or coverages, are the specific protections or benefits an insurance policy provides. These are outlined in your policy or contract and can be found on your declarations page.
This term refers to any loss, destruction, or harm to a person or property, such as a vehicle or home. For example, if your vehicle’s windows are broken by an attempted theft, this would be considered “damage.”
This page is basically a snapshot of the important information regarding your insurance policy. It will have policyholder information, such as name, address, and policy number, as well as coverages, limits, premiums, deductibles, and dates of coverage.
. 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).
Electronic Funds Transfer (EFT).
This is a method of payment where the insurance company electronically deposits the claim amount into your bank account. While many claims adjusters are able to write checks on site, there are a variety scenarios where this may be possible. For example, if the claims process takes place using a mobile app (as opposed to an in person inspection), you may be able to have funds deposited directly via EFT.
EFT may also refer to a method by which a policyholder can pay premiums electronically, sometimes through automatic deductions.
This refers to the amount of money required to repair or replace the covered property when damaged. This is usually provided by the claims adjuster following their inspection and evaluation.
On some occasions, an exclusion is a defined scenario or event that an insurance policy does not provide coverage for. Exclusions are one way that an insurance company can further specify what a policy covers, but they can also be a way for a policyholder to customize their coverage. For example, in some cases a policyholder can use an exclusion to remove coverages on a policy that may not apply to their situation.
This refers to the person(s) (or sometimes organization or entity) that an insurance policy provides coverage for. For example, if you have an auto insurance policy, you are considered to be the insured in that contract.
An insurer is a company or organization that provides insurance policies to the insured. This is another word for an insurance company, like the term “carrier.”
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 and persons. In such a case, the “liability coverage” portion of your auto insurance would potentially pay for the damages up to the policy limit.
A limit refers to the maximum amount of protection the insurance company agrees to pay for a specific coverage in any given claim. This amount is agreed upon before the policy is issued, and can be found on your policy declaration page.
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 commonly covered loss for many homeowners’ insurance policies, whereas flood damage is typically not a covered loss for many homeowners’ policies.
Like the term “insured,” this term refers to a named individual or entity that an insurance policy covers, and is the person or organization listed on the declaration page. However, there are circumstances where the two can differ. For example, if a company has general liability insurance, that company would be the “named insured” as listed on the declaration page. Its employees would technically be insured under that policy, but only while they are performing their duties as an employee. In other words, they are insured, but not the “named insured.”
Named Peril (Named Peril Policy)
This refers to a type of insurance policy that provides protection or coverage for certain perils explicitly outlined in the policy. The opposite of a named-peril policy would be an open peril policy, which provides coverage for all causes of loss except those excluded in the policy.
Other than collision (OTC)
. As the name suggests, OTC adds protection against things like hail, fire, vandalism, and more to your personal auto policy. While it isn’t likely to cover every possible source of damage, it covers most that occur outside of a collision.
Lightning, windstorms, fire – just to name a few. Perils are the causes of damage to your insured property that your policy protects against. A basic policy will cover a certain set of perils, and endorsements can often add to that.
This is yet another term you might frequently hear or see that refers to the person or entity an insurance policy covers, like “insured,” and would appear on the declarations page.
This is the amount of money you, the insured, pay to an insurance company in exchange for coverage. Depending on the policy, the premium can be paid a variety of ways, such as monthly payments, or possibly in a single upfront payment. The premium amount is determined by a variety of different factors, and will be different depending on the type of policy, the individual or entity, deductibles, limits, and so on.
. When you’re searching for a new insurance policy, an insurance agent or insurance carrier will give you a quote, which is an estimate of the premium you will pay for the policy. This estimate is based on certain pieces of information that you provide to the agent or carrier.
Replacement cost coverage.
As opposed to the actual cash value, replacement cost refers to the cost of replacing 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.
. As you’ll see, in the world of insurance, there are often a number of different words that refer to the same thing. The word “rider” is one such example. Like an endorsement, a rider is an amendment that can be added to a basic policy to modify it, typically for an additional premium.
Risk is the possibility that a loss will occur. For example, the probability that a home will be damaged, a car will be destroyed, or a piece of property stolen. Risk is used to calculate coverage costs or premiums and the level of risk can determine how, or if, coverage is offered.
A type of liability insurance that expands coverage limits above and beyond the limits of an underlying liability insurance policy.
The process of underwriting is how an insurance company evaluates risk and whether or not the company will offer coverage for it. It also helps determine rates based on various factors found in an application.