Insurance can be confusing at times. Some people may purchase auto insurance because it is a requirement by law; some people may purchase home insurance because they see the value in ensuring that their valuables and property are protected.
Regardless of the reason, insurance provides peace of mind knowing that you and your loved ones are protected. However, as you review your policy you may come across some unfamiliar industry jargon.
To help, we want to you equip you with a basic understanding of some common terms to help you make an informed decision about your insurance needs. In this article, we review some common insurance terminologies.
Common Insurance Terminologies
Why do I Need to Know These Terminologies
What if I Still Don’t Understand?
Common Insurance Terminologies
For the purposes of this article, we will be exploring general insurance terminologies, as well as common words often found in your auto or home insurance policies.
General Insurance
Appraiser
- A person who investigate and determine fair compensation for a policyholder after they make an insurance claim
- Example – This individual will examine and evaluate the condition, quality, and worth of the insured items to determine the appropriate coverage, claim settlements, or premiums.
Bind
- The process to finalize the agreement of your insurance policy.
- Example – An insurance agent will work with their client to bind their policy.
Claim
- The amount due or alleged to be due under an insurance policy following an event against which coverage protects.
- Example – If you submit a claim, your insurance company will review the validity of the claim and, once approved, will issue payment to the insured or an approved interested party on behalf of the insured.
Deductible
- The amount an individual must pay their insurance company before they can process your claim.
- Example –The lower your deductible, the higher your premiums (and vice versa).
Endorsement
- An amendment to your policy by which the terms of the policy are changed.
- Example – Also known as an “add-on”, you may find that there are coverage options that are not included with your base policy and would need to be added on.
Exclusions
- Types of losses that a policy specifically sets out as NOT being covered.
- Example – You may find that your home insurance may provide protection against some types of water damage, but it may exclude damages from sewer back up (you may want to consider an endorsement for Water Damage enhancement, in this example)
Lapse
- If your policy is lapsed, it’s typically because of non-payment of your insurance policy after its due date or after a grace period has been granted. This may result in your policy being cancelled.
- Example – If a customer misses a certain number of payments and have not informed their agent, their insurance policy may be lapsed.
Liability
- Insurance coverage for the insured’s legal responsibility regarding others.
- Example – This coverage offers protection for the insured for unintentional injury due to insured actions.
Loss
- Financial damage to any item that is insured.
- Example – If a severe storm knocks a tree onto your car, the damage of your vehicle is identified as a loss.
Named insured
- The individual named on the insurance policy.
- Example – The person whose policy is bonded is typically the named insurer.
Perils (specific, all)
- Any event, situation, or incident that causes property damage or loss. All perils refer to all situations highlighted in a policy that is covered. Specific perils outline some perils that are covered.
- Example – Damage caused by fire, wind, water, theft, vandalism, are examples of perils.
Policy
- The document detailing the terms and conditions of your insurance.
- Example – Your policy will outline what items are eligible for coverage and how much will be paid out when submitting a claim.
Premiums
- The amount you pay each month (or each year) to keep your insurance policy active.
- Example – Your insurance rates will vary due to different factors. How much you pay in premiums is reflective of how much your deductible is. The higher your deductible, the lower your premiums (and vice versa).
Auto insurance
Accident Benefits
- Covers medical bills, rehabilitation, funeral costs, and loss of income due to disability.
- Example – If you’re involved in an auto collision and require your bills to be covered, accident benefits may cover the cost incurred.
Collision coverage
- Auto coverage for incidents involving impact with another vehicle or object.
- Example – Collision coverage covers for damage to the insured’s vehicle when involved in an at-fault accident
Comprehensive coverage
- Auto coverage for incidents that don’t involve a collision.
- Example – Windshield damage or other damage to your car due to theft, vandalism, fire, falling objects, lightning, explosion, are examples of incidents not involving a collision.
Direct compensation property damage
- Covers you for damage to your vehicle and to property inside it when another motorist insured in your province is responsible for the accident.
- Example – If you are determined to not be at fault in any damages incurred by you or your vehicle, the insured vehicle will be repaired under this coverage (the market value factor may or may not come into picture).
Usage-Based Insurance (UBI)
- A program that generally measures driving behaviours (such as speeding, acceleration, and harsh braking), along with how often and the time of day you drive.
- Example – Allstate has its own UBI called Drivewise. Drivewise is a way for safe drivers to save up to 30% on their Allstate auto insurance policy. It’s also a great way to assess your driving habits and improve your actions behind the wheel.
Pro Shop
- A shop with whom your insurer has an agreement to provide a customer with priority service and a written repair guarantee effective for as long as the customer has the vehicle and is insured with their company.
- Example – Many insurance companies have partnerships with trustworthy repair shops that are sometimes known as Preferred Service Centres. Once you file a claim, your insurance company would work with these Preferred Service Centres to help fix your car.
Home Insurance
Additional Living Expenses Coverage
- This covers the cost of meals and temporary accommodations if your home becomes uninhabitable due to a covered loss.
- Example – Your insurance company may put you up in a hotel while your home is being repaired.
Actual Cash Value
- Value of the property prior to the loss, less consideration for depreciation, wear and tear and obsolescence.
- Example – Many coverage options may only provide reimbursement up to the actual cash value of your home (excluding any factors that may increase or decrease the value of the home).
Replacement Cost Coverage
- Payment of the cost of repair and/or replacement of the damaged property, subject to certain conditions.
- Example – If your home was damaged by one of the named perils listed in your home insurance policy, if you have this coverage, your home will be repaired to the state it was in prior to damage.
Market Value
- The price of an insured asset in its current state.
- Example – You may need to provide your agent with the proof of purchase (e.g. a receipt or invoice) your insured item when your policy is initially bonded.
Why Do I Need To Understand These Terminologies?
Understanding your insurance coverage will allow you to make more informed decisions about your insurance needs. It’ll allow you to communicate with your agent more effectively and allow you to ask relevant questions that impacts you and your existing coverage options.
What if I Still Don’t Understand?
Your insurance agent is here to help. If you’re an Allstate customer, you can search for an agent nearest to you who can offer a more in-depth and personalized analysis of your existing coverage.
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