15 Common Insurance Terms Explained
A Quick Guide to Insurance Lingo
Insurance terms can often feel like a foreign language—deductibles, premiums, perils, and exclusions. It's not unusual to feel overwhelmed, especially when these terms appear in your policy documents.
We're here to break down common insurance terms into simple, everyday language so you feel more confident navigating your policy. Let's explore some of the most common terms and what they mean to you.
1.Actual Cash Value (ACV)
ACV is the value of your property after subtracting depreciation for wear, tear, and age. This amount reflects the current market value of your property, not the cost of replacing it with a new one.
2. Adjuster
An adjuster is a licensed professional who investigates insurance claims by assessing damages, reviewing policy details, and negotiating settlements with you to determine the insurer’s payment amount.
3. Beneficiary
A beneficiary is the person (or people) you name in your life insurance policy to receive the payout if you pass away. It’s important that your beneficiary or beneficiaries are always updated to match your policy goals.
4. Claim
An insurance claim is the request you make to your insurance company when an accident or loss occurs. Filing a claim is like pressing a “help” button. You’re asking your insurance company to step in and help cover the damages.
5. Coinsurance
Coinsurance is how covered expenses are shared between you and your insurer after you meet your deductible. It’s usually expressed as a percentage. For example, once you pay your deductible, the insurer might pay 70% of the remaining costs, while you pay 30%.
6. Copayment
A copayment is a fixed, out-of-pocket cost you pay for a covered service, often healthcare. For example, you might pay $40 for urgent care visits, and your insurance covers the rest.
Coinsurance vs. Copayment
The difference between copayment and coinsurance is simple: copayments are fixed amounts you pay each time you receive a service, while coinsurance is a percentage of the total cost you pay after your deductible. Both are ways you share expenses with your insurer.
7. Coverage Limit
A coverage limit is the maximum amount your insurer will pay for a covered claim. For instance, if your homeowners insurance policy has a coverage limit of $300,000, and your covered expenses exceed that amount, you would pay the remaining costs.
8. Deductible
An insurance deductible is the amount you pay out of pocket before your insurance kicks in. Let’s say you need to replace your windshield due to a large crack, and you have a $250 deductible. You pay $250, and insurance takes care of the rest.
9. Depreciation
Depreciation is the amount of value your property loses over time because of factors like age, wear, and tear. It can influence settlements by lowering the ACV of property.
10. Endorsement
An endorsement, also known as a rider, is the extra coverage you can add to your insurance policy. For example, a homeowner might add an endorsement to cover valuable items like fine art or jewelry, or a car owner might add extra protection like roadside assistance. Endorsements allow you to customize a policy to suit your needs.
11. Exclusion
Exclusions are what your insurer won’t cover. Avoid unexpected denials by reviewing your policy’s exclusions and limitations.
12. Liability
Liability is your legal responsibility for damage you cause to others. For example, if someone slips and falls on your property, you could be found liable, meaning you would be financially responsible for their medical bills and related expenses. Liability insurance helps protect your finances by covering these costs, often including legal fees.
13. Peril
A peril is the event that causes loss or damage. It refers to the specific risk or incident your insurance policy covers, such as theft, fire, or storm damage.
14. Premium
A premium is the amount you pay to keep your insurance policy active. Depending on your plan, payments could be monthly, quarterly, or annually. Think of it like a streaming service subscription: you pay your insurance premiums regularly, even if you don’t use your coverage often. That’s because insurance is like a safety net—you can never predict when a sudden storm, medical emergency, or car accident may occur.
15. Underwriting
Underwriting is how your insurance company decides what your policy will look like (your rate, coverage limits, etc.) based on an assessment of your personal risk. Your risk is determined by considering various factors, including but not limited to, your driving record, age, and gender.
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All coverages are subject to deductibles and policy limits. This is not an insurance policy. It is intended only to provide a general description of Alfa Insurance® and/or its product lines and services. An actual policy contains the specific details of the deductibles, coverages, conditions and exclusions. Your Alfa® agent can explain the policy and benefits and answer any questions you may have before you buy.