Insurance 101 – Learning the Basics

While reading an insurance policy from front to back may not be a common practice of most consumers doing so will educate you on your policy terms and coverages so you can confirm that you’re receiving the protection you really need.

Insurance 101 – Learning the Basics is designed to help simplify the definitions of insurance terms commonly used in the business. And while this section provides a basic overview, we encourage you to speak with an insurance professional to answer your questions or provide any additional information you need.

Actual Cost Value The value of the insured property, in dollars, at the time of loss. This amount is whatever it will cost to replace the property, minus a deduction for depreciation (age, wear and tear, etc.) Binder A legal agreement between an insurance buyer and an insurance company or its agent. It provides temporary insurance coverage until a policy is either issued or refused. Coverage The guarantee to pay if specific losses occur, according to the terms of the insurance policy. Comprehensive Coverage Covers damage to the auto not resulting from a collision. Example: Car is parked in a parking lot and a tree limb falls, breaking the windshield. Declaration Normally the first page of a policy, it includes the insured’s name, how long the coverage applies and how much insurance is being provided. Also called the declarations page. Endorsement An amendment to an insurance policy to provide coverage for special circumstances not included in the basic contract, usually for an additional premium. Expiration The day and hour when the policy will terminate if not canceled earlier or continued by payment of renewal premium. Insured The person on whom, or on whose property, the insurance is written. Most often this will be the policyholder. Liability A condition of being bound by law to do something, enforceable in the courts. For insurance purposes it most often involved the payment of damages. Limits The largest total amount the insurance company will pay for covered losses. Many policies have multiple limits – a certain amount per person, another amount per accident, and sometimes an aggregate limit on all losses paid during the policy term. Occurrence An accidental event, or series of events, that leads to a loss. Policyholder The person who applied for, pays for, and is issued the insurance policy. Proof of Loss A written statement, with supporting documentation (if any) provided to the insurance company as a basis for paying a claim. Replacement Cost Coverage This provision, sometimes included in the basic policy and sometimes added by endorsement, covers replacement of the property lost without a deduction for depreciation. Subrogation Recovery of money from a third party, by the insurance company, in connection with payment of a loss to a policyholder. Underinsured A condition of having policy limits that are not adequate to cover all needs that can reasonably be anticipated. Waiver The surrender of the right or the release of another from an obligation.

Adjuster The person who handles the settlement of a claim on behalf of the insurance company, either as an employee of the company or an independent engaged by contract. Also known as a claim representative. Bodily Injury Injury to the body of a person as specifically defined in an insurance policy. Bodily injury liability is the legal responsibility for medical and related costs that may result from injury to the life or health of another person. Collision Coverage Insurance against a loss resulting from damage to the covered auto through collision with another object. Damages The estimated or claimed amount of money due in reparation for injury or loss suffered. Deductible A specified amount that is deducted from a loss before policy coverage begins. (Example: Auto insured on a policy with a $250 deductible sustains $1,000 in damage, then the policyholder pays the first $250 and the insurance company pays the $750 balance.) Exclusions Provisions of an insurance policy that state what the company will not pay for. Exposure Refers to the possibility of loss faced by the policyholder (Example: Having a fireplace in the home presents a higher exposure due to the possibility of a fire.) Lapse Expiration or cancellation of an insurance policy by nonpayment of premium. Lien A hold or claim one party has on the property of another, usually as security for a debt or other obligation. An example would be a home mortgage. Loss The basis of a claim for indemnity, most often referring to a financial loss through a decrease in the quantity, quality or value of insured property, due to an occurrence insured against by the policy. Physical Damage Normally refers to the comprehensive and collision coverages of a vehicle policy. Premium The money paid for an insurance policy. Property Damage Refers to damage to the property of others, as distinguished from bodily injury to others. Liability coverage for property damage is usually written in conjunction with bodily injury liability. Scheduled Property A listing of specific items of property covered by endorsement to an insurance policy, stating the exact dollar value of each. Typically includes jewelry, collectibles, antiques, guns, etc. Term The period of time that an insurance policy is to continue in force. Common policy terms are six months and one year. Uninsured/Underinsured Motorist Coverage The auto policy provision pays the policyholder in the event an accident is caused by a driver who has no liability insurance or whose insurance is not adequate to cover the full amount of damages.