Just like any specialized industry, insurance has its own vocabulary. When you’re shopping for a new policy—or trying to make sense of the policy you already have—it helps to understand some of the most commonly used insurance terms. Plus, understanding these terms can also help you get the best insurance rate. How? Because understanding a few key terms will help you compare policies accurately, buy the coverage you need, and even help determine how much money you’ll receive if you make a claim!
General terms
There are a few general terms that apply to several different types of insurance. For instance, you probably know that a deductible is the amount you'll pay out of pocket before your insurance kicks in. An endorsement (also known as a "rider") is an amendment to the insurance policy that changes its coverage, terms, or conditions. Some examples of endorsements include a change of address when you move, adding or removing a vehicle or driver on an existing auto policy, or adding coverage for sewer backup to a homeowners insurance policy.
Homeowners insurance terms
One of the most important sets of terms you should know is actual cash value versus replacement cost. These terms are most often found in a homeowners insurance policy.
Actual cash value refers to the amount you would be reimbursed for replacing damaged or destroyed property with comparable new property, minus depreciation. Replacement cost is the amount needed to replace damaged or destroyed property or personal belongings without deducting for depreciation, up to the policy limit. If you make a claim thinking you have replacement cost but you actually have actual cash value, you could receive thousands of dollars less than you expect.
Car insurance terms
Occasionally, clients become confused about the different types of injury and liability coverage available in a car insurance policy.
Some states, including Florida, are no-fault states, meaning that drivers must carry insurance for their own injuries, regardless of who is at fault in an accident. This coverage is called personal injury protection (PIP). It covers both the named insured and his or her passengers.
Property damage pays for damage you cause to another vehicle if you’re at fault in an accident.
Bodily injury refers to coverage for injuries you cause in an at-fault accident.
Uninsured motorist pays for your injuries (once you have used up your PIP) if you’re hit by a driver who does not have bodily injury liability insurance or is underinsured.
Still have questions?
These are just a few of the more commonly asked-about insurance terms. There are many more. If you still have questions, don’t be afraid to ask your agent to explain. Personal service is one of the prime benefits of working with an independent insurance agency like Lakewood Financial. Please give us a call at 941-747-4600 if you have questions about your policy. Please click here for a car insurance quote, or here for a homeowners insurance quote.