Insurance. We all need it. It safeguards our property, our families, our businesses and our employees. Insurance can help us pay for property damages, injuries, and medical expenses that might otherwise have large financial consequences. However, sometimes navigating the various policies, terms, and coverages can get confusing and overwhelming.
Let’s break down the most common forms of insurance and the key terms you need to know to make an informed decision.
If you want to drive legally, this is a must. Requirements vary by state but here are the universal basics:
- Insured – Those person(s) covered by the policy.
- Deductible – The amount out of pocket money you’re responsible for before your insurance will apply and provide coverage for a loss.
- Premiums – The money you pay over the policy term for a chosen insurance policy. A variety of payment options are typically available.
- Collision Coverage – Coverage that pays for damages to your vehicle after an at-fault accident with another driver or after hitting something, such as trees, telephone poles, and guardrails. Basically, this an accident while the vehicle is moving.
- Comprehensive Coverage – Coverage that pays for damage(s) to your vehicle out of your control due to hail, flood, animal strikes, fire, theft, vandalism, or other causes of loss as defined in your policy. There are a few exceptions (such as animal strikes) that comprehensive coverage will apply while a vehicle is moving. But in general, this coverage applies to damages done to the vehicle while it is not in motion.
- Bodily Injury Coverage – This coverage pays for the medical expenses and/or funeral costs for third party (other) individuals injured, or killed, in an automobile accident that was the fault of the policyholder or another driver of the vehicle who is covered under the policy.
- Medical Payments Insurance (Med Pay) – This coverage pays for medical and/or funeral expenses for those covered under your insurance policy in the event of an accident. Medical payments coverage can apply regardless of fault in an accident.
- Uninsured Motorist Coverage – Coverage that pays for injuries, including death, arising from an accident with an uninsured/under insured driver or a hit-and-run scenario. This coverage will kick in if the limits of the party at fault are insufficient, or unavailable altogether, to cover your property damage or medical expenses.
- Personal Injury Protection (PIP) – A component of auto insurance that helps defray medical and other expenses regardless of fault. Depending on your policy, it can also include lost wages, substitute services, and funeral expenses. This coverage is considered “no fault” coverage and coverage limits can vary widely by state.
*This list covers a brief description of some of the terms related to various types of auto insurance. Depending on the type of policy, terms and conditions may apply. Coverage limits can also vary by state. Speak with a licensed insurance agent in detail about your specific needs.
Umbrella insurance is a type of insurance that provides extra liability coverage to your auto, homeowners or boat policy. It provides coverage above the limits of your basic policies, adding an additional layer of protection in the event of a costly accident or mishap. If your basic policy limits aren’t adequate, you may be held personally financially liable for any monetary shortfall.
An umbrella policy is always a strong recommendation for a complete personal or business insurance portfolio. It is often very affordable and can provide high limits of coverage. Umbrella policies start at $1,000,000 with higher limits sold in $1,000,000 increments. These are also referred to as “layers.”
Homeowners insurance covers losses and damages to a policyholder’s house and to assets within the home (some asset coverage may extend to anywhere in the world, for example while traveling). It also provides liability coverage against accidents to others on the property or personal liability such as dog bites, recreational accidents, or defamation. Here are some common terms you should know:
- Insured – The person(s) protected in case of a loss or claim.
- Deductible – The amount the insured must pay in a loss before any payment is due from the insurance company.
- Depreciation – This is the loss in the value of property over time due to use or wear and tear.
- Actual Cash Value (ACV) – This is an estimate of the fair market value of your property, including the home itself, roof, belongings inside, etc. before the loss occurred. ACV is not equal to the replacement cost value. It’s computed by subtracting the appropriate depreciation.
- Replacement Cost (RC) – The actual dollar amount needed to replace the structure and/or damaged personal property without deducting for depreciation. RC is calculated by current day costs to reconstruct/replace property that has been damaged, destroyed, or stolen.
- Salvage – Sometimes property is damaged beyond repair. This is referred to as salvage property. It is taken over by an insurance company (after the claim has been paid) to reduce its loss and “salvage” the remaining value of the property. Ownership of salvaged property is relinquished to the insurance company.
Are you thinking of starting a family or buying a home? Do you have a spouse or children you want to provide for financially now in the event of an unforeseen death? When considering the purchase of a life insurance policy, it’s important to understand what exactly you’re signing up for. Here are some terms you should be familiar with before purchasing a policy.
- Insured – The person covered by the policy.
- Premiums – The monthly, quarterly or annual amount that you must pay in order to have the insurance coverage.
- Face Amount – The dollar amount the policy pays out upon the death of the insured.
- Primary Beneficiary – The person that receives the proceeds of the life insurance policy should the insured become deceased.
- Contingent Beneficiary – The person(s) designated to receive the proceeds of the life insurance policy if the primary beneficiary is deceased.
- Term Life Coverage – This coverage lasts only for a specified period of time, referred to as the “term” and has a specified beginning and end date. The face amount is paid to the beneficiary if the insured dies while the policy is in force.
- Whole Life Coverage – Coverage that can last for the insured’s entire lifetime provided all premiums are paid. This coverage usually keeps the same premium throughout the life of the policy.
The Bottom Line
The best strategy is to have an open discussion with an insurance agent you trust. They can help you navigate through policies and coverages and make recommendations that suit your individual needs. A good relationship with your insurance agent can help ease your mind when facing anything ranging from a minor fender-bender to a more catastrophic life event. And remember – don’t be afraid to ask questions if you find something confusing.
Have questions about your personal or commercial insurance? Contact us to speak with a licensed insurance professional.