Insurance is designed to protect you and your assets. Maximize the value of that protection by making sure you know what these important insurance terms mean.
Insurance Terms and Definitions
1. Actual Cash Value
This is the value of an item at the time of loss, measured by replacement cost less depreciation.
2. Adjuster
Sometimes called a claims examiner, this person investigates the claims you file, decides if the claim is covered, and determines how much you’ll be paid under a settlement. This person acts on behalf of the insurance company when negotiating to settle a case.
3. Appraisal
The process of determining the value of your property and the amount of damage at the time of loss. An appraisal is done by someone considered to be an impartial expert.
4. Bundling
When you have multiple insurance policies (homeowners, auto, boat, umbrella, etc.) all with the same carrier, it’s called bundling. Besides lower premiums, bundling may provide additional benefits, such as having to pay just one deductible for claims that involve two policies (a tree falls, damaging both your garage and the vehicle inside, for example).
5. Carrier
This is your insurance company.
6. Claim
When you have a loss that is covered by the terms of your insurance policy, you can file a claim, a formal request to your insurance company asking for payment. Once the company confirms the claim, you’ll be paid according to the terms of your policy. For example, if you have a deductible, it will be subtracted from the payment you receive.
7. Coverage
This is the benefits of your insurance, the protection you have against losses that are covered under your policy. For example, your homeowners policy may or may not include coverage for damage caused by flooding.
8. Damage
Loss to your property or harm to yourself or others. This differs from the term ‘damages,’ which describes the money that one person must pay another when they are determined to be at fault for a loss.
9. Deductible
The amount of money you must pay out of pocket before your regular insurance coverage takes over to cover a claim. A deductible can be a flat amount (say $1,000) or it can be a percentage of the total (like 20%). Deductibles vary according to the type of loss. Your deductible for a comprehensive auto claim (to replace a broken windshield, for example) will likely be different than your deductible for an auto accident. Higher deductibles lower your premium and vice versa.
10. Depreciation
When the value of an item decreases over time due to age, use, or other factors, it’s called depreciation. It’s determined by the difference between Replacement Cost and Actual Cash Value.
11. Exposure
This is your risk of suffering a loss. For example, if you have a cabin in a remote location surrounded by forests, your exposure to loss due to fire damage on the property is higher than if that property was in town, close to fire protection services.
12. GAP
Guaranteed Asset Protection (GAP) insurance will help you pay the difference between what your regular insurance will pay if a vehicle is stolen or declared a total loss (based on its actual cash value), and what you still owe on the vehicle loan. Although GAP is most often purchased for auto coverage, it is also available for boats, motorcycles, RVs, snowmachines, and ATVs.
13. Independent Agent
This person represents and therefore sells and services policies for several different insurance companies.
14. Market Value
Describes what an item is worth in the open market, measured by the highest price a buyer would be willing to pay.
15. Policy
The written contract between you and your insurance company.
16. Premium
This is your cost of coverage—the amount you must pay for your insurance policy. Your premium is based on the risk factors associated with your coverage. For example, if you have teen drivers in your family, your auto premium will be higher than if the insurance just covered you. Your premium also depends on the deductible and coverage limits you’ve chosen.
17. Replacement Cost
The amount you would pay today to replace an item, which is different from its Actual Cash Value or Market Value.
18. Risk
Your cost of coverage is based on the insurer’s evaluation of how likely you’ll incur a loss, called risk. An insurance underwriter puts you in a risk class with others who have similar risk factors (such as age, credit score, location, etc.).
19. Term
The period of time your policy is in effect, typically a year (although it can vary).
20. Umbrella Insurance
Umbrella coverage provides additional liability protection over and above that which is already provided by your auto, homeowners, and other insurance policies. The insurance takes over when your other policies reach their coverage limit.
Learn more about umbrella insurance
21. Underwriting
When an insurer decides whether to provide insurance coverage for you, that decision is made through a process called underwriting, which considers your risk of possible loss. People called underwriters use data to determine whether the insurer will accept that risk and offer you coverage, and at what cost.
Final Thoughts
Insurance can be complicated, but you’ll be a more informed, confident consumer when you understand the language. Want to learn more? Talk to Alaska USA Insurance Brokers today!
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