Insurance Jargon

It has happened to everyone at one point or another, you open one of your insurance policies or bills and are confused by some of the terms. Insurance jargon can be confusing for those not in the business. Sometimes this can be frustrating, especially when your broker uses the terms in a way that makes you feel like you should just “know” the meaning.  However, it doesn’t hurt to arm yourself with some knowledge of what common words or phases used in the industry mean.  Here are some common terms.

▪     Claim– The formal request by a policyholder or claimant to be paid under the terms of the insurance policy.

▪     Deductible– An excluded amount or threshold for payment on an insurance policy. A $500 deductible would mean the insurance policy would start paying after they have deducted the first $500 they owe you.

▪     Effective Date– The first day of a policy term. Denotes the beginning of the insurance coverage.

▪     Named Insured– The person or persons designated as the insured in an insurance policy.

▪     Peril– The cause of a loss. Examples of perils are fire, wind, an accident and acts of vandalism.

▪     Policy– A formal contract outlining the terms and conditions of the insurance provided by an insurance carrier.

▪     Premium– The amount you are asked to pay for an insurance policy.

▪     Renewal– A new policy which replaces one that is expiring or cancelled.

 There is one more term, the actual word insurance. Insurance by definition is a contract that, by redistributing risk among a large number of people, reduces losses from accidents incurred by an individual. Now insurance is really unique in that everyone needs it, and some never use it.

Nobody lives a risk-free life where accidents never happen. That’s why even though you may not work in the insurance business, it’s important to understand insurance jargon. You’re paying for it, so you should at least know what you are buying and understand certain descriptions that may be written in your policy.