The primary goal of insurance is to help people protect themselves financially against life’s uncertainties, such as natural disasters, vehicle accidents, or illness while on vacation. It works by combining many people who face similar risks to protect the few persons who suffer a loss. However, like any other financial commitment you make, insurance can be a peculiar subject. One of the most challenging aspects to insurance is sometimes understanding the common terms. It’s important to know common insurance terms definitions so that you properly understand your insurance policy.
Why is it important to understand insurance definitions and terminologies?
Knowing the basics of insurance definitions might be the difference between having a plan that covers the majority of your bills after an accident and one that leaves you paying thousands of dollars in out-of-pocket expenses. Understanding Insurance is a crucial part of your financial safety strategy. It can relieve some of your anxieties by ensuring that you will receive financial support in the event of a tragedy or accident, allowing you to recover more quickly. For example, when it comes to life insurance, it may mean that your family will not have to move or that your children will be able to attend college. You will want to understand the intricacies of insurance to choose the best insurance provider.
An agent, sometimes known as an insurance agent, is a person who works for an insurance firm or carrier and sells insurance products. Their agency may be exclusive or non-exclusive, which means they sell insurance for one or more companies.
A corporation or organization that provides insurance policies to the insured is known as an insurer. The terms carrier, insurance firm, insurance agency, insurance provider, and insurance brokerage are interchangeable. Auto and home insurance companies sell home, auto, and life insurance policies directly.
The insured is the person(s) (or, in some cases, organization or business) for whom an insurance policy provides coverage. If you have auto insurance, for example, you are considered the insured in that arrangement.
When the covered property is damaged, the amount of money that is needed to restore or replace it is the estimate. Following their inspection and review, the claims adjuster often provides this.
A deductible is the amount of money you, the insured, must pay before the insurance company assumes responsibility. For example, if your auto insurance policy has a $1000 deductible and you’re in an accident that causes $5000 in damages, you’ll pay $1000, and the policy will pay the remaining $4000.
An adjuster, often known as a ‘claim examiner,’ is a person who investigates a claim. They determine if the loss is covered by the policy, calculate damages, and, in many cases, issue a check to the insured.
An appraisal is an authorized estimate of any level of property damage. Appraisals are used to estimate the value of a property after it has been damaged or destroyed.
A declaration page is usually the front page of a policy that contains basic information like the policyholder’s name, the property or vehicles insured, coverages, and premium amounts. It’s sometimes referred to as the “dec[k]” page in casual speech.
An insurable interest is a financial stake in an occurrence for which a person or corporation gets insurance to reduce the risk of loss. It refers to a person’s interest in something, such as a piece of real estate or another person, which means that if that property or person is injured, the person will suffer a loss. According to insurance law, you can only acquire insurance for something or someone you have an insurable interest in, meaning you can’t get an insurance policy on your neighbor’s house.
This coverage kicks in when an insured person is held legally responsible for bodily harm or death caused by your vehicle or the operation of most non-owned cars. If you are sued, this coverage includes your legal defense.
A broker is an independent establishment that places insurance business on behalf of the insured. They are in charge of collecting premiums, but they cannot provide coverage on behalf of the insurance company unless they get their permission. The pay is based on a commission system.
These are losses or casualties that were not incurred directly and promptly. For example, a direct loss is the loss of property as a result of a fire. An indirect loss would be the loss of rental income as a result of the fire.
This is when the policyholder or applicant makes a false declaration about any (essential) material fact on their application. For example, the policyholder gives inaccurate information about the location where the vehicle is parked.
No-fault insurance is intended to streamline the settlement of claims to accident victims while also lowering the cost of motor insurance by reducing the number of lawsuits for minor claims. Under no-fault insurance, regardless of who caused the accident, a person’s own insurance company pays for financial damages such as medical expenses and lost wages.
The management of the pure hazards that a firm may face. It entails examining all potential loss exposures and determining how to handle them through strategies such as avoiding the risk, keeping the risk, lowering the risk, or transferring the risk, typically through insurance.
Transfer of Risk
Transfer of risk is one of the four main approaches to risk management where all or a portion of the risk is transferred to someone else. The most prevalent technique of risk transfer is insurance. Other risk-transfer mechanisms, such as holding harmless agreements, are also used.
Understanding all the common insurance terms definitions (along with everything else in insurance) can feel overwhelming! Thankfully, you don’t need to navigate the insurance waters all by yourself. Freedom Insurance Group can be your independent insurance agent if you live in Yardley, PA, or any nearby towns in Bucks or Montgomery County, PA. As your agent, we act as insurance specialists who can walk you through the insurance process and help you choose the best insurance coverage for you, your loved ones, and the things that matter most to you. Reach out to our team today!