Simplifying Insurance: 10 Insurance Terms Explained
If you are shopping for insurance or reading through an insurance contract, you may come across confusing insurance industry terms. To help you cut through the jargon, here are 10 important terms you might run into when dealing with your insurance—explained in plain and simple English.
Confusing Insurance Terms Explained
In insurance, a claim is a request for assistance as described by your insurance policy. A claim usually starts with a form or call to your insurer, who will issue you a claim number for tracking the claim from beginning to end.
Coverage is a term that explains what is protected and how much money you could receive in the event of an insurance claim. For example, coverage for your car could include just the bare minimum coverage required by your state or more comprehensive coverage for harm and injury, medical costs and damages caused by uninsured drivers.
A declaration page, commonly referred to as a dec page, is usually at the front of your insurance policy paperwork and gives a summary of who or what is covered and important policy limits, among other key details.
In the event of a claim, a deductible is an amount you have to pay out of pocket before your insurance coverage kicks in. For example, if you have a $1,000 deductible for your home and have a fire that causes $15,000 in damages, you would have to pay the first $1,000 and your insurance would pay the rest.
Endorsement or Rider
An endorsement or a rider is an amendment to an insurance policy that changes the original terms. These are usually common additions to a policy for something that isn't covered by default. For example, most homeowner's insurance policies don't include earthquake coverage. You can pay extra for an earthquake endorsement so your house is protected.
A limit is the most an insurer will pay you toward a claim. If your policy has a $10,000 limit and your car experiences $15,000 in damage, the insurance company will pay at most $10,000 and you will have to cover the rest. With most policies, you can pay more for a higher limit.
Negligence is legalese for failing to use reasonable care. For example, if you are driving under the influence of alcohol and cause an accident, you will likely be deemed at fault and the repairs for the damage caused will be charged against your policy because of negligence.
A premium is the amount you pay to an insurance company to get coverage. Depending on your policy and preferences, you may pay monthly, semiannually, annually or on another schedule.
This word is a mouthful, but it's a simple topic. Subrogation means your insurance company collects on a claim from someone else's insurance if they were at fault. If someone runs a red light and hits your car, for instance, your insurance company will handle the claim and collect a payment from the other insurer to fix your vehicle.
Underwriting is an insurance term for reviewing an insurance application for risk based upon established guidelines. Underwriters decide if a new policy is an appropriate risk for the insurance company and assign the insurance premium based upon that risk.
Insurance Shouldn't Feel Overwhelming
With so many big words on insurance policies, it's easy to feel overwhelmed. But when you take a little time to learn what those words mean, insurance isn't actually all that difficult to understand.
Now you know 10 important insurance terms that can help you choose the right policy and navigate the claims process. Plus, at your next dinner party, you can impress your friends with your new insurance know-how.
Eric Rosenberg is a freelance writer specializing in finance and investing. His writing work has appeared in Business Insider, Investopedia, Huffington Post, and many other outlets. Rosenberg also consults about financial management and small business solutions.