Getting the right insurance policy can be daunting. But we are here to help!
Insurance has its own vocabulary. Some words and phrases may be unfamiliar even to those who have long owned insurance coverage. If you ever review your insurance policy from the carrier and have a question, give us a call and let us help explain it to you.
However, to help recognize key insurance topics, here are nine relevant insurance terms:
A deductible is the amount of money that a policyholder must pay before his or her plan’s benefits kick in. For example, if a policy has a $500 deductible, you will have to pay $500 of applicable expenses after making a claim before insurance could cover your claim.
2. Umbrella Coverage
Umbrella coverage is additional liability insurance that operates in conjunction with a primary policy such as a personal automobile or homeowners insurance policy. In general, umbrella coverage protects against major claims and lawsuits that exceed your primary coverage limits. Umbrella coverage also is available for commercial insurance policies.
In insurance, a limit is the maximum amount of insurance that can be paid for a covered loss. In most cases, this refers to a single claim, but may also apply to a policy period (such as a year).
4. Third-Party Coverage
Most frequently used in relation to auto insurance, third-party coverage refers to the coverage of damage as a result of an individual who is not the person insured by the policy or listed on the policy. Third-party coverage can come into effect when one person becomes liable (i.e., legally responsible) for damage to another person’s property.
5. First-Party Coverage
First-party coverage addresses damages caused by the insured person or entity. If, for example, an insured individual gets into a car accident that is his fault, first-person coverage will pay for damages to his own vehicle.
6. Replacement Cost
Replacement cost is a method of valuation in insurance policies that refers to the cost of replacing an item damaged. Replacement cost refers to the specific cost to get a new or similar item in the marketplace at a certain point in time, without deducting for depreciation - up to your maximum coverage limits.
7. Loss of Use
Loss of use refers to the additional expenses incurred by a change in situation that an insurance policy covers. For example, if your home is damaged and an insurance claim was filed, expenses related to a change in lifestyle, like eating out because your kitchen is unusable, can be considered expenses related to loss of use.
8. Additional Living Expense
Additional living expenses refers to any cost associated with maintaining a normal standard of living in a situation involving an insurance claim and is a common form of coverage in a homeowners policy. If, for example, your home is damaged by fire and is unlivable, the cost of a hotel would fall under the classification of additional living expense.
9. Ordinance or Law Coverage
Ordinance coverage, also known as law coverage, refers to additional expenses incurred by work that must be completed due to changes in local laws or ordinances. For example, inadequate fireproofing, out-of-date HVAC systems, or use of asbestos may not comply with current building codes. This typically requires extra costs in rebuilding.
Why Insurance Terms Matter
For those not in the business, insurance can seem a little overwhelming. However, it doesn't have to stay that way. Knowing the terms used in policy documents can make it easier for you to understand your insurance coverage options for the risks that may affect you.
In addition to learning relevant insurance terms, be sure to let us assist you choose the right insurance coverage for your family & business.
Written by our friends at Selective Insurance