Frequently Used Insurance Terminology and What It Means

The concept of insurance, overall, is pretty well understood. You pay money on a regular schedule to make sure you have the financial backing to pay for damages or losses in case of an incident like a car accident or house fire. In that unfortunate situation insurance makes certain you have ability to replace or repair what you’ve lost.

Simple enough right?

Except from there, it can get a little complicated. Questions arise like should you get collision or comprehensive coverage? Do you need flood insurance? What is a claim and how do you file one? The world of insurance has its own sort of language, some terms may be very familiar while others can seem completely foreign. For those who are new to insurance coverage here is a list of commonly used insurance terminology that every vehicle and property owner should know.
 

Accident: An event or repeated exposure to conditions that unexpectedly causes injury or damage during the policy period.

Agent: An agent is a person who sells and services insurance policies. There are two different kinds of agents, independent agents, and agents who represents a direct writer.

-Independent agents represent at least two insurance companies. The independent agent's commission is a percentage of each premium paid, and includes a fee for servicing your policy, answering your questions, helping file claims, etc.

-An agent who represents a direct writer usually represents only one company. Sometimes this agent is paid on a commission basis in much the same manner as the independent agent. In other cases, he or she may be paid a salary rather than a commission.

Annual Statement: A report to the state insurance department of the year’s financial results. The insurer’s income and expenses are stated in detail as well as its assets and liabilities.

Assets: The items on the balance sheet of the insurer which show the book value of property owned.

Base Rate: The dollar charge of a given coverage for one vehicle year prior to the application of rating factors.

Bodily Injury - Liability: Bodily injury liability coverage protects you against financial loss [including the cost of your legal defense], when you are legally held liable for injuring other persons in an automobile accident. Liability insurance for both bodily injury [BI] and property damage [PD], or proof of financial responsibility, are required by state law. These two coverages together, are often referred to as liability insurance.

Carrier or Insurer: Insurer and Carrier are frequently used terms for an insurance company like NYCM.

Claim: Your formal request to be reimbursed for losses covered by your insurance policy. Your insurance agent will help determine the extent to which the claim is covered by your insurance policy.

Deductible: Deductible is the amount you pay out of pocket for a covered loss before the insurance company begins picking up the bill.

Earned Premium: The amount of the premium that has been "used up" during the term of a policy. For example, if a one-year policy has been in effect six months, half of the total premium has been earned.

Exclusion: An exclusion is an insurance policy provision that denies coverage for certain specified losses. In most homeowners’ policies, for example, earthquake damage is excluded.

Financial Responsibility Laws: State laws that require owners or operators of autos to provide evidence that they have funds to pay for automobile losses for which they might become liable.

Gains: Increases in equity (net assets) from peripheral or incidental transactions of an entity during a period except those that result from revenues or investments by owners.

Homeowner's Policy: A homeowner's policy bundles different insurance coverages, providing a broad range of personal property, dwelling and liability protection for homeowners and renters. It is called a package policy because it covers both losses to your own property and damage done to others.

Incurred Losses: The losses occurring within a fixed period, whether or not adjusted or paid during the same period.

Joint Tenancy: Joint tenancy is property owned by two or more parties in such a way that at the death of one, the survivors retain complete ownership of the property.

Liabilities: Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Medical Payments Insurance - Homeowner's: Medical payments insurance is homeowner's coverage that compensates others who sustain an injury while on your property, or whom you injure accidentally. This coverage excludes the people who live in your house.

Occurrence: An accident, including continuous or repeated exposure to substantially the same general harmful conditions.

Policy: An insurance policy is a contract that sets forth the rights and obligations of both a policyholder and an insurance company.

Policyholder: The policyholder is you. The person who pays a premium and, in exchange, the insurance company promises to pay for losses covered in the policy. Policyholders must pay something called a premium.

Premium: A premium is the annual amount paid for an insurance policy.

Quote: The amount of money an insurance company estimates you will pay on a regular schedule, usually monthly, quarterly or yearly, to secure insurance coverage. A quote is an initial assessment based on a number of general factors, but may ultimately differ from your final payment.
 
Renewal: A renewal is a new policy or a standard certificate from an insurance company, stating that the conditions of your old policy will stay in effect for a specified period of time.

Service Charge: A fee charged by the insurer when the installment payment option is chosen by the insured.

Term: The period of time for which a policy is issued.

Tort: Tort is a legal term meaning a wrongful act, resulting in injury or damage, on which a civil action may be based.

Umbrella Liability Insurance:  Umbrella Insurance is purchased in addition to a standard policy. This additional insurance covers losses in that exceed the limits of your primary liability insurance policies. Let's simplify this definition. When one's insurance is maxed out, the umbrella liability is going to kick in to pay the amount that was exceeded. Hence the “umbrella” name as it covers you in a broad sense.

You may not be an expert when it comes to applying for and or purchasing insurance, most people aren’t. But the good news is you don’t have to be, that’s why we have insurance agents who understand the language and processes of insurance claims and companies.

With that said, there are some basic concepts with which everyone should be familiar. Understanding your policy can be very simple after you get to know some of these common insurance terms. A little knowledge can go a long way toward making you feel much more comfortable making important insurance decisions.   

To learn more about other insurance terms visit the NYCM glossary!