Basic Insurance Terms Everyone Should Know
If you’re new to the world of insurance or could stand to learn a bit more about it, the amount of technical knowledge that is necessary to fully understand it can feel daunting. However, once you start to pick up on some of these things, the world of insurance begins to feel much less overwhelming than it once was. The right agent or agency can also be the difference between blindly following someone’s guidance and being able to feel confident in the choices that you make with an agent. To understand insurance, you must be aware of the basics, so today, we are going over some basic insurance terms that you should know.
People Involved in the Insurance Buying Process
An agent is licensed to sell policies for an insurance company or carrier. Your agent is the person who will help you find the policy that makes the most sense for you; they will then sell it to you. Having a good, trustworthy agent that you can rely on is vital to your experience, so it’s worth it to take your time in finding the right one.
The claims adjuster is the person that is responsible for investigating the claims reported. They must determine if the policy covers the loss that has been incurred, estimate damages that are payable to the insured, and distribute funds to the policyholder if they are warranted.
This term refers to the person or business who is covered by an insurance policy. For example, if you purchase an auto insurance policy, you are the insured under that contract.
The insurer is the company or organization providing the coverage to the insured. Like the term carrier, insurer is another word used to describe an insurance company that provides you with coverage.
A policyholder is just as it sounds—a person who holds a policy. This is another term that can be used to refer to the insured, or the person who is covered by an insurance policy.
Other Basic Insurance Terms
Assets are anything with financial or economic benefit controlled by a person. In other words, assets are anything that you own which provide you monetary value, such as your home or your automobile. These are the things that you will want to consider insuring, as their loss would impact you financially and economically.
During the time that your policy is being written, a binder may be put into effect. A binder is a temporary agreement that is put into place to provide coverage for the insured until a policy can go into effect.
A cancellation refers to any termination of coverage that occurs during the active policy period. These can have penalties associated with them unless the cancellation is a flat cancellation. Flat cancellations are terminations of policies on the appropriate end date of coverage, and they typically do not carry a penalty. Rather, they signify the end or completion of an active policy.
A claim is the insured’s request for payment from their insurer. When you file a claim, you are asking for payment based on the terms of the policy that you have purchased. Say you have flood insurance and your home floods. You would then be able to file a claim and request payment based on the terms of the policy for the damages to belongings and the home.
Commercial policies are those policies that pertain to businesses. These insurance policies can be narrower, such as commercial automobile policies that provide coverage for company cars, or broader such as commercial general liability insurance, which covers more general business risks.
Often, you can lower your deductible by paying a higher premium or raise your deductible and lower your premium. Either way, your deductible is the amount that the insured is liable to pay for before any benefits or help from the insurance company begins to cover damages.
An estimate is the amount of money that a person will need to repair or replace the asset that has been damaged and is usually determined by a claims adjuster.
Your premium is the amount of money that you are responsible for paying the insurance company in exchange for the coverage that they provide you. Depending on the policy type, this payment can be divided up in several different ways. Monthly payments and single, upfront payments are both common ways for the premium charge to be administered. Your premium is determined by several different factors, including, but not limited to, the type of coverage you need, your history, your credit score, other personal information, and more.
In most cases, if you are looking to lower your premium, you can agree to pay a higher deductible, meaning that you pay less in monthly or upfront payments, but you would pay more out of pocket if you were to experience a loss.
When you’re shopping for a new insurance policy, an agent or carrier will give you a quote. This refers to the estimated amount that you will pay in a premium for a policy.
A rider refers to an amendment that can be added to a basic policy for an additional premium. Modifications made to a policy like this are done for many reasons, the most common being to add additional coverage for an extra cost.
This one seems to be self-explanatory, but in an insurance world, this is one of the most important terms to know. Risk is the possibility that a damage or loss will occur, and coverage rates are calculated with this factor in mind.
Umbrella Insurance is insurance that carries extra coverage for additional liabilities that homeowners or another type of insurance may not. While it is commonly believed that umbrella insurance is only for wealthy people, that is not true. When it comes down to it, anyone can be sued, and if you’re not prepared for it, it can wreak havoc on your financial situation. Umbrella insurance protects you against additional liabilities, such as an unexpected lawsuit.
Underwriting is the insurance company’s process of evaluating risk and deciding whether to offer coverage for it. Although the insurer will likely utilize a formula to calculate risk, the process is comparable to evaluating the pros and cons of a situation to decide whether to get into it. Underwriting also helps to determine the rates of a premium or deductible that should be offered based on the coverage needed and the risk that will be incurred.
A waiting period refers to any amount of time that must pass before the some or all coverage for the insured will begin under a new policy.
Inter-Agency Insurance in Knoxville, TN
Hopefully, in reading over these basic insurance terms you’ve begun to feel a bit more confident in your knowledge of the insurance world; however, if you’re still feeling confused, having the help of an experienced, trustworthy agent can make a world of difference. At Inter-Agency Insurance in Knoxville, TN, our number one priority is helping our customers make the decisions that are best for them. With our extensive network of carriers, you can be sure that we will be able to find the right coverage for you.