Insurance definitions you should know

insurance definitions

Insurance is complicated. We want to help make it simple. Read on as we clear up some of the insurance terms you need to understand to become a more informed insurance consumer.

Premium: The amount you pay for insurance protection. Premiums are different for everyone depending on your situation.

Deductible: The amount you are required to pay out of your own pocket before your insurance kicks in. Increasing your deductible may reduce your premium. Different coverages have different deductibles.

home iconHome insurance coverages

Actual cash value vs. replacement cost: Actual cash value is the cost of replacing damaged or destroyed property while factoring in depreciation. For example, a ten-year-old couch would be replaced at the value for which the item could be sold today. Some items, such as antiques or artwork, may actually increase in value over time. To receive full coverage for these items, you may need an endorsement (see next entry).

Replacement cost is the cost to replace damaged or destroyed property with an item of similar quality without considering depreciation. Replacement cost protection reimburses you for the cost of purchasing a brand new couch even if your couch is ten years old.

“You may or may not have a choice on these coverages depending on your policy,” says Stefanie Walsh, Personal Insurance Consultant with Member Benefits who helps members every day with their insurance questions. “When considering insurance, be clear about what kind of coverage the policy includes. In either case, it’s important to keep documentation on your property. Keeping a home inventory with supporting photos can be very helpful.”

Endorsement (or rider or schedule): A scheduled property endorsement on your home policy can fully protect valuable items, often with a zero deductible.

“Many people don’t realize their home policy has a limitation of coverage on valuable items,” Stefanie explains. “For example, you may think your stolen $5,000 wedding ring is covered because your home policy provides $200,000 of personal property coverage. However, limitations in the policy relating to jewelry coverage could be set at $2,500 for theft—and it’s subject to your policy’s deductible. Without the endorsement, your home policy would not cover the full value of the ring.”

Home insurance liability: This coverage protects you from claims filed against you for injuries and damage you cause to other people. Stefanie adds, “Most people believe that home/condo/renters liability covers you only on your premises. In fact, liability coverage also protects you off premises, such as if you hit someone with a softball during a game or run into someone with your grocery cart, causing injury.”

auto iconAuto insurance coverages

Collision and comprehensive coverage: Collision coverage is optional and pays for damage to your vehicle caused by a collision with another vehicle, object (such as a guard rail), or by an upset (rollover). Collision premiums are generally based on the make, model, and year of your car, so if your car has decreased in value or you can afford to replace it, you may consider opting out of this coverage.

Comprehensive coverage protects your car against damages not related to a collision, such as theft, vandalism, or fire. In Wisconsin, deer hits are fairly common and are covered under comprehensive insurance.

Deductibles for these coverages are applied separately for each occurrence.

Auto insurance liability: Applies when you are responsible for injuring someone else or damaging another’s property with your vehicle.

  • Bodily injury: “One of the most common misconceptions is that this coverage covers your medical bills following an accident—it doesn’t,” Stefanie says. “It covers your liability to another driver, passenger, or pedestrian; not your own incurred expenses. Don’t skimp on this coverage.”
  • Property damage: Protects you if you are at fault for damage to another person’s property.
  • Medical payments: Pays for minor medical costs for you or others regardless of who is at fault.
  • Uninsured/underinsured motorist: Pays for your expenses or the expenses of others covered by your policy if an injury is caused by a driver with insufficient or no insurance.

“If you want to learn more about what to consider when comparing insurance, or if you have questions about your current coverage, give us a call,” says Stefanie. “We’re here to help.”

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