“I know I need it but I would do anything to keep from talking to a person about insurance. I know the person I talk to will take advantage of my ignorance and make me look silly. Besides, I’m not looking to make some kind of long term arrangement so why take the time to ‘get to know’ the salesperson. I just want to be legal and move on with my life.”
So said my millenial granddaughter when we started talking about her purchasing a vehicle and getting it insured.
I’m hoping this brief glossary of insurance terms can alleviate some of her and your concerns as you approach purchasing insurance.
Actual Cash Value–Amount insurer will pay insured after a personal property loss minus deductible. This is arrived at by deducting depreciation from replacement cost minus deductible. Normally insured has option to replace items lost or take the cash in lieu of replacement.
Additional Living Expenses–Amount insurer will pay in event of insured incurring expenses due to a covered homeowner insurance claim. Also a coverage available on a vehicle insurance policy to pay for expenses incurred when a vehicle is disabled a designated distance from home.
Agent–A person employed by insurance company to represent, sell and service products authorized by them. Three types:
1) Exclusive or captive agent: The agent represents only one company or a group of companies under similar management, i.e. Idaho Farm Bureau Mutual Insurance Company, Western Community, Farm Bureau Brokerage, State Farm Mutual Insurance Company, State Farm Fire Company, Farmers Mutual Insurance Company, or Mid Century Insurance. These agents are normally restricted from submitting business to any other company unless it is first rejected by the agent’s company.
2) Independent agent: An agent who works as an independent contractor on a commission basis for insurers they have contracted with to sell or provide service on insurance policies. In my area of Idaho, one independent agency has contracted with Safeco, Oregon Mutual, Bear River Mutual, Progressive, GEICO, Travelers, and several others. They are extremely competitive premium-wise but have been vulnerable to having their contracts terminated if sufficient premium is not being generated or if negative claim loss ratios occur.
3) Insurance Broker: A licensed agent who sells, solicits, or negotiates insurance for compensation. This compensation is determined by agreement between broker and insurance provider. The amount is not required to be disclosed to the customer. It used to be that states would issue a separate license for agents or brokers, but now most states simply issue a single producer license whether the person is acting on behalf of the insured or insurer. Also, the term “insurance producer” is now used in reference to both insurance agents or brokers due to there not being an absolute separation in the public’s eye of the differences between them.
It should still be clear that an insurance agent’s primary alliance is with the insurance carrier and not with the insurance buyer; whereas, an insurance broker represents the insured, and some even represent the insured in the event of claim negotiations.
Automatic Premium Loan Provision–A contractual agreement on a life insurance policy which allows a life insurance company to continue to make payment on a life insurance policy providing there is sufficient cash value to do so. This is intended to keep a policy from lapsing inadvertently.
Betterment–Amount deducted for repair and replacement for parts normally subject to repair and replacement during the useful life of the insured vehicle. An example, the tires on your vehicle are bald and ready for replacement and are burned up in a fire will be replaced with new ones. If the tires were 80% used, only 20% of the replacement would be eligible for reimbursement.
Beneficiary–A person or persons named on a life insurance policy declaration page entitled to receive benefits from death benefits.
Bodily injury–Physical injury to, or sickness, disease, or death of a person. This does not include any sexually transmitted disease, or any emotional, psychological, or mental injury or effect, unless it arises out of actual physical injury to a person.
Cash Value–Dollar value accumulated in a whole life insurance or annuity policy.
Certificate of Liability–Form provided by the insurance company to you verifying you have met the financial responsibility requirement of the state. It is to be carried in your vehicle at all times. It will be requested of you to show this certificate if you are involved in a vehicle accident or for some other infraction of the law governing the operation of a vehicle.
Co-Insurance–Percentage of claim to be paid by insured before deductible by insured and before health insurer participates in claim.This is most common in health insurance plans. It is intended to keep premiums down and lower expenses for health insurers.
Collision–Coverage provided under vehicle policy pays for any direct and accidental loss to your insured vehicle and its equipment when it is hit by or hits another vehicle or object, or rolls over. You pay deductible shown on your declaration page. If vehicle is totaled, at insurer’s discretion, you may have some depreciation applied as well.
Comprehensive–Coverage for any direct and accidental loss, or damage to, your insured vehicle and its equipment not paid for by collision. Deductibles shown on declaration page are applied depreciation and betterment may also be applicable. Loss or damage from falling objects, theft, missiles, collision with animals, or accidental glass breakage are examples of perils covered by comprehensive.
Conform to Statutes–If the terms of your insurance are in conflict with the state you are in, they are amended to conform to such statutes. For example, if you are traveling in a “no fault” state and you are from a “contributory” or “Comparative” state, the “no fault” provision will take precedence in the event of an accident.
Contributory—In the event of an accident, amount your actions contributed to the accident.
Comparative–In the event of an accident, how much of the expenses incurred each party bears to the total amount.
Declarations–Coverages and values of the insurance policy you purchased in your insurance contract.
Declaration Page–Normally this page is found at the front of the policy contract where the specific amounts of insurance and limits of coverages are located. Deductible for losses are enumerated and specific perils insured against are indicated. Any mortgage holders or lienholders are listed and named insureds are identified. Other details are found on endorsement pages and policy pages found within the policy. Also, the amount of annual premium due from the effective date to expiration date are also shown. Anytime a change occurs in the policy a new revised declaration page will be delivered to insured.
Deductible–Amount paid by insured when a claim is made. This will vary based on amount chosen by insured and declared on the declaration page of policy.
Dwelling–A one-, two-, three-, or four-family residence.
Dwelling premises–A dwelling listed in the declarations, including its grounds and private garages and some other appurtenant structures.
Depreciation–The reduction in the value of insured asset due to wear and tear. This tool for determining values is rather subjective so it allows broad interpretation and is subject to negotiation.
Dividends–Excess earnings of a life insurance company paid to policyholders who qualify for participating in such excess earnings.
Effective date–Date a specific coverage will be effective. This will be shown on application along with exact time coverage was bound and then when declaration page is issued the effective date will be noted.
Exclusions–Some causes of loss are not covered under a particular type of policy therefore; a policy will list exclusions under specific sections of the insurance policy. It is wise to be familiar with these exclusions because they sometimes appear to contradict language in the body of the policy. Read the policy to see what appears to be covered and then read exclusions to see if coverage is taken away.
Expiration Date–Date on which coverages under an insurance policy terminates, usually noted in declaration pages as 12:01 am.
Face Value–The death benefit payable upon the death of an insured under a life insurance policy.
Financial Responsibility–When you register your vehicle with the Motor Vehicle Department you will sign a statement certifying you meet the financial responsibility requirement of the State in order to gain the privilege of driving. This can be done in one of two ways either by posting a bond for amount required by the State or by purchasing vehicle insurance with limits of liability meeting the minimum required by law. Each State has established that monetary amount.
Inland Marine–An insurance policy designed for specific properties which normally have no coverages or limited coverages under a homeowner policy. Some common companies do provide inland marine coverage by endorsements to their homeowner for specific items i.e., jewelry, musical instruments, watercraft, ATV’s, coin collections, hearing aids, dental hardware, etc. These stand-alone policies and endorsements to homeowner policies have their own explanation of coverages, deductibles, and loss settlement applicable to them.
Insured–You or other entities named in the declaration pages. This could include residence of your household, relatives, or a trust.
Loan Value–Amount of cash value available in a whole life insurance policy or annuity policy for policy owner to access on any given date of policy. This is money which can be borrowed at a predetermined interest rate for any reason.
Loss Settlement–The contractual agreement explaining the insurer’s right to settle a loss with you or the owner of affected property. The ways of settling claim are spelled out each individual section of your policy. They may differ under homeowner section, vehicle section, or inland marine section.
Medical–Under a homeowner liability section medical coverage (Premise Medical) is to provide some monetary limits to individual or individuals who are injured by action of insured when claim is not associated with vehicles. This coverage is intended to take care of small claims whether insured is liable or not. It’s intended to keep insured out of litigation and to compensate an injured party for out of pocket medical expenses.
Under the vehicle liability section of insurance policy, medical coverage is to pay small medical bills associated with insured’s injuries caused by insured’s negligence or another uninsured or underinsured party. In most states, this coverage is primary insurance in event of loss.
Mortality Charge–The actuarially projected amount of premium to be charged every year by a life insurance company to determine premium necessary to keep a life insurance policy in force for life of policy.
Motor Vehicle–A motorized land vehicle, trailer, or semi-trailer designed principally for travel on public roads.This includes street legal motorcycles
Perils–Any items, events, or occurrences for which coverage may be provided for monetary reimbursement by insurance policy. Examples, fire, theft, defamation of character, slander, broken windshield, falling objects, etc.
Personal Property–Personal property usual to the use of the dwelling premise. This does not include recreational vehicles including but not limited to i.e., jet skis, ATV’s, aircraft, etc.
Personal Belongings–Personal property usual to the use of a dwelling or residence.This could include but not limited to clothing, furniture, appliances, watercraft, jewelry, firearms, tools, etc.
Personal Insurance Protection (PIP)–An extension of coverage which can be added to a vehicle insurance policy. This coverage pays for medical incurred by insured no matter who is at fault in an accident. Fourteen states require this cover but you can opt out by signing an election you don’t want the coverage. This extension of coverage does not pay for damage to vehicles
Property Damage–Injury to or destruction of tangible property, including loss of use whether loss is from homeowner or vehicle insurance.
Recreational Vehicle–Any motorized vehicle designed for recreational use off public roads, including but not limited to, golf carts, snowmobiles, trail bikes, mopeds, dune buggies, motorcycles not street legal, or all-terrain vehicles.
Replacement cost– amount an insurer will reimburse an insured after a personal property claim minus appropriate deductible. Items lost must actually be replaced in order for insurer to pay replacement cost. Otherwise, claim is paid based on actual cash value of items at time of loss minus deductible.
Residence Premises–If shown in the declarations, (a) a dwelling that is your principal residence, including its grounds and private garages, or (b) that part of any building where you reside.
Surrender Value–Cash available in a whole life insurance policy or annuity policy available to the policy owner at any given date on which the policy is surrendered.
Subrogation–If you have had the insurance company make payment on a claim to a party which you have a right to recover damages from, you agree to subrogate (have that right transferred to insurance company) that right. You also agree to allow the insurance company to prosecute in your name for the recovery of payments made. An insured must not pursue the insurance company’s subrogated interest without written permission from the insurance company.
Tenant–Any person who occupies a dwelling premise who has no financial interest in the dwelling. Their exposure to risk include all the regular perils insured for under a homeowner policy including public liability issues.
Term Insurance–Name used to designate a life insurance policy which has a designated period of time for coverages to be in effect ie, 10 year, 20 year, age 65 or term for life. Policies are designed to only have premium charged based on mortality. No provisions are made for cash accumulation.
Territory–Designated geographical area where an vehicle insurance policy provides coverage. Most insurers will limit their policy to United States of America and Canada. Though your liability portion of your policy will not extend into Mexico, comprehensive and collision will cover you on trip no more than 100 miles into Mexico. Automobile accidents in the Republic of Mexico are considered a criminal offense rather than a civil matter, so that is why your liability will not protect you. It is for civil matters only and not for criminal events.
Uninsured Motor Vehicle–Medical coverage provided for insured if injury was caused by an uninsured motorist. Insured chooses amount of remuneration at time of insurance purchase. Some policies extend coverage to you while you are a passenger in an uninsured vehicle, a pedestrian, or riding a bicycle.
Underinsured Motor Vehicle–A motor vehicle for which the sum of liability limits of all applicable liability bonds or policies at the time of occurrence is less than the limits of this coverage. In this example, an individual causes $45,000 of medical expenses for you and that individual is carrying only $20,000, your insurance will pick up the difference if you are carrying a limit higher than $20,000 provided by the other party. It is interesting to note, if you are run into by a government unit or agency, uninsured and underinsured coverages do not apply. Your recourse would have to fall under your ability to collect from that governmental unit or agency.
Waiver of Premium–Provision in life insurance where after a designated period of time an insured has been disabled, the premium on the policy will be waived while keeping the policy in force. This provision could pay premiums all the way to age 65 in the event of total disability; otherwise, will pay for shorter duration of disability. All benefits will be maintained as if insured was still paying premium.
Whole Life-A term some life insurance companies use to describe a life insurance policy’s coverage period and/or premium payment period. In other words, death benefit is for your whole life. The premium payment is for your whole life as well, but it can be modified to be paid by the insured for a shorter period of time i.e., 10 years, 20 years, or age 65.