Understanding Insurance Terms
We at The Armstrong Company Insurance Consultants know the language used by the insurance industry can be confusing. We want to make sure that you clearly understand your options and know precisely what you’re paying for.
Here are some terms we use for types of coverage. There are also a variety of other terms that might be unfamiliar to you. We hope this glossary helps make the world of insurance easier to understand.
Auto Insurance Terms:
- Bodily Injury Liability Coverage-Bodily injury liability coverage is usually mandatory depending on your state of residence and pays for physical injury and death caused to others by the driver responsible for an accident. This coverage pays for items such as medical bills, loss of income and pain and suffering, but only to parties to whom the insured is legally liable. It also provides legal representation for the policyholder in the case of a lawsuit. Most states set mandatory minimum levels of bodily injury liability coverage that drivers must carry.
- Collision Coverage-Collision coverage is for physical damage to the insured’s car when it collides with certain objects, like a tree or another vehicle. While this type of coverage is not always required by law, your lender or leaseholder may require it.
- Comprehensive Coverage-Comprehensive coverage is for automobile damage from a covered loss other than collision, such as fire, theft, severe weather, floods, vandalism or contact with people, animals, or falling objects. This type of coverage could also include cracked windshields and other glass coverage.
- Custom Parts & Equipment Coverage-Many motorcycle owners like to customize their rides, and some policies pay for customized parts and equipment, often at no extra charge. Ask The Armstrong Company Insurance Consultants for details.
- Emergency & Roadside Assistance-For auto, boat and personal watercraft, emergency assistance pays for the cost of towing or emergency service. For RVs, it also covers housing and transportation costs if your RV becomes uninhabitable and covers the loss of personal property in your RV. Some policies also provide roadside assistance for motorcycles.
- Medical Payments (Auto, Boat & Personal Watercraft, Motorcycle, RV)-Sometimes called “med pay”, medical payments coverage pays for reasonable and necessary medical or funeral expenses that result from bodily injury or death after an accident-regardless of who is at fault. You may be asked to select the “limits” of medical payments coverage, which is the maximum amount the insurance company will pay for covered losses.
- Personal Watercraft (PWC)-A personal watercraft (PWC) is a recreational watercraft that the rider sits or stands on, rather than inside of, as in a boat. Models have an inboard engine driving a pump jet that has a screw-shaped impeller to create thrust for propulsion and steering.
- Physical Damage Coverage for Watercraft-Pays to repair the damage done to your watercraft due to an accident. It also generally pays to repair or replace your watercraft for insured situations such as theft, fire, vandalism or other non-collision damages that occur in or out of the water.
- Property Damage Liability Coverage-Property damage liability coverage is usually mandatory and pays for damage you do to someone else’s car or property when you cause an accident. This coverage provides protection for those found to be legally liable in an accident. Almost every state sets minimum levels of property damage liability coverage that drivers must have.
- Total Loss-If your car suffers significant covered damage it may be declared a “total loss”. This means that it would cost more to repair your car than the car is worth. Total Loss classification would be determined by comparing the car’s Actual Cash Value (ACV) to repair costs.
- Uninsured and Underinsured Motorist Liability Coverage-Coverage that protects you if you’re involved in an accident with someone who either does not have liability insurance or has a policy with liability limits that are too low to cover the costs associated with a covered loss. It also covers you if you are hit as a pedestrian.
- Unattached Equipment Coverage-Pays to repair or replace equipment that isn’t permanently attached to your boat or personal watercraft. This includes items like life jackets and water-skis.
Homeowners Insurance Terms:
- Additional Living Expenses-If you can’t live in your home because of a covered loss, your insurance company may pay the necessary increase in living expenses while damage is assessed and your home is repaired or rebuilt.
- Broad Form Liability Coverage-Helps protect you from expenses related to injuries or property damage you or your watercraft cause in an accident. Some policies also cover certain accidental fuel spill liabilities and wreckage removal.
- C.L.U.E.-C.L.U.E. (Comprehensive Loss Underwriting Exchange) is a claims history database created by ChoicePoint that enables insurance companies to access consumer claims information when they are underwriting or rating an insurance policy. It typically contains up to five years of personal auto or personal property claims history. You can order a C.L.U.E. report: LexisNexis Personal Reports: Call toll free 1-866-312-8076, or you can request a copy from the seller of a home you are purchasing.
- Medical Coverage (Home)-Covers medical expenses for guests if they are injured on your property, and in certain cases covers people who are injured off of your property. It does not cover healthcare costs for you or other members of your household.
- Liability & Personal Liability Coverage-For homeowners, this coverage applies if someone is injured or property is damaged and you are to blame. The coverage applies anywhere in the world. When choosing liability coverage for your home, auto, boat, personal watercraft, or RV, consider things like how much money you make and what you own. Your liability coverage should be high enough to protect your belongings if you are sued.
- Personal Property Coverage-Your home is filled with furniture, clothes, sports equipment, and other items that mean a lot to you. This coverage helps repair or replace these items if they are lost, stolen or destroyed as a result of an insured event.
- Property or Dwelling Coverage-Typically pays to repair or rebuild your home if it’s damaged or destroyed by an insured event.
- Scheduled Personal Property Coverage-If you have special possessions such as jewelry, art, antiques or collectibles, you may want to talk to your agent about this additional coverage.
General Insurance Terms:
- Deductible-When you get insurance, you agree to pay up to a certain amount out-of-pocket in case of a loss. This amount is called your “deductible.” The deductible you choose often affects how much you pay for your premium. For example, a higher deductible usually means a lower premium. In the case of a covered loss, you’ll only be required to pay your deductible, and the insurance company usually covers the excess, up to the applicable limit for that loss under your policy.
- Excess Liability-Sometimes used interchangeably with “umbrella”, “excess liability” refers to extended liability coverage. This coverage is meant to supplement your insurance coverage if the damages exceed your liability coverage. Be sure to talk to The Armstrong Company Insurance Consultants about what your excess liability covers.
- Fidelity Coverage-Companies and businesses often purchase this coverage to protect them against loss from employee dishonesty (such as theft of money, equipment, or other assets).
- Identity Theft-Identity theft occurs when someone steals your personal information and uses it to open accounts or incur charges without your permission. Thieves can access your personal information in a variety of ways, such as stealing your personal mail, your wallet, or hacking your computer files. The thief then uses your identity to rack up debt in your name or perhaps to issue fake IDs. For more information on identity theft and tips on prevention visit the FTC’s Identity Theft Site.
- Indemnity-Providing indemnity means to financially restore someone after a loss, through payment, repair or replacement.
- Insurance Score-A Credit Based Insurance Score (CBIS) is derived from information on your credit report. It is a number that measures likelihood of having an insurance claim – not a measure of credit worthiness. Insurers use CBIS along with a number of other factors, including driving records, claims history, and the type of home or vehicle owned, to evaluate new and renewal auto and homeowner insurance policies.
- Premium-Simply put, a premium is the payment you make in exchange for one term of policy coverage.
- Umbrella Insurance-Umbrella insurance is the coverage that may kick in when your losses under other insurance policies, such as homeowner’s and auto coverage, have exceeded policy limits.
- Underwriter/underwriting-Underwriting is the process of assessing risks when deciding whether to issue a policy of insurance.