Insurance Terms Defined: Premiums, Deductibles, and Everything in Between

January 10, 2020 by First Federal Bank

A man sits at his kitchen table with calculator and laptopInsurance is a must if you own a home, rent an apartment, invest in a condo or if you drive a car. Health insurance and life insurance are non-negotiables, as well. The world isn’t perfect and since bad things happen, insurance is an important safety net, helping to protect your home, auto and possessions. Knowing that you need insurance is a no-brainer, but learning all the complexities of insurance will take time. Start with learning some insurance basics with the following list of terms.

Broker

When you’re researching policies, you’ll want some expert advice. You’ll need insight from an insurance broker, a professional who represents consumers in their search for the best insurance policy for their needs. After weighing your options and finding the right policy for your needs, you can make the purchase through the insurance broker, too. By working with a broker, you’re not limited to a specific insurance company’s policies.

Premium

An insurance premium reflects the price of the insurance policy you buy. A lot of things factor into the monthly cost you’ll have to pay, ranging from your creditworthiness to the level of risk you pose for the insurer, according to Julia Kagan on Investopedia.

“For example, if you own several expensive automobiles and have a history of reckless driving, you will likely pay more for an auto policy than someone with a single mid-range sedan and a perfect driving record,” Kagan reports.

Policy period

The policy period states how long your insurance coverage is valid.

Policy limit

Every insurance policy has a limit, or a maximum amount it will pay out to you. According to Kagan, limits can be based on time, by loss or over the duration of the policy. Your premium will reflect the policy’s limit, too — you’ll pay a high premium if your policy boasts a high limit.

Deductible

Although your insurance policy will help pay for things to be replaced or repaired or the health services you need, most, if not all insurance policies, no matter the type (home, auto, health or renters), have a deductible — the money you have to pay before your insurance policy coverage kicks in. If you opt for a high deductible-plan, you’ll generally pay less for the policy. If you opt for a plan with a low deductible, you’ll pay a higher monthly premium for your insurance policy.

Claim

When you need the insurance company to pay for the repair or replacement of something covered under your policy, you need to submit paperwork. This paperwork is known as a claim. Your insurance company will require specifics for how to make a claim correctly, ranging from pictures of the property that was damaged to a police report if you’re reporting damage resulting from a car accident.

Beneficiary

When you buy a life insurance policy, you’ll have to designate who will receive the insurance money after you die. This person is referred to as the beneficiary.

Insurance terms, policies and processes can be complicated. You’ll gain a greater understanding as well as confidence when dealing with insurance issues by learning the basics and talking with a trusted broker to determine the best policies to help protect your car, home, life and property.

Categories: Insurance