KEY INSURANCE TERMS DEFINED

Insurance is a broad topic that includes protections of homes, cars or boats, personal health, and life itself. It is designed to protect against financial loss resulting from unforeseen circumstances by sharing or pooling the risk of loss with other policyholders.

Sometimes, insurance agents use insurance-related terms with the assumption that you know what they're talking about. You have to put it into context as they continue speaking to understand what that 'one' word meant. Here are some basic key terms and their definitions that may assist you when speaking with your agent.

Insurance Coverage: Refers to the amount of protection within an insurance policy that covers a specific type of loss. Coverage is typically meant to completely replace the value of the insured item or items. In the case of life insurance, the coverage amount is typically based on a fixed amount or calculated on multiple years of lost income should the insured person die.

The most common insurance coverages are auto, home, and life. There are other types too, such as health insurance and commercial general liability.

Insurance Premium: The insurance premium is the amount of money you pay to the insurance underwriter each month to maintain the policy. The premiums cover the cost of providing coverage by the insurance company based on the risk or probability of loss.

The premium to be paid for a policy depends on various factors, including but not limited to the coverage type, age, location, and past claims filed.

Depending on the underwriter, coverage, and type of policy, premiums may be paid monthly, quarterly, or annually. Failure to pay the established premium(s) may result in the cancellation of the policy and loss of coverage.

Insurance Underwriter: An insurance underwriter is a company that takes on the risk of covering a specific type of loss event in exchange for payment of premiums during the policy term. Insurance underwriters pool the risk of loss across large numbers of policyholders and set premiums based on the managed coverage risk.

Insurance underwriters are professionals who evaluate and analyze the risks involved in insuring people and assets and establish pricing for the accepted insurable risks. They use specialized software and actuarial data to determine the likelihood and magnitude of a risk.

Insurance Claim: An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss/policy event. The insurance company validates or denies the claim. If approved, the insurance company issues payment.

Insurance companies have specific processes for policyholders to file insurance claims in the event of loss, and service level expectations for claim processing are detailed in the policy contract. For property-casualty insurance, such as for your car or home, filing a claim can cause rate hikes to your future premiums.

Insurance Adjuster: An insurance adjuster is an insurance claims agent who investigates an insurance claim to determine the insurance company’s liability under the insurance policy/contract terms. They also authorize payouts per the policy’s terms.

The insurance adjuster might work for the insurance company, be a public adjuster hired by the claimant, or be independent (hired by the insurance company, usually for natural disaster events). Insurance adjusters must be licensed to perform these duties. The two most frequently investigated claims are those for property and liability.

Self-Insurance: Self-insurance is a risk management technique in which a person or company assumes the risk of loss themselves by saving the money that would have otherwise been paid in the form of premiums to build up a fund to cover potential losses. Individuals who choose to self-insure bear all the risk for a loss event rather than pooling the risk with other people who might also experience the type of loss that might present financial loss. Theoretically, one can self-insure against any type of damage (like flood or fire). In practice, however, most people choose to purchase insurance against potentially significant, infrequent losses.