For many people looking at purchasing insurance or even for those considering obtaining a property and casualty license, the number of different terms can be overwhelming. With so many confusing terms that aren’t included in everyday language, it is only understandable that someone who isn’t in the field would get the definitions of these words confused. Therefore, it is vital that people take the time to learn about each of these common terms before investing in an insurance policy. Without understanding what someone is investing in, there is no way anyone can truly make an informed decision over what they’re purchasing. Some of the most commonly used terms pertaining to insurance are defined below.
This is often the first term that people encounter when reading an insurance policy or preparing for a licensure test and many people don’t fully understand that a deductible is or its impact. A deductible is an amount a person must pay on any claim prior to the insurance company picking up the rest. A deductible is in place to prevent people from filing frivolous or potentially false claims. Generally, a lower deductible will accompany a policy with a higher insurance rate and a higher deductible will accompany a policy with a lower insurance rate. It is common that these amounts contradict each other.
The other number people commonly focus on in the insurance rate. This is the premium that the customer will pay every month (or every year) in exchange for their insurance policy. There are several factors that impact someone’s insurance rate including their prior record, the number of claims they have filed, and the total financial benefit that their policy could potentially pay out. While many people target insurance policies that have a low insurance rate, a person may sacrifice valuable coverage in exchange for this low rate.
Mentioned briefly above, many people will often overlook their coverage and focus on the numbers with dollar signs next to them; however, it is vitally important that people understand their coverage because this will ultimately determine whether their claims are paid out. The coverage is the spectrum of potential pitfalls, disasters, or negative events that the insurance will cover. If an event occurred that is included in the coverage that results in damage to the property or person included in the policy, the insurance company will pay to cover the damages once the deductible is paid. Coverage is important because some people might believe that they are covered for certain damages that aren’t actually included in the coverage specified in the policy. Make sure to read the spectrum of the coverage before signing on the dotted line.
Ultimately, there are several terms that people commonly misunderstand when it comes to various types of insurance. Purchasers really should know these terms and those applying for a property and casualty license are required to know them. Make sure to ask questions to better understand all that is involved in insurance policies.