Insurance is a risk-sharing arrangement between an individual or entity and an insuring agency, usually an insurance company. This sharing of risk is a hedge taken out by the insured against financial losses suffered as a result of damage to his or her person or property. It may also protect against liability for injury or damage caused by the insured to a third party.
The agreement made between the insured and the insurer is drawn up in a legally binding contract called a policy, which contains all of the particulars and lays out the responsibilities of both parties. There are dozens of different kinds of insurance and most standard policies can be custom tailored to more exactly fit the insured’s needs.
Most everyone has at least one kind of insurance, with the most common being vehicle insurance, which is required by most states of anyone operating a motor vehicle on public roads. Other common types of insurance include homeowner’s or renter’s insurance, health insurance and life insurance.
There are literally dozens of different kinds of insurance, and each insurance company may have policies that are somewhat unique in their wording and coverage. It’s important to understand certain terms in order to be able to make an informed decision when considering the purchase of an insurance policy. Utilizing the services of a trusted insurance broker who has access to insurance products from a range of different insurers can help in understanding what’s available and how different policies relate to your individual needs.
Here are some explanations of different insurance terms everyone should know:
- Insured – person or entity covered by an insurance policy
- Insurer – company writing the policy covering you
- Coverage – the specific protection an insurance policy covers, including individuals, property and protection limits
- Policy – a written, legally binding insurance contract
- Risk – the chances of loss occurring to any particular insured item
- Premium – the cost charged by an insurer in exchange for the loss protection they provide
- Deductible – a specific, previously agreed upon amount of money a policyholder must pay out of his/her own pocket before the insurer pays the balance of any approved claim
- Peril – the specific cause of any loss
- Limit – the maximum amount to be paid on a claim
- Claim – an insured’s request for payment on a covered loss
- Exclusions – items or conditions specifically not covered by a policy