The personal insurance market is vast and the insurance decisions you make can have a significant impact on your financial protection and your long-term financial security. So it pays to know the basic vocabulary so that you can not only understand the details of insurance policies but also do a bit of your own research when you have an insurance question.
Becoming familiar with these 25 key terms is a great step to empowering you to make smarter insurance decisions.
Key Personal Insurance Terms
1. Auto Insurance: Protects against losses that occur as the result of an accident or another peril occurring to your car.
Significance: Personal vehicles are serious investments and losses from car accidents can easily run into five or six figures. Without auto insurance, you might be left on your own to pay for these costs if you are deemed at fault for the accident (see The Ultimate Guide to Auto Insurance to learn more).
2. Benefit: A payment you are entitled to receive from your insurance company due to the terms of the coverage provided by your insurance plan.
Significance: Benefits are the funds your insurance company provides to pay expenses you would otherwise have to pay without insurance.
3. Cancellation: Terminating an insurance policy.
Significance: You can end a policy if you no longer wish to receive insurance from your provider.
4. Claim: A notification you file with your insurance company when you have cause to use your coverage. For example, if you caused a car accident, you would file a claim with your car insurance company.
Significance: Filing a claim lets the insurance company know you need to use your benefits. You would file a claim with your auto insurance company if you caused a car accident, for example.
5. Coverage Period: The exact duration of time your insurance plan covers you.
Significance: Unless you renew your policy, your coverage stops once the coverage period expires.
Significance: This sizeable sum helps ease the beneficiaries of financial burdens after the policyholder dies (find out How to Collect a Life Insurance Payout).
7. Deductible: The total amount of money a policyholder must pay out of pocket for their insured expenses before their insurance coverage starts paying them.
Significance: You are responsible for paying any sums owed until the deductible is satisfied (learn The Pros and Cons of Increasing Your Auto Deductibe).
8. Dental Insurance: A policy that covers dental care expenses.
Significance: The costs to care for your teeth can be very expensive. Dental insurance can help make it more affordable.
Significance: If you ever lose income or the ability to work as a result of a disability, this benefit provides you with some form of income.
10. Disability Insurance: Insurance protection in case you develop a disability. This can include coverage for short- or long-term disabilities.
Significance: Helps cover expenses in case you become disabled (find out Why You Need Disability Insurance).
11. Floater: A type of provision added to a policy to supplement property insurance to cover movable property that isn't already covered.
Significance: For an additional cost, extends coverage beyond what standard policies offer (see Personal Property Floaters 101 to learn more).
12. Flood Insurance: Protects you from property losses caused by flooding.
Significance: Floods can be financially devastating so insurance may be a wise investment, especially for those in flood-prone areas (learn more in The Seas Are Rising - Do You Need Flood Insurance?).
13. Health Insurance: Covers healthcare expenses, such as doctor's visits, prescriptions, and surgeries.
Significance: Healthcare expenses can add up quickly, whether from life-saving treatments or routine care. Health insurance can help you pay for a variety of medical expenses.
14. Homeowners insurance: Covers homeowners in the event a peril damages their home.
Significance: Buying a home is one of the biggest investments many people will ever make. Homeowners insurance ensures that investment is protected.
15. Insurance Carrier: An insurance company.
Significance: To buy an insurance policy, you must purchase it through an insurance carrier. There are a wide variety of carriers, many of which specialize in particular fields of insurance.
Significance: Purchasing life insurance help protect your family financially after you die.
17. Peril: Any event that could result in an insurance claim having to be filed. In other words, it is anything that can cause damage and result in losses.
Significance: Insurance policies will only cover certain perils, so you need to know what your policy does and doesn't cover to avoid any costly surprises.
18. Personal Lines Insurance: Insurance that provides financial protection for various risks that individuals and families need insurance protection for.
Significance: You and your family will likely need many different types of personal lines insurance.
19. Premium: A payment that must be made periodically to receive insurance coverage.
Significance: If you don't pay your premiums, your coverage will stop.
20. Property Insurance: Insurance for buildings and structures as well as personal possessions.
Significance: Damage to property can be extremely expensive. Property insurance can save you from paying out the entire cost of repairing replacing damaged or stolen property.
21. Renter's Insurance: Covers the personal property of renters in the event that a peril to the building results in losses.
Significance: Even if you are renting an apartment, your personal property can still be at risk. It can pay to insure it (consider these 6 Reasons You Need Renter's Insurance).
22. Suspension of Coverage: A temporary hold on coverage by the insurer, typically due to a failure to comply with the terms of your insurance contract.
Significance: If you experience a insured loss while your coverage is suspended, you cannot receive benefits.
23. Term Life Insurance: A form of life insurance that insures the policyholder for a certain amount of time.
Significance: While it won't cover you forever, it could be a wise investment for some seeking a life insurance policy at a younger age (find out what is The Perfect Age to Get Life Insurance).
Significance: Travel insurance can give you some peace of mind while traveling because you can spend a lot less time worrying about the cost travel-related mishaps (if you're still not sure whether it's worth your while, see Travel Insurance: Do I Really Have To?).
Significance: This type of life insurance offers an investment component that you won't find in term life insurance policies, and it will cover you for all your remaining years (learn more in Insurance as an Investment? It's Called Permanent Insurance).
How Well Do You Know Your Life Insurance?
The more you know about life insurance, the better prepared you are to find the best coverage for you.
Whether you're just starting to look into life insurance coverage or you've carried a policy for years, there's always something to learn.