Learning the Language of Insurance
By Diane Tait
|Image courtesy of wikipedia|
Insurance is like a pit bull on a leash. You hope to never have to set it loose on an intruder. But if you do, you don’t want it to turn on its owner. If you’ve ever read any of your insurance policies, you can appreciate this fact. While insurance has been protecting individuals and businesses for hundreds of years, understanding the language of insurance isn’t always the easiest of things to do. Add to it the fact that you’ve no doubt read magazine articles written by writers who are only too eager to point out how someone who bought insurance was denied covered for specified damage they assumed was covered. When it comes to insurance policies, the devil is indeed in the details. To make sure you understand what’s what when it comes to your policies, below are some of the terms you could encounter when you peruse your policies.
Home Sweet Home?
If you’ve read some of my previous articles on homeowner’s policies, you already know that it doesn’t cover flood damage. For that you’ll need a flood policy. That being said, there are a few other terms with which you should become familiar.
1. Replacement Value – If your home should ever be destroyed, you probably want your insurer to hand you a check sufficient to replace the structure and all its contents. For that to happen, you need the policy to read ‘Replacement Value.’ If it instead reads ‘Fair Market Value,’ or ‘Cash Value,’ you’re going to be disappointed if your house is declared a total loss and your insurer hands you a check for far less than what it costs to replace everything you lost. Fair market and cash value mean an insurer will legally deduct depreciation and wear and tear from what it would cost to replace an item. Replacement value, on the other hand, will pay you what it costs to replace the item with one of equal value.
2. Living Expenses – Unless you plan on camping out in a tent while your home is repaired or rebuilt after disaster strikes, you’ll need to make other living arrangements while the work is in progress. The heading ‘Loss-of-Use Coverage’ spells out under which circumstances and for how long your insurer will reimburse you for living in a hotel.
3. Liability Coverage - If a guest in your home falls down the stairs and sustains an injury or a contractor falls off your roof, you could be sued for damages. Depending on your assets, any judgment could exceed the limits set in your homeowner’s policy. Before you wind up being eaten out of house and home (or business) by a lawsuit, peruse your policy and call your agent. If you have more assets than can be covered by your homeowner’s policy, it’s not all that expensive to add an umbrella policy that can provide $1 million or more in coverage should you need it.
4. Declaration Page – While you should take the time to read your entire policy, the declaration page provides a synopsis of the premiums and discounts, as well as the coverage and deductibles.
5. Exclusions – Are things your policy specifically doesn’t cover. Read these carefully.
6. Other Structures Protection – If you have a detached garage, shed, workshop or cabana on your property, these structures are not necessarily covered in your policy. Neither are your fences unless otherwise specified.
7. Riders – These amend or add features onto the policy that are not otherwise included. For instance, if you own valuable jewelry, artwork or collectibles, their value could well exceed your policy’s ability to reimburse you should they be stolen or destroyed. For an additional fee, a rider can be added to the policy to cover these or other items.
Baby, Can You Drive My Car?
|Image courtesy wikimedia|
If you own a vehicle, you should know that unless otherwise specified, your auto policy only includes you as the driver. If your friend or neighbor borrows your car and is involved in an accident, your insurance company is off the hook for any damage done to it or other property.
1. Bodily Injury Coverage – This is the limit to which the insurer will reimburse you for medical expenses you may encounter due to an accident.
2. Collision Coverage – aka Comp & Collision pays for the damage done to your vehicle less the deductible. It also covers vandalism to your vehicle, theft of the vehicle, fire, collisions with an animal and falling objects that damage your vehicle.
3. Uninsured Motorist Coverage – If your car is involved in an accident with a driver that has no insurance, you will want to have this option pay for damages done to you and your vehicle. If you waive this option, then your insurer will not be responsible to pay for damages done by an uninsured motorist.
4. PIP Coverage – Personal Injury Protection covers medical expenses related to the driver, their family and any passengers in your vehicle who are injured in an accident, regardless of who is at fault. It also covers funeral services up to the policy’s specified limit.
5. Liability Coverage - If you were deemed to be at fault in an accident, this part of the policy delineates the amount of damages to persons and property the insurer is legally responsible to pay. Again, if you have a lot of assets, you need to consult your agent to make sure your policy can protect you and yours in the event of an at fault accident.
6. General Provisions – This portion of the policy lays out the conditions and obligations of both the insurer and the insured. This includes coverage periods, exclusions, riders, start dates, as well as determining whether coverage applies and for what amount. It also prevents the insurer from terminating a policy that has been in effect for more than 60-days, except for reasons of non-payment, suspension or revocation of the insureds driver’s license or a material misrepresentation by the insured when procuring a policy.
Diane Tait owns and operates A&B Insurance. To find out more about how you can arrange for an insurance evaluation, go to or fill out the form at right.