Some of the insurance terms people hear all the time can be confusing. Below is a detailed explanation of some of the most common terms that people will hear when they are discussing insurance products.
Actual Cash Value
Part of a homeowner’s policy insures against the possibility of losing the house to a fire. Similarly, an auto insurance policy will insure against a vehicle being stolen. The house will need to be rebuilt and the car replaced in these cases, and the insurance company and the policy holders will need to decide how much money the company will pay the policy holder.
One option is the Actual Cash Value. If the policy holders choose the Actual Cash Value, they will receive the amount of money it will take to replace the item, but it will be minus the depreciation of the lost materials.
The other option to choose is the Replacement Value. By choosing the Replacement Value, the policy holders will receive the full amount required to replace the item with no regard to depreciation.
The person who sells insurance products is known as the Insurance Agent who will also service the product throughout the lifetime of the policy. People will be able to work with one of two types of agents. The first is an independent agent who represents at least two insurance companies. Their first duty is to find their clients the insurance coverage they seek, and they receive commissions from performing this duty. They will receive payment in the form of fees when their clients pay their premiums.
The other type of insurance agent is the one who works for one insurance company, and this type of agent is paid on a commission basis.
People seeking insurance products also have the option of engaging the services of an insurance Broker. The Broker is not representing any insurance companies; he or she only has the best interests of his or her client in mind. They will perform the duties of finding the insurance products their clients need for the best price.
Some people are even licensed as brokers and agents, and they go by the name of Broker-Agents. They are representatives of particular insurance companies, but they are not limited to selling policies only from those companies. If they can find their clients insurance policies that offer them more coverage for a better price with a company they are not affiliated with, they will be able to offer this policy to their clients.
One obligation people will need to pay when they use their insurance coverage is the co-payment. The co-payment is most often a part of a person’s health insurance coverage. For each office visit, for example, the patient will pay a pre-determined rate. The medical office will bill the insurance company for the remainder of the amount owed.
In some cases, people will need to pay an amount of money before the insurance company will begin to take over the payments. This amount of money is called the deductible. One example of an insurance product that requires payment of a deductible is health insurance. The deductible will be set at a particular amount at the beginning of the policy, and the policy holder will need to contribute that amount toward medical expenses before the insurance company will begin to pay.
The insurance adjuster is the person who will seek to determine fault when something such as a car collision has occurred. These insurance adjusters can be independent of the insurance company and are working on an hourly basis.
Liability insurance protects people after they have been found negligent in the losses experienced by other people. Liability insurance is required in a lot of states against the injuries and damages to property that result from a car collision. Homeowners may also be found liable for the injuries to a guest visiting their homes. In these cases, the liability insurance coverage will pay the medical bills of anyone hurt in the collision or on the property. In the case of car insurance, it will also pay to have any damaged property repaired or replaced.
Premiums are the amount of money policy holders will need to pay for the year to keep their insurance policies active. It will depend on how much of a risk they pose to the insurance company of experiencing any loss. For example, if an applicant for a life insurance policy is 25 years old and in very good health, he will be asked to pay a low premium for his life insurance coverage.
Insurance policies are written for a set period of time. Car insurance policies can be month-to-month, quarterly, semi-quarterly or by the year. Term life insurance policies can be for one year or as long as 30 years. After the term is complete, the policy holder has the option of keeping the policy in place for another term with the payment of another premium.
In order to determine how much each applicant will need to pay for their insurance coverage, the insurance company will engage in a process called underwriting. The underwriter is the person who designates what the risks are and assigns each person to a risk class. With the risk class determined, the underwriter knows how much to charge the client. It can also be the case that the underwriter will decide that the applicant is too much of a risk to offer a policy at all and will turn down the applicant.