Insurance Jargon: Translating the Language of ‘Insurancese’ 

Read any good insurance policies lately? Probably not. They’re not exactly riveting. Part of the problem is the inscrutable coverage jargon. What’s with all this talk about claims, beneficiaries, deductibles, and premiums, anyway? It’s like a foreign language that evokes a whole new set of insurance FAQs. 

But not really. All you need is some kind of an insurance jargon translation guide. Sort of like this one. You’re welcome. 

Why Insurance Jargon Can Be Baffling 

Every industry has its own buzzwords. In the case of industries that don’t regularly interact with the general public, those unfamiliar words and phrases don’t cause any problems. All of the “insiders” know the language, and that’s all that really matters. 

Insurance jargon is different, though. You become exposed to the baffling terminology every time you insure your car, your home or apartment, and even your life and health. Therefore, what you don’t know … matters. You might have to sign documents and make regular payments that could total many thousands of dollars on a topic you don’t truly even understand. 

That’s why this insurance glossary is worth at least a quick read-through. Here are a few important real-world insurance jargon definitions. 

Premium: The Price You Pay for Adulting 

This term might sound more positive than it really is. Outside of the industry, a premium is a gift or a valuable item of one kind or another that you’re given. In policy jargon, it means … what you’ll be charged. It’s the rate that you’ll pay on a monthly, quarterly, or otherwise pre-determined basis for your policy. Disappointing, right? You won’t get a premium. You’ll pay it. Oh well. 

Deductible: The Price of Your Misfortunes 

Your deductible is the amount of money you agree to pay for a covered claim before your insurer takes over the rest of the financial responsibility. If you turn in a claim for $2,000 in covered damages to your car and you carry a $500 deductible, you’ll pay $500, and your insurer will pay the remaining $1,500. 

The higher your deductible, the lower your premiums. That’s because your insurer will be responsible for a smaller portion of the claim if you have a higher deductible. So, how do you use that strategy? 

If you know you’re a cautious and responsible driver who’s relatively unlikely to get into an accident that’s your fault and you have full coverage or collision, you might carry a high deductible for the lowest possible premiums. The downside, of course, is that you’ll pay a steep amount out of pocket if your calculations prove wrong and you do have a pricey accident. 

Deductibles are a part of most policies, not just auto coverage. Discuss your deductible options with your agent. Crunch the numbers and find the sweet spot between what you pay in premiums and what you’ll accept in deductibles. 

Claim: When Premiums Turn into Benefits 

An insurance claim is when you contact your insurer and tell them, “I’m finally glad I’ve paid all of those premiums over the last several years.” 

You’re glad because you’ve had a car accident, or your kitchen caught fire, or your family heirlooms were stolen, or… 

In other words, this is when those premiums finally make a little sense. There really is a reason (a lot of them, actually) you have that policy stashed away … somewhere. You’re about to collect. 

Underwriting: the Art of Judging Your Life Choices 

Insurers don’t like to lose money. They’re like, well, every company that way. That’s why they have risk evaluators, also known as underwriters, on staff. Underwriting is the process by which the insurer figures out the odds of at least breaking even on your policy if they offer you one. How much will they have to charge you to get reasonable odds of breaking even? Do they want your business at all? 

It’s math. If you’re applying for an auto policy, the underwriters will determine how many at-fault accidents you’ve had in the past. How many moving violations have you had? Are you a careful driver or a reckless one? 

If it’s homeowners insurance you’re after, underwriting will explore the safety of your neighborhood. Have there been break-ins? Is vandalism a factor here? Fires? The underwriters do their math magic and set your premiums on their prediction of how much they’ll have to pay out over time based on your lifestyle, record, and other factors. 

Co-Payment: Cover Charge for Healthcare 

Your co-payment, or co-pay, is sort of your door charge for medical services. It’s what you pay upfront for care, according to the terms spelled out in your healthcare policy. It’s usually not much money, but you must pay it before you receive services. 

For example, your co-pay for a regular checkup at your doctor’s office might be $25. It could cost somewhat more for lab work or to see a specialist. Once you’ve met your deductible, your insurer will pay the majority of the cost for your treatment — minus your co-pay. 

Beneficiary: The Lucky Winner of Your Insurance Jackpot 

Break the word down. “Beneficiary” seems to have the word “benefit” in it, doesn’t it? That’s no accident since your beneficiaries definitely benefit when your life insurance policy pays off. 

Your beneficiaries are the person or persons you designate to receive the death benefit, also known as the face amount. If you carry a $500,000 life insurance policy, its face amount or death benefit is that half-million-dollar figure. 

Your beneficiaries might change over the years as loved ones die or are born or otherwise change status. You can change your beneficiaries as often as you like. Either do it online or contact your life policy agent. 

Rider: The Add-On You Didn’t Know You Needed 

Think of your policy as a living document that can change with the times. When it needs to be amended — when you want to add benefits, modify terms, or change the policy to confront new realities — you might add a rider to your life, homeowners, renters, or auto insurance policy. 

Think of a rider as ride-along language that changes your policy slightly. For instance, you inherit a valuable vinyl record collection that’s worth more than your existing renters insurance coverage limits. Your rider might cover your new collection separately but within the framework of the existing plan. 

A rider generally changes the scope of the existing policy, but not by so much that a new policy must be written. 

Act of God: Nature’s Way of Changing Your Plans 

Insurers love it when their policyholders are careful, responsible, organized planners. Those are the people who’ll keep the speed down on the road, keep their home well-maintained, and eat nutritiously and regularly exercise to stay healthy and live long, productive lives. 

But what most of us have learned over time is that you can’t avoid every risk. When nature throws a tantrum, the insurance industry calls it an act of God. Such “acts” include tornadoes, hurricanes, earthquakes, floods, hail storms, and other cataclysmic behaviors of nature that can harm people or property. 

These so-called acts of God can be treated differently, depending on your policy and your insurer and the particular cataclysm. Sometimes, you need to purchase a separate policy to cover specific acts of God. For instance, if you live in a flood zone, your standard homeowners policy might not cover flooding because it’s such a likely — and expensive — risk at that location. You’ll have to buy separate flood insurance. 

Gap Insurance: Financial Lifesaver for New Car Owners 

Buy low and sell high. That’s great investment advice. It might work with stocks and bonds, art, jewelry, antiques, homes, and other property. But that wise wealth-building strategy probably won’t cover your car. That’s because most vehicles depreciate. That means they lose their value over time–quickly. 

Let’s say you bought a shiny new $40,000 sports car and totaled it before making your first car payment. Your finance company says you owed $40,000, but your insurer says you now have a “used” car that’s currently worth $30,000. Your insurer promptly sends a check for that amount to your finance company. Then, your finance company informs you that you still owe $10,000 for a ride that no longer exists except in the form of torn metal and broken glass in a scrapyard. You’re in trouble — unless you have gap insurance. 

A gap policy covers your new vehicle for that narrow window of time in which you owe more than your car is worth. It’s a narrow window because our equity, or ownership value, in the vehicle will increase as you make car payments. And the rate of depreciation will slow down over time. 

Ask your auto insurance agent about carrying low-cost gap insurance for the first several months of your loan until your equity in the vehicle increases sufficiently. 

Annuities: The Gold Mine of Retirement Plans 

If you have a million-dollar life insurance policy, you’ll have some very happy beneficiaries (that is, once they get over their grief at losing you). You, however, will get nada for that million-dollar policy. Zilch. 

What if you could invest in a policy that lets you pay a lump sum or a regular contribution every month for years in exchange for a guaranteed monthly payment from the insurer? That’s an annuity. 

The idea is to invest in the annuity while you’re young and fully employed and can afford the payment. The insurance company will invest the money you pay in your young and healthy years and send you a check every month once you hit 65, or whatever the annuitization date is, and you’ll keep getting paid … for potentially the rest of your life. 

In this way, an annuity is sort of like having a life insurance policy in which you’re the beneficiary — and you get to cash in long before your death. 

Sign Up for Easy-to-Understand Insurance 

Sure, we use buzzwords at the office. But we also know that our policyholders don’t necessarily know that language. That’s why we keep it simple at Vern Fonk Insurance. We won’t try to impress you with all of the big words and phrases that you don’t know.  

You won’t need an insurance glossary or insurance terms explained when you meet with us. Just ask us to humanize the language if we start to get a little “buzzy” on you. 

Call Vern Fonk Insurance at (800) 455-8276 or get a quick quote online. You can also find a Washington office and agent near you.