Purchasing an insurance policy is not only a big step to take, but it can also be a confusing one. Premiums, deductibles, liability … some of the terms used in insurance are more confusing than going to the doctor. Luckily your insurance agency is here to clear up the confusion about insurance terminology.
- Premium. The amount you pay for your insurance is called the premium. Your premium can be affected by the amount of coverage you choose, the deductibles you set, and other factors depending on what type of insurance you are purchasing. For example, your driving record will affect your auto insurance premium, and the location of your house will affect your home insurance premium.
- Deductible. The deductible is a set amount that the insured must pay before the insurance company will pay any expenses. For example, imagine your comprehensive deductible on your auto insurance is $250. If you hit a deer and $1,000 worth of damage is done to your car, you will pay $250 and your insurance company will pay $750. There are usually several options for deductibles, and the deductible you choose will affect your premium.
- Collision coverage. This coverage pays for losses caused when your car hits or is hit by another vehicle. The deductible you choose will affect your premium.
- Comprehensive physical coverage. This coverage pays for losses caused by something other than a collision, such as damage caused by floods, fire, or animals, or if your car is stolen. Your comprehensive deductible will affect your insurance premium.
- Full coverage. Full coverage is a term used in auto insurance and describes when an insured has comprehensive and collision coverage. If an insured chooses to not have comprehensive and collision coverage, this is referred to as “liability only.” Truthfully, nothing is fully covered in auto insurance, since comprehensive and collision coverage require the insured to pay a premium before the insurance company pays anything.
Hopefully this crash course in insurance terminology will help you understand the insurance-purchasing process a little better. Are there any other terms that confuse you or you would like more information about? Contact your experienced agent here at Community Insurance, post on our Facebook wall, tweet us @Community_Ins, or call us and we will answer all your insurance questions.
-Sam