As an organization, owner, manager or supervisor, volunteer, or as a co-worker, do you know someone that you suspect does not have or really does not understand what insurance they should have?
Many people have insurance policies; many people who should have them do not. Some people have too much coverage and some have the wrong coverage. Many do not understand the “language” of insurance companies and that is a big part of the problem. This post is a first step in helping those people understand insurance by explaining a few simple terms so that they can start to make informed decisions.
Insurance Policy – An insurance policy is a document that clearly states what protection you have in case an accident happens. Policies can cover anything up to including people: vehicles, houses, your belongings, your family and you. Policies have a start and end date for coverage. It will say how much you have to pay and when. It will tell you what amount of money you will get if something happens to whatever you have insured.
Insurance Premium – This is what you pay for the coverage in your policy. Many companies will deduct the premium automatically from your bank account or credit card monthly. You pay tax on top of whatever the premium is. The premium is not the same for everyone, it depends on how “risky” you are to insure.
“Risk” – Insurance companies use statistics to determine the likelihood that you will suffer a loss that is covered by your policy. For example, if you are male and under 25, statistically your age group is more likely to be involved in automobile accidents than females under 25, since the risk is greater as a male, you should expect to pay more for coverage. If you smoke, your insurance policy to protect your home or apartment will cost more than for a non-smoker because smokers statistically have more claims.
Claims – If an accident happens and you have coverage for that type of accident, you can file a claim with your insurance company and they will pay out the value of your insurance policy. You need to understand there is a process to follow and there are more terms to explain.
- Deductible – Virtually all insurance policies will have a deductible. Deductibles help to lower your insurance premiums. In the event of a claim, this is the amount that you agree to pay. If you have an accident and the damage is $750 (a very small accident) and you have collision coverage with a $500 deductible, you pay the $500 and the insurance company pays only $250. Some insurance companies will allow you to change the amount of the deductible, the higher your deductible the less expensive your premium will usually be; however, ensure that you can afford the deductible before agreeing to have a higher one.
- Accident-Free Discount – As mentioned your insurance policy has a limited period of time that it covers. If you do not have a claim, your insurance company may give you a discount on your next renewal. If you do have a claim, usually your policy may increase because your “risk” has now gone up.
- Adjuster – This is a person employed by your insurance company. Their job is to make sure that your claim is resolved for the least expense to the insurance company as possible. Insurance companies do not automatically give you the amount of money in your policy. For example, if you paid $10,000 for your vehicle three years ago and it is destroyed in an accident, you will not automatically receive $10,000. The amount you receive will depend on your coverage.
- Replacement Value – A common misconception with insurance claims is that people think that when something happens to whatever is insured and they make a claim that the insurance company will magically give them a brand new replacement. That can happen, if you have “replacement value” insurance, although it does not happen magically. For example, if you have insured the contents of your home and your television is destroyed; if you have replacement value, you will get enough money for a brand new TV; if you do not have replacement value, and your TV is 6 years old, you will get the value of a 6-year-old TV.
- Depreciated or current value – Most things depreciate in value, particularly things like cars and other vehicles. “Depreciate” means to lower in price or estimated value. A new car will decrease thousands of dollars just by driving it off the sales lot, which is why it is so important to have “replacement value” on your high value items.
- Riders – These are optional additional coverages you can add to your policy for a fee. They can be useful coverages to have. For example, if your car is destroyed in an accident, you will need to find a replacement. Having a “rider” for a rental car, means your insurance company will provide you with a vehicle for a limited period while you find a replacement. Most agents will explain what “riders” they offer; however, if they do not make sure you ask.
- Limits on the number of claims – If you have too many claims your coverage may be cancelled or your insurance premiums will rise. This happens because the “risk” to the insurance company has increased. For example, if you hit a deer with your vehicle, many insurance companies will limit the number of times they will provide coverage before they will cancel your policy.
Tenants Insurance – If you rent an apartment or house, you should have insurance on your belonging. If something happens to the building, you will not have any coverage. Even a small amount of insurance is worth the money, imagine having nothing except the clothes on that you are wearing. Many tenant insurance policies will also provide coverage for additional living expenses if you have to find temporary accommodation if the building is unusable because of problems caused by other tenants.
Liability, Collision, Comprehensive – To operate a car in Ontario, you must have liability insurance. Liability insurance covers you for damage that you cause other people while operating a vehicle. Liability insurance does not cover damage to you or your vehicle. Collision covers damage that happens to your vehicle in accidents, as cars are expensive to repair this kind of insurance is expensive because the risk of large payouts to the insurance company. Comprehensive covers most additional risks, such as theft or fire and can be expensive. Your age, the type of vehicle, and your driving experience can all have a large impact on the amount of risk to the insurance companies and therefore to the cost of these insurance policies for you.
Limits on Coverage – While we have discussed some limits on coverage, there are other types of limits that can affect your ability to make claims against your policies. If you inflict the damage yourself, that may void your policy. For example, if you purposely break your car windshield to get a new one and the insurance company finds out, they will not pay and may sue you for fraud. If your tenants insurance does not cover sewage backup and your home suffers from flooding from sewage, you may not qualify for a claim. We will devote a future post to Tenant’s Policies.
These are only a few terms that the Insurance Industry uses, we will cover more basic information in upcoming posts about Tenants Insurance, then Automobile Insurance, and then finally about Life Insurance.
This blog was originally written for the United Way of Bruce Grey’s “Financial Friday’s” series. UNITED WAY FINANCIAL FRIDAYS – INSURANCE. These posts were written as a combined effort of all of the associates in our office. If you know of any person who may benefit from this introduction to insurance, please refer them to this series.