23 common insurance terms to know when evaluating a policy
Having trouble wading through the jargon-filled world of insurance? We’re here to help break down renters insurance basics. Here are 23 insurance terms to know.
- Actual Cash Value. The current value of an item. Actual cash value accounts for depreciation (i.e., when value goes down because of normal wear and tear). So, it’s not the same as the amount you paid for an item, or the amount you would need to pay to replace it. For example, you might have paid $5,000 for a couch, but after three years of wear and tear, it may only be worth $3,000—which would be its actual cash value. Learn more about actual cash value vs. replacement cost.
- Carrier. An insurance company. Yup, the insurance industry even came up with a jargon-y way to say “company.” The carrier will be represented by an appointed “agent,” which is the individual who will speak to you on the company’s behalf.
- Claim. A request for reimbursement from your insurance company. If something happens—say, your upstairs neighbor’s pipe bursts and leaks onto your couch—you’d file a claim with your insurance company, and they’d help pay for the damages (if the damages are covered under your insurance).
- Coverage. This is the range of things that could happen that would result in your insurance company reimbursing you—making it one of the most important insurance terms to know. Renters insurance typically covers certain things, like property damage from a fire, but not other things, like damage caused by flooding. Jetty also has the option to add extra coverage for more modern situations—like if you drop and crack your phone screen, or if you damage your laptop.
- Deductible. The amount you’re responsible for before your insurance kicks in. If your insurance plan has a $200 deductible and you file a claim for $500 worth of covered damages, you’ll be paying $200 out of pocket, and your insurance company will kick in the remaining $300. When it comes to renters insurance basics, this term is key to know.
- Endorsement. An endorsement is a modification to your insurance policy. It can add or remove coverage, or otherwise change the conditions of your plan.
- Exclusion. Something that is specifically not covered by your insurance plan. Common exclusions include damage caused by floods or earthquakes. In the case of renters insurance, anything owned by your roommate would be an exclusion under your insurance plan.
- Floater/Rider. An add-on or modification to your insurance policy. A floater or rider can indicate that something isn’t covered, but it can also provide additional coverage—floaters are commonly added to policies to add additional insurance for valuables, like engagement rings.
- Hazard. Hazards are those things that make it more likely you’ll need to use your insurance—the burning candle that might start a fire, or the freezing temperatures that may cause a pipe to burst. Some hazards are covered by most standard insurance plans, while other hazards—like floods and earthquakes—often require a separate policy.
- Insurance. Insurance is a way to transfer risk. Without insurance, you’re potentially responsible for all of the financial losses incurred if your dog bites your neighbor or faulty wiring starts a fire in your apartment. With insurance, an insurance company or carrier takes on some of your risk – they agree to pay for certain things under certain circumstances, which means they might just foot the bill for your neighbor’s stitches or replace your singed couch.
- Insured. The person protected by an insurance policy. If you have renters insurance, you’re the insured party. Sometimes the “insured” is also referred to as a “policyholder.”
- Insurer. Another insurance term to know that falls under the “renters insurance basics” category, an insurer is a company authorized to issue insurance.
- Limit. The maximum amounts the insurance company will pay a policyholder for each area of coverage, such as contents coverage (your stuff) and electronics protection. Proper limits ensure that you are neither “underinsured” (i.e., underprotected if something happens) nor “overinsured” (i.e., overpaying in premiums). Think Goldilocks…you should buy not too much, not too little, but just the right amount of insurance to cover what you own.
- Loss. When you need to ask for money from your insurance company, it’s because you’ve suffered a loss—maybe your laptop was stolen, or your clothes were destroyed in a fire.
- Peril. An occurrence that causes—or might cause—a loss. Perils include things like fires, burglaries, and lightning storms. If you look back up at the definition of Hazard, you’ll see that a hazard is a thing that makes a peril more likely, while a peril is the actual event that causes damage. So if a burning candle is a hazard, the fire it causes when it tips over is a peril. And if freezing temperatures are a hazard, the burst pipe that causes water damage to your furniture is a peril.
- Policy. The contract between you and your insurance company. It outlines the damages that your insurance company will pay for, the timeframe during which you’ll be insured, any costs you’ll be responsible for, and more. Also known as a “plan.”
- Policyholder. The same as “insured”—a policyholder is someone who is paying to be covered by insurance. (That’s you! If you have renters insurance, that is.)
- Property. Your belongings. Anything from your clothes and your couch to your TV or your tea kettle. These are the things that your insurance is protecting. If you have a significant other named on your insurance policy, the property protected by your insurance includes their things, as well.
- Reinsurance. Reinsurance is insurance for insurance companies—it’s how they get the funds to make a big payout.
- Replacement Cost. The amount of money it’ll take to replace a damaged or stolen item. This is different from the actual cash value of the lost or stolen item, because it doesn’t account for depreciation. So if your 5-year-old computer is stolen, the replacement cost won’t be the value of a dented laptop with a fussy trackpad, but the amount of money you’ll need to buy yourself a new one. Learn more about actual cash value vs. replacement cost.
- Schedule. A detailed list of items covered under your insurance plan. Schedules usually include special items—like jewelry, collectibles, or designer shoes—to ensure that each one is specifically covered by insurance. Items of average value, like basic clothes, dishes, and furniture, are generally not listed on a schedule.
- Secondary Insurer. An insurer that provides coverage your main insurance policy may not have. This might be necessary if you’re looking to be protected against something like flood damage, which isn’t covered by most renters insurance providers. If you’re in a flood-prone area, you may need to find a secondary insurer—another company who will provide an additional policy just for flood damage.
- Term. The length of time you’re covered under an insurance plan. For most insurance plans, the term is 12 months.
There’s certainly no need to become an insurance expert (that’s what we’re here for), but it’s a good idea to read up on insurance terms to know in order to understand the basics of your plan.