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14 Insurance Terms You Need to Know
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Since there are so many different types of insurance available in Canada, it can be tough to figure out which kind you actually need, especially if you don’t know all the right lingo. Even basic insurance terminology can sound pretty confusing when someone tries to explain a particular product, service, or feature aloud.
If you’re thinking about purchasing insurance but are thrown off by the complicated financial language that’s involved, don’t worry, because we’ve compiled a list of 14 simple insurance terms that can help you make the right choice.
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Common Insurance Terms You Should Know
Your premium is the fee your insurance provider charges in exchange for coverage. Every provider offers different policy and payment options. Depending on what type of insurance you’re looking to buy, an algorithm is often used to tabulate which policy and premium you’re eligible for. That algorithm can be affected by factors like:
- Age – Some types of insurance have higher premiums if you’re younger or older. For example, car insurance can be pricier if you’re under a certain age (25 – 30).
- Gender – According to some providers, women have longer life expectancies than men, who can be more prone to accidents and general health problems.
- Health – This is an important factor for life insurance. For instance, if you’re a smoker or have pre-existing medical conditions, you may be subject to higher premiums.
- Car Model – Car insurance premiums can be lower if your vehicle has been statistically proven to be safe on the road or has less chance of being stolen.
- Living Conditions – Home insurance premiums can increase if you live somewhere with a high rate of natural disasters, such as earthquakes.
A deductible is what you pay after you’ve filed an insurance claim. If you’re covered, the deductible amount is usually a portion of the overall cost required to resolve the issue. For example, if you get in a car accident that wasn’t your fault, your vehicle insurance provider should cover most, if not all of the final cost of any repairs.
However, if the collision was your fault or the damage was caused by factors that are beyond anyone’s control, like poor road conditions, you may have to pay a deductible that’s based on the value of the issue that’s being insured. Plus, if you are held responsible for an accident, your future premium and deductible amount may increase.
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Like its title suggests, a beneficiary is someone who stands to benefit from an insurance policy once it’s been claimed. This could be you, as would be the case with certain types of car, home, or medical insurance. It could also be your spouse, children, or other family members after you die and your life insurance is paid out.
As mentioned, a claim occurs when you file for insurance coverage following some type of incident. For instance, if you bought travel insurance and get injured in a foreign country, you can claim any required medical costs on your insurance, such as ambulance rides and professional care (as long as you have adequate coverage).
Remember, if you need to insure a home in an area that’s prone to natural disasters or other negative occurrences, you may be subject to higher premiums. That said, a peril relates to any force or event that can cause damage to the thing or person you’re trying to insure, including your vehicle, personal possessions or yourself.
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When an insured property is damaged in some way, it’s known as a loss. If your loss is “covered” by your policy, it means your insurance provider will protect you financially until the issue is resolved. Sadly, the opposite goes for any losses that aren’t covered. For example, if you willingly bought a home in an area with a high potential for earthquakes, you may not be fully covered when one wrecks your property.
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The policyholder is the person that purchases an insurance policy. However, the term doesn’t necessarily refer to the person or property that’s “insured”. While the insurance package may be in your name, the policy itself may provide coverage for someone or something else, like your personal property or beneficiaries. Then again, if you’re the policyholder for a car insurance policy, you may be listed as the insured.
The insurance or claims adjuster is the person who investigates the circumstances of the incident that led you to file a claim, then determines who is liable and whether or not you’re eligible for coverage. Like a detective, common tasks performed by an insurance adjuster include interviewing claimants and witnesses, inspecting damages to a person or property, and looking into any police or hospital records.
Similar to a peril, risk refers to the chance of something unpredictable or harmful happening to the insured person or property. Common risks that insurance providers must assess include losses, damages, injuries and other health issues. For example, if you’re a habitual smoker, your provider will perceive this as a medical risk and may charge you a higher premium than someone with better health would receive.
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A declarations page is a summary of any essential details of a particular insurance policy, including but not limited to the policyholder’s:
- Personal information (name, address, etc.)
- Policy number
- Dates of coverage
Typically, insurance brokers have a distribution agreement with several insurance providers, which allows them to compare different policies and rates, then offer the best one(s) for your situation. Due to the administrative work involved, insurance brokers may earn commission fees for referring customers to those providers and policies.
Unlike a broker, an insurance agent works directly for a single provider. While they may not get the same type of commission fees, they’ll receive a fixed salary and could earn bonuses for completing a certain number of sales. So, even though a broker can help you locate the best policies and rates, an agent may allow you to save on service fees.
Found on a declaration page, an insurance limit refers to the maximum amount of coverage a policyholder can get during a claim and is predetermined before the policy is activated. For instance, most travel insurance policies can cover you for several hundred thousand dollars worth of medical costs, stolen items, or other incidents.
Replacement Cost Coverage
This type of coverage relates to the cost required to replace a property, without deducting value depreciation from regular use or wear n’ tear. So, if your car gets destroyed beyond repair after a collision, your insurance coverage may be adequate enough to replace it with an identical model or a vehicle of equal value.
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Canadian Insurance Providers
|Type of Life Insurance||Availability||Number of Partners|
|- Term life insurance - Permanent life insurance||-||-|
|- Term life insurance||BC, AB, MB, ON, NS, PEI||-|
|- Term life insurance - Whole life insurance - Disability life insurance - Critical illness life insurance - No medical life insurance||ON||16|
|- Term life insurance - Permanent life insurance - Critical illness life insurance||BC, AB, SK, MB, ON, NB, NS||50+|
|- Term life insurance - Permanent life insurance||All of Canada||30+|
Additional Insurance Terms You Should Know By Insurance Type
Although the above terminology can relate to almost any kind of insurance, there may be a few terms that you’ll only encounter with specific insurance types, such as:
- Cash Surrender Value – If you’re the policyholder and you want to cancel your policy before its official maturity age, your life insurance provider may pay you a specific “cash surrender value” amount. Unfortunately, this may not be an option with all life insurance policies or providers.
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- Maturity Age – This is the date your life insurance policy expires or gets terminated. The maximum maturity term can be set for a number of years or it can last until you reach a certain age. There’s also permanent life insurance, which provides coverage as long as you’re alive and protects your beneficiaries when you die.
- Riders – This can be purchased when you buy life insurance or when your policy’s anniversary comes around. While you may pay a higher premium, riders are additional benefits that can expand the parameters of a base life insurance policy. Common life insurance riders include:
- Waiver of Premiums
- Accidental Death Benefit Rider
- Accidental, Total or Permanent Disability Rider
- Hospital Cash
- Critical Illness Coverage
- Actual Cash Value – Similar to replacement cost coverage, the actual cash value can help you cover the cost of rebuilding or replacing a piece of damaged property, minus its depreciation from natural occurrences.
- Appraisal – Before you can file a claim, a professional inspector must figure out your property’s value, as well as how much coverage you’re eligible for, if any. While some insurance providers supply their own in-house appraisers, you can also hire a third party inspector to help resolve any disputes.
- Material Misrepresentation – If there’s a discrepancy between the conditions of your home insurance claim and the information on your application, your provider may launch an investigation to confirm that you’re actually covered. So, if you go through any major life changes, be sure to inform your provider right away.
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- No Fault – This system allows you to deal directly with your provider to address any damages, injuries or claims after a car accident. Regardless of who was at fault, claims are managed by each party’s provider. Currently, the no fault system is only available in Ontario, Quebec, Nova Scotia, New Brunswick, and PEI.
- Third-Party Liability – If another person causes an accident or injury while driving your vehicle, you’ll be held legally responsible, even if you weren’t in the car when the incident occured. This coverage protects you in that scenario and when damages or injuries happen to a third-party while you’re driving.
- Accident Forgiveness – Also known as “claims forgiveness”, some insurance providers won’t increase your premium following a collision that you were deemed fully or partially responsible for, as long as it was your first accident.
What Type of Insurance Are You Looking For?
No matter what kind of insurance policy you want or which broker/provider you’re buying it from, it’s always a smart idea to brush up on the relevant terminology before applying. After all, the more you understand about a particular kind of insurance, the easier it will be to find the best providers, policies and premiums for your financial situation.
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