ConsumerInfo about Insurance

By Sally Praskey, Editor, Insurance Canada ConsumerInfo

"Insurance speak" is a language unto itself, so it's no wonder consumers get confused trying to decipher their insurance policy. As a first step, get comfortable with the following basic terms, and refer to the Glossary for additional definitions.

Claim – a person's request for payment by an insurer of a loss covered by a policy. Claims to your own insurance company are called "first-party claims"; claims made by one person against another person's company are known as "third-party claims."

Deductible – Nothing to do with income tax, this is the portion of the loss that you agree to pay out of your own pocket, before the insurance company pays the amount that it is obligated to cover. The deductible is subtracted from the total amount paid by your insurer. Therefore, if your claim is for $2,000 and your deductible is $500, you will pay $500 and the insurer will pay $1,500.

Exclusion – specific conditions or circumstances listed in the policy that are not covered by the policy. For example, damage caused by rodents is excluded from your homeowners policy, meaning it is not covered and the insurer will not pay if a squirrel wreaks havoc in your house.

Liability – a legally enforceable financial obligation. Liability insurance pays the losses of other people when you are legally responsible for an accident in which you have injured another person or damaged that individual's property.

Occurrence – an accident that results in bodily injury or property damage during the period of an insurance policy.

Peril – the cause of loss or damage. Your homeowners policy, for example, insures you against perils like windstorms, fire, and theft, among others.

Personal-lines insurance – insurance (like homeowners or automobile) for individuals, as opposed to commercial-lines insurance, for businesses.

Policy – the legal document issued by the insurance company that outlines the terms and conditions of the insurance.

Policyholder – the person who buys the insurance; also called the "insured."

Premium – the payment required to keep your insurance policy in force.

Risk – the chance of a loss. You insure your house, for example, against the risk of fire.

Underwriting – the process of selecting risks for insurance, and determining how much to charge to insure these risks and which coverage to provide.