Understanding Property and Casualty Insurance Vocabulary
By Nathan Guss|8 min|September 2023
Is your insurance policy all Greek to you? Here are 9 important words to understand the basics.
Unless you’ve had a real string of bad luck or you’re a true pro at adulting, reading your insurance policy can feel like you’re looking at a foreign language. But don’t worry. You don’t need to understand every word to get the gist. With these nine key terms, you’ll be better prepared to talk with insurance experts, whether you’re purchasing a policy or filing a claim.
Do you need to explain to your insurer how your cat caused a kitchen fire? You’ll be filing a claim.
An insurance claim is a formal request that a policyholder makes to an insurance company for coverage or compensation for a specific loss or event covered by the policy. Once the claim is filed, the insurance company will evaluate the request and determine how much they will pay out based on the terms of the policy.
When filing an insurance claim, you’ll typically need to provide details about the incident, including the date, location and cause. Supporting documentation, such as photos of the damage, police reports (if applicable), receipts for damaged items and any other relevant evidence, will strengthen your claim.
2. Assignment of a claim
An assignment of a claim occurs when a policyholder transfers their claim’s rights or benefits to a third party. For instance, if a home disaster forces you out of your home, your insurance might cover temporary housing expenses. Instead of paying for a hotel up front and then seeking reimbursement from the insurance company, you can assign the claim to the hotel. This allows it to bill the insurance company directly, which makes your life easier. An assignment of a claim streamlines the reimbursement process, eliminating the need to pay out-of-pocket before you receive insurance compensation. It offers immediate financial relief and reduces the administrative hassle of handling bills and seeking reimbursements.
You may already be familiar with one type of ale, but this type, the acronym for additional living expenses, can also make your life feel a lot better. ALE clauses cover the extra costs you incur if a covered peril, such as a fire or flood, makes your home uninhabitable. This can include hotel bills, restaurant meals and other expenses that arise because you can’t use your home. Essentially, ALE coverage ensures that your standard of living remains consistent while your home is being repaired or rebuilt. Knowing you won’t be burdened with sudden, unexpected living costs on top of dealing with all the other rigmarole that comes with home damages can provide peace of mind.
4. Coverage limit
This is the maximum amount your insurance company will pay for a covered loss. It’s essential to know your coverage limit because it tells you how much insurance will cover and how much you might need to pay out. If damages from an accident or event exceed this limit, you’ll be responsible for covering the difference.
This is the amount you’ll pay out-of-pocket before your insurance begins to cover the costs of a claim. For example, if the deductible on your home insurance is $500 and the total damages are $2,000 after a kitchen fire, you’ll be responsible for the first $500. After that, your insurance will cover the remaining $1,500 needed to get you cooking up a storm again. It’s important to know your deductible because it determines your immediate financial responsibility after an incident.
6. Home inventory
When disaster strikes, whether it’s a burglary, fire or flood, the last thing you want to do is rely on your memory to list everything you’ve lost. That’s where a home inventory comes in.
A home inventory is a detailed record of all your personal possessions and their estimated values. Think of it as a snapshot of everything you own, from that top-of-the-line waffle maker you swore you’d use every weekend to the neon flamingo lamp you hide when guests come over.
In the unfortunate event of a loss, this comprehensive record can expedite the claims process with your insurance company, offering tangible proof of your belongings and their worth. Moreover, by knowing the total value of your possessions, you can ensure that you have adequate insurance coverage. A home inventory helps you file an accurate insurance claim. This proactive measure might seem tedious, but it can save you from potential headaches and financial pitfalls later on.
A peril refers to a specific risk or cause of loss. It’s an event that might cause damage to your property. For instance, if a tree falls on your house during a storm, the storm is the peril. The term act of God is also often used to describe natural events that cause damage, which are typically beyond human control, such as forest fires, earthquakes, tornadoes and landslides. Think Zeus throwing a lightening bolt at your roof. However, in Canada, insurance companies usually use the term “peril” to refer to unforeseen natural events that cause damage. Many policies list which perils are covered.
8. Claims adjuster
A claims adjuster is a professional assigned by your insurance company to assess property damage and propose settlements based on your policy. They typically undergo specialized training, pass specific examinations, and need to be licensed in their province to ensure they are well versed in insurance laws and regulations. Their role is multifaceted, involving many tasks, such as interviewing policyholders, arranging temporary housing, analyzing insurance policies and coordinating repair work. They look out for insurance companies’ interests by, among other things, preventing fraud, but their role is also to ensure that you receive a fair settlement based on your policy’s terms.
9. Flood plain
A flood plain is an area of land that is susceptible to flooding, often located near bodies of water, such as rivers or lakes. Understanding whether your property is in one is crucial because standard homeowner’s insurance policies typically don’t cover flood damage. But rest assured—you can normally still get coverage against this type of damage, even if your home is in a flood plain. To protect against flood-related losses, homeowners can purchase extra coverage.
Dealing with a loss or home disaster is never a pleasant experience. But by familiarizing yourself with these key terms in property and casualty insurance, you’ll be better equipped to navigate this complex terrain. So, whether you’re deciphering insurance jargon when filing a claim or buying coverage, knowing these key words is a great place to start. That said, don’t hesitate to ask your insurance broker or claims adjuster questions about these or other terms you encounter if you need clarification.
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