Insurance terms simplified: the basics
Doing some homework to understand important terms can help you navigate insurance with confidence.
Insurance terms can be confusing to navigate. If you want to understand terms in your policy and coverage, you’re in luck. These insurance definitions may help your understanding of basic insurance terms.
Insurance basics & common terms
You may be wondering how insurance works. Insurance allows you to be protected in many different situations. By paying a premium, you will be able to receive coverage for a covered claim on your home, car, business and other assets. Below is a list to help you understand common insurance terms for property and liability policies you may come across.
- Agent — someone that sells insurance on behalf of an insurance company. They are knowledgeable about your policy, coverage and can help answer insurance questions you have. Some agents offer products from only one insurance company, and some may sell products from many different insurance companies.
- Claim — a request to your insurance company for them to pay you after a loss. The insurance company will review your claim and, once the claim is investigated and coverage is confirmed, you’ll receive payment based on your coverage.
- Coverage — insurance coverage is the financial protection an insurance company provides against a specific set of risks or potential losses outlined in a policy.
- Deductible — the amount of money a policyholder is responsible for before the insurance company covers a claim. Depending on the policy, it could apply per incident or per policy period.
- Insured — the policyholder or people protected in the event of a loss or claim. Review your policy to understand who qualifies as an insured for a particular coverage.
- Insurer — the insurance company that provides insurance coverage and services to the insured.
- Loss — damage or injury that occurs to the insured or the insured’s property.
- Perils — a risk or cause of a loss that is covered by your insurance policy, such as collisions, hail, fire, etc.
- Policy — a contract declaring the insurance coverage.
- Policyholder — the person who pays for and is issued the insurance policy as the named insured.
- Premium — the amount of money the insurance company charges the policyholder to provide the agreed amount of coverage.
- Underwriting — when the insurance company is deciding whether to accept or reject an application for a new policy or whether to renew an existing policy.
When you're thinking about the coverage you have or need, you'll want to know these common insurance terms so you can make informed decisions. There are many different types of insurance and coverage options for you to have on your policies.
Check with your local agent to see if you are properly covered for your needs. For more information or to get a quote, give us a few details and a State Farm® agent will reach out to you.
The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.
