Insurance can feel overwhelming, which is why many just ignore their coverage until they need it, simply crossing their fingers in the hopes that everything is in good order. Unfortunately, what makes insurance seem so complicated is that policies are packed with confounding technical terms that don’t always make sense.
Understanding what your coverage terms really mean is essential, as it ensures you’re properly protected and not left with unexpected costs after a loss. As certified insurance brokers with tons of experience under our collective belts, we always ask our clients if they feel confident about their coverage and if they have any questions. Too often, however, the answer is, “yes,” when we really know it’s actually “no.” That’s why we built this primer turning common insurance jargon into plain language: to hopefully help bring clarity to a confusing storm.
Premium
The premium is the amount you pay for your insurance policy. Think of it like a subscription fee for protection, the terms of which your provider is legally obligated to meet. In Alberta, premiums vary depending on your home, vehicle, or business risk. You can choose to pay monthly or annually, however, take note that you will likely pay a little bit more if you choose monthly payments to make up for additional administrative costs. The pluses and minuses of each something we can help you negotiate.
Deductible
Your deductible is the amount you agree to pay out of pocket when you make a claim before insurance kicks in. They are in place, mainly, to deter unnecessary claims. They mitigate against those who may act recklessly under the protection an insurance policy provides, perhaps by driving without care or failing to maintain a home properly.
If you have a $1,000 deductible on your auto insurance policy and a collision causes $5,000 in damage, you’ll pay the first $1,000 while your insurer covers the remaining $4,000. Higher deductibles usually lower your premiums, but it’s important to choose an amount you can realistically afford in an emergency.
Peril
A peril is simply a risk or event that could cause damage or loss, such as fire, theft, or flooding. Insurance policies either:
- Cover only specific risks listed in the policy), otherwise known as named perils.
- Cover everything except the exclusions specifically mentioned, otherwise known as all perils.
For example, if your policy covers “fire and theft” but your basement floods, that claim won’t be covered unless flood or water damage is listed.
Exclusion
An exclusion is something your policy doesn’t cover. Every policy has exclusions, and knowing them is crucial. In Alberta, overland flooding was once excluded from most home policies, but now many insurers offer it as optional coverage. Common exclusions include wear and tear, damage from neglect, or losses from unreported home renovations.
Replacement Cost vs. Actual Cash Value
These terms make a big difference in how claims are paid and also how much money you will receive:
- Replacement Cost: The amount it would take to replace or repair your property with new materials of similar kind and quality.
- Actual Cash Value (ACV): The replacement cost minus depreciation for age and wear.
Replacement Cost insurance is cheaper, however it comes with risks. For example, if your 10-year-old roof is damaged in a hailstorm:
- Replacement Cost coverage would pay to install a brand-new roof.
- ACV coverage would only pay the depreciated value of your old roof, leaving you to cover the difference.
Endorsement (or rider)
An endorsement is often also called a rider and is an addition to your policy that could expand your protection, reduce it, or clarify terms. For instance, you might add an endorsement for sewer backup coverage to your home insurance, or for emergency roadside assistance on your auto policy. You may also want an endorsement for items that often have lower special limits (meaning policies will only cover up to a certain amount), such as jewelry and artwork.
Liability
Liability coverage protects you if you’re held legally responsible for injury or damage to someone else. For Albertans, this is a critical piece of both home and auto insurance. If a visitor slips on your icy front steps, or if you cause a collision on Deerfoot Trail that wipes out a road sign, liability coverage pays for the injured party’s expenses, any necessary repairs, and protects your financial future.
Broker vs. Direct writer
You’ll often hear the terms broker and direct writer when shopping for insurance.
- A broker (like us at Lane’s Insurance) represents multiple insurers and finds you the best policy for your needs through our access to multiple policies from multiple providers.
- A direct writer represents only one company and can only sell you their products.
Working with a broker gives you more choice and personalized advice. When it comes to insurance, there are many benefits to choosing a broker.
Aggregate limit
An aggregate limit is the maximum amount your insurer will pay out during a policy period (usually one year). This is especially important in liability and commercial policies. Once that limit is reached, you’re responsible for additional costs, so it’s important to know how much it is.
Why this matters for Albertans
Alberta’s unique risks, such as hail storms, wildfires, and icy roads, make it essential to understand exactly what your policy covers. Misunderstanding a single term could mean thousands of dollars out of pocket.
Insurance doesn’t have to be intimidating. By breaking down the jargon, you can make more informed choices and avoid surprises when it’s time to make a claim. As brokers, we’re here to walk you through the fine print, answer questions, and ensure you have the right protection for your needs and budget.
In addition to working with Alberta’s most trusted insurance carriers, one of the best things about Lane’s Insurance is its industry-leading claims support. Lane’s offers expert assistance, along with great attention to detail and customer service staff that is invested in resolving your claim quickly.
Learn more about how Lane’s can help you save on your home, auto and commercial insurance.
