Understanding Insurance "Lingo" - What do those terms really mean?

In this issue we will review terms that are commonly used in the insurance business. We’ll try to explain what they really mean in straight forward, simple terms.

No Fault Insurance – This is a commonly mis-understood term.
No-fault means that if you or a passenger is injured in an accident, or your car is damaged, then you deal with your own insurance company when making a claim. Your insurance coverage pays for all of your loss (minus deductible), regardless of who caused the accident. The driver of the other car involved in the accident will claim benefits from his/her own insurance company.

That means you don’t have to wait for your insurer and the other driver's insurance company to determine who is at fault before a claim amount is paid out. The person who is not at fault will have his deductible refunded once liability has been accepted by the other insurance company. However, it does matter who caused the accident. If found to be at fault, a driver may experience an increase in future premiums.

Deductible – Deductibles apply to both home and auto insurance.
It is the amount of money you agree will be deducted from what the insurance company pays when you make a claim.

“Why do I have to pay anything when I make a claim?"
Deductibles reduce the amount the insurance company must pay when there is a claim and helps to keep premiums down. They also help to eliminate claims being made for minor damage (scrapes and scratches) that would be too costly to administer. Since the insurer has to pay the deductible portion, it encourages the insured to be more attentive to safety and loss prevention.

Replacement Value – “What would it cost to replace that item today?”
Replacement of the lost, stolen or damaged property with something of similar size, make and quality. Replacement value does not account for depreciation. In other words, whatever it costs to replace your property in today’s market.

Actual Cash Value – “What is that item worth today?”
The actual value of the lost property taking into account depreciation, along with age and condition of the property at the time of loss.

Remember, insurance is intended to put things back to the way they were – not make them better than before. However, policies do vary – so when in doubt, consult your insurance company.