Shopping for insurance can be confusing. There are so many terms and phrases to learn, which can make it difficult to understand what you’re buying. In this blog post, we’ll break down some of the most commonly misunderstood insurance terms so that you can feel more confident in your insurance decisions.
Premiums vs. Deductibles
These two terms are often confused with one another, but they refer to completely different aspects of your policy. Your premium is the amount of money you pay for your policy. Think of it as a sort of subscription fee for having coverage for a certain period. On the other hand, your deductible is the amount of money you will have to pay out-of-pocket before your insurance company covers any expenses related to a covered claim or accident. It’s important to consider both premiums and deductibles when shopping for an insurance policy—you want to make sure you’re getting enough coverage while keeping costs manageable.
Automobile Liability Coverage vs Physical damage coverage
Automobile Liability coverage provides bodily injury and property damage coverage for damage you may cause to a person or property with your vehicle.
Physical damage coverage is coverage for damage to your auto, such as collision, theft, vandalism, fire, animals, and flood. Purchasing physical damage coverage will cost more, but this is generally required if your vehicle is financed. This is strongly suggested if you own a newer vehicle.
Actual Cash Value vs Replacement Cost Coverage
When purchasing homeowners’ or renters’ insurance, it’s important to know the difference between actual cash value (ACV) and replacement cost coverage (RCC). ACV policies will cover the depreciated value of an item at the time it was damaged or destroyed. RCC policies will cover the full cost of replacing an item with something similar kind and quality. If you’re looking for maximum protection, opt for a policy with RCC rather than ACV coverage—it may cost more upfront, but it could save you thousands in the long run if you have a covered claim or disaster strikes!
Insurance terminology can be overwhelming at first glance, but once you take some time to learn about common terms and concepts like premiums versus deductibles and ACV versus RCC coverage options, understanding what kind of policy best fits your needs becomes much easier—and much less intimidating! With this knowledge under your belt, you can shop smarter and get more bang for your buck when it comes time to purchase insurance!
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