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How to Understand Car and Home Insurance Terms

How to Understand Car and Home Insurance Terms

Do you understand the car and home insurance terms that are in your policies? Being familiar with car and home insurance terms will help you better understand your coverage should you need to make an insurance claim.

When you are familiar with car and home insurance terms, you can ask your insurance expert informed questions about your policy. It can also get you thinking about ways to save on your car and home insurance. The more you know, the more you may be able to save.

Let’s start with broker: Western Financial Group is one of Canada’s top insurance brokers. We will do the insurance shopping for you. We get insurance quotes for you by working with Canada’s leading insurance companies to get you coverage that fits your needs at the right value for you.

Here’s an insurance glossary to help you understand your car and home insurance policies:

Some common car insurance terms:

Actual cash value: The market value of your car before it was damaged.

Additional driver: Family members and friends you include on your car insurance policy.

Accident forgiveness: You’ll also hear it called “claim forgiveness.” It’s an insurance product offered where your insurance provider agrees not to adjust your insurance premium after your first accident if you’re considered at-fault or partially at-fault.

Bundling your car insurance: This means purchasing all your insurance products, such as car and home insurance, from one insurer.

Car insurance binder: A car insurance binder is a temporary agreement between you and your insurance provider that gives you immediate coverage while your car insurance policy is being processed and finalized. It bridges the gap between the time you purchase a policy and the time it becomes officially effective.

Claim: This is what you submit to your insurance provider after you experience damage to, or loss of your car so that your provider can validate and approve compensation for that loss. If you're involved in a car accident – regardless of who is at fault – you’ll need to report it to your insurance provider as quickly as possible.

Collision insurance: This type of insurance covers the cost of repairing or replacing your car if you hit another vehicle or object. If you finance or lease a vehicle, then it is mandatory to have collision coverage. However, if you own your car then you have the option of removing it.

Comprehensive insurance: It covers the cost of repairing or replacing your car due to damage from vandalism, fire, or theft. In many cases it’s optional, but it depends on which province you live.

Coverage: Insurance coverage is the amount of risk, liability, or potential loss that is protected by your car insurance. It helps you recover from financial losses as a result of a car accident.

Coverage - all perils: Optional coverage that covers all causes of loss except those mentioned as exclusions in your policy. All perils coverage also covers loss or damage in the event your car is stolen or if it’s damaged by an additional driver or someone in your household.

Deductible: The deductible on your car insurance is the amount you will have to pay before your coverage kicks in. How high your deductible is does affect the cost of your car insurance policy. The higher your deductible is, the lower your car insurance rate may be.

Depreciation: It’s the decrease in value of an asset, such as your car, over time. Typically, the depreciation of your car begins after you leave with it from the dealership and continues as it ages.

Excluded driver: Any driver that is not covered by your policy, or driver(s) that are specifically excluded from being covered and cannot use your car.

Lapse: The termination of the insurance policy upon reaching the expiry date.

Liability coverage: Coverage protecting you financially if you're found legally responsible for the death or injuries to a person or damage done to their property while operating your vehicle. Coverage usually ranges from $200,000 to $2,000,000 and is mandatory across Canada.

Multi-policy discount: It’s a discount on vehicle insurance offered by some insurance companies for insuring your home and auto with the same company.

Multi-vehicle discount: It’s a discount on auto insurance offered by some insurance companies for insuring more than one vehicle with the same company.

Premium: An insurance premium is the amount you pay to your insurance provider regularly to keep your policy active. You may be able to pay premiums monthly, quarterly, every six months, or annually, depending on your insurance company and your specific policy.

Replacement cost: The cost of replacing an asset with an identical one, such as your car.

Uninsured automobile coverage: It’s coverage that protects you financially in the case of death or injury caused by an uninsured driver or as a result of a hit-and-run by someone else. It also covers damages to your vehicle by an identified uninsured driver.

VIN: The vehicle identification number (VIN) on your vehicle. It’s usually found on the dashboard of your vehicle on the driver’s side and is usually listed on the vehicle registration and title. The VIN is a combination of letters and numbers 17 characters in length that can be used to identify the make, model, and year of your car.

Write-off: It’s also called a total loss. It’s when the repair cost of your car is higher than the actual value of the car before the incident that caused damage or loss. In these cases, you'll typically be offered a settlement based on your policy coverage.

Some common home insurance terms:

Act of God: It describes an event that’s outside our control, such as a natural disaster. Depending on your policy, acts of God usually fall within force majeure clauses. Force majeure is an event that happens beyond your control, including natural disasters, civil unrest, and any other unforeseeable event that could harm you or your property. War and nuclear bombing would be considered extreme circumstances where you would probably not be covered by your insurance company.

Actual cash value (ACV): Actual cash value covers your house for its cost plus the total value of its contents after deducting depreciation, which would be how much the items are worth now and not their market value.

All perils: It would cover all risks unless explicitly excluded in your home insurance policy with exclusions such as nuclear disasters or acts of war. Examples of different perils in home insurance are fire, hail damage, flooding, earthquake, theft. Check your homeowner’s insurance policy to learn what perils it covers.

Appraisal: It determines the value of an item. For example, your insurance provider may request an appraisal if you have an engagement ring that you want insured.

Binder: A binder, in this case a home insurance binder, is temporary proof of coverage and evidence of your home insurance policy until your formal policy is issued.

Coverage A: You may hear the term, Coverage A, and it’s for the house itself, also known as the building or dwelling.

Deductible: The amount you pay out of pocket before the insurance company will begin to cover the cost of repairs. For example, if your deductible is $1,000 and you have $20,000 damage from a fire. You would pay the first $1,000 and your home insurance policy would cover the remaining $19,000.

Detached private structures: Structures that are separate from your home itself but still on your property such as a storage shed or fence.

Dwelling: A dwelling is your home and any attached structures, permanent outdoor equipment or features, and any materials or supplies that are currently being used to build, repair, or renovate your home or any structures on your property.

Earthquake insurance: It must be added to your homeowner’s insurance policy. Earthquake insurance helps cover damage caused by an earthquake as defined in your coverage.

Endorsement: When something is added, removed, or modified on your current policy. An endorsement overrides anything it needs to in your home insurance policy to provide the level of coverage that you want. For example, you can get an endorsement to cover your art or wine collection. It can also be called a rider.

Floater: Similar to an endorsement, a floater is a term for insurance for items that may be moved from location-to-location and covers them wherever a loss may occur. A floater is usually purchased to cover furs, jewelery, and other valuables not fully covered in a home policy.

Home insurance premium: It’s the amount you pay to buy insurance for your home. Factors that determine how much you’ll pay for premiums include, type of residence, where you live, claims history, crime rate in your neighbourhood, and the age of your home and its condition.

Indemnity: If you suffer an insured loss, your insurance provider will provide indemnity or reimbursement for your loss according to the terms of your home insurance policy.

Living expenses coverage: Coverage that pays for accommodation in the event that you have a claim and cannot live in your home for a period of time.

Loss of use: It provides reimbursement for expenses incurred while you can’t live in your home due to an insured loss, including motel/hotel rooms, meals, and other necessary expenses.

Market value: The cost of your home or its contents that would sell for current market conditions.

Named perils: It’s a type of insurance coverage that offers compensation for the perils specifically named in your policy, such as fire, explosion, falling objects, vandalism, and more.

Overland water coverage: Protects you against damage caused when water from above ground enters a home though the windows and/or door openings. It also covers damage caused by fresh water floods such as the overflow of a river, as well as the sudden and accidental accumulation of water due to a heavy rain. It needs to be added (as an endorsement) to your home insurance policy.

Personal liability: Personal liability coverage is part of your home insurance policy. It helps covers you against lawsuits for injury or property damage that happens on your property. Here are some examples of personal liability claims include: Slips and falls on an icy sidewalk, tripping on loose carpets, dog bites, pool-related accidents, and falling trees. As a rule of thumb, a $1 million limit is recommended, but $2 million or more is ideal.

Sewer backup coverage: Sewer backup coverage must be added to your home insurance policy. It protects you against losses that happen due to your sewer or septic system backing up into your home.

Unisured perils: Uninsured perils are also known as exclusions and are risks that are not included in your insurance policy, such as floods, earthquakes, and damage as a result of lack of maintenance.

Western Financial Group will get you customized car and home insurance to protect what matters to you. You can bundle your car and home insurance with us to save.

We’ll be with you every step of the way should you need to make a home or car insurance claim.