Insurance Terms Everyone Should Know

Insurance can sometimes feel like learning a whole new language. Between acronyms, jargon, and policy fine print, it’s easy to get overwhelmed. Whether you’re reviewing your home, auto, or life policy, or just trying to make sense of your coverage, understanding a few key terms can make a big difference.

To help you feel more confident and in control, here are some of the most common insurance terms everyone should know. 

1. Premium

Your premium is the amount you pay to keep your insurance policy active. Think of it as your membership fee for protection. Premiums can be paid monthly, quarterly, or annually depending on your policy. Many factors affect your premium, like your coverage level, deductible, claims history, and even your credit score.

Jensen-Sundquist Tip:
Ask your agent about available discounts. Bundling your home and auto policies, maintaining a clean driving record, or installing home safety devices can often lower your premium.

2. Deductible

A deductible is the amount you pay out of pocket before your insurance coverage starts paying for a loss. For example, if your auto policy has a $500 deductible and your repair bill is $2,000, you’ll pay $500 and your insurer covers the remaining $1,500.

Jensen-Sundquist Tip:
Choose a deductible that fits your budget. A higher deductible can reduce your premium, but make sure it’s an amount you could comfortably pay if you ever need to file a claim.

3. Liability

Liability coverage protects you financially if you’re found responsible for injuring someone or damaging their property. It’s one of the most important parts of auto and homeowners insurance policies.

Jensen-Sundquist Tip:
Consider increasing your liability limits beyond the state minimums. The extra protection is usually affordable and can safeguard your savings and future income from unexpected lawsuits.

4. Policy Limit

Your policy limit is the maximum amount your insurance company will pay for a covered loss. Each type of coverage, like bodily injury or property damage, has its own limit.

Jensen-Sundquist Tip:
Life changes fast so make sure your coverage keeps up. Review your limits every few years or after major events like buying a home, starting a family, or starting a business to ensure you’re fully protected.

5. Claim

A claim is a formal request you make to your insurance company for payment after a covered event, like storm damage or a car accident. Once filed, your insurer investigates and determines payment based on your policy terms.

Jensen-Sundquist Tip:
File claims promptly and document everything—photos, receipts, and notes about what happened. Quick, thorough communication can make the process smoother and faster.

6. Actual Cash Value (ACV) vs. Replacement Cost

These two terms are especially important in property and homeowners insurance:

Jensen-Sundquist Tip:
Ask your agent which option your policy uses. Replacement cost coverage generally provides more complete protection but may come with a slightly higher premium—it’s often worth it for peace of mind.

7. Exclusion

An exclusion is something your policy does not cover. Common exclusions include flood damage, normal wear and tear, or intentional acts.

Jensen-Sundquist Tip:
Don’t assume you’re covered for everything. Review your exclusions and ask your agent if additional protection (like flood or umbrella insurance) makes sense for your situation.

8. Endorsement (or Rider)

An endorsement, sometimes called a rider, is an add-on that modifies your policy—either adding, removing, or changing coverage. For example, you might add an endorsement for valuable jewelry or to cover a home-based business.

Jensen-Sundquist Tip:
Think of endorsements as “custom upgrades.” They’re a great way to personalize your policy so you’re protected where it matters most—without paying for coverage you don’t need.

Knowledge Is Your Best Coverage

Understanding these common insurance terms helps you make smarter choices and avoid costly surprises. At Jensen-Sundquist Insurance Agency, we believe insurance shouldn’t be confusing. Our team is here to explain your options in plain language and help you find the protection that fits your life, your budget, and your future.

If you ever come across a term or policy detail you’re unsure about, just ask—we’re always here to help. Because when it comes to protecting what matters most, knowledge truly is your best coverage.