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Insurance Lingo. Insurance has a language all its own, hence the large vocabulary list for this lesson . Learning insurance terms can help you master many insurance concepts, so make an extra effort to study the terms in this lesson. You will come across them later in life when you’re buying insurance, comparing insurance products, or making a claim for a loss. Knowing the terminology helps you communicate with your insurance company and more effectively advocate for yourself in the event of a loss. Insurance Agent. An insurance agent represents companies that provide insurance policies. There are hundreds of insurance companies and many different types of policies and insurance plans. When shopping for insurance it’s important to consult an experienced and knowledgeable insurance agent who can find just the right company and policy for your needs. Insurance Fund. Insurance companies are able to take on a great deal of financial risk because they are large and very wealthy institutions. Each month, hundreds of thousands of the company’s policy holders pay premiums on their policies. The insurance company collects and pools the premiums. This large pool of funds is in the billions of dollars. It is this deep pool of money that enables insurance companies to spread the risk of loss whenever their customers suffer an accident, disaster, or other loss- causing event. Deductible. Here’s an important financial literacy concept: No matter what type of insurance you’re dealing with — be it homeowners, automobile, or health, the insurer rarely pays 100% of a loss . The insured almost always pays some portion of the loss out of their own pocket. The portion of the loss that the insured is responsible for paying is called the deductible . The deductible splits the loss between the insurance company and the insured. For example, a homeowner’s policy deductible is expressed as a percentage of the cost of replacement of the damaged home, such as 20%. In a car insurance policy, the deductible is expressed as a specific dollar amount, like $500. The deductible is set at the time the policy is purchased. You can get a lower deductible by paying higher premiums, or a higher deductible for lower premiums. Homeowner’s Insurance As you learned in Chapter 9, Home is Where the Mortgage or Lease Is , a home is one of the biggest, if not the biggest investment a person makes in their lifetime. Many people work hard for years to afford a down payment on a home. What if the house burns down in a fire? Does the homeowner lose all their equity? What if all their furniture, clothes, and appliances are destroyed in a flood? How can they afford to replace all their stuff? What if a home is vandalized when the owners are on vacation and the house and all its contents are trashed? What if someone is injured in their home and they get sued? The solution is homeowner’s insurance! Homeowner’s Policies. Homeowner’s insurance policies are common insurance documents, but that doesn’t mean they are easy to understand. If you own a home one day, you will need to have homeowner’s insurance, so understanding the basics about this type of insurance coverage is important. Let’s Party! National Insurance Awareness Day is June 28. Fin Lit Trivia Fin Lit Trivia Fin Lit Trivia PRODUCT PREVIEW II. Types of Insurance
Chapter 15 | Protect What You’ve Earned 286
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