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4 Must Know Insurance Terms

Insurance Terms 101: Why do I need to know insurance terms?

Buying insurance can have major impact on your finances - you don’t want to pay for more coverage than you need or worse, find that you are underinsured in the event of a loss. While it is advisable to consult your insurance agent to find the right coverage at a fair price, understanding basic terminology will make things go smoother, whether you are shopping for your home, auto, health, or business insurance.

Let’s start with Four Must Know Insurance Terms: Deductible, Co-Pay, Coinsurance, and Maximum Out-of-Pocket.

What is a Deductible?
deductible is a fixed amount you must pay before most or all of your policy's benefits kick in. Deductible amounts vary according to the plan you purchase. Policies with higher deductibles generally have lower premiums and policies with higher premiums generally have lower deductibles. Sometimes, as in health insurance, certain services, such as preventive care procedures, do not have a deductible. Other insurance policies, like home and auto, have standard deductibles that apply with each claim occurrence.

What is a Co-pay or Co-payment?
A co-pay is a specific amount, assigned by your insurance coverage, you must pay each time you see a health care provider. Policies often require a co-pay for prescription drugs. These amounts must be paid before the insurance company covers any benefit and they do not apply toward maximum out-of-pocket expenses.

What is Coinsurance?
The concept of co-insurance is based on the sharing of financial risk between the insurer (the insurance company), and the insured (the policyholder). After you meet your deductible, coinsurance applies until you meet your out-of-pocket maximum. For example, if your policy calls for 80/20 co-insurance you must pay 20 percent of your bill while the insurance company is responsible for the remaining 80 percent.

What is Maximum Out-of-Pocket?
Your deductible plus coinsurance amounts determine the maximum-out-of-pocket expenses you are responsible for under an insurance plan. All three components are calculated on an annual basis according to your insurance policy. When you reach your out-of-pocket maximum, the insurance company pays your covered expenses as long as you continue to pay your premium. This limit caps the amount policyholders pay toward their medical costs, which can help them avoid major health care expenses.

What if I have more insurance terminology questions?
Always feel free to contact your independent insurance agent with questions. As educated professionals, they are ready to help you understand and navigate your coverage options.

How do I locate an Independent Insurance Agent? can connect you to a SIAA Member Agent within or close to your zip code anywhere in the continental United States.

The information on this site is general in nature. Any description of coverage is necessarily simplified. Whether a particular loss is covered depends on the specific facts and the provisions, exclusions and limits of the actual policy. Nothing on this site alters the terms or conditions of any policies, nor does it provide any guarantees. You should read your specific policy for a complete description of coverage.


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