Insurance 101: Understanding the Basics

Doran Insurance & Services, Inc.

Aug 4

3 min read

Insurance Doesn't Have to Be Confusing

Insurance comes with a lot of unfamiliar terms. Whether you're buying your first policy or reviewing your current coverage, understanding a few basic concepts can make choosing the right protection much easier.

Below are some of the most common insurance terms our clients ask about.

What Is a Deductible?

A deductible is the amount you're responsible for paying toward a covered claim before your insurance company begins paying for covered damages.

For example:

If your vehicle has a $500 deductible and repairs total $4,500, you would generally pay the first $500, and your insurance company would pay the remaining covered amount, subject to your policy terms and limits.

What Is Liability Coverage?

Liability coverage helps protect you financially if you're legally responsible for causing injury to another person or damaging someone else's property.

For example:

You cause a car accident that injures another driver.
A visitor slips and falls on your property.
You accidentally damage someone else's property.

Liability coverage generally protects other people, not your own property.

What Is Collision Coverage?

Collision Coverage helps pay to repair or replace your vehicle if it's damaged in an accident involving another vehicle or object.

Examples include:

Hitting another vehicle
Backing into a pole
Sliding into a guardrail
Hitting a tree

What Is Comprehensive Coverage?

Comprehensive Coverage helps protect your vehicle from many non-collision losses, such as:

Hail
Fire
Theft
Falling trees
Vandalism
Hitting a deer

Think of it this way:

Collision = You hit something.

Comprehensive = Something happens to your vehicle.

What Is Replacement Cost?

Replacement Cost is the estimated amount it would cost to rebuild or replace damaged property using similar materials at today's prices.

It isn't necessarily the same as your home's market value.

What Is Actual Cash Value?

Actual Cash Value (ACV) is the value of your property after depreciation is taken into account.

Older items generally have a lower Actual Cash Value than their original purchase price.

What Is an Umbrella Policy?

An Umbrella Policy provides an additional layer of liability protection above certain underlying insurance policies, such as your auto or homeowners insurance.

It can help provide added financial protection if a large liability claim exceeds your primary policy limits.

Why Should I Review My Insurance Every Year?

Life changes, and your insurance should keep up.

You should consider reviewing your coverage if you've:

Bought a new vehicle
Purchased a home
Renovated your house
Started a business
Added farm equipment
Got married
Had a child
Retired

An annual review helps ensure your coverage continues to fit your needs.

Quick Insurance Tips

✔ Know your deductibles before you have a claim.

✔ Review your policies every year.

✔ Don't focus only on price, make sure your coverage fits your needs.

✔ Ask questions whenever something isn't clear.

✔ Keep an updated home inventory and vehicle information.

Frequently Asked Questions

Why does insurance seem so complicated?

Insurance policies are legal contracts, but the concepts behind them don't have to be confusing. A good insurance agent should explain your coverage in plain language.

Is the cheapest policy always the best?

Not necessarily. A lower premium may also mean less coverage or higher out-of-pocket costs after a claim.

How often should I review my insurance?

We recommend reviewing your policies at least once a year or anytime you experience a major life change.