Have you ever wondered why lawyers’ jargon is so seemingly convoluted and redundant?
The reasons actually go back several hundred years, when English, French and Latin were all commonly spoken in England. Lawyers in medieval times began the practice of using terminology in two languages; thus today, we have legal terms such as break and enter, fit and proper, and land and tenement – all examples of English and French words that mean the same thing.
This practice has continued because of the need for extreme precision when it comes to interpreting the law – and especially when writing contracts.
Insurance lingo is not quite as difficult, but since an insurance policy is essentially a legal contract between two parties – you and the insurance company – the same precision of language is necessary. Here are some common insurance terms that you should know.
Actual Cash Value: As you know, a new vehicle loses about 10% of its value the moment you drive it off the lot – and continues to lose value as time goes on and odometer miles pile up. The insurer normally pays the actual value of the vehicle at the time of the loss. This may be less than you owe on the vehicle. You can avoid this situation by purchasing a rider or policy that covers that amount; be sure to discuss this with your insurer.
Bodily Injury Liability: Because of the privatized nature of the U.S. health care system, it is necessary to make provisions for medical costs when people are injured in a collision. This term covers such costs for third parties who sustain injuries up to the amount specified in the policy.
Medical Payments: This covers injuries sustained by you and any passengers in the vehicle at the time of the accident. Again, this coverage has limits, as does your private insurance; you can protect yourself by purchasing extraordinary medical coverage, which will continue payments should you need multiple surgeries, rehabilitation and/or ongoing therapy.
Indemnity: This term is commonly misunderstood. When you are “indemnified,” it means that you are restored to the condition and status that you had prior to the accident. The amount required for this is determined at the time your policy is written.
Income Loss Protection: This may be included in “medical payments” or not; essentially, this provides you with income in the event that you are unable to work due to your injuries.
Exclusions: Exclusions refer to those situations and items that are not covered by the policy, such as loss of a vehicle due to fire or flood, or when operated by someone other than the primary (you). Your agent should discuss these with you when your policy is written; they should also be listed on the declarations sheet.
Endorsements: If it is necessary to make changes to a policy in the middle of the term – for example, if you want to add authorized drivers or a particular coverage such as flood insurance – the company will “endorse” such changes if approved.
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