Finding Clarity: Insurance Terms Defined

If you are like most Americans insurance seems like a somewhat mystical thing that you know you should have and you are glad you have if you ever have to use it but you are not sure exactly how it works. Understanding the terminology used by insurance companies can be a big task so we have broken down some of the most common words used in health and auto insurance to help demystify insurance lingo.

General Terms

Premium– The amount of money you pay for your insurance coverage to cover a specific period of time.

Policy– The contract between you and the insurance company that outlines the types and monetary limits of coverage and the amount of money your insurance company will pay should you need to use it.

Deductible– The amount of money you have to pay out of your own pocket before your insurance company will start paying your bills. For example, if you have an auto insurance policy with collision coverage that has a $200 deductible and you get into a fender bender, you will have to pay for $200 worth of repairs to your car before your insurance company will start paying for repairs to your vehicle.

Medical Insurance

Copay– The amount of money you have to pay each time you visit a doctor regardless of your deductible. Many health insurance policies include a small fee, usually between $10 and $50 that must be paid each time an insured person visits the doctor’s office.

Coinsurance– The percent of the cost of a visit to a doctor’s office that you must pay. For example, it is common for insurance policies to have a clause that states they will covers 80% of every in-network doctor’s visit and 60% of every out-of-network doctor’s visit. If you visit an in-network doctor, you will be responsible to pay for the remaining 20% of the bill that will not be covered by your insurance policy.

In-Network Provider- These are providers with whom your insurance has a contract and would prefer you to work with. Choosing to work with a doctor that is in-network can significantly decrease the cost of the service because these contracts usually have a negotiated rate lower than the standard rate for care meaning you and your insurance company will pay less.

Out-of-Network Provider- These are providers your insurance plan does not have a contract with which means you will likely pay more money than if you were able to visit an in-network provider. Please check out this link for more information about the cost effects of using an in-network provider vs. out-of-network provider.

Lien– The legally enforced right of one party to take the property of another party in order to repay a debt. Commonly, liens are created in personal injury cases when the injured party has medical bills that they are unable to pay until a settlement or judgment is reached. Some health insurance policies require that if the injured party receives money from the injuring party the lien must be paid. (A more complete discussion of liens will appear in a future blog.)

Medical Authorization– This is a form you will have to fill out in order for your attorney to be able to access your medical records. The Health Insurance Portability and Accountability Act (HIPAA) established rules that prevent your medical records from being released to anyone without a written authorization from you.

Auto Insurance

Liability Auto Insurance– This is insurance that protects other drivers and passengers if you cause an auto accident. Virginia requires that policies provide the following minimum coverage requirements: $25,000 for bodily injuries per person involved in accident, $50,000 for total injuries resulting from an accident, and $20,000 for property damage as a result of an accident. Note that Virginia also allows an uninsured vehicle to be registered and operated provided the owner pays an uninsured motor vehicle fee. Uninsured vehicles on the roadways bear on Uninsured/Underinsured Motorist Insurance (UMI) discussed below.

Comprehensive Auto Insurance– This is insurance that will pay for accidents that happen to your vehicle as a result of anything other than a collision. For example, if your windshield became cracked from a rock chip, comprehensive auto insurance would pay to replay the windshield. It should be noted that it is common for comprehensive insurance plans have a deducible you will be responsible to meet before the insurance company will start paying for repairs.

Uninsured/Underinsured Motorist Insurance (UIM)- This is a clause in your policy that protects you in case you are injured in an auto accident by someone who either does not have any insurance or does not have enough insurance to cover the costs of your medical or repair bills. In Virginia, the limits of UIM coverage automatically equal the limits of the liability coverage selected unless you opt for lower UIM limits by submitting a request, in writing, to your insurance company for a lower level of coverage.

Collision Insurance– This is insurance that will pay for damage to your vehicle regardless of who is responsible for the cause of the accident. If your insurance company repairs your car and the damage was caused by someone else, your insurance company has the right to recover the money form the at fault person.

Medical Expense Payments– Otherwise known as MedPay, this is a feature you can select to include in your insurance policy that allows you to gain reimbursement from your insurance company if you have any medical bills resulting from an accident before the final settlement or judgment is paid. This can significantly decrease stress you face in the event of an accident as it can help minimize upfront out-of-pocket costs.

Although there is a lot to understand, we hope you have been able to grasp the basics of insurance terminology and feel empowered when making your insurance related decisions.