Most people don't "speak insurance." Wading through the technical jargon and legal lingo can be daunting and tiresome. Not until a freak storm rips off your roof or puts a tree branch through your car's windshield does understanding your policy become a big deal. Simply stated, your policy is a written contract between you and your insurance company, also called a "carrier." Your policy spells out the financial benefits that your carrier provides when you have a loss.

Usually you will find the "POLICY DECLARATIONS" on top of the policy's first page; review them carefully. For your insurance premium (the fee that you pay) you buy protection that helps pay your bills when you have certain kinds of damage. That is your coverage. The coverage you purchase is listed on the declarations page. There, you will also find your policy limits, your deductible, and the amount of your premium that goes toward each coverage. The terrible things that can happen to your home or your car are called perils. Typical perils on homeowners insurance are fire, weather, and theft. Auto perils often confuse people. Simply stated they are:

• Liability: You hit someone or something. This coverage pays for their damage, including physical injuries.
• Collision: You hit something. This coverage pays for the damage to your car. (Not physical injuries.)
• Comprehensive: Basically, something hits you. The tree branch mentioned above shatters your windshield. Someone throws eggs on your car. An animal, such as a deer, runs in front of you.
• PIP (Personal Injury Protection): You and/or your passengers are injured while in your car. This coverage pays for your medical care, regardless of who was at fault.

Some perils are mandatory. Others are options. A few are special. For example, on your homeowners insurance you can choose to exclude liability. That is, damage to other people and/or their belongings while they are on your property. Auto policies, however, require it.

You can purchase special coverage, such as a rental car in case an accident renders your car unsafe to drive or, for your home, a high-risk peril such as earthquake coverage.

Some perils are limited or excluded. For example, flood insurance for your home can be provided separately by a special carrier. Also, carriers typically exclude damage that occurs as the result of criminal acts which you commit or have prior knowledge about. (Such as stealing your own car or letting Cousin Rastas run a meth lab in your basement.) Typically, damage caused by acts of war and riot are not covered. Having lived through Mt. St. Helen's, I can tell you that volcanoes are really unpopular.

Generally, your policy will exclude damage from mechanical failure and/or negligence. For example, your car's fuel pump gives out, rendering your car useless. Your insurance covers your car in case of an accident. Fuel-pump failure doesn't qualify as an accident. Therefore, it will not be covered.

For another example, you should have fixed the leaking toilet in your bathroom, but you neglected to do so. Seeping water ruined your bathroom floor. Yes, you can always file a claim with your carrier. But if the damage can be traced to poor maintenance or carelessness, you can face the dismal prospect of a denial. With your home or your car, it pays, literally, to be cautious and prudent.

Typically for the coverage you purchase, you will pay a deductible. (NOTE: There is no deductible for liability.) Simply stated, a deductible is your share of the bill. Most carriers will decrease your premium if you pay a higher deductible. This is your choice, but it can also be a trap.

Let's say you have a $1000 deductible against structural damage to your home and $500 deductible for collision on your car. One day when you are leaving for work, you step on your brake, but your foot slips, and you hit the gas. You smash through your garage door. The repair bill for the door is $999.99. Your badly dented fender costs $1600.

The repair on your house is under your deductible, and you must pay the first $500 on your car repair. That means you must come up with $1499.99. Can you afford that? Often people gamble on the odds that nothing bad will happen to them. Then they actually have a loss and face the prospect of paying out of their own pockets. Naturally, they are devastated.

Surprisingly, the additional premium for a lower deductible or for special coverage, when spread out over six months or a year, can be a pittance. With auto insurance, many people balk at buying ERS coverage (towing). But it only costs a few dollars per month. If you are ever stranded on a freeway and must call a tow truck, you will realize that ERS is a bargain.

As for limits of coverage, this, too, can be a tricky area. Sadly, many people think just having a policy means their insurance company will take care of them, no matter what. In fact, the limit that your see on your declarations page is all your carrier will pay. Period. No matter what you think you should get.

For example, let's say your homeowners limit for liability coverage is $25,000. That is the total amount your carrier will pay per occurrence (each individual incident). Now let's say your pit bull attacks your postman. Surgical repair for the postman's posterior costs $10,000. Plus, he wants $50,000 for pain and suffering. That means you're on the hook for $35,000. Your carrier can't bail you out because $25,000 is the limit you bought. Limits of coverage are doubly tricky with auto liability because of the high costs of medical bills and the extreme demands that injured parties make.

Also remember that anything not specifically mentioned is specifically excluded. Never assume you have a certain coverage unless you find it written in your policy. For example, if your declarations page doesn't show earthquake coverage, you don't have it.

Above all, review your policy. If you aren't sure about parts of it, call your agent. An agent's job is to explain things and to advise you. Never be bashful or embarrassed. If something damages your home or if you have an auto accident, the only stupid question will be the one you didn't ask.