Car Insurance Glossary

When you promote or are contemplating obtaining car insurance, you should be aware of the language used by auto insurance companies. While some are self-explanatory, others are significantly more easily understood when accompanied by a definition.

You will not be able to help your consumers select the best insurance for their requirements unless you have a strong handle on each word. If you are the buyer it is vital that you understand each term so that when the time comes to submit a claim you are not taken by surprise.

Terms

A

Accident

Unintended and unexpected events which cause damage to at least one vehicle. Furthermore, vehicle occupants may suffer harm.

Accident-Only Policies

Insurers pay claims only in the event of a car accident or injury.

Actual Cash Value

This will be the fair market worth of an automobile after it has been damaged, destroyed, or stolen. When a driver makes a claim for a loss, their insurance company sends an adjuster to meticulously check every component of the vehicle. They will check the vehicle’s body, tires, interior, and equipment.

Also, before the robbery accident, you will know the status of the car. By looking at similar automobile models in this area, the adjuster will reach the real cash value based on all these details.

Actuary

A quantitative risk specialist in automotive insurance. In order to establish the actuaries insurance estimates, accident frequency, life expectancy, and loss reserves are utilized.

Actuarial Report

Documentation designed to formally convey the actuary’s professional findings and recommendations to national regulatory bodies and the Board of Directors or its equivalent. Additionally, the report documents and communicates various strategies and processes to ensure that people who read the report understand the significance of the actuary’s findings and views. Additionally, this paper details the analysis conducted in preparation for the opinion’s publication.

Additional Interest Insured

A group or individual added as an additional interest insured to a policy. This company may be liable for an accident while an insured person or vehicle is on the road. A lienholder might be considered an additional insured interest.

Adjuster

Skilled personnel, to help insurers or claimants resolve claims for loss. They study and assess each claim thoroughly and then propose to pay according to the coverage of the insurance policy contract.

Administrative Expense Charge

Cash amount deducted from an auto policy, usually once per month.

Advance Premiums

Once the insurance has been processed and authorized, the premium is paid before the policy’s effective date. These are considered liabilities by insurance companies and are not included in written premiums or unearned premium reserves.

Agent

A sales representative for an insurance company that sells clients automobile insurance policies.

Aggregate

The maximum transmission amount can be paid for a single loss, several losses over the insurance period, or for a single project.

Anti-Theft Device

Actively or passively devices that help in the prevention of automobile theft. A passive device takes no action other than the car being switched off, the key being removed from the ignition, or the doors being closed.

An active device does require the driver to carry out an action, such as putting a lock in the car or pushing a lock button down. These have to be reactivated every time the car is turned off or they won’t work. Vehicles with either type of anti-theft device may be eligible for a policy discount.

Application

A document filled out by customers. This form gives the insurance firm information to determine if the customer is at a good insurance risk.

Appraisal

Written evaluation of the property’s value. Appraisals for damage are filled out by vehicle repair specialists or insurance adjusters.

Assigned Risk Plan

Persons who cannot get normal liability coverage because of a poor driving record are assigned a particular sort of policy. These policies are managed by the state. Assigned for selected drivers to write premium insurance.

Attach

If a policyholder owes money, the insurance company may confiscate his or her property or assets. Additionally, the client may be unable to make a cash payment on the loan. Additionally, they own assets equal to the loan’s worth or amount.

$25/$50/$15

These are the figures that motorists who purchase liability insurance receive. They reflect the thousands of dollars in liability insurance coverage for bodily injury per person, physical injury to all persons hurt in the same incident, and property damage liability. Almost every state mandates a minimum level of coverage, with insurers offering additional coverage.

Automobile Liability Insurance

This type of coverage shields drivers from legal liability for personal injury or property damage stemming from a car collision. If it is determined that the motorist was responsible for an accident that resulted in property damage or bodily injury to others.

B

Binder

This is a temporary insurance contract that shows the vehicle is covered by a policy until the permanent policy arrives.

Bodily Injury

Injuries are suffered by a person. This can include the person’s death.

Bodily Injury Liability Coverage

A part of a driver’s coverage up to policy limitations for injuries to pedestrians or other drivers which the driver is legally guilty of. This includes medical expenditures, lost income, and suffering and agony.

C

Cancellation

To cancel an insurance coverage prior to its renewal. The firm or insured individual has the right to cancel.

Claim

A request by the insured motorist for payment of an insured loss. These can be made over the phone, in writing, or online.

Claimant

The person who submits a claim for an insured loss.

Collision Coverage

This is optional coverage for damages resulting from colliding with a fixed object, such as a wall. It also covers damages from rollover accidents. Severe damage from a pothole can also be covered. It only applies to the car covered under the policy—it will not pay for damages suffered by whatever the car hit. Property damage liability covers this.

Combined Single Limit

This policy type contains a single amount for both liability payment limits for bodily injury and property damage. It differs from a split limit policy that shows separate limits for bodily injury (per person), bodily injury per accident, and property damage per accident.

Comprehensive Coverage (for physical damage other than collision)

This pays for damages or losses of your vehicle from damage causes other than an accident. Causes covered include hail, tornadoes, flood, fire, vandalism, falling objects, earthquake, and theft.

Continuously Insured

A customer is covered, either by one insurer or when the customer moves to a second insurance provider. There is no break in coverage.

Contract

The insurance policy. Insurance policies are contracts between customers and insurance companies.

D

Declarations Page

Known as the “dec page,” this shows the name, location, and description of the insured item; the names and address(es) of the policyholders, the time period the policy is in effect; premiums payable, and the amount of coverage.

Deductible

How much the insured person has to pay after a loss before the insurance company makes its payment.

Dollar Threshold

In states with no-fault auto coverage, this threshold keeps people from suing for pain and suffering. To qualify for the right to sue, their medical expenses must rise over a specified dollar amount, which is called the “threshold.”

Driver Education Credit

A discount on auto insurance policies for younger drivers. These drivers are eligible for this discount once they complete their driver education course. This is only available in some states.

Driver Improvement Course

Drivers over the age of 55 can participate in a voluntary course to improve and refresh their driving skills. This course may help drivers to qualify for a discount on their policies if they meet certain eligibility requirements.

Driver Status

Other drivers can be added to policies. Each status describes the driving privileges for each person.

Rated: may actively drive a vehicle listed on the policy

Excluded: Person is not allowed to drive any vehicles on the policy. Not covered under the policy

Limited: Residents of a household who don’t drive the vehicles on the policy. This may include roommates.

E

Effective Date

The date the policy takes effect.

Endorsement

Written agreement attached to a policy. This agreement either adds or subtracts coverage. Once an endorsement has been attached, it will be considered first over the original policy terms.

Exclusions

Actions that will not be covered under an insurance policy. These include normal wear and tear, intentional acts, and drag racing.

Extended Coverage

This is an endorsement added to a policy. It can be a clause within the policy to add more coverage for risks other than ones covered under basic policy provisions.

F

Fair Market Value

The price where a vehicle will change hands between willing buyers and sellers. Both parties have to have knowledge of the relevant facts. Buyer and seller aren’t being forced to sell the car.

Financial Responsibility Law

This law requires every driver to hold auto insurance. Some states allow a cash deposit as evidence of the owner’s ability to pay for negligence that causes losses to other people. The losses are caused during the operation of the vehicle. This is legal in 47 states and the District of Columbia. It is not legal in any state to drive a vehicle without first having proof of insurance.

Free Look Period

The time period under which an insurer can cancel a car insurance policy for any reason during this period. It is usually the first 30 days of the policy, but this varies by state.

Full Coverage

This term refers to how much insurance coverage a driver has. Even though there is no provision for full coverage, this term usually means the person has comprehensive coverage as well as liability coverage.

G

Gap Insurance

Insurance coverage that pays for the difference between the actual cash value of a vehicle and the amount still remaining to be paid on the loan.

Garaging Location

Where a vehicle is parked when not in use. This is usually the vehicle owner’s home.

Grace Period

The period between the actual due date of a policy and when it will expire. This is generally 31 days. The policy is still in force while the premium payment is due, but has not been paid.

I

Indemnity

This is the premise upon which every auto insurance policy is based. The objective of “insurance” is to help restore the insured person to the same financial position after a loss that they were in before the loss (the “make you whole” premise).

Independent Agent

An insurance agent who represents several insurance companies. This agent is not an employee of any of these companies. However, they do earn commissions from policies sold through each company.

L

Lapse

The expiration of a policy when one party doesn’t live up to their obligations during the time frame allowed. If an auto policy lapses, the driver may pay higher premiums under a new policy because insurance companies have decided that drivers who allow their policies to lapse are at higher risks than those who don’t allow their policies to lapse.

Liability Coverage

This covers injuries to the other driver. It also covers damages to the other driver’s vehicle in an accident caused by another driver. This also covers those people driving the vehicle with the insured driver’s permission.

Liability limits

This is the maximum amount that a policy will pay. It must pay at least $25,000 for each injured party. The total amount of coverage allowed is $50,000. A basic policy provides “$25/$50/$25” coverage, with each amount specifying the thousands of dollars that may be paid.

Loan/Lease Payoff Coverage

This is sometimes referred to as “gap” coverage as the insurance company pays off the difference between what the insured owns on their vehicle and what the insurance company will pay if the vehicle is stolen or declared totaled. The payment made is less than the comprehensive or collision deductible.

Loss

The amount an insurance company pays out on one claim.

Loss History

The total number of insurance claims filed by a policyholder. Insurance companies take loss history into consideration as they decide whether to underwrite a new policy or renew an existing one. This is also used as insurance companies think about the likelihood that a policyholder will file a claim in the future.

M

McCarran-Ferguson

This law, enacted in 1945, gives authority to states to tax and regulate the insurance profession.

Medical Payments Coverage

This is one part of an auto insurance policy. It provides for coverage of medical expenses and funeral payments incurred by the driver and their passengers in an accident. This coverage is made regardless of who is at fault.

Medical Payments and Personal Injury Protection (PIP)

This pays for limited medical and funeral expenses if the driver, a family member, or a passenger is injured or killed in a collision. PIP also covers lost income benefits.

N

Named Driver Exclusion

An endorsement meant to exclude accidents involving a person who has been excluded from the insurance policy.

Named Driver Policy

This policy does not provide coverage for someone living in the residence of a named insured person. This includes an auto insurance policy that has been endorsed to give coverage only to those drivers who have been named in the policy.

Named Insured

The first person on the policy in whose name the policy has been issued.

No-Fault Insurance

In some states, auto insurance laws require insurance companies to cover those losses regardless of who caused the accident. Personal Injury Protection is the most basic coverage that covers the driver’s medical, hospital and funeral expenses. The expenses of pedestrians and passengers are also covered. Lost wages and other expenses related to the accident may also be paid for.

Non-Economic Benefits

These are benefits paid out for intangible losses, such as emotional stress, pain, and suffering, inconvenience, impairment of quality of life, and loss of consortium.

Non-Owners Policy

Provides coverage that offers liability, medical payments, and uninsured motorist to a named person who does not own the vehicle.

Non-Renewal

The insurance company decides not to renew a customer’s policy.

O

Occasional Driver

Someone who is not the primary driver of the insured vehicle.

P

Payee

The insured individual or beneficiary is paid a loss payment from an insurance company. For an insurance policy, the loss payee is the banking institution that financed either the loan or lease of the vehicle. If the vehicle is a complete loss, the insurance company pays the loss payee first.

Personal Injury Protection (PIP)

First-party benefits package giving medical benefits for your lost wages, medical costs, and any loss of essential services provided by the policyholder. This also pays for funeral costs and is associated with no-fault vehicle insurance.

Policy Period

Also called “policy term.” This is the time period in which your policy is active.

Premium

The insurance payment that the insured person makes to their insurance company to maintain or get a vehicle insurance policy.

Primary Residence

The place where the policyholder lives for the majority of the time that their policy is in effect.

Primary Use

The main use of the policy holder’s vehicle: personal, pleasure, to and from work, or farm use.

Principal Driver

The person who uses the vehicle most often is known as the principal driver.

Property Damage Liability Coverage

This is the section of a standard vehicle insurance plan that covers the policyholder, up to the limit of the policy, for any losses resulting from damage or destruction of someone else’s personal property. This coverage is mandatory in most of the country.

Proximate Cause

Repair or replacement cost of lost or damaged property. This does not account for depreciation or current market value. Some vehicle insurance companies do offer a Guaranteed Replacement Cost for new cars—if the vehicle loss takes place within the first 12 months or 12,000 miles put on the vehicle.

R

Rate

Cost of one unit of insurance coverage. This amount is placed at about $1,000 worth. Insurance coverage is based on the customer’s history of loss experience for similar risks. A vehicle insurance company charges its customers based on their past experience with that company. The customer is categorized on factors such as age, gender, driving record, marital status, and the make and model of the vehicle being insured.

Refund

The amount of money paid back to a customer after overpaying their insurance premiums.

Reinstatement

When a vehicle insurance policy is placed back in force after it has lapsed for nonpayment of the premium.

Renewal

Keeping a policy in force after its expiration date. The customer receives notice that the policy will expire in x weeks, allowing them to make a payment to continue the coverage.

Rental Reimbursement Coverage

A part of vehicle insurance that pays so much per day for a rental car so the policyholder can have their car repaired after an accident.

Replacement Cost

Another part of the vehicle’s insurance that the dollar amount necessary to replace damaged personal property. This does not deduct the cost of depreciation. However, it is limited by the maximum dollar amount of the policy.

Rescission

Cancelation of an insurance policy by the insurance company when a material misrepresentation (lie) comes to light.

Rider

A written attachment to a policy that either expands or limits the benefits that will be paid under the policy. This is also called an endorsement.

Roadside Assistance Coverage

This provides for services such as tire change, towing, locksmith services, and battery jumping. Available to customers for an additional premium, if this isn’t already a part of their policy.

Rule of 78

This calculates the remaining amount of premium, taking into account that more insurance coverage is needed at the outset of a loan. Because the loan payoff is higher, the premium is also higher. When the loan is paid off, the vehicle needs less coverage. The refund percentage will decrease.

Rule of Anticipation

A similar practice to the Rule of 78. A newer vehicle requires a higher amount of insurance coverage because the total payoff is higher. After the loan has been paid off, the amount of coverage needed will fall, meaning the refund percentage also goes down.

S

Salvage Titles

This is determined state by state. In some states, salvage titles are based on the extent of damage a vehicle has suffered. Other states require that the vehicle will be declared a total loss. These titles specify whether the vehicle can be rebuilt or whether it can only be used for parts.

In other states, the title is rotated once the damage estimate reaches a percentage of the vehicle’s retail value (75 percent is one estimate in New York). Even if the vehicle isn’t a total loss and can be rebuilt, this law holds.

Second Named Insured

The insurance broker may require a vehicle policy to name another person on a vehicle policy to be named as the “second named insured.” Their coverage is identical to that of the named insured driver.

Split Limit

These policies have three different amounts for liability payment limits. One amount is for bodily injury per person; the second, for bodily injury per accident, and the third is for property damage per accident. The policy will express these limits in this order. It may be shown as $100/$300/$100 (for thousands of dollars).

SR-22

This document may be required by a court to show proof of the financial responsibility of persons who have been convicted of some types of traffic violations.

Surcharge

An additional charge is tacked onto a customer’s premium. This generally happens if the insured has a record of at-fault accidents.

T

Third Party

A third party is someone other than the policyholder or family members directly covered under a vehicle insurance policy. The insurance company is considered to be the second party.

Threshold

The point where an injured person can file a lawsuit for recovery related to bodily injury and pain and suffering. The person sued will be the one who caused the vehicle accident.

Tort

An act that results in injuries for a person or damages to property. This will be what civil action (lawsuit) is often based on. Does not cover breach of contract.

Towing and Labor Coverage

This coverage pays for towing charges once a vehicle is not drivable. This also covers labor charges for tasks such as changing a flat where the vehicle broke down.

U

Underwriter

The individual who looks over insurance applications and determines whether the applicant is a suitable risk. They also determine the premium the customer will pay.

Underwriting

The process of deciding if someone’s application for coverage will be accepted or turned down.

Uninsured and Underinsured Motorist Coverage

One part of a vehicle insurance policy. It covers coverage for injuries to the customer and others who are involved in an accident with an uninsured driver or one who doesn’t hold enough coverage. UM/UIM isn’t mandatory in all 50 states, but it is an excellent idea to hold this coverage.

Uninsured Motorist Coverage (UM)

A part of an insurance policy that covers the vehicle driver, relatives, and passengers who are involved in an accident with an uninsured driver. Customers and passengers will be able to use UM coverage for injuries, including death. Exclusions may apply.

Underinsured Motorist Coverage (UIM)

If a driver who doesn’t hold enough insurance coverage is involved in an accident with someone who holds UIM coverage, this will allow the customer with this coverage to have their injuries, including death, to be paid for. It also applies to passengers and resident relatives. Customers can select the coverage limits they want. Exclusions may apply, so they should carefully read their policies.

Uninsured/Underinsured Motorist Property Damage Coverage

Like its bodily injury cousin, this part of a policy covers property damages caused by a driver who isn’t insured or who holds too little coverage. It also applies to those injured by a hit-and-run driver who cannot be identified. In some states, this type of coverage is required. Again, exclusions may apply.

V

Vehicle Identification Number (VIN)

This number is unique to the vehicle to which it has been attached. Can be located on the driver’s side of the dashboard, driver’s side door, vehicle registration, or on the title. It consists of 17 letters and numbers that identify the make, model, and year of the vehicle.

Verbal (or Descriptive) Threshold

This describes the type of serious injuries that someone must suffer before they are allowed to file bodily injuries or damages lawsuits against the driver who caused the accident.

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