There is a large range of specific auto insurance terms. This glossary will cover all the terms and definitions that you will need to know.
An unexpected, sudden occurrence that results in either damage to property or bodily injury. It is possible for the event to be not-at-fault or at-fault, and unreported or reported.
Allows a driver to avoid a rate increase after the first at-fault accident on a policy, available with certain carriers in certain states.
A term used by insurance companies to categorize a natural, unforeseeable catastrophe that is outside human control.
A person who is a specialist in the mathematics of risk. This person is capable of making insurance-related calculations, such as loss reserving, the prediction of accident frequency, and life expectancy.
ACV / Actual Cash Value
The value of a vehicle considering the vehicle’s condition and current market prices. This figure is calculated using a few different variables, including any prior damage to the vehicle, the condition and age, as well as special equipment and modifications that have been made. Also known as market value.
A policy for a person or a company that is possibly liable for an accident in which an insured driver or vehicle is involved.
Additional Interest Insured
A person or organization, other than the named insured, that is protected under the insured’s policy. Typically seen when leasing a vehicle so that the company leased from is protected in possible lawsuits.
A person who is employed by an insurance company. This person settles claims that are made by claimants or policyholders by evaluating each claim and making a payment that depends on the coverage provided by the policy contract.
Refers to another party’s insurance company
A device, either passive or active, that is used to prevent the theft of a vehicle. Passive anti-theft devices include modern electronic car alarms, basic steering wheel locks, and other systems. Active anti-theft devices work by tracking and recovering a vehicle, and automatically notifying a response center to start the recovery process.
Any Auto Coverage
An extension of liability insurance to vehicles that are purchased during the insured’s policy term, as well hired and other non-owned vehicles. The same liability limits and coverage that the insured has for already listed vehicles will be added for unlisted vehicles.
A formal, professional, and written estimation of the value of property. An insurance adjuster or a vehicle repair specialist may complete damage appraisals.
Assigned Risk Plan
An auto insurance plan managed by the state for those who aren't able to get conventional liability coverage due to negative driving records. Drivers are put in a residual market and insurance companies are designated to write policies for these individuals at higher prices.
Refers to the party that is responsible or culpable in an accident. This can be determined separately by law enforcement and by a car insurance carrier. At-fault can be shared with both drivers.
To seize assets or property, or to get a legal writ that grants the right to seize assets or property. Usually this will occur when a person has outstanding debt that they are unable to fund in cash, but that can be paid off with assets.
If a policyholder is a member of an auto club, such as AAA or AARP Road Assistance, then they can receive a discount on their car insurance premium from certain providers.
Automatic Braking System
Technology that works with a car’s existing brake system and combines sensors to automatically help slow or stop a vehicle before a collision occurs.
Bodily Injury Liability Coverage
An aspect of an auto insurance policy that covers the insured, to the limits of the policy, for motor accidents that result in bodily injury to pedestrians or to another driver when the insured is legally at-fault. Generally speaking, the losses that will be covered include pain and suffering, medical expenses and lost income. If the insured is sued as a result of the accident, their legal defense costs will be covered.
An insurance company that issues and underwrites insurance policies. The term refers to how the company assumes certain risks for the policyholder.
A loss or liability that has resulted from an accident.
A request made by an insured party for the insurance company to cover losses that have been incurred. Claims are filed through the Internet, in writing, or by phone.
The individual who has submitted a claim for an incurred loss.
An asset pledged to a lender until a loan is repaid. If or when a borrower defaults, the legal right to seize and sell the collateral to pay off the loan is given to the lender. Lenders must hold Collision and Comprehensive coverage if a car is the loan's collateral.
A discounted car insurance premium is available from most carriers to individuals who are currently in college or have recently graduated. Usually, a GPA of “B” or better is required.
Collision Avoidance Systems
CAS technology helps to reduce accidents and fatalities on the road. Usually, it works by first alerting a driver and then preparing the brakes for sudden stopping. This technology is standard in some vehicles and can sometimes come with a premium discount.
Coverage that pays for damage to the insured’s vehicle as a result of a collision/impact with another vehicle or object. The insured has the responsibility for paying the deductible when the damage is repaired.
Collision/Damage Waiver (CDW)
A waiver that provides an individual who rents a car with protection in the case of an accident. The waiver states that if something happens to the rental car, the rental company will not make a claim against the renter. Some exceptions apply, including if the renter drives under the influence. The cost of a CDW varies by company. Learn more on the EverQuote blog: Should I Get Insurance When Renting a Car?
Combined Single Limit (CSL)
An auto insurance policy that has a single amount limit for liability payment for bodily injury and property damage. It differs from a split limit policy, which has different limits for bodily injury per accident, per person, and for the property damage per accident.
Marital property acquired during a marriage that spouses own equal amounts of, as defined by state law. It is not inclusive of property that is brought to the marriage or gained through inheritance or as a gift.
Coverage that is used to pay for damage resulting from hazards other than collisions, such as fire, windstorms, explosions, or contact with an animal. Similarly to collision coverage, with comprehensive coverage, the insured is responsible for paying the deductible when their vehicle is replaced or repaired.
Comprehensive Loss Underwriting Exchange (CLUE)
Used by insurance companies to access the insured’s claims information when rating or underwriting a policy. It is inclusive of information such as the type of loss, the date of the loss, the vehicle description, and the amounts paid.
Consumer Price Index (CPI)
A measure of the variations in consumer prices, as published every month by the US Bureau of Labor. It is commonly used as a benchmark for the cost of living to make alterations to payment schedules, like Social Security payments. Insurance prices are included in the consumer price index figure.
Refers to coverage from a provider that is in effect at all times, without any gaps or lapses in time. This is usually standard with all car insurance carriers.
Attachments to an insurance policy that are used to complete the policy's coverage. Also known as endorsement forms.
Vehicles that come equipped with daytime running lights can often receive rate discounts as daytime lights can reduce head-on and side-impact collisions.
A section of an insurance contract containing details such as the description, name, and location of insured property. It also includes addresses and names of the policyholders, the time span for which the policy is in place, the amount of coverage, and the premiums payable. Also known as a “dec sheet.”
When an insurer decides to refuse coverage to an individual after their insurance application has been evaluated. Some states have rules in place that prevent insurers from declining an application based on poor credit or discriminatory factors.
A fee that has to be paid by the insured for covered losses before the insured’s insurance company will pay out for a claim. Deductible amounts can vary from $100 to $1,500. In general, the higher the insured's deductible, the lower the insured's premium is likely to be.
Defensive Driving Course
This type of driver’s education class offers tips and teaches skills on how to drive in a range of hazardous conditions. Usually, a course completion can give you a discount.
The amount of money that is owed to a lender or creditor after a vehicle has been repossessed and auctioned. The deficiency balance is the difference between the auction price of the vehicle and the balance that was owed on the vehicle.
A deposit paid by a prospective policyholder after an insurance application has been submitted. It is typically the same sum as the first month's estimated premium or above. The cost is added to the total policy premium.
The decrease in value of a vehicle. There are a few variables involved, such as the overall condition of the vehicle, the age of the vehicle, the make and model, and the total number of miles driven. Each of these variables are used to accurately value the vehicle.
Car insurance carriers offer many types of rate reductions to help individuals save money on premiums. The savings can be a result of alumni organizations, anti-theft devices, good student, and more.
If a student attends college far from home, over 100 miles, and won’t be using a policy held vehicle during that time, then they could qualify for a premium discount.
With no-fault auto insurance, in some states the dollar threshold stops an individual from suing for recovery from pain and suffering until they have reached a certain dollar threshold on their medical expenses.
Driver Education Credit
A discount toward auto insurance premiums for young drivers that is available in some states. Drivers gain eligibility for this credit upon completing a driver education course.
Many car insurance companies have opted for paperless bill pay to save money and eliminate wasted paper. By opting for the more convenient way to pay, individuals can typically receive discounts and save money because funds are always paid on time through an automatic deduction from a savings or checking account.
A written agreement that is attached to an insurance policy for the addition or subtraction of coverage. Once it is attached, the original terms of the policy are overwritten.
Items that are not covered by the terms of an insurance policy. For example, the majority of auto insurance policies will not include coverage for typical wear and tear and intentional acts and occurrences, such as drag racing.
A clause that is included in, or an endorsement that is added on to, a policy to grant extra coverage for risks that are not normally covered by basic policies.
Fair Market Value
The price point at which a property would trade between a willing seller and a buyer, where the relevant facts are known and understood by both parties and there are no compulsion on the side of either party to sell or buy.
Financial Responsibility Law
A law stating that a vehicle's owner must display proof of financial capability to cover any auto-related loss. For the majority of states, a minimum amount of automobile liability insurance is proof of insurance, but there are different requirement between states; some allow a financial responsibility bond and some allow self-insurance.
Free Look Period (FLP)
The period of a policy during which it is possible for the policy to be cancelled by the insured. Typically, the free look period is the first thirty days of the policy, though the number of days differs depending on the state.
“Full coverage” is a term that is often heard by individuals looking for auto insurance. The term does not exist and does not denote any specific type of coverage. Rather, in order to be fully covered, one has to group together multiple types of insurance. (See Collision and Comprehensive coverage.)
A type of coverage that can help protect a car owner against a loss that could occur if the amount received from an insurer post accident is not enough to pay off the totaled car’s loan or lease.
Refers to where a car is kept. Typically, this is a driveway, street, or parking garages. These help car insurance carriers determine rates based on risk location.
If an individual has a clean driving record, typically 5 years clean or accident free, then they can often receive a premium discount.
If a student receives good grades, a “B” average or 3.0 or better, then they may qualify for rate reductions. This usually applies to both high school and college students under a certain age.
The time period applied to some auto insurance policies that permit customers to make a payment after the due date. However, many companies will not take a payment after the date that is displayed on the cancellation notice. EFT and making online payments can help to prevent a policy lapse.
Individuals that own or drive environmentally friendly vehicles such as hybrids or other electric cars can sometimes receive discounts up to 5% off their coverage rate from car insurance carriers.
Refers to Hands-Free laws in states that do not allow phone calls or phone usage in hand. Also, refers to Bluetooth or other form of non-hand held calls.
Drivers that have had multiple traffic violations, accidents, or many historical claims are likely to be labeled “high-risk” by car insurance providers, resulting in higher premium rates.
The principle that the insurance's objective is to bring the insured back to their initial financial position before their loss.
A professional in the insurance field that represents a number of insurance companies. Any single company does not employ them; they simply earn commissions by selling policies.
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When a privilege or right expires after one party does not fulfill their obligation within the allowed time period. When auto insurance coverage lapses, it could lead to a higher premium for another new policy, since insurers understand that a driver that has maintained the same coverage is far less likely to make an insurance claim than an individual that has allowed their policy to lapse.
Coverage for an insured individual's legal fees and costs in the event they are sued and/or have to pay for property damage, bodily injury, or financial loss that has been caused to others.
Loss of Use
A fee charged by rental agencies that reflects the amount of money the company loses if a car must be repaired after an accident. Learn more on the EverQuote blog: Should I Get Insurance When Renting a Car?
Drivers who do not commute or drive far distances (less than 10,000 miles a year) can receive premium discounts. Driving less lowers the amount of risk for the insurer and driver, resulting in cost savings.
Car insurers typically offer discounts to individuals who are newly married as married couples are seen as more responsible and less risky.
Medical Payments Coverage
An aspect of a standard auto insurance policy that covers funeral bills and medical expenses incurred by the insured and any passengers within the insured’s vehicle in the case of an accident. It does not matter who is at-fault.
Certain auto insurance providers offer discounts to those who are in any branch of the U.S. armed forces, saving up to 15% off a premium.
In certain “no-fault” states, a money amount for medical expenses that must be reached in order for one to file for damages that are non-economic.
Motor Vehicle Report (MVR)
A record created of license status and any moving violations. Being in an accident does not necessarily mean that the accident appears on a motor vehicle report: only around three-quarters of all incidents are put on an MVR.
The person the insurance policy was first issued to.
Some states have auto insurance laws that make it necessary for companies to cover losses, no matter who caused the accident. See Personal Injury Protection.
Damages that are not economical in nature nor related to money or medical expenses. Rather, they relate to the emotional damages and are usually referenced in no-fault states.
Car insurance coverage that is available to those who do not own vehicles but may rent or borrow another’s car often.
All auto insurance providers have their own definition of who constitutes as an “occasional” driver, but typically it is someone who does not drive the vehicle more than once a month or far distances.
If a driver is part of an organization or membership, they may be able to receive an affinity discount. Check with various car insurance providers, or the organization, to see which carriers offer premium discounts for members.
Passive Restraint System
Passive restraint systems refer to safety devices in the vehicle such as airbags or special seatbelts that automatically activate to protect passengers when a collision occurs.
A type of usage-based insurance that records an individual’s driving habits, usually through a device that is installed in the vehicle to register how fast one brakes, time of day, and speed, resulting in a premium discount of up to 25%.
Pay How You Drive
Another type of usage-based insurance that is primarily for commercial and private fleets. The better the drive, the better the discount on car insurance.
A usage-based insurance program that does not measure or use the driver’s habits to determine rates. Rather, pay-per-mile is based solely on the distance driven and an individual can pay on a per-mile basis.
A beneficiary or insured individual that receives a payment for loss by an insurer. A Loss Payee is the institution that financed the lease or loan of the vehicle. Insurance companies will make a payment to the Loss Payee first in the event of a total loss.
Personal Injury Protection (PIP)
Coverage that your insurance company provides for hospital, funeral, and medical expenses that have been caused by a vehicular accident, regardless of who is at-fault. Sometimes, it is possible for the insured’s passengers and other expenses to be covered by PIP.
A data analytics practice some car insurance providers are using to raise rates for the policyholders who are unlikely to switch carriers.
Primary Use / Principal Driver
The vehicle operator who drives the car most often and whose record will directly affect the car insurance premium.
The time span in which an insurance policy applies. The beginning of an auto insurance policy starts and ends at 12:01 am for whatever time zone the insured is in.
The payment that is necessary to keep an insurance policy in force. Premiums are quoted for either annual or six-month policy periods.
Property Damage Liability Coverage
Coverage that is included in standard auto insurance policies to cover losses incurred as a result of destroying or damaging another person's property. The policy limit applies, and this kind of coverage is required in the vast majority of states.
An estimate of what an individual’s car insurance rate would likely be with a certain carrier. Some providers will lock this rate in for a period of time.
Rental Reimbursement Coverage
Coverage that helps to cover the cost of renting a car while a driver’s vehicle is in repair for a loss that is covered by the carrier.
The cost for the reparation or replacement of damaged or lost property without the allowance of depreciation in value or market value considerations. Guaranteed Replacement Cost coverage is offered by some auto insurance companies, provided that he loss has occurred within 12,000 miles driven or inside the first twelve months of ownership.
The value at which an asset is expected to be at the end of a designated time period. For example, a car valuation at the end of a lease.
Recently retired drivers, age 55 or over, can receive discounts based on changes in mileage driven, whether they’ve taken a mature driver class, or if the number of vehicles they own has changed.
Roadside Assistance Coverage
A coverage option that assists motorists in case of car breakdowns or mechanical failure and will assist the driver regardless of location.
Given to a car that has been deemed “totaled” by a car insurance company. The title stays with the vehicle, regardless of repairs and whether it has passed safety inspections.
The use of automatic seat belts or specific child booster seats can reduce a car insurance premium. Speak with the car insurance carrier for specific information on reductions.
The name-insured can request any other individual listed on the policy to be the “second-named insured,” offering that individual the same coverage as the primary driver.
Drivers over the age of 50 may be able to receive senior discounts on their premium for being retired, for low mileage, and for defensive driving.
A policy with three different amounts as liability payment limits: one for bodily injury per accident, one for bodily injury per person, and one for damage to property that has occurred in an accident.
The SR-22 is a certificate of insurance that is required by most state DMV office for “high-risk” drivers to confirm vehicle liability insurance.
Coverage that can be utilized if a driver is in an accident with uninsured or underinsured motorists by combining damage reimbursement across policies or within policies. Only legal in certain states.
The process whereby the insured gives their insurance company the legal capability and right to recover losses from other parties that are legally liable.
A rise in the insured’s insurance premium as a result of a moving violation or an at-fault accident.
Not the insured driver or the insurance carrier. Third party refers to another driver involved in the case of a collision.
A system where the motorist who is at-fault for causing an accident is liable for compensating the victim's medical expenses, loss of wages and “pain and suffering.”
A car is considered totaled after a collision if a car insurance company determines that the cost of repairs is worth more than the vehicle is worth. One can still choose to repair the vehicle, but it will have a salvage title.
An umbrella term that refers to a variety of types of car insurance that are all based on how a driver operates and uses a vehicle. (See Pay-Per-Mile)
Underinsured and Uninsured Motorist (UM/UIM) Coverage
Covers the insured’s injuries that result from an accident with a driver that is uninsured, or doesn't have insurance that adequately covers either party. Standard auto insurance policies provide this form of coverage.
A process an insurer goes through to decide whether or not coverage will be provided for a driver or applicant.
Vehicle Identification Number (VIN)
The VIN is typically found on the driver’s side of the dashboard or on the car’s title or registration. The number is a combination of 17 numbers and letters that help to identify a car.
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