Insurance Glossary
Actual Cash Value
This term is used frequently in auto insurance policies or if you
ever have to file an auto insurance claim. That's because most auto
insurance coverage reimburses you only for the actual cash value of your
car. Your car's actual cash value is calculated by determining its
original value, less the amount your car has depreciated since you
bought it.
Additional Insured or Additional Interest
A person or an organization, in addition to the named insured or
covered person, who is protected under the named insured's auto policy.
If an auto is leased, the leasing company may want to be listed as an
Additional Insured as well as a lien holder or loss payee. This protects
the leasing company if it's named in a lawsuit for an accident caused by
a policyholder.
Adjuster
An adjuster is the person who investigates and settles auto insurance
claims.
Agent/Broker
Agents and brokers both sell and manage insurance for their customers.
Agents are the authorized representatives of an insurance company or
companies, while brokers are the authorized representatives of people
looking for insurance.
Anti-Theft Device
Devices designed to reduce the chance an auto will be vandalized or
stolen, and/or assist in its recovery. Examples include car alarms,
keyless entry, starter disablers, motion detectors, parts of the vehicle
etched with the Vehicle Identification Number, and other digital
recovery systems.
Assigned Risk
A risk not ordinarily acceptable to insurers which is, according to
state law, assigned to insurers participating in a plan in which the
insurers agree to accept their share of these risks.
Automobile Insurance
A form of insurance that protects against various types of losses
involving autos. Different types are available depending on the needs
and wants of those buying policies. Examples of coverage types include:
bodily injury liability, property damage liability, medical payments,
and collision and comprehensive coverage for physical damage to the
insured's vehicle.
Automobile Insurance Plans
The name for "assigned risk" plans. These are plans set up and
monitored by state agencies to help people who are unable to secure auto
insurance through standard insurance carriers. See Assigned Risk.
Basic Auto Policy
Although still used today to insure substandard risks, two-wheel
motorized vehicles, and commercial autos, the Basic Auto Policy has been
primarily replaced by the Personal Auto Policy, which combines both
physical damage coverage and liability insurance for claims arising out
of the ownership or use of a vehicle.
Basic Limits of
Liability
The least amount of liability coverage that can be purchased, which
is generally equivalent to the minimum amount required by state law. In
determining rates, a carrier will use the basic limits to develop the
base rates.
Benefit
A benefit is the amount paid by an auto insurance company to you or
your beneficiary when you file an auto insurance claim.
Bodily Injury Liability
Legal liability for causing physical injury or death to another. This
coverage helps pay for the injured party's medical expenses and lost
wages. Bodily injury liability may also help pay your expenses in a
related lawsuit.
The amount covered is capped at the limits you select when you buy your
auto insurance policy.
Broadform Collision Coverage
This auto insurance coverage is available only in the state of Michigan.
Broadform works like standard collision coverage, but also pays for
collision damage to your insured car regardless of who's at fault.
Although this auto insurance coverage will pay up to your car's actual
cash value regardless of fault in an accident, you'll be responsible for
the deductible amount you select if you're found to be more than 50
percent responsible for the accident. If you're less than 50 percent
responsible, you won't have to pay this deductible.
Business/Commercial Use
This classification means that you mainly use your car for business
purposes (such as sales, service, and delivery calls) or work-related
errands (like trips to the bank or post office), and other work-related
driving. Commuting to and from work is not considered business use.
Claim
An auto insurance claim is a policyholder's request to be reimbursed
for a loss that's covered by car insurance.
Collision Deductible Waiver
This auto insurance coverage pays the deductible for your collision
coverage if you're involved in an accident in which an uninsured
motorist is held legally responsible.
This particular auto insurance coverage isn't available in all states.
Collision Insurance
This covers losses to the insured person's own auto caused by its
collision with another vehicle or object.
Combined Single Limit
Bodily Injury and Property Damage coverage expressed as one single
amount of coverage.
Commission
That portion of the premium paid to the agent as compensation for the
agent's services.
Comprehensive Coverage
Covers damage to a vehicle caused by an event other than a collision
or overturn. Examples include fire, theft, vandalism, falling objects,
and weather-related losses.
Continuously Insured
The length of time you've been continuously insured is the length of
time you have been covered by one or more insurance companies without a
lapse in your auto insurance coverage.
Covered Persons
This refers to the individuals (named insured, spouse, resident
relatives, etc.) insured under a policy contract.
Customized Equipment/Special Equipment
Items not included in standard insurance options available for cars.
These may include extra electronic equipment, special paint or exterior
items, or other amenities and upgrades added to the inside of a van or
truck.
Declarations
The declarations page of your auto insurance policy summarizes the
factual information essential to your auto insurance coverage: the
policyholder's name and address, a description of the insured vehicles,
the auto insurance premium, as well as the types of coverage, limits,
and deductibles.
Deductible
The amount an insured person must pay before the insurance company
pays the remainder of each covered loss, up to the policy limits.
Defensive Driver Course
These are classes either offered through or approved by Departments
of Motor Vehicles to enhance driving skills. These courses may make
drivers eligible for discounts on their premiums.
Depreciation
Depreciation is the decline in an object's value due to age, wear and
tear, and obsolescence.
Drive-Other-Car Endorsement
Optional coverage that broadens the definition of a covered auto to
also include non-owned vehicles the insured person operates.
Driver Education
State accredited educational learning to drive course that consists
of at least 30 hours of professional classroom instruction.
Driver Training
State accredited training course that consists of at least six hours
of behind-the-wheel professional instruction.
Earned Premium
The portion of a premium that has been "used up" during a policy
term. With a one-year policy, half of the total premium has been earned
after six months.
Effective Date/Inception Date
The date that coverage begins on an insurance policy.
Emergency Road Service
This optional coverage, sometimes called towing coverage, pays a
fixed amount toward the following:
Towing
Tire changing
Gas, oil, and water delivery
Battery services
Lockout services
Endorsements
Also known as riders, endorsements are changes to the original
insurance contract. In auto insurance coverage, endorsements may include
changing your deductibles or adding a new car to your auto insurance
policy.
Expiration Date
The date your coverage ends. There is usually a time of day
associated with this date, for example, an expiration date of 12/31/2008
at 12:01am. This means your coverage ends one minute after midnight on
the date listed.
Extended Non-Owner Liability
An endorsement that provides broader liability coverage for
specifically named people operating any non-owned automobile or trailer.
It covers non-owned autos, use of autos to carry people or property for
a fee, and individuals driving employer-furnished cars who do not own
vehicles themselves.
Extraordinary Medical
Extraordinary medical coverage is sometimes a part of Personal Injury
Protection or First Party Benefits plans.
Extraordinary medical coverage protects you in the event you suffer
accident-related injuries that require serious and/or long-term medical
care. Extraordinary medical coverage only starts once you have exhausted
the limit on your standard medical benefits coverage.
Family Automobile Policy
Now replaced by the Personal Auto Policy, the Family Auto Policy was
a package policy in which both liability and physical damage protection
to an insured's vehicle was offered under one policy.
Financial Ratings
Financial ratings reflect a credit rating organization's opinion on
the financial strength and ability to meet ongoing obligations to
policyholders. The ratings organizations most commonly identified with
the insurance industry are AM Best, Standard & Poor's and Moody's.
Financial Responsibility Laws
Financial responsibility laws require owners and operators of autos
to maintain enough money to compensate those they injure. Liability
insurance is the most common way to satisfy these requirements.
First Party Benefits
This pays policyholders and other persons covered by the policy in
the event of injury, no matter who caused the accident. The benefits can
include medical expenses, loss of income, funeral and death benefits.
This may also be called Personal Injury Protection.
Full Coverage Auto Insurance
Though there is no such thing as "full coverage," people often use
this term to describe how much auto insurance coverage they have. Full
coverage is a term most often used by the public in describing a policy
has more than just liability coverage.
Funeral Benefits
Funeral benefits coverage is sometimes a part of your auto insurance
policy's Personal Injury Protection or First Party Benefits plans. If a
covered individual dies from accident-related injuries, this auto
insurance coverage pays for a portion of funeral expenses, regardless of
who is at fault in an accident.
Gap Insurance
If you are making lease or loan payments and you experience a total
loss, there may be a difference (gap) between the market value of your
vehicle and what you still owe on it. This optional coverage pays the
difference.
Garaging Location
The garaging location is where your insured car is parked most of the
time. This location is usually indicated by the ZIP Code of the
policyholder's primary residence. If you normally keep your car in a
town other than the one you live, your garaging location will affect
your auto insurance rates.
Good Student Discount
A premium discount for students with high scholastic grades. Some
statistical research has shown a relationship between good grades and
safe driving.
HEV
Hybrid Electric Vehicles are powered by a combination of battery and
fuel. By using less gas, HEVs emit fewer pollutants and receive better
gas mileage than standard vehicles.
Hit and Run
An accident caused by someone who does not stop to assist or provide
information.
ID Card
An identification card issued by your insurance company that provides
evidence of liability insurance. Such evidence is required to be carried
in the vehicle in most states.
Income Loss
Income Loss coverage is sometimes a part of your auto insurance
policy's Personal Injury Protection or First Party Benefits plans and
protects you if you're unable to work due to accident-related injuries.
This auto insurance coverage helps you recover portions of your lost
salary and other expenses you may incur as you try to return to work.
Indemnity
An indemnity is a pre-determined sum paid for a covered loss.
Insurance Claim Report
Insurance claim reports provide details about auto insurance claims
you or other insured drivers have filed with insurance companies. These
reports are provided by independent consumer reporting agencies that
collect auto insurance claim information from a variety of insurance
companies. One of the most common agencies issuing such reports is
C.L.U.E., the Comprehensive Loss Underwriting Exchange.
Insurance Score
Insurance scores are based on mathematical models that objectively
measure the relative likelihood of future insurance losses based on your
credit history. These scores and analyses of their significance are
provided by independent consumer reporting agencies.
Insured
The insured is an individual covered by a given auto insurance
policy.
Judgment
A judgment is a final decision rendered by a court of law. For
example, in a lawsuit related to an auto accident, where John hit
Susan’s fence with his car, the court determined that John was wholly
responsible for the accident. The judgment determined that John should
pay for the costs of repairing Susan’s fence.
Lapse in Coverage/Policy Lapse
A specific point in time when a policy has been canceled or
terminated for failure to pay the premium, or when the policy contract
is void for any other reason.
Lender
Your lender is the institution to which you make car payments.
Lessor
Your lessor is the institution to which you make your lease payments.
Liability
Liability is a term that broadly means legal responsibility. If you
run a stop sign and hit another car, you may be found liable for the
damages to the other driver's car.
Liability Coverage
Liability coverage protects you from having to deplete your assets to
pay for damages if you're held responsible for injuries or damages
arising from a car accident.
The two main types of liability coverage in an auto insurance policy are
bodily injury and property damage.
Limits
Limits are the maximum amount your insurance company will pay for a
covered loss. Though you can choose your limits for certain coverage,
some states require you to buy certain minimum levels of auto insurance
coverage. In such states, you'll have to choose limits that at least
meet your state's auto insurance requirements.
Loss Payee/Lien holder
A person or entity with a legally secured insurable interest in
another's property, usually a financial institution that loaned money to
buy a car. The car is the loan collateral. If the auto is damaged in an
accident, loss payments will be made to you and to the loss payee on
your policy.
Medical Benefits
Medical Benefits coverage is sometimes a part of your auto insurance
policy's Personal Injury Protection or First Party Benefits plans.
Medical expenses that are the direct result of accident-related injuries
are covered. Covered medical expenses are capped at the limits you
choose when you buy your auto insurance policy.
Medical Payments Coverage
This pays for medical and funeral expenses incurred in an auto accident,
regardless of fault. It will also cover injuries sustained by passengers
in your car, or while you're operating someone else's car (but only with
their prior permission), in addition to injuries you or your family
members incur when you're pedestrians.
Motor Vehicle Report
A Motor Vehicle Report (MVR) provides information on your driving
record. This report includes accidents and moving violations. Auto
insurance companies obtain MVRs from state governments where you or
other insured drivers have been licensed to drive.
Multi-car discount
A discount offered by some insurance companies for those with more
than one vehicle insured on the same policy. In some cases, if you drive
a company car insured by your company, your own insurance company may
give you the multi-car discount.
MVR - Motor Vehicle Record
A motor vehicle record, also referred to as DL printout, or MVR,
contains information obtained from an individual's driver license
application, abstracts of convictions and accidents.
Named Insured
Any person, firm or corporation designated by name as the insured
person(s) in a policy. Others may be protected by policy definition even
though their names aren't on the policy, such as other drivers operating
(with prior consent) the named insured's covered auto.
Named Non-Owner Policy
A policy endorsement for one who operates any non-owned automobile on
a regular basis, such as driving a car provided by one's employer.
National Credit File
The National Credit File provides objective consumer information
regarding the financial history of an individual. Information contained
in this report is often used to calculate insurance scores.
No-Fault Insurance
Many states have enacted auto accident compensation laws permitting
auto accident victims to collect directly from their own insurance
companies for medical and hospital expenses regardless of who was at
fault in the accident. Although there are many legal variations of
no-fault insurance, most states still allow people to sue the negligent
party if the amount of damages exceeds a certain state-determined
threshold. (see "Threshold Level.")
Non-Owned Auto
Any vehicle that is not owned, borrowed, or leased by the insured,
and which is used primarily for business purposes.
Non-Passive Alarm
A non-passive alarm has to be manually activated every time you leave
the car. If someone attempts to open your car, the alarm sounds, and the
system disables the automobile's starter, ignition system, and/or fuel
circuit.
You may qualify for an auto insurance discount if your car is equipped
with such an alarm.
Passive Alarm
Passive alarms are automatically activated and emit warning sounds
when someone tries to get into your car. Once the passive alarm has been
triggered, the system disables the automobile's starter, ignition
system, and/or fuel circuit.
You may receive an auto insurance discount if your car is fitted with
such an alarm.
Per Occurrence Limit
This refers to the cap amount an insurance company will pay for all
claims arising from a single incident. In an automobile accident, it
comprises bodily injuries sustained by all parties. When Bodily Injury
coverage is purchased in split limits, the second limit is the "per
occurrence" limit: e.g. $100,000(per person)/$300,000(per occurrence)
Per Person Limit
This refers to the cap amount an insurance company will pay for any
one person's injuries arising from a single incident. In an automobile
accident, it comprises bodily injuries sustained by each person. When
Bodily Injury is purchased in split limits, the first limit is the "per
person" limit: e.g. $100,000(per person)/$300,000(per occurrence)
Personal Auto Policy
The most common auto insurance policy sold today. Often referred to
as "PAP," this policy is written in simple wording and provides coverage
for liability, medical payments, uninsured/underinsured motorist
coverage, and physical damage protection.
Personal Injury Protection
The name usually given to no-fault benefits in states that have
enacted mandatory or optional no-fault auto insurance laws. Personal
Injury Protection (PIP) usually includes benefits for medical expenses,
loss of income from work, essential services, accidental death, funeral
expenses, and survivor benefits.
Physical Damage
Damage to your covered vehicle from perils including (but not limited
to) collision or upset with another vehicle object, fire, vandalism and
theft.
Pleasure Use
If you use your car for pleasure, this means that you typically drive
it for fun, with no regular business use.
Policy
The written documents of a contract for insurance between the
insurance company and the insured. Such documents include forms,
endorsements, riders and attachments and are legally binding on each
party.
Policy Period
The period of time in which a policy is in effect. (For example, six
months or one year).
Policyholder
A person who maintains ownership in an insurance policy. This may
refer to the policy owner or those covered under the policy. See also
Named Insured.
Preferred Risk
Any risk considered to be better than the standard risk on which the
premium rate was calculated.
Premium
The price of insurance an insured person pays for a specified risk
for a specified period of time.
Primary Driver
The primary driver is the person who drives a car most frequently.
Primary Use
A vehicle's primary use is how the car is typically used. Auto
insurance companies usually classify primary use as either commuting,
business/commercial, or pleasure.
Primary Policyholder
The primary policyholder is the person who serves as the main point
of contact with the insurance company.
Private Passenger Automobile
A four-wheeled motor vehicle that is subject to motor vehicle
registration and used for private personal use.
Pro Rata Cancellation
Termination of an insurance contract before the policy expiration
date on which the premium returned to the insured person is adjusted in
proportion to the amount of time the policy was in effect.
Property Damage Liability Insurance
Protection against liability for damage to another person's tangible
property, including loss of use. Although this coverage is different
than liability for bodily injury to another person, Bodily Injury and
Property Damage Liability protection are generally written together.
Renewal
The process of keeping an active policy in force through the issuance
of a renewal policy.
Rental Car Reimbursement
This optional coverage will reimburse you for a rental car if your
vehicle is disabled due to a covered loss. This coverage will pay all or
part of your rental car costs.
SR-22
An SR-22 is an official document that shows proof of financial
responsibility. Motor Vehicle Departments may require an SR-22 or a
similar form for people convicted of certain traffic violations. If an
SR-22 is needed, this must be disclosed to your insurance provider.
Safe Driver Plan
A rating system that assigns points for traffic convictions and
certain accidents. Similar to a merit-rating plan, each point increases
the surcharge percentage to the baseline insurance rates.
Secondary Driver
A secondary driver is one of the drivers listed on your auto
insurance policy who's insured for driving an insured vehicle. However,
this driver is not a car's primary driver.
A secondary driver is also sometimes known as an occasional driver in
auto insurance terminology.
Short Rate Cancellation
A policy termination in which the refunded premium is not
proportional to the amount of time remaining in the policy period due to
the fixed expenses incurred by the company. The insured will generally
pay more for each day of coverage than if the policy had remained in
force throughout the entire policy period.
Split Limit
Any insurance coverage with separately stated limits for different
types of coverage. Example: an automobile liability policy of 100/300/50
provides a maximum of $100,000 bodily injury coverage per person,
$300,000 bodily injury coverage per accident, and a property damage
limit of $50,000 per accident.
Stacking of Limits
The application of more than one policy limit to the same loss or
occurrence. In some jurisdictions, courts have required stacking of
limits when multiple policies, or multiple policy periods, cover an
occurrence. For example, Uninsured motorist bodily injury limits of
$100,000/300,000 on two policies owned by the same person may be added
together to pay a loss. In this event, the total amount of coverage
available for an accident would be $200,000/600,000.
Steering Restraint
A steering restraint is a durable collar or shield attached to the
upper and lower casing of your car's steering column. The collar makes
it harder for potential thieves to access, or "hotwire," your car's
ignition system.
You may qualify for an auto insurance discount if your car is fitted
with this device.
Supplemental Family Member Liability Coverage
Supplemental family member liability (SFML) is an optional coverage,
available only in Maryland.
This type of auto insurance coverage protects you if you’re found to be
at fault in an accident resulting in injury or fatality to a family
member.
The amount covered by SFML is equal to the Bodily Injury limits
purchased, or if SFML is less than Bodily Injury limits than SFML
coverage is equal to the state minimum requirements of 20/40.
Supplemental Spousal Liability
Supplemental spousal liability, or SSL, is an optional coverage,
available only in New York State.
This type of auto insurance coverage protects you if you’re found to be
at fault in an accident resulting in injury or fatality to your spouse.
The amount covered by SSL is capped at the limit you choose when you buy
your auto insurance policy.
Term
The length of time for which an insurance policy is in force.
Threshold Level
Under some no-fault insurance laws, the threshold level represents
the degree of injury a claimant must establish before being allowed to
sue the negligent party. The threshold may be verbal (regarding the
severity of the injuries) or a dollar amount ($10,000), or both. For
example, with a threshold of $5,000, an injured person may sue if
his/her injuries and other economic damages (rehabilitation expenses,
loss of income, etc.) exceed $5,000.
Tort
A private wrong or harm (other than a breach of contract) committed
against another, resulting in legal liability. A tort is either
intentional or accidental (negligent). Automobile liability insurance is
purchased to protect one from suits arising from unintentional torts.
Tort Feasor
One who commits a tort.
Towing and Labor Coverage
This endorsement, which is added to the physical damage coverage,
provides reimbursement up to a predetermined specified limit to tow your
vehicle or pay for on-site labor costs.
Transportation Expenses
Subject to a daily and maximum dollar limit, this coverage (under the
physical damage portion of an automobile policy) pays for transportation
expenses incurred by the named insured only in the event of theft of an
entire covered auto. Coverage generally begins after a stated minimum
waiting period.
Uninsured Motorists Bodily Injury
Uninsured motorists bodily injury coverage (which must be offered in
most states) pays for a covered person's bodily injuries of which an
uninsured or hit-and-run motorist is legally liable, but unable to pay.
Underinsured Motorists Bodily Injury
(not to be confused with "uninsured") Underinsured motorists bodily
injury coverage (which must be offered in most states) pays for a
covered person's bodily injuries of which a person with not enough
insurance is legally liable.
Uninsured Motorists Property Damage
Uninsured Motorist Property Damage Liability coverage pays for
property damages caused by uninsured drivers.
Unearned Premium
The portion of your premium remaining on your policy term. For
example, with a six-month premium, at the end of the first month of the
premium period, five-sixths of the premium is unearned by the insurance
company.
Unsatisfied Judgment Fund
Some states have by law established these funds to reimburse those
injured in auto accidents that have been unable to collect from the
responsible party.
Usage
This refers to the primary function or purpose in which you intend to
operate your vehicle. For example, if you primarily drive your car to
and from work, the usage is considered "commute; "if you're
self-employed and you primarily drive to see customers, the usage is
considered "business;" if you're retired, your usage is considered
"pleasure."
VIN
The VIN, short for Vehicle Identification Number, is the
unique 17-digit number found on every car. The VIN contains the
vehicle's serial number, as well as abbreviations for the make, model,
and year.
The VIN appears on your vehicle registration card. It's also engraved in
your car, near the base of the windshield on the driver's side dashboard
and/or on the edge of the driver's side door.
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