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Glossary of Auto Insurance Terms
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| A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z |
Additional Insured or Additional Interest
A person or an organization, other than 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.
Anti-Theft Device
Devices designed either to reduce the chance an auto will be vandalized or
stolen, 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 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 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
the state 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. If an insured person wants higher limits, the carrier applies an
increased limits factor to the base rate in calculating the new premium for
the increased coverage.
Bodily Injury Liability
Legal liability for causing physical injury or death to another.
Collision Insurance
This covers loss 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, and falling objects.
Continuous Coverage or Continuous Liability Insurance
Continuous coverage refers to the length of time you have maintained
insurance on your vehicle.
Covered Person
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
amenities added to the inside of a van or truck.
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. Courses taken for traffic school because of
a moving violation are not eligible.
Drive-Other-Car Endorsement
Optional coverage that broadens the definition of a covered auto to include
non-owned vehicles the insured person operates.
Driver Education
State accredited educational course that consist 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.
Expiration Date
The date your coverage ends. There is usually a time of day associated with
this date, for example, an expiration date of 5/1/2002 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.
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 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 others 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.
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.
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.
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 in most states.
Lapse in Coverage/Policy Lapse
A 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 other reasons.
Lender/Lessor
Your lender is the institution to which you make car payments.
Your lessor is the institution to which you make your lease payments.
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 Payments
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 (with their
permission), in addition to injuries you or your family members incur when
you're pedestrians.
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 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.
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 a business purpose.
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.
Policy
The written documents of a contract for insurance between the insurance
company and the insured. Such documents include forms, endorsements, riders
and attachments.
Policy Period
The period of time in which a policy is in effect. (For example, six months
or one year).
Policyholder
One 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.
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'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 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.
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 rates.
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.
Term
The length of time for which a policy or bond 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 Costs
This endorsement, which is added to the physical damage coverage, provides
reimbursement up to a 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
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 established laws 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 Vehicle Identification Number
A Vehicle Identification Number is a 17-digit alpha-numeric code that
provides valuable information concerning the vehicle's serial number, make,
model, options, and year in official records (like a Social Security number
for your car).
Waiver of Collision Deductible
This option pays your collision deductible when you carry collision coverage
on a vehicle that is damaged by an uninsured or hit-and-run motorist who is
at fault. Coverage applies only when there is actual physical contact and
when you can identify the uninsured driver or vehicle.
Whole Dollar Premium
Generally, insurance premiums are rounded to the nearest dollar; an amount
of 51 cents or more being rounded up to the next dollar, and any amount less
than that being dropped
