Auto Insurance Glossary
Additional Interest - This is the amount that you could be charged if you prepay your loan in full, refinance the loan or if you choose to renegotiate the terms of an existing loan. It could be used to get around prepayment penalty restrictions. Review the terms of your loan before to see if there are any additional interest charges that could be applied.
Anti-Theft Device - This is a device that can be installed in your automobile that can reduce the chances that it will be stolen or vandalized. It usually includes an alarm that sounds when the automobile is disturbed. Many newer models also have a homing device that makes it easier for police to track a stolen automobile and recover it.
Bodily Injury Liability - is the portion of an insurance policy that pays for the injuries or expenses surrounding death that is caused during a wreck that is the policy owner's fault. The pay out is limited to the value of the policy. It is recommended that all drivers carry some form of liability.
Car Insurance Coverage - There are many forms of coverage you can get for your automobile. What you need will depend on the age of your car, the amount of money you have set back for emergencies and how much you want to spend each month. These policies can cover everything from property damage to liability to towing - and most things in between.
Claim - When an accident happens you must notify the insurance company if you want to be compensated for any damages or if you want to ensure that you are covered for any future litigation. The claim serves as written notification that you are asserting your rights under the insurance policy to have the insurance company reimburse or pay for losses.
Collision Coverage - This is the portion of the policy (or the individual policy) that will cover the vehicle when there is damage caused by a collision with another car or object or if the car is upset (turned over) regardless of fault. Typically it is limited to the value of the car minus any deductibles.
Collision Deductible Waiver - If you include this waver in your policy then there will be no deductible in the event that the vehicle is in an accident with an identified uninsured motorist. The policy holder will receive the amount needed to repair the vehicle (up to the value of the vehicle) without any deductions.
Comprehensive Coverage – This policy offers one of the widest scopes of coverage available although there are always some exclusions. It usually will pay for direct damage and accidental damage NOT covered by collision. Everything is covered unless specifically excluded and there is likely a deductible (stolen vehicles, natural disaster or other unexpected events).
Continuous Coverage – When it comes time to change policies it is important that there is no lapse between your policy coverage or you could jeopardize any coverage or cause coverage restrictions. Getting continuous coverage means there has not been a lapse of over 60 days and that any pre-existing problems will likely be covered.
Continuously Insured – This term is a reference to all of the time that you have been covered by a major insurance coverage. Being continuously insured can help you with future negotiations. It can become a factor when you are searching for a new policy or looking to get lower rates for your coverage terms.
Credit Rating - This is an estimate of the amount of credit that can be given to a company or a person without much risk by the lender. It is based on past credit history - including late payments, bankruptcy and open accounts - and assess the borrowers history for paying past obligations.
Deductible - The amount that the policy holder will be liable for to pay if and when there is a claim paid. Higher deductibles allow for lower premium payments but the deductible amount should be kept in a savings account or other set aside account in case there is a need to use it.
Declarations Page (Dec Page) - This is the page of the policy that gives all of the basic information regarding that policy. It will include the name and address of the insurer, the period that the policy will be in force, the description of the property, the premium payment and the coverage amount. It is the easy way to get a overall view of your coverage.
Defensive Driver Course - One of the many ways that you can help to reduce your insurance premiums. This is a course that helps you learn how to watch for hazards on the road and also how to avoid those hazards. Having this course will give insurance companies more security in your abilities and allow them to give you a better deal.
Depreciation - This is the amount the insured property is decreased in value because of age or wear and sometimes it is the amount of value that is decreased because of the market. Sometimes the policy will cover for the depreciated amount instead of replacement costs which means the policy owner will have to pay any additional monies to replace the insured items.
Drive-Other-Car Endorsement - This is an optional coverage that can be added to your automobile insurance that broadens the scope of coverage to vehicles that the policy owner does not own. It can include business vehicles or private vehicles but provides the policy owner a large scope of protection in case of an accident.
Earned Premium - The amount of the policy that as actually been paid for. If you purchase a full year of coverage then two months into the coverage there will be two months of earned premium. It is the portion of the coverage that has already been provided. Because most insurance policies are paid in advance the insurance company does not fully earn them until the policy expires.
Effective Date - when you purchase insurance you can stipulate a date when the coverage of that insurance is to begin. That means that you can buy coverage for a home or vehicle then can set a date for it to become effective. If there is no specified date then the coverage starts when the policy is purchased.
Emergency Road Service - There are a number of things that can go wrong when you are on the road and the emergency road service will cover many of them. This coverage will often pay for a tire to be change or filled, a gas tank to be filled or even a dead batter to be re-charged. It is coverage for things not related to accidents.
Endorsements - An endorsement is a revision to the existing policy agreement. They are often known as riders. Some will be changes to deductibles, payment schedules or the addition of other coverage not currently on the existing policy. The endorsement is always in writing and it is attached to the existing policy.
Exclusions - The part of the insurance policy that lists all of the different situations that will not be covered by the policy. It often includes situations, properties, perils or even persons that are not covered. The Exclusions section of the policy will cover things that are not expressly included in the policy.
Extraordinary Medical - This is the medical coverage can be added to a policy that will cover the expenses incurred from serious injury developed during an accident. The Extraordinary Medical coverage will provide long term care and rehabilitation after the limits on all other medical coverage is exhausted. It is specifically designed for long term medical needs.
Expiration Date - There is a limit to every insurance policy that is purchased. The expiration date is also known as the termination date. It will be written on the policy and typically the insurance company will notify the insured party that it is time to renew the policy when the expiration date closes in.
Extended Non-Owner Liability - This is a rider for an insurance policy that extends coverage to specific people that operate any non-owned vehicles. It can cover non-owned vehicles, the use of vehicles to carry people or property and drivers using company owned vehicles. It is most often used by businesses to cover company owned vehicles.
Financial Ratings - This is the rating given a policyholder by rating companies that shows the policyholder's ability to meet financial obligations. It reflects the financial strength of the individual or company and helps insurance companies make sound decisions. There are three major rating companies within the insurance industry.
Financial Responsibility Laws - States have enacted a law that requires automobile drivers to show proof that they can pay damages if involved in an auto accident. The minimum amount typically limits the driver's responsibility. The purchase of automobile liability insurance is usually the best proof (and protection) that driver's can get.
Full Coverage Car Insurance - The term implies that everything is covered but in reality there is no such policy. It is most often used for a policy that is more than just liability and is most commonly used by the policy holder to describe the coverage that is held. Insurance companies do not issue full coverage auto insurance policies.
Funeral Benefits - This can be part of personal injury protection or other plans. It covers the burial of individuals that die from accident related injuries. It will cover a portion of the expenses no matter who was at fault in the accident. The limits are set when you purchase your auto insurance policy.
Gap Insurance - This is the policy you need to guarantee that the amount paid in case of a total loss will cover the gap between what you owe on the vehicle and the market value of the vehicle at the time of the accident. If you are making lease or loan payments then this coverage is recommended.
Garaging Location - The address where your car is parked for the majority of the time. It is usually the same address as the policy holder's primary residence but it can be another location. The garage location can affect the rates offered by the auto insurance company because of the statistics surrounding that particular area.
Good Student Discount - Many companies offer a discount for full time students that maintain a certain grade point average (typically a "B" or better). The idea is that students who are doing well in school will likely be more responsible on the road. The exact discounts and requirements will vary from company to company.
HEV: Hybrid Electric Vehicle - These are alternative fuel vehicles that are better on gas mileage and on the environment than are traditional gas powered vehicles. Although most run on a combination of battery power and fuel power they all use much less gas than standard vehicles. They are also more compact than other vehicles on the road.
Hit and Run - This is an accident that is caused by someone who does not stop to assist the injured party or to provide information to the other party in the accident or the police if they are called. It is against the law to leave the scene of an accident without providing information.
Income Loss - When you are unable to work because of injuries related to an automobile accident then this coverage will provide you with a portion of your lost salary until you are able to return to work. It may also cover other expenses that come up when you do try to return to work.
Indemnity - This is a term that refers to the agreement to compensate for loss or damage when an accident occurs. It is secured by the policy holder with the insurance company through the payment of premiums (monthly, quarterly or yearly) and is written out in the paper policy that is issued.
Independent Agent - This is an agent that does not represent just one insurance company. They represent a number of insurance companies and can be one of the best ways to find the better deal on your auto insurance policy. They are not typically employees of the companies that they represent and are paid most likely on commission for policies that they sale.
Insurance Premium - This is the amount that is paid to the insurance company to secure the coverage that has been agreed upon. Most premiums are paid in monthly payments but there can be savings provided for those premiums that are paid in quarterly or yearly payments instead because there is less work involved for the company.
Insurance Score - Companies use this rating to determine the liability that customers may pose. The calculations come from things like personal credit rating, credit history and even past claims. It may also include the driving record of customers. The better the insurance score the lower the premiums will likely be for the policy holder.
Insured - The person that takes out an insurance policy and is the covered person for that particular policy is the insured party. A consumer can take out coverage for another party (as is the case for most parents with teenage drivers) where the policy owner is not the covered person for the policy.
Liability - This is the term that often denotes legal responsibility. It is a legally enforceable obligation that one party owes to another because of injury or damage that is suffered. It is the legal debt that the guilty or responsible party owes to the injured party because of an automobile accident.
Liability Coverage - This coverage protects you against any of the financial obligations that might result from an accident. Typically it will cover physical injuries or property damage up to a certain amount. Most states require that all vehicles have liability coverage to protect the other party in case there is an accident.
Lien Holder - This is the person (or an organization) that has a financial interest in the property. That financial interest usually comes from a claim or charge enforced on the property until payment of a debt is received. The lien gives the lien holder the right to another person's property (or to a portion of that property).
Limits - The amount that a person or property is protected is determined by the limits set up by the insurance policy. The limit is the maximum amount of payment that the insurance company has agreed to pay out in case of a loss or injury sustained because of an accident involving the insured.
Medical Payments Coverage - There is automotive insurance available that will cover medical expenses if there is an accident (it may also include funeral expenses). It will cover the driver or passengers in the insured vehicle regardless of who may be at fault for the accident. There is usually a cap to the medical payments and the automotive insurance will likely be secondary to any traditional medical insurance.
MVR (Motor Vehicle Record) - This is the report that is issued by the same agency that issues licenses. It gives information regarding your driving history - including accidents and violations. It is usually used by insurance companies to verify information that has been provided to them by applicants and existing policy holders and can be used to increase (or lower) premiums.
No-Fault Insurance - This is coverage against uninsured motorists or accidents that are the fault of the policy owner. It allows accident victims to seek payments from the insurance company even in situations where they caused the accident. They may also be able to seek loss of income due to injuries from the accident.
No-Fault State - These are the few states that require insurance companies to cover the policyholder regardless of who is responsible for the accident. This means that each policyholder involved in an accident will seek reimbursement from their own insurance company instead of seeking damages from the party that caused the accident or their insurance company.
Non-Passive Alarm - This is an alarm system that requires the owner to manually activate the system every time he leaves the vehicle. The alarm will sound when someone attempts to open the car without disengaging the system. Some systems will also disable the starter, the ignition system and the fuel circuit to make the vehicle virtually impossible to steal.
Passive Alarm - This system will activate automatically for the owner of the vehicle. It will usually sound a warning when someone tries to enter the car without disarming the system. The passive alarm will also disable the automobile in a series of steps to decrease the likelihood that the vehicle will be stolen.
Personal Injury Protection - This is another form of "no-fault" insurance. It's purpose is to cover things like medical treatment or lost wages due to an accident. Payment is made regardless of who or what caused the accident. The only limits to the payments are the ones that exist in the policy's terms and conditions.
Physical Damage - This is the coverage that pays for situations not covered in other parts of your coverage (like the collision provision or even the comprehensive coverage). Many agents refer to this as the "other than collision" coverage because it covers most everything that would not be considered collision (possibly weather related damages).
Pleasure Use - This is the coverage needed for those vehicles used strictly for recreational enjoyment. These are the cars that are not used for commuting or business but instead are used for fun. It can include sports cars, collectible vehicles or any other vehicle that is used for play and not for work.
Policy Period - This is the amount of time that the policy is purchased to cover. It is the time that the policyholder will be protected. Some companies offer policies with terms that go for six months or one year (even though they may stretch out premium payments over all the months that the policy is in effect).
Preferred Risk - This is a risk that is more desirable than the traditional risks associated with a policy. It is better than the standard risks that most premiums are calculated on and will often result in lower premiums being required of the policy owner for the same amount of coverage for a particular vehicle or situation.
Premium - This is the price that a policy holder pays to be covered for a particular amount of time and for a particular amount. The premium payments can be paid in a lump some at the beginning of a policy term or it can be paid in monthly installments over the live of the policy. Often there is a charge for the monthly installments option.
Primary Driver - This is the person that uses the vehicle most frequently. It does not have to be the registered owner of the vehicle. The primary driver can effect the premium charges for a policy - particularly the age of the driver or the occupation of the driver. The true primary driver should always be revealed even if it does cause the premiums to go a little higher.
Primary Use - This is the way that the vehicle is used under normal circumstances. If it is used to go to and from work then it would be categorized as a commuting vehicle. If it is used for work purposes (to drive clients around or to go to presentations) then it would likely be categorized as a business or even commercial vehicle. The primary use can affect the premium charges.
Private Passenger Auto - These are ordinary, four-wheeled vehicles that are used only for private or personal use. They can be sedans, compact vehicles, station wagons, or jeeps. Vans or trucks of under 1500 lbs that are not used for commercial purposes are considered private passenger. Trailers that are pulled by private passenger automobiles can also receive the designation.
Property Damage Liability Coverage - This is the coverage that will protect the policy holder from having to pay for property damage that is the result of an automobile accident. It may also help to pay for legal expenses that are incurred for any lawsuits that may have resulted from the accident. There is usually a limit or cap to the amount of payout available.
Pro-Rata Cancellation - This is the term that is used when a policy is canceled before the term of the insurance policy has expired. Any premium amounts that were pre-paid for coverage are returned to the policy holder so that only the time that the policy was actually in effect is paid for by that policy holder.
Rental Car Reimbursement - Some automobile insurance policies will offer the option of receiving a rental car (or covering a portion of the rental car cost) if the insured car is damaged, stolen or not operating due to an accident. The amount provided for a rental car is usually limited and this coverage is not offered through all policies.
Secondary Driver - Many vehicle owners have additional people in the family that regularly drives a particular vehicle. Insurance polices can be written to cover other drivers that might regularly use the vehicle as well as the primary operator. Some policies will refer to the secondary driver as an occasional driver depending on the policy or company.
Short Rate Cancellation - This is when a policy is terminated before the policy period ends and a refund of the premium is issued. Because of fixed expenses that the insurance company has incurred, the amount that was refunded is proportional to the company's expenses. The insured party will usually pay more for each day of coverage than if the policy had been allowed to run out.
Split Limits - Most insurance policies provide split limits for different types of situations covered by an individual automotive insurance policy. An example would be a policy with liability coverage of 50/100 for bodily injury. It would cover $50,000 per person and up to $100,000 per accident.
Stacking – This is when more than one insurance policy covers an accident and the policy limits are stacked together (or added together) to expand the coverage limits. For Example: Policy one covers bodily injury up to $50,000 and policy two covers up to $100,000. The injured party would be covered up to $150,000.
State Minimum – These are the minimum amounts of automobile required by different states. Almost all states require some form of liability insurance. Some states require even more coverage. It is important if you travel (or attend school outside your home state) that you make sure your current coverage meets the state minimum in the other states where you will be driving.
Steering Restraint - This is another form of theft prevention. It is a shield that is fitted to the upper and lower portions of the steering column so that it is harder for thieves to access the steering column and hotwire the ignition system. Most insurance companies give a discount for theft deterrents.
Term - Every insurance policy that is written is issued for a limited amount of time. This period of coverage is known as the term of the policy. Terms usually run for a one year period and the premiums can be spread out over the full length of the policy on a monthly, quarterly or annual basis.
Tort - This is a wrong or harm against a second party. There is legal responsibility or liability that is a result of the harm. It can be intentional or accidental. Insurance is purchased to protect against suits from accidental or unintentional torts and is usually referred to as liability coverage in the policy.
Towing Coverage - When a car can not be driven - either because of damage caused by an accident or because of mechanical problems - then it will have to be towed to a repair shop. The costs of the towing will be reimbursed if the insurance policy includes a clause for towing reimbursement.
Underinsured Motorists Coverage - This is the coverage that you will need if you are involved in an accident that is the other party's fault and that party is not covered sufficiently to pay for your automotive damages or any medical bills. Your coverage will cover those payments beyond the other party's liability coverage.
Uninsured Motorists Coverage – There are times when accidents are caused by individuals who are not insured or that causes the accident and the leaves the scene. Any expenses that you incur from these situations are paid for through the Uninsured Motorists Coverage that exists in your policy (subject to the monetary limits set by your policy).
Unsatisfied Judgment Fund - Some states have laws to help accident victims recover losses or receive reimbursement when they are unable to collect from the responsible party. There is often a fund set aside for these purposes. Claimants usually have to prove that they were not at fault and that they are unable to collect from the other party.
Usage - This is the primary way that the vehicle is being used. Vehicles that are used for commuting receive most of their mileage from driving to and from work. When the vehicle is used for seeing customers or other work related purposes then it is considered business. Vehicles can also be used primarily for pleasure.
VIN: Vehicle Identification Number - Every vehicle manufactured in the United States since 1980 is marked with a VIN (Vehicle Identification Number) that is used to help identify the vehicle. It is visible on the dashboard and sometimes the driver's side door. It is made of 17 numbers and appears on the vehicle’s registration card.