Auto Insurance Definitions

Written and Fact Checked by The Law Dictionary Staff  

To improve your chances of getting an auto insurance policy that works for your needs, you will need to know how auto insurance works and what insurers typically provide. The following auto insurance definitions give you a brief overview of some of the most important terms you are likely to come across when shopping for auto insurance. By becoming familiar with these definitions, you will be better prepared to find the best policy for your particular situation.

Auto Insurance Definitions: 

A

Accident: An unintended event that is usually sudden or unexpected, and not under the control of the parties involved in it.

Accident Forgiveness: A form of optional coverage that results in no surcharge for a first accident.

Accidental Death Coverage: This is essentially a life insurance policy that is added to your auto insurance coverage. Accidental death coverage pays a specified amount to named beneficiaries in the event of the death of the insured in an accident.

Act of God: Something that happens due to the forces of nature without human intervention, including floods, earthquakes, and hurricanes. Some insurance policies might exclude coverage for damage to you or your property in the event of an Act of God.

Actual Cash Value (ACV): The current value of the insured car after depreciation.

Actuary: A professional employed by an insurance company to analyze statistics and other data to determine risk and what premiums the company should charge.

Additional Interest Insured: A party, such as a lienholder, who does not necessarily use the vehicle, but may nonetheless be named as an Additional Interest Insured and held liable for an accident involving that vehicle.

Adjuster: An individual hired by the insurance company who investigates the validity of claims and offers settlements to claimants.

Admitted Insurance Company: A company authorized to sell insurance and do business in a particular state.

Agent: Somebody selling auto insurance policies and often working exclusively for a single insurance company.

Agreed Cost: The price agreed to by the claimant’s chosen auto repair shop and the insurance adjuster to complete the work necessary to fix the damage to a vehicle.

Agreed Value: The amount the policyholder and the insurance company decide will be paid in the event of an accident that results in a total loss.

Anti-Lock Brake System (ABS): The onboard system controlled by a vehicle's computer that assists the manual braking system, helping a driver safely stop or slow a vehicle without skidding or losing control.

Anti-Theft Device: A range of technologies that a car may be equipped with that can deter car theft, such as a car alarm. Anti-theft devices often lead to a discount on insurance premiums.

Application: The form used when a person or company applies for a new auto insurance policy, and it often includes information that will help the insurer determine the applicant's eligibility for insurance and premiums.

Arbitration: A process to settle disputes where both parties present evidence to an impartial third party, who is then empowered to resolve the conflict. Arbitration and mediation are alternatives to lawsuits.

Assigned Risk: A state-mandated plan where drivers who cannot normally obtain insurance, due to age or driving record, are able to do so, though premiums for these drivers are usually higher.

At Fault: A driver whose conduct is held legally responsible for causing an accident to happen.

Automobile Liability Insurance: A form of insurance that protects you if you cause injury to another person or damage to property in a motor vehicle accident.

B 

Benchmark Rate(s): A government-set rate used in Canada. An insurance company that sets its rates within a certain range of the benchmark rate do not need government approval to use those rates.

Binder: A temporary proof of coverage provided to the insured until they receive a permanent policy.

Blue Book: A shortened name for the "Kelley Blue Book," which publishes the values of used vehicles.

Bodily Injury Liability Coverage (BI): If an accident results in injuries or death to a person who is not the insured driver, BI coverage will pay for the costs (with possible exclusions).

Broker: Similar to an Agent (see above). A Broker sells insurance policies, although typically works for multiple insurers rather than just one.

Bundling: Combined policies of insurance issued by the same company to provide multiple forms of coverage, such as vehicle and home insurance, at a discounted cost.

C

Cancellation: When an insurance policy is terminated prior to the renewal date. Either the insurer or the insured can cancel a policy.

Car Insurance: A policy of insurance protecting an owner and driver against losses associated with the use and operation of the vehicle.

Carrier: An insurance company or the issuer of an insurance policy.

Certificate of Financial Responsibility: A document issued by insurance companies or agents to vehicle owners as proof of compliance with laws requiring car insurance coverage.

Claim: A demand for compensation according to the terms of a policy of insurance.

Claimant: The person filing a claim.

Clause: A name given to the various sections or paragraphs of an insurance policy.

Collision Coverage: Along with Comprehensive, the most common form of optional auto insurance coverage. Collision Coverage covers the cost (minus your deductible) of repairing damage to a vehicle when the insured driver is at fault or the at-fault driver is unknown.

Comparative Negligence: Laws that allow accident victims to receive compensation even if they were partially at fault in contributing to how it happened. The amount of the recovery is reduced by the percentage of negligence attributed to the claimant.

Comprehensive Coverage: The most common form of optional auto insurance coverage, alongside Collision, covering damage that is the result of non-collision factors, such weather and theft.

Continuously Insured: An insured person who has had no time period during which he or she was uninsured since first taking out an auto insurance policy.

Contract: The insurance policy.

D

Damages: The loss suffered by the victim of an accident.

Declarations Page: A part of an insurance policy that includes information about premiums, coverage amounts, time periods, and contact information of the insurer.

Deductible: The amount the insured agrees to pay out of pocket before the insurer will cover the rest of a claim.

Defensive Driver Course: Also known as driver improvement courses, these are programs that teach safe driving techniques to drivers. Participants may be eligible for discounted premiums on their car insurance.

Department of Motor Vehicles (DMV): A state agency that oversees the issuance of driver's licenses and vehicle registrations.

Depreciation: The value lost on a car because of wear and tear.

Driver Improvement Course: A voluntary driver's education course for older drivers that may result in a discount on premiums.

Driver: Someone who operates a motorized vehicle.

Driving Record: A motorist's history of moving violations and accidents kept by the department of motor vehicles in each state.

Driver Status: Includes Rated Drivers, Excluded Drivers, and Listed Users. Rated drivers are those who use the vehicles listed in a policy. Excluded drivers are those who are explicitly not allowed to drive an insured vehicle and who are not eligible for coverage if they are involved in an accident using the insured vehicle. Listed users are members of the same household, but who do not drive the insured vehicle.

Driver's Education: Some states require new drivers to complete a certain number of classroom hours of instruction in vehicle safety and the rules of the road before obtain a license to drive.

E

Earned Premium: If the insured person pays for a policy in advance, the "earned" premium is the portion of the policy that has already been used.

Effective Date: The date on which your car insurance goes into effect.

Emergency Road Service: Coverage provided by some auto insurance policies that offers roadside assistance if your vehicle breaks down or is disabled.

Endorsement: An expansion or limitation of benefits under a particular policy.

Estimate: The cost of repairing the damage to a vehicle involved in an accident, as determined by an assessment by a body shop or adjuster.

Exclusion: Provisions in an insurance policy that lists perils or events for which coverage is not provided.

Excluded Driver: See Driver Status.

Exclusion: Provisions in an insurance policy that lists perils or events for which coverage is not provided.

Expiration Date: The date and time stated in an insurance policy when coverage ends.

F

Fault: Used to determine which driver is responsible for an accident.

Fender Bender: When two or more vehicles are involved in a low-impact collision with minimal damage.

Financial Responsibility Laws: The name given to laws requiring motorists to obtain insurance coverage on vehicles driven on state roads.

Full Coverage: An informal term for describing coverage that provides more benefits than Liability Insurance alone does.

G

Gap Insurance: Also called Loan/Lease Payoff Coverage, Gap Insurance covers the difference between how much an insurer will pay on a lost, stolen, or totaled vehicle, and how much the insured person still owes on the vehicle.

Garaging Location: The place where a car is usually stored, such as a home's garage, when it is not in use.

H

Hit and Run: When a motorist involved in an accident flees the scene.

I

Insurance Card: The proof required in some states and issued by your insurance company that shows your vehicle is insured. The cards are kept in the vehicle to show to police or other motorists in the event of an accident.

Insured: The person or entity covered under the terms of an auto insurance policy.

L 

Lapsed Coverage: When a policy is terminated or canceled, and a replacement policy has not been obtained.

Leased Vehicle: Acquiring a vehicle from a dealer or leasing company under a contract, requiring you to pay periodic payments for a specified period of time.

Lessee: Someone who leases a vehicle or other property.

Liability: Having legal responsibility for something.

Liability Insurance: When an insured driver is at fault for an accident, Liability Insurance pays for damage and injuries to the other person or vehicle. Subject to Liability Limits.

Liability Limits: The maximum coverage provided by a policy's Liability Insurance.

Lienholder: A bank, person,, or other entity having a financial interest (such as a loan) in a vehicle.

Limits: The maximum payout offered by an insurer.

Listed User: See Driver Status.

Loan/Lease Payoff Coverage: See Gap Coverage.

Loss: The amount paid by an insurer on a claim.

M

Medical Payments Coverage (MedPay): Coverage that pays for some of the medical and funeral expenses incurred by an insured individual as the result of an accident.

Monetary Threshold: An amount set by the no-fault laws in some states that must be met before a lawsuit for damages may be commenced against the other driver who was at fault in an accident.

Multi-Car Discount: Some insurance companies offer a premium discount if you insure more than one vehicle with them.

N 

Named Driver Exclusion: An accident will not be covered if the driver is listed under a Named Driver Exclusion.

Named Driver Policy: A policy that provides coverage only when the driver of the vehicle is listed as a Named Driver.

Named Insured: The first person named on an auto insurance policy.

Negligence: Conduct that deviates from the standard of care expected of a reasonable person under similar circumstances.

No-fault Insurance: Coverage that is offered regardless of who was at fault for an accident.

Non-owners Policy: Coverage that is offered to an individual who is not the owner of the insured vehicle.

Non-renewal: When the insurer chooses to stop providing insurance coverage when the policy is up for renewal.

O

Occasional Driver: A person who drives the insured vehicle, but who is not considered the primary or principle driver.

Optional Coverage: Coverage provided by a policy that is beyond what is required by law. Includes Collision and Comprehensive Coverage.

P 

Per-Occurrence Limits: A cap on the amount an insurance company pays under a policy for all claims arising from a single accident.

Per Person Limits: The maximum amount an insurance company will pay under a policy to each person injured in an accident.

Personal Injury Protection Coverage (PIP): Provides limited coverage, including that of medical and funeral expenses, of those injured in an accident, such as the insured driver, passengers, and/or pedestrians.

Policy Expiration Date: The date on which a policy ends.

Policy Period: The time period during which a policy is effective.

Policy Term: See Policy Period.

Premium: The cost of an insurance policy, paid by the insured to the insurer.

Primary Residence: The insured's main place of residence.

Primary Use: How a vehicle is primarily used, such as for work, pleasure, etc.

Principal Driver: The main driver of the insured vehicle.

Property Damage Liability Coverage (PD): Covers damage to other peoples' property if the insured is found to be liable for an accident.

R 

Rate: The cost of insurance that takes risk factors into account in determining how much a policyholder pays in premiums.

Rated Driver: See Driver Status.

Rental Reimbursement Coverage: Covers rental car costs for claims covered by Collision or Comprehensive Coverage.

Rider: See Endorsement.

Reinstatement: When a policy becomes effective again after lapsing due to nonpayment of premiums.

Roadside Assistance Coverage: Provides certain roadside services for instances that may not involve an accident, such as towing in the case of a breakdown or a locksmith for when one is locked out of the insured vehicle.

S 

Salvage Titles: Required in some states. Requirements for salvage titles also vary widely from state to state. Generally, salvage titles are required when damage to a vehicle is in excess of a certain percentage of that vehicle's value or when it has been declared a total loss.

Second Named Insured: The second person named on an insurance policy and who has the same coverage as the Named Insured.

Short-Rate Cancellation: The amount charged by an insurance company when a policyholder cancels a policy before its expiration date.

SR-22: A court document required in cases involving certain traffic violations that demonstrates the financial responsibility of the convicted person.

Surcharge: An extra charge that is added when the insured is involved in an at-fault accident.

Surplus Lines: Applicable only in Texas. Insurance that is offered by an out-of-state insurer that does not have Texas licensing.

T

Third-Party Liability: Covers liability claims made against the insured driver.

Tort: A wrong committed by one person against another that results in injuries or damage and is not based upon a breach of contract.

Total Loss: When the cost of repairing a damaged vehicle exceeds its actual value. Also known as a Write-off.

Towing and Labor Coverage: Similar to Roadside Assistance Coverage. Covers towing and labor charges in the event that a vehicle cannot be driven, such as during a breakdown or tire change.

U

Underwriter: The individual who decides if an insurance applicant is eligible for coverage.

Underwriting: The process an insurer uses to review an application for insurance coverage. 

Uninsured Motorist Coverage (UM): UM provides some coverage of injuries sustained to the insured driver, resident relatives, and/or occupants of the insured vehicle when an uninsured driver causes an accident.

Underinsured Motorist Coverage (UIM): Covers injuries sustained by the insured driver, resident relatives, and/or the insured vehicle's occupants when the liable driver in an accident does not have enough coverage to cover those injuries him or herself.

Uninsured/Underinsured Motorist Property Damage Coverage (UMPD): This covers damage to the insured vehicle when an accident is caused by another driver who has insufficient insurance to cover the damage him or herself.

V

Vehicle Identification Number (VIN): A combination of letters and numbers that identifies the vehicle’s make, model, and year. Usually found on the dashboard, vehicle registration, or title.

W

Write-off: See Total Loss.

 

 

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