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Insurance Glossary
will help you sort through some of the more
confusing terms you may encounter while comparing prices from auto & car insurance
companies.
For additional help, see our extensive FAQ
files, as well as our guide to auto
insurance basics, and
how to choose car insurance.
Click on a letter to go
to that part of the alphabet.
A
Accident
What auto & car insurance is designed to cover. Accidents may be considered either at
fault or not at fault. If you have at fault accidents on your driving record, your rates
will be higher.
Additional Insured or Additional Interest
A person or entity, other than the named insured or covered person, who is protected under
the named insured 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 intended to prevent theft or vandalism, or to assist in the recovery of a stolen
vehicle. Some examples include etched VIN numbers, car alarms, the "Club" and
other such devices, etc.
Assigned Risk
A poor risk that an insurance company is compelled to cover under state laws.
Auto - Car Insurance
Insurance designed to protect against losses involving automobiles. All types of policies,
including basic liability, collision and comprehensive, etc. come together to constitute
automobile insurance.
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B
Basic Limits of Liability
These vary locally, they are the lowest amounts of liability coverage that you can legally
buy in your state.
Bodily Injury Liability
The legal definition for causing physical harm to another person.
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C
Classic
Car Insurance
A special type of coverage, which applies to collector cars, that could not be otherwise
insured through regular methods.
Collision Coverage
A policy that covers the damage to your own vehicle in the event of an accident.
Combined Single Limit
Bodily Injury and Property Damage coverage combined into one single amount of coverage.
Comprehensive Coverage
A policy that covers the damage to your own vehicle in caused by an event other than an
auto accident. For example, theft, vandalism, etc. would be covered by such a policy.
Continuous Coverage or Continuous Liability Insurance
The length of time you have had your vehicle insured without a break in coverage (some
insurers require at least six months.)
Covered Person
The person(s) insured under a policy contract.
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D
Deductible The minimum amount you will have to pay before your own car insurance
policy begins to reimburse you for your loss. Normally, policies with a higher deductible
will have lower premiums.
Defensive Driver Course
Courses offered by your own state's DMV or by an approved entity that promote safe
driving. Upon completion of such a course, you may become eligible for lower insurance
rates. A good deal if you can get it.
Discount Auto Insurance
A policy is eligible for premium discounts if something about the driver or car that makes
the policy a better-than-average risk.
Drive-Other-Car Endorsement
A part of your policy that extends coverage to any other car you might be driving (for
example, a rental car.)
Driver Education
A course accredited by your state's DMV, consisting of at least 30 hours of professional
classroom instruction. Often required for teenage car insurance.
Driver Training
A course accredited by your state's DMV, consisting of at least 6 hours of
behind-the-wheel training.
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E
Earned Premium
The part of your premium used up by any given point in the life of your policy. After six
months of coverage on a twelve-month policy, one half of your premium will have been
"earned".
Effective Date/Inception Date
The actually date on which your policy begins to cover you against losses (not necessarily
the day you pay, or sign, etc.)
Expiration Date
The date your coverage ends. There is also usually a time involved, for example Midnight
of such and such day.
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F
Financial Ratings
Ratings, similar to credit ratings, of insurance providers meant to accurately represent a
carrier's ability to meet claims. Often mentioned ratings are by agencies such as Standard
and Poor's and AM Best.
Financial Responsibility Filing (SR22)
A requirement by a state regulatory entity (usually the state Motor Vehicle Department)
for an insurance company to certify on a driver's behalf that the driver has the ability
to pay future claims up to the state required limit. The certification is done by means of
a form called an SR-22.
Financial Responsibility Laws
State laws requiring drivers to maintain enough insurance to cover accidental losses to
others. Law and limits vary state-by-state.
First Party Benefits
Often also know as Personal Injury Protection (PIP)
or Medical Coverage, this policy pays for physical injuries sustained by the occupants of
your car in the event of any accident, regardless of who was at fault. This is
generally not a good deal, as a good health insurance policy would cover these injuries
anyway.
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G
Gap Auto
Insurance
A gap car insurance policy insures you for the difference between what you owe on your car
and what your insurance company says it's worth. Often required when buying or leasing a
new car.
Garage Address
Where you park your car at night.
Good Driver Discount
Better insurance companies offer discounts to customers with good driving records.
Good Student Discount
A discount which sometimes applies to teenage car insurance when the driver maintains
at least a "B" average at school.
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H
I
ID (Identification) Card
A document identifying you as having liability coverage for the vehicle that you are
driving. Liability insurance is required in most states.
Installment Fee
A fee often required if you prefer to spread your payments over time.
Insured Person
The person(s) insured under a policy contract. (Same as a covered person.)
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J
K
L
Lapse in Coverage
Also known as policy lapse. The point in time when a policy is canceled for any
reason, including failure to pay, change of provider, etc.
Lender
The lender is the entity( Where the car is financed) which lends you the money to purchase
a car. They are usually the loss payees, until you pay off the balance of the loan.
Lessor
Similar to the lender, the lessor is the entity which leases your vehicle to you.
Note:
both lenders and lessors may require that you purchase Auto Gap auto insurance
to fully protect the value of your car.
Liability Insurance
Insurance coverage to protect against claims alleging that one's negligence or
inappropriate action resulted in bodily injury or property damage.
Loss Payee/Lien holder
Usually your lender or lessor, this is the person or entity to whom loss payments
are made, in addition to you.
Liability Coverage
Insurance that provides compensation for a harm or wrong to a third party for which an
insured is legally obligated to pay.
Longevity
Insurance companies often reward their long-time customers with premium discounts. An
insurer may provide a discount after an insured has been with the company for a specified
amount of time.
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M
Medical
Payments Coverage
Medical payments coverage, also called personal injury protection, or PIP, covers the cost
of injuries to you, your family, and your passengers.
Minimum Liability Limits
These vary locally, they are the lowest amounts of liability coverage that you can legally
buy in your state.
Multi-car discount
Discount often given when insuring multiple vehicles under the same policy. By choosing
this option, you will almost always save over having separate policies for each car. More
on discount car insurance.
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N
Named Driver Exclusion
An individual specifically identified on the policy as an excluded driver. This often
applies to teenaged family members, whose inclusion in a policy would raise the premium
considerably.
Named Insured
Entities or individuals named on the policy as insured by that policy. Most commonly this
refers to spouses and other relatives living in the household.
No Fault
Insurance
An auto insurance policy that insures the holder for injury-related benefits caused by an
auto accident, regardless of fault in the accident. Covered benefits may include medical
costs, loss of wages, loss of services, and funeral expenses. In return for these
guaranteed benefits, the right to sue for damages caused by an auto accident is limited.
Thirteen states currently use some form of no fault insurance.
Number of Drivers
The number of drivers who covered under your policy. This usually includes you, your
spouse, and any relatives living in your household (unless otherwise excluded.)
Number of Vehicles
The number of cars covered under your insurance policy.
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O
Occupation
Insurance companies often use your occupation, and the distance that you drive to work
every day, to calculate risk.
Odometer Reading
The total number of miles that a car has been driven in its "lifetime". Certain
insurers will not even offer a quote for vehicles with more than a set amount of miles on
its odometer.
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P
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
Also known as "PAP", personal auto policies are the most common type of auto
insurance policies sold. They include coverage for liability, medical payments,
uninsured/underinsured motorist coverage, and physical damage protection.
Personal Injury Protection
Also known as "PIP", this is the name given to no fault benefits in those states
that have some sort of no fault auto insurance laws. This type of coverage usually
includes benefits for medical expenses, loss of income, essential services, accidental
death, funeral expenses, and survivor benefits.
Physical Damage
The physical damage to the covered vehicle caused by (though often not limited to)
collision with another vehicle, vandalism, theft, etc.
Policy
The actual contract between you and the insurance company which spells out your
coverage's, rights, and obligations.
Policy Period
The period of time during which you are covered by your policy.
Premium
The cost of your insurance policy and all the included coverage.
Pro Rata Cancellation
What happens when you cancel your policy before it expires. Pro Rata refers to the amount
of money that may be refunded to you based on the amount of time left on your policy that
you have already paid for.
Property Damage Liability:
Coverage for physical damage caused to property when the insured person is liable.
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Q
R
Rated Annual Mileage
This is the annual mileage that is used to determine the mileage rating classification
that is applied to a vehicle.
Rental Reimbursement
This optional coverage will pay for the use of a rental car while damage to your car is
being fixed or while the claim for a totaled vehicle is processed.
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S
Safety Equipment
Enhancements in your car, such as automatic seat belts and driver-side and passenger-side
airbags, that reduce your risk of being injured in a collision. Vehicles with safety
equipment often qualify for discount car insurance.
SR-22 (Financial Responsibility Filing)
A requirement by a state regulatory entity (usually the state Motor Vehicle Department)
for an insurance company to certify on a driver's behalf that the driver has the ability
to pay future claims up to the state required limit. The certification is done by means of
a form called an SR-22.
Suspended or Revoked License
Drivers with a license suspension on their driving record face higher premiums, and are
often barred from getting insurance coverage from mainstream companies.
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T
Term
The period of time during which the policy is in effect.
Threshold Level
In the case of some no fault insurance laws, the point at which the insured may bring tort
action for non-economic (pain and suffering) damages under a No Fault Auto Plan. Many of
these plans prohibit tort action for pain and suffering unless medical bills exceed a set
figure, or disfigurement or death occur.
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).Auto
liability insurance is purchased to protect one from suits arising from unintentional
torts.
Towing and Labor Costs
An endorsement, which pays for the costs associated with certain repairs and towing in the
event of an accident.
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U
Uninsured Motorists Bodily Injury
Uninsured motorists bodily injury coverage (which must be offered in most states) pays for
a covered person's bodily injuries for 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 for which a person with not enough insurance is
legally liable.
Uninsured/Underinsured Motorists Coverage
This coverage provides protection for the insured, resident relatives, and occupants of a
covered vehicle in an accident in which the owner or operator of a motor vehicle who is
legally liable and either does not have sufficient coverage or does not have any insurance
to cover the loss.
Unearned Premium
The part of your policy term remaining before expiration.
Usage The primary function of your vehicle, can be categorized as either
"business", "commute", or "pleasure".
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V
VIN (Vehicle Identification Number)
The Vehicle Identification Number is a 17 digit number (which includes both numbers and
letters) unique to your car. The VIN tells the company the make, model, body type and year
of the insured vehicle. You can find your VIN in several places including the title to
your vehicle, your vehicle registration, your insurance card, your insurance policy, the
dashboard of your vehicle, the driver side door or engine of your vehicle.
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W
Waiver of Collision Deductible
If you have collision coverage on your car, this option pays your deductible for damage
caused by an uninsured or hit-and-run driver, if you can identify the driver and car that
caused the damage.
Whole Dollar Premium
Simply stated, premiums are rounded to nearest dollar, up for amounts over 51 cents, and
down for fifty cents and lower.
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