Auto Insurance Glossary

Additional Interest: Someone other than the named insured that is listed and covered on the insurance policy, such as a spouse or relative. Often leased vehicle insurance policies list the leasing company as an additional interest in the event of a lawsuit or other legal problems.

Anti-Theft Device: An electronic device to prevent vehicles from being stolen. Usually activated by touch or motion, and will set off an alarm, either silent or audible, sometimes both. This often comes standard on newer cars, but can also be installed aftermarket by a qualified professional if desired.

Bodily Injury Liability: Covers other people’s injury or death if you’re at fault for the accident. It also provides protection in the event of a lawsuit against you after the initial accident. Claims for bodily injury liability coverage can include medical bills, exams, lost salaries due to injury, and pain and suffering.

Car Insurance Coverage: How much insurance you have purchased for your vehicle; the amount for which your car is covered in the event of an accident or equipment malfunction. Different types of coverage include: state minimum, liability, partial coverage, and full coverage car insurance. If you have a loan on your car, full coverage is required in most states.

Claim: An incident that is filed with your car insurance company to recoup losses from an accident or other event. A claim states what damages were caused and how much restitution you seek from the insurance company for those damages, as well as what you paid for your deductible, if anything.

Collision Coverage: Coverage for accidents only. This insures your car against traffic accidents, including both minor and major accidents, but not against damages from other events such as weather, theft, fire, etc. Collision coverage can be purchased separately or as part of a full coverage auto insurance policy.

Collision Deductible Waiver: This coverage allows you to get your deductible back from the insurance company if you have an accident with an uninsured motorist that causes damage to your car. You must have proper documentation that the other party is uninsured and at fault, and you won’t get the refund until the repairs are completed. This is only available in certain states and you must have uninsured motorist coverage as well.

Comprehensive Coverage: Insurance coverage that pays for the costs of repairs or replacement in the event of damage that isn’t caused by an accident. This usually requires payment of a deductible at the time the claim is filed, and is usually required with car loans. Some examples of covered events include: fire or water damage, natural disaster, or theft damages.

Continuous Coverage: This defines the length of time that you have insured your vehicle without a break in coverage. If you have not had auto insurance for a steady period of time, you may be cited for not carrying insurance. Continuous coverage means keeping one policy or going directly to one insurance policy from the next without gaps.

Continuously Insured: This means that you have one auto insurance policy for a long period of time, or switch between policies without gaps in the coverage periods. For example, if you cancel a policy in May and don’t get new insurance effective until June, you do NOT have continuous coverage. An agent will advise you of how to ensure you have continuous insurance.

Credit Rating: Your personal credit score, based on your financial records and credit report, as provided by the three major credit bureaus. This rating does affect your auto insurance costs, but not nearly as drastically as it affects credit card rates and loans that you take out. Also, an insurance company checks your credit rating, but it is not a public inquiry on your report.

Deductible: The amount of money you must pay towards your repairs or car replacement before the insurance takes effect. Depending on the amount of coverage that you have, the deductible is usually a standard rate of $250, $500, or $1000. Higher deductibles will lower your insurance rates, but can also be costly should you need to file a claim.

Declarations Page (Dec Page): The first page of your insurance policy, which includes coverage amounts, coverage types, conditions, exclusions, and endorsements to your policy. When you renew your policy, you are given a new declarations page, which should be filed with your existing policy documents.

Defensive Driver Course: This course teaches drivers the art of defensive driving. Taking courses like this can lower your insurance rates and premiums. These are taught to help people drive more safely and to be aware of other drivers on the road who might cause accidents and collisions for various reasons.

Depreciation: A car’s loss of value over time due to many factors including: wear and tear, age, regular driving, and mileage. The amount of money you will be paid in the event your car is totaled will depend on the depreciated value of your car at the time of the accident. The older your car gets, the less value it has.

Drive-Other-Car Endorsement: An endorsement on your insurance that allows you to be insured while driving another car, such as a rental or a friend or relative’s car. This ensures that you are covered in the event of an accident even if the car you’re driving doesn’t have adequate insurance coverage for non-insured drivers.

Earned Premium: The total amount of premiums paid to an auto insurance company over a period of time. These have been earned based on the ratio of the amount of time that has passed in the policies and their effective life. The pro-rated amounts of premiums that are paid in advance belong to the insurer, as they have been “earned”.

Effective Date: The date that your auto insurance policy takes effect. If you start a new policy, this will be the day that you sign the paperwork and pay the premium, either monthly or all at once. By renewing a policy, your effective date is the same as your usual payment date.

Emergency Road Service: An extra endorsement that can be added to an auto insurance policy, in the even that you are stranded due to mechanical defects, running out of gas, or other non-accident related events. It usually costs very little to add to an insurance policy, and works similar to products like AAA Auto Club.

Endorsements: Extra features or services that are added to your insurance policy. These items may include roadside assistance or rental reimbursement. This will be any document that is attached to your basic policy and creates changes or modifications to the original in any way.

Exclusions: A section of your auto insurance policy which lists items not included in your policy. Things such as property, hazards, persons, or situations can be excluded, depending on your specific policy. Anything not covered by your auto insurance policy will be found in this section.

Extraordinary Medical: This is options coverage that will pay for medical expenses that exceed your original policy’s allowance for coverage. This can vary by state, and your policy will have specific information about what extraordinary medical coverage you have or don’t have.

Expiration Date: The date at which your insurance policy will expire if it is not renewed or transferred. Letting your insurance go past the expiration date will result in a lapse or gap in insurance coverage, which can affect your driving record and abilities, as having insurance is a law in all 50 states.

Extended Non-Owner Liability: An endorsement that provides liability coverage for certain people, but they must be named in the endorsement. This is for people driving a non-owned automobile or trailer, use of autos for moving or hauling persons or property, and employer owned cars for those who don’t own a vehicle of their own.

Financial Ratings: The ability of an insurance company to provide financial strength and meet the obligations to their policyholders, which is rated by organizations based on their opinions. Some companies that rate insurance companies are AM Best, Moody’s, and Standard & Poor’s.

Financial Responsibility Laws: The laws that require auto owners and/or operators to maintain adequate insurance to cover the medical needs of anyone they injure. Most people satisfy this requirement with liability insurance. Although the law only requires a certain amount of coverage, many insurance companies recommend higher limits to avoid lawsuits and complications.

Full Coverage Car Insurance: Insurance that provides coverage in every aspect, and to the highest limits of insurance capabilities. Full coverage car insurance usually includes liability coverage, collision, comprehensive coverage, and often has additional endorsements. Most auto loans require full coverage insurance for owners.

Funeral Benefits: A portion of the medical coverage that covers the funeral costs of any person who dies as a result of an auto accident. This is generally extended only to the named insured or their family members. There are various limits that you can select for this type of optional coverage.

Gap Insurance: Gap insurance covers any difference between the market value of your vehicle and the amount you owe on your loan or lease, in the event that your car is totaled in an accident or disaster. This is an optional addition to your insurance policy, but is usually included with full coverage policies.

Garaging Location: This is the location where your vehicle is parked when it isn’t in use. It usually corresponds to your residence or permanent address, and is used for insurance purposes to quote rates and determine the risk associated with your vehicle and your insurance policy.

Good Student Discount: This is a discount that teens and college students can receive if they receive a “B” average or better. Students must be full-time, and each insurance company has different rules that may apply to this discount. If you are not aware of this on your insurance, ask your agent to see if your policy is eligible.

HEV (Hybrid Electric Vehicle): A vehicle that operates on gasoline and electric power, to allow for less pollution and more fuel efficiency. Many people are investing in HEV cars to lower their expenses of car ownership. Owning a hybrid car can also lower your insurance rates, or raise them, depending on your state’s laws and personal circumstances.

Hit and Run: An accident where someone hits another vehicle with their car and doesn’t stop to assist the victims or to provide information about their personal insurance and driving privileges. This violation is a crime in all 50 states, and the severity of punishment depends on the severity of the accident.

Income Loss: This coverage is sometimes included with personal injury protection. It covers financial expenses in the event that you are unable to work for any period of time due to auto accident related injuries or illness. This is not a popular addition, but is included on most full coverage policies.

Indemnity: An insurance principle that allows the insured person to be compensated when a loss occurs. Indemnity ensures that a person is restored to their financial condition prior to the loss, without providing more or less compensation. This amount is pre-determined and set by the insurance company.

Independent Agent: A licensed agent that sells auto insurance to customers and acts as a middleman between the insurance company and the client. They are able to sell insurance policies, make policy changes, and provide free insurance quotes from various companies, and usually work for a local agency or own their own agency.

Insurance Premium: The price that you pay to have auto insurance coverage, either based on an annual, bi-annual, quarterly, or monthly payment schedule. Paying an insurance premium in full for a half year or full year will often provide discounts on the rate that you are charged. Monthly payments are more convenient, but you will not get a rate discount for choosing this method.

Insurance Score: Confidential ratings that are used in some states as a rating tool for underwriting. This can include information about the insured’s payment history, open accounts, bankruptcy (if applicable), and more. It is a financial measure used to determine how your financial affairs are managed. It doesn’t include assets, race, or income.

Insured: The person or business covered by an insurance policy. This is the person or persons that are listed on the policy, as well as applicable other people depending on the stipulations of the policy. For example, a business can be insured by their name, but can cover something that happens to an employee as long as it is business related.

Liability: Your responsibility for the injuries or damages suffered by another person or vehicle. This only refers to legally enforceable obligations, and cannot provide protection for events that are not reported properly or if you are uninsured or underinsured. You are liable for injuries and damages to others if an accident is your fault, and the insurance company will determine this based on the report that is filed.

Liability Coverage: Coverage that protects you and pays for the injuries and damages of other persons when an accident is your fault. Liability insurance can also provide coverage when combined with endorsements for those who are uninsured or under-insured. This is the basic amount of insurance required by most states.

Lien Holder: The person or organization that has financial interest in a vehicle up to the loan amount or the amount still owed on the car. This is usually the bank or lender that the car owner financed their purchase through. When car payments are not made on time, the lender can put a lien on the vehicle until it is paid.

Limits: The specific coverage’s maximum amount of protection purchased by the insured or car owner. For example, medical limits would be the maximum amount of medical coverage that a vehicle is insured for, and liability limits is the maximum amount of money that is paid for a loss at one time, or over a period of time.

Medical Payments Coverage: The coverage that pays for medical expenses that are accident related. This can be for the insured as well as other drivers if the car owner is at fault. This amount is predetermined when the policy is issued and subject to the conditions and limits of the policy.

MVR (Motor Vehicle Record): The report from the licensing agency that lists your driving record, including accidents, traffic violations, and other citations. The MVR is used to verify information you provide, as well as to determine your insurance rates based on your driving record. The more citations you have, the higher your insurance premiums will be, because the risk is greater.

No-Fault Insurance: Coverage that is available in some states that will pay for damages and expenses related to an accident regardless of who is at fault. This can pay for medical treatment, loss of wages, car repairs, and other expenses. The terms of your policy will give limits and coverage amounts. Not all states offer this insurance.

No-Fault State: A state where car owners are required to provide their own insurance and claim their accident-related expenses on their insurance policy, regardless of who caused the accident. In a no-fault state, insurance premiums are generally higher, and someone can be cited for causing an accident, but they don’t have to pay for the other victims’ accident-related expenses.

Non-Passive Alarm: An alarm system that must be activated manually each time the car is left. Once this alarm is activated, anyone who tries to enter your vehicle will cause the alarm to sound, and disable the starter and ignition of your vehicle. Having a non-passive alarm can provide you with discounted insurance premiums.

Passive Alarm: This alarm system doesn’t have to be activated each time you leave the vehicle. It automatically engages, and will sound a warning when someone attempts to enter your vehicle. Activating this alarm will disable the starter and ignition system. Passive alarm systems can enable you to receive discounts on your insurance rates.

Personal Injury Protection: Pays for medical expenses and lost wages, as well as other accident-related expenses, no matter who is cited for fault in the accident. This coverage is extra, unless you have full coverage, and can be added at any time. The amount of coverage is predetermined when your policy is written.

Physical Damage: This refers to damages caused to any vehicle that is insured due to occurrences such as collision, fire, vandalism, and theft. The amount of physical damage coverage you have will be predetermined when you purchase your auto insurance, as well as which specific incidents are covered.

Pleasure Use: The use of your vehicle for enjoyable purposes; non-business or work-related use of a car or recreational vehicle. This means that you own your vehicle and drive it for fun rather than using it for work or other reasons. Most times, pleasure-use refers to extra cars that you purchase, or motorcycles or other recreational vehicles.

Policy Period: The length of your insurance policy. For example, most insurance policies are in effect for either six months or one year at a time before renewal is required. This will depend on your particular policy as well as which company you purchase insurance through.

Preferred Risk: Any risk that is greater than standard risks that premium rates are usually calculated by. You could have preferred risk due to your MVR or the type of vehicle you choose. Although it sounds good, being or having a preferred risk on your insurance is not a positive thing, because it can raise your insurance rates.

Premium: The price of your insurance that you pay either annually, bi-annually, semi-annually, or monthly. This is based on the risk involved with your insurance policy, as well as current rates and your personal credit rating. You can get lower premiums by driving safely, and premium discounts by paying annually or bi-annually for your insurance.

Primary Driver: The insured person that drives the car the most. If you are insuring yourself and one car, you would be known as the primary driver. However, if you are insuring a child and their vehicle, they would be named as the primary driver on their vehicle, while you are the primary driver on yours.

Primary Use: Which type of use that your vehicle is most commonly used for. These include uses such as work use, business use, commercial use, farm use, and pleasure use. Your insurance company or agent will ask you questions to determine what the primary use of your car is.

Private Passenger Auto: Regular cars, SUVs, and non-commercial vans and trucks less than 1,500 lbs. Also includes trailers designed to be pulled by cars and trucks. This is your everyday car, not a commercial use vehicle or business car. Most cars that are insured are private passenger autos.

Property Damage Liability Coverage: This protects you if you are responsible for damaging property that isn’t your own in an accident. This coverage reimburses the affected party or parties for their damaged property, including cars, buildings, fences, homes, and other personal belongings. This can also alleviate your legal expenses if any arise.

Pro-Rata Cancellation: Termination of an insurance policy before it expires or renews. This allows the premium to be adjusted, and any extra payments that were made are returned or credited to the insured person, depending on how long the policy was in effect and when the policy is cancelled.

Property Damage Liability Insurance: Insurance that covers your personal financial retribution for damaging someone else’s property. This includes cars, homes, buildings, and other structures that you damage in an accident. Additionally, this coverage can help with expenses that arise as part of a lawsuit or legal action against you.
Rental Car Reimbursement: This is optional coverage that covers or aids in paying the cost of a rental car when the car you own is damaged or disabled due to an accident or other covered loss. This service is usually included on full coverage policies and available to most people as an addition to the policy.

Secondary Driver: A driver that is insured to drive your car, but is not the primary driver. For example, you could be a secondary driver on your spouse’s car, or vice versa. Additionally, children and relatives that frequently use your vehicle should be insured as secondary drivers. Also known as an occasional driver.

Short Rate Cancellation: This is when an insurance policy is cancelled, and the refunded amount isn’t the same as the amount of time remaining in the policy, usually because of expenses that are incurred by the company. This usually requires the policyholder to pay more for every day of coverage than if they had kept the policy in effect.

Split Limits: Insurance coverage that provides separate limit amounts for different types of coverage. For example, a full coverage policy might state that it covers 300/100/50. This means that it provides a maximum of $300,000 injury coverage per accident, $100,000 injury coverage per person, and $50,000 property damage coverage per accident.

Stacking: Stacking refers to limits. This is the application of multiple limits to the same coverage. Some courts require stacking when a person has more than one policy or policy period and they cover the same event. For example, if you have $100,000 of coverage on two separate policies for property damage, you would add those together to cover the loss, and have $200,000 of property damage coverage available.

State Minimum: The minimum amount of insurance that you are required to have based on state law. Each state has different limits, and you need to consult with a local insurance company to determine the minimum amount of insurance you must carry. You can have more than state minimum insurance if you wish, but you can not carry less than the minimum amount without legal repercussions.

Steering Restraint: A collar or shield that is fitted around your steering column in your vehicle that prevents theft and makes “hotwiring” your ignition more difficult for potential thieves. Having this type of restraint system can lower your insurance premiums and give you discounts on your insurance.

Term: The length of time that an insurance policy is in effect. This can be anywhere between six months and one year. Most car insurance companies offer policies in six months terms, but some will offer a one year term for an insurance policy. This choice will be up to your discretion.

Tort: An accident or intentional wrongdoing or harm to another that results in legal liability. Liability insurance is required by state law to protect you from legal action as a result of unintentional accidents. This includes anything other than a breach of contract, and can be negligent or intended, but insurance only covers accidental tort.

Towing Coverage: This coverage can be added to the physical damage coverage on your insurance policy. It covers towing and on-site labor costs associated with vehicle malfunction or accidents. The insurance company will either pay the cost up front or reimburse you for these expenses, depending on your policy.

Underinsured Motorists Coverage: This coverage provides protection to you if you are involved in an accident with someone who doesn’t have sufficient insurance to cover the cost of the damages. This protects you from being the victim of an accident with someone who has little or no insurance, and covers repairs and medical expenses.

Uninsured Motorists Coverage: A type of insurance coverage that allows you to be protected if you are involved in an accident with someone who has no insurance. This way, your medical expenses and damages can be paid even if they don’t have insurance, and since you aren’t at fault, your insurance rates will not rise significantly.

Unsatisfied Judgment Fund: This fund has been established by some states to reimburse victims of auto accidents that haven’t been able to collect the funds from whoever is at fault. Not every state offers this, and it is only available after a legal suit has been attempted to obtain the reimbursement from the responsible parties.

Usage: The primary function for your vehicle. This can include where and how you intend to use it, as well as where it is parked at night. If you are self-employed and you use your vehicle for business, then it is considered a work use vehicle, whereas if you simply drive it to go places, it is considered pleasure use.

VIN (Vehicle Identification Number): This is the 17 digit number that is assigned to each vehicle that was manufactured after 1980. The number is used to provide identification for your vehicle, and can be seen on the dashboard from the outside of the vehicle. This also helps insurance companies to find stolen and misplaced vehicles.