Insurance Terms

The following are some general terms that may be helpful to you in reading and understanding your automobile insurance policy. Because insurance laws vary the information below may not apply to all situations. These terms and definitions in your actual policy will govern any claims or questions of interpretation.
Please take this opportunity to read these terms.

Accident

An event that is unforeseen, unexpected, and unintended.

Actual Cash Value

That’s the amount your property was worth just before it was damaged, destroyed, or stolen. Adjusters figure actual-cash value by taking an item’s replacement cost and subtracting depreciation that reflects its age, condition, and possible obsolescence.

Additional Insured

An individual or organization covered by an insurance policy other than the named insured in the policy declarations.

Agent

An insurance salesperson. An independent agent does not work for any insurance company and sells the policies of more than one insurer;
an exclusive or captive agent sells the policies of only one insurance company.

Applicant

A person who fills out and signs a written application for insurance.

Application

A written statement by a prospective policyholder that gives the information the company relies upon when evaluating the applicant and issuing the policy.

Appraisal

A survey estimating the amount of damage to a vehicle and the cost to repair or the determination of a complete loss.

Auto Loan/Lease Coverage (Gap Coverage)

Provides coverage, in case of a total loss, for the ‘gap’ between the amount due under the terms of the vehicle’s loan/lease and the actual cash value of the vehicle at the time of the loss.
Please note that there are vehicle eligibility requirements and the coverage may not be available.

Automobile Insurance

A type of insurance which protects the insured against losses involving automobiles. Different coverages can be purchased depending on the needs and wants of the insured, e.g., the Liability coverages of Bodily Injury Liability, Property Damage Liability, and Medical Payments, and the Physical Damage coverages of Collision and Comprehensive

Basic Auto Policy

A policy narrower in coverage than the Family Auto policy. Usually has restrictions excluding drivers under age 25 unless specifically listed on the policy.

Basic Limits

The lowest coverage amount, as prescribed by law or the company, for which an insurance policy can be written.
Basic Limits primarily apply to limits of liability.

Bodily Injury

Coverage that protects you against financial loss and pays legal defense costs when you are legally liable for injuring other persons in an auto accident. In auto insurance, both Bodily Injury and Property Damage liability are usually required by state law. The two are often referred to jointly as liability insurance.

Broad Form Policy

An automobile insurance policy issued to cover both owned and non-owned private passenger automobiles. It provides secondary coverage after any other insurance on the automobile being driven.
See also ‘Named Non-Owner Policy’.

Business Use

When a vehicle is required by or customarily involved in the duties of the applicants occupation, profession, or business; other than going to and from the principal place of occupation, profession, or business. See also ‘Commercial Use’.

Cancellation

Termination of an insurance contract before its expiration date, by either the insurance company or the policyholder.

Claim

A demand for payment under an insurance contract for the estimated or actual amount of loss.

Collision Coverage

An optional coverage that reimburses you for damage to your own car resulting from a rollover or collision with another object (not necessarily another vehicle). Comprehensive and Collision are what the banks require for ‘Full-Coverage’.

Comprehensive Coverage

An optional coverage that reimburses you for damage to your own car from causes other than collision, rollover or general wear-and-tear. It covers dangers such as hail, flood, theft, fire, glass breakage, falling objects, missiles, explosions, earthquakes, windstorms, vandalism or malicious mischief, and damage from a bird or animal. Also called “other than collision” coverage. Comprehensive and Collision are what the banks require for ‘Full-Coverage’.

Commercial Use

A commercial vehicle is any vehicle used for wholesale or retail delivery (including newspaper and pizza delivery) or other commercial purposes. Not covered under a Personal Auto Policy.

Compulsory Auto Injury Laws

Laws which make it illegal to operate a vehicle without first having proof of the ability to pay for a judgement that may result from an accident.

Conditions

Provisions that set forth the rights, duties, and responsibilities of the parties to an insurance contract. Conditions may be found anywhere in the contract. Some examples of conditions: you must notify the insurer as soon as practicable when a loss occurs, you must cooperate with the insurer in defense of a claim, and your premium must be paid.

Coverage

Indicates the type of coverage and/or how much the protection your insurance policy will provide.

Covered Persons

Those insured under the policy. Covered Autos

Any vehicle shown in the declarations, or in some cases, a substitute vehicle used temporarily because of breakdown or repair of the insured’s own covered vehicle.

Custom Parts / Special Equipment

Custom Parts or Special Equipment coverage for certain parts and equipment that were not original manufacturer installed. If you buy collision or comprehensive coverage, or both, Custom Parts or Special Equipment coverage is available.

Damages

A sum of money that a party is legally obligated to pay to another as compensation for injury.

Declarations Page

Found at the front of your policy, this page personalizes the insurance contract to you. It shows your name and address, limits and deductibles for different coverages, describes the property insured, and premiums to be paid.

Deductible

The amount you must pay before your insurance coverage begins paying. For example, if you had a $250 deductible and a loss of $800, you would pay the first $250 and the insurance company would pay the remaining $550. However, if the loss were less than or equal to $250, you would pay the entire amount and the insurance company would pay nothing.

Depreciation

The decrease in the value of your car or its parts due to age and general wear-and-tear.

Effective Date

The date the coverage begins on an insurance contract (policy).

Endorsement

A change made to your policy. An endorsement is attached to your policy to modify the terms of the insurance contract.

Exclusion

Part of an insurance contract that excludes coverage of certain perils, persons, property, or locations. For example, you can’t collect under property-damage coverage for a maintenance issue like a frozen radiator.

Expiration Date

The termination date of an insurance policy.
Policies usually expire at 12:01 am, therefore there is no coverage provided on the expiration date.

Family Automobile Policy

A less restrictive policy than the ‘Basic Automobile Policy’. It provides protection against legal liability for bodily injury and property damage to others, injury to the insured and other occupants of the vehicle, and damage to the vehicle itself.

Financial Responsibility Clause

Financial Responsibility ensures that a policy conforms to the financial responsibility laws of any state or Canadian province in which the insured’s vehicle operates.

Gap Coverage

See ‘Auto Loan/Lease Coverage’

Garaging Location

The ZIP code where your vehicle is parked or garaged when not in use. This is usually your primary residence.

Good Student Discount

A discount granted to students with high scholastic ratings. Usually only applies to policies where the young driver is a secondary driver on the parents policy.

Installment Fee

A fee paid with your bill payment if your policy is not paid in full.

Insured

A person who is protected by the policy.

Insurer

The company that issues a policy to a policyholder; the party in the insurance contract that promises to pay losses and render services.

Insuring Agreements

Part of an insurance policy that states the coverage of the contract.

Liability Insurance

Covers accidental losses resulting from injury to the body or damage to the property of someone else for which the insured is legally responsible (legally liable). If the loss is covered by the insurance policy, the payment is made directly to the party that suffered the loss.

Limit of Liability

The maximum amount that an insurer agrees to pay in the case of loss under policy contract.

Loss

A value reduction in an insured’s automobile caused by an insured peril, the amount sought in a claim, or the amount paid on behalf of an insured under an insurance contract.

Loss Payable Clause

A policy condition that enables an insured to direct the company to pay any loss that may be due to a third party.

Loss of Use Insurance

Compensation when the policyholder has lost the use of his or her vehicle; for example, an automobile rented to replace one that is stolen.

Medical Payments Insurance

In certain states, Medical Payments insurance is a coverage under which an insurer agrees to pay, up to a specified limit, medical, surgical, hospital, and funeral expenses, regardless of the liability of the insured.

Motor Vehicle Record (MVR)

The record of an automobile driver’s accidents and/or traffic violations. See also ‘Personal Injury Protection (PIP)’.

Named Insured

The individual or organization with whom an insurance contract is made and who is specifically named as a Named Insured in the policy declarations. Additional individuals or organizations can also be added as named insureds.

Named Non-Owner Policy

An Automobile Insurance policy issued to someone who does not own an automobile, but who drives borrowed or rented autos. May not cover vehicles provided for regular use.
See also ‘Broad Form Policy’.

Negligence

Failure to exercise a generally acceptable level of care and caution.

No-Fault Insurance

In certain states, No-Fault insurance permits automobile accident victims to be directly reimbursed for medical and hospital expenses and loss of income by their own insurance company regardless of who is at fault.

Non-Renewal

A policy that the insurer does not continue after its expiration date.

Occurrence

An accident or loss, including continuous or repeated exposure to substantially the same general harmful conditions, that result in bodily injury or property damage.

Partial Loss

A loss that does not completely destroy the insured automobile that is covered by an insurance policy.

Peril

The cause of a possible accident, loss, or claim.

Personal Injury Protection (PIP)

May also be referred to as No-Fault insurance.
In certain states, this provides insurance that can cover for medical costs, loss of earnings, additional living expenses, and funeral costs for occupants of the insured automobile and pedestrians, other than those insured under other policies.

Physical Damage

A term indicating damage from such perils as collision, comprehensive, fire and theft or any damage to the vehicle itself.

Policy

A formal written contract of insurance.

Policyholder

The person who pays a premium to an insurance company in exchange for the protection outlined in an insurance policy.

Premium

The amount that a policyholder agrees to pay to the insurance company for an insurance policy.

Private Passenger Automobile

Four-wheeled motor vehicles of the private passenger, station wagon or van type, designed for use on public highways and subject to motor vehicle registration.

Proof of Loss

Documents that you give to the insurer to support your request for payment of losses. The company uses these documents to determine whether and how much it will pay. (Examples: written repair estimates from auto body shops, police reports.)

Property Damage

Damage to tangible property. In insurance, people often refer to Property Damage as the coverage afforded for financial protection against damage to another’s property resulting from an accident.

Provisions

The statements in an insurance policy that explain the benefits, conditions, and other features of the insurance contract.

Rating Bureau

A state supervised organization that classifies and computes rates, gathers data, and measures individual risk hazards. This information is made available to all insurance companies who are members of such a bureau.

Recovery

Money or other valuables that the insurance company obtains through subrogation, salvage, or reinsurance.

Reinstatement

Returning a lapsed policy to its full value after its termination as if it was never terminated, possibly with a lapse in coverage.

Renewal

A policy issued to replace one that has expired.

Rental Reimbursement

Rental reimbursement coverage is optional. If you must rent a car because your own car was out of service due to a covered loss, rental coverage pays you back for money you spent on your rental car (up to a specific limit you select). Be sure to review your policy for any restrictions which may apply such as maximum dollar amount allowed per claim or specific time limitations, among other items.

Riders

An addition to an insurance policy that becomes a part of the contract.

Safe Driver Plan

A system for adjusting standard rates up or down according to good or bad driving records of the insureds.

Settlement

An agreement between a claimant or beneficiary to an insurance policy and the insurance company regarding the amount and method of a claim or benefit payment.

SR-22

A document required as proof of financial responsibility by the court or under state law for persons convicted of certain traffic violations.

Subrogation

When your insurance company pays for a loss caused by another driver, your company may have the right by law or policy provision to recover an amount of the loss from the other person or their insurer.

Towing/Labor

Towing is an optional coverage. It pays the cost of having your car towed and on-site road repairs (up to a specific limit you select) each time your car breaks down (whether or not there is an accident involved). You are covered for the on-site labor costs at the breakdown site (not any parts) needed to get your car running again. Be sure to review your policy for any restrictions which may apply such as maximum dollar amount allowed per claim or specific time limitations, among other items.

Transportation Expenses

Automobile coverage for transportation expenses incurred by the named insured only in the event of theft of an entire covered auto. Coverage begins after a 4 hour waiting period and is subject to a daily limit and maximum dollar limit, and it applies only when the insured has physical damage coverage for theft.

Underwriting

A process that evaluates an applicant and their automobile(s) against pre-established criteria for insurability to determine whether the applicant will be rejected or accepted for coverage and whether at standard or modified rates.

Uninsured or Underinsured Motorists Insurance

Uninsured or Underinsured Motorists insurance provides protection in the event that damage is caused by a motorist who has no insurance or not enough insurance to cover the loss. The insurer will pay damages up to specified limits for bodily injury and property damages.

VIN

The vehicle identification number (VIN) on your vehicle. This number is usually found on the dashboard of your vehicle on the driver’s side, and is usually listed on the vehicle registration and title. The VIN number is a combination of letters and numbers 17 characters in length that can be used to identify the make, model, and year of your car.