Glossary of auto insurance terms
Actual Cash Value
Fair market value of an item at the time it was damaged, stolen or destroyed. After a loss, your company will review the condition of your car’s body, interior, tires, and additional equipment. Based on the pre-accident condition of the car, a claim adjuster locates similar models for sale in your area, and uses those prices to determine the Actual Cash Value.
A specialist in the mathematics of risk, especially as it relates to insurance calculations such as life expectancy, prediction of accident frequency, and loss reserving.
Individual employed by an insurance company to settle claims brought by policyholders or claimants. The adjuster evaluates each claim and then makes payment based on the coverage available in its policy contract.
A professional, formal, written estimation of the value of property. Damage appraisals may be completed by an insurance adjuster or vehicle repair specialist.
Assigned Risk Plan
State-managed auto insurance plan for individuals who cannot obtain conventional liability coverage because of their poor driving records. These drivers are placed in a residual market with insurance companies assigned to write policies for them at higher prices. Assigned risk plans also exist for health insurance.
To seize property or assets, or to obtain a legal writ granting the right to seize the property or assets. This usually occurs when an individual has outstanding debt, is financially unable to pay the debt in cash, and has assets of sufficient value to cover the amount of the debt.
Bodily Injury Liability Coverage
Part of an auto insurance policy that covers you, up to the policy limits, for car accidents that result in bodily injuries to other drivers or pedestrians for which you are legally at fault. Covered losses generally include medical expenses, pain and suffering, and lost income. Legal defense costs are covered if you are sued as a result of the accident.
Insurance company that actually underwrites and issues the insurance policy. The term refers to the fact that the company carries (or assumes) certain risks for the policyholder.
Liability or loss resulting from an accident.
Request by an insured for the insurance company to cover an incurred loss. A claim may be filed online, by phone or in writing.
One who submits a claim for an incurred loss.
Asset pledged to a lender until a loan is repaid. If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan. Comprehensive and Collision coverages are required by lenders when a car is the collateral for a loan.
Collision coverage pays for damage to your car caused by an impact with another vehicle or object or a rollover. Collision coverage includes a deductible, such $250 or $500. You are responsible for paying the deductible when you get the damage repaired. For example, if the damage was $1,500 and you have a $250 deductible, your company pays $1,250 toward the repair costs.
Combined Single Limit
Combined single limit (CSL) auto insurance policies have a single amount for liability payment limits for both property damage and bodily injury. This is in contrast to a split limit policy that has separate limits for bodily injury per person, bodily injury per accident, and property damage per accident.
Marital property as defined by state law under which spouses own equal interests in property acquired during a marriage. This does not include property brought to the marriage or acquired by gift or inheritance.
Comprehensive coverage pays for damage caused by hazards other than collision, such as fire, theft, explosion, windstorm, hail, water or contact with an animal. Like Collision coverage, Comp coverage includes a deductible, such as $250 or $500. You pay the deductible when you get the car repaired or replaced. For example, if the cost to replace your stolen car is $10,000 and you have a $500 deductible, your company will pay you $9,500.
Comprehensive Loss Underwriting Exchange (CLUE)
Claims history database created by ChoicePoint. Insurance companies can access your claims information when underwriting or rating a policy. Includes information such as date of loss, type of loss and amounts paid, and vehicle description.
Consumer Price Index (CPI)
Measure of change in consumer prices, published monthly by the U.S. Bureau of Labor Statistics in the Department of Labor. This index is widely used as a cost-of-living benchmark to adjust Social Security payments and other payment schedules. The cost of insurance is part of the CPI.
Attachments to an insurance policy to complete the coverage provided by the policy. Also know as endorsement forms.
The section of an insurance contract containing such information as the name, description, and location of insured property; the name and address of the policholders; the period for which the policy is in force; premiums payable; and the amount of coverage. Also know as a “dec page” or “dec sheet.”
An insurer’s refusal to insure an individual after careful evaluation of the application for insurance and any other relevant factors. Many states have specific rules that prohbit declination for poor credit or other factors that may be infairly discriminatory.
The amount that must be paid out of pocket by the insured for covered losses before the insurance company pays a claim. Comprehensive and Collision coverages generally have a deductible of $250 or $500. Choosing a higher deductible will save money, but it’s a trade-off between saving money on your annual premium and having to pay the deductible if you have a loss.
The premium deposit paid by a prospective policyholder when an application is made for an insurance policy. It is usually equal to at least the first month’s estimated premium and is applied toward the total policy premium when billed.
In auto insurance, depreciation is used to determine the actual cash value of a vehicle, in the event it is determined to be a total loss. Factors such as miles driven, model year and overall condition will be used to determine the current value of the car.
In certain states with no-fault auto insurance, the dollar threshold prevents individuals from suing to recover for pain and suffering unless their medical expenses exceed a specified dollar amount, called the threshold.
Driver Education Credit
Discount on auto insurance premiums for which young drivers become eligible upon completion of a driver education course. Available in certain states.
A written agreement attached to an insurance policy to add or subtract coverage. Once attached, the endorsement takes precedence over the original terms of the policy.
Items that are specifically denied coverage under the terms of an insurance policy. For example, most auto insurance policies exclude coverage for normal wear and tear, drag racing and intentional acts.
An endorsement added to an insurance policy, or a clause included in the policy, to provide additional coverage for risks other than those covered under the basic policy provisions.
Fair Market Value
The price at which property would change hands between a willing buyer and a willing seller, where both parties have reasonable knowledge of the relevant facts and neither party is under any compulsion to buy or sell.
Financial Responsibility Law
A law that requires the owner of a vehicle to show proof of financial ability to pay for auto-related losses. In most states, proof of insurance takes the form of a minimum amount of automobile liability insurance, but some states permit self-insurance or a financial responsibility bond.
Free Look Period
An insurer may cancel an auto insurance policy for any reason during the Free Look Period, which is usually the first 30 days of the policy. The exact number of days varies by state.
Some auto insurance policies have a grace period that allows customers to make a payment after the due date. But, many companies will not accept a payment after the date shown on a cancellation notice. Online payments and EFT can prevent policy lapses.
The principle upon which all auto insurance contracts are based. According to this principle, the objective of insurance is to restore the insured to the same financial position after a loss that he or she was in prior to the loss.
An insurance professional who represents different insurance companies, is not an employee of any one of those companes, and earns commissions from policies sold.
The expiration of a right or privilege when one party does not live up to its obligations during the time allowed. A lapse in auto insurance coverage may result in paying higher premiums for a new policy, because insurers have determined that drivers who maintain continuous coverage are less likely to make an insurance claim that those who let a policy lapse.
Coverage for sums that an insured becomes legally obligated to pay because of bodily injuries or property damage, or financial losses caused to other people.
Medical Payments Coverage
Part of a standard auto insurance policy that provides coverage of medical expenses and funeral bills incurred by you and your passengers in the event of an accident, regardless of who is at fault.
Motor Vehicle Report (MVR)
Record of moving violations and license status. Not every traffic incident actually appears on your MVR. Some states only record 75 percent of incidents on an average MVR.
Auto insurance laws in some states require companies to cover losses, regardless of who caused the accident. Personal Injury Protection is the basic coverage that pays for your own medical, hospital and funeral expenses, as well as those of your passengers and any pedestrians. Lost wages and other accident-related expenses may also be covered.
An insured individual or a beneficiary who receives a loss payment from an insurer. On an auto insurance policy, a Loss Payee is the institution that financed the loan or lease of the vehicle. In the event of a total loss, the insurance company makes payment to the Loss Payee first.
Personal Injury Protection
Personal injury protection (PIP) is a coverage in which your own insurance company pays you for medical, hospital and funeral expenses resulting from a car accident, regardless of who’s at fault. It can sometimes also cover your passengers and/or other types of expenses
Time period during which an insurance policy is in force. Auto insurance policy periods begin and end at 12:01 am in the local time zone.
The payment required for an insurance policy to remain in force. Auto insurance premiums are quoted for either 6 month or annual policy periods.
Property Damage Liability Coverage
Part of a standard auto insurance policy that covers you, up to the policy limit, for losses that result when you damage or destroy someone else’s personal property. This is required coverage in most states.
In property/casualty insurance, the cause of a loss whereby that cause, the loss itself, and all intervening events form an unbroken chain.
The cost of replacing or repairing lost or damaged property without allowing for depreciation in value or considering the market value. Some auto insurance companies offer Guaranteed Replacement Cost coverage on new cars, if the loss occurs within the first 12 months of ownership or 12,000 miles driven.
The expected value of an asset at the end of a specified period, such as the value of a car at the end of the lease.
Split limit policies have three separate amounts for liability payment limits: one for bodily injury per person, one for bodily injury per accident, and one for property damage per accident, usually in that order. Often expressed in the form $100/$300/$100, with the amounts referring to thousands of dollars.
The process by which you assign your insurance company the legal right to recover the amount of the loss from another party who is legally liable. For example, if a third party damages your car, but has no insurance, your own insurance will pay you for the loss, if you have Collision coverage, and the company will then attempt to collect that money from the uninsured driver.
An increase in your auto insurance premium due to an at-fault accident or a moving violation.
Uninsured and Underinsured Motorist Coverage
Part of a standard auto insurance policy that provides coverage for injuries you and others suffer when you’re involved in an accident with an uninsured driver, or a driver without adequate insurance. UM/UIM is not a required coverage in every state, but it is highly recommended.