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Auto Insurance Terms
Wondering what all the terminology in your auto insurance policy means? We explain some of the most common auto insurance terms for you here in our online auto insurance glossary.
Actual Cash Value
Actual Cash value is an amount equivalent to the fair market value of the stolen or damaged property immediately preceding the loss. For real property, this amount can be based on a determination of the fair market value of the property before and after the loss. for vehicles, this amount can be determined by local area private party sales and dealer quotations for comparable vehicles.
Additional Insured or Additional Interest
A person or entity, other than the named insured or covered person, who is protected under the named insured's 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.
Bodily injury liability
For injuries the policyholder causes to someone else.
Binder
Binder is a temporary or preliminary agreement which provides coverage until a policy can be written or delivered.
Collision
For damage to the policyholder's car from a collision.
Comprehensive
For damage to the policyholder's car that doesn't involve a collision with another car. Covered risks include fire, theft, falling objects, missiles, explosion, earthquake, flood, riot and civil commotion.
Deductible
The portion of a claim you pay out of pocket before the insurance company pays. A higher deductible will lower your premium and you do not have to carry the same deductible for comprehensive and collision coverages.
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.
Endorsement
Endorsement is amendment to the policy used to add or delete coverage. Also referred to as a "rider".
Depreciation
Depreciation is a decrease in value due to age, wear and tear, etc.
Driver Training
A course accredited by your state's DMV, consisting of at least 6 hours of behind-the-wheel training.
Earned Premium
The part of your premium used up by any given point in the life of your policy. After six 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.
Employers Nonownership Liability Insurance.
Protects the employer for liability arising from the use by employees of their own cars on company business.
Garage Address
Where you park your car at night.
Garage Coverage Form
A commercial Automobile Insurance coverage form used to insure automobile dealers, repair shops, service stations, and garage risks. Garage liability, garagekeepers coverage, and physical damage coverages may be included.
Good Driver Discount
Better insurance companies offer discounts to customers with good driving records. If you have a good driving record, get a quick quote from Electric Insurance or find the car insurance providers in your state.
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 (usually a bank) 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. This is quite often the financial arm of the car company itself.
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 CoverageInsurance that provides compensation for a harm or wrong to a third party for which an insured is legally obligated to pay.
Medical
In some states, Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident.
Motor Vehicle Record (MVR)
The record of an automobile driver's accidents and/or traffic violations.
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.
No-fault Insurance
An insurance system where your insurance coverage pays for your injuries regardless of who caused the accident.
Limits of Liability
The specified amount up to which the insurance company will protect you as set forth in the policy.
Personal Injury Protection (PIP)
The formal name usually given to no-fault benefits in states that have enacted mandatory or optional no-fault Automobile Insurance coverages. PIP usually includes benefits for medical expenses, loss of work income, essential services, accidental death and funeral expenses.
Policy
A contract between you and the insurance company.
Premium
The price of the insurance policy
Premium Financing
Premium Financing is a a policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.
Pro-Rata Cancellation
Pro-Rata Cancellation is when the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided. For example: an annual policy with premium of $1,000 is cancelled after 40 days of coverage at the company's election.
Replacement Cost
Replacement Cost is the cost to repair or replace lost or damaged property with new materials of like kind and quality, at current prices. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to repair or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one once the repairs or purchases have been made.
Replacement Value
Replacement Value is the full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions.
Surcharge
An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.
Property damage liability
For damage the policyholder caused to someone else's property.
Short-Rate Cancellation
Short-Rate Cancellation is when the policy is terminated prior to the expiration date at the policyholder's request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule.
Surcharge
Surcharge is an extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.
Surrender
Surrender is to terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the nonforfeiture options at the time of surrender.
Underwriting
Underwriting is the process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.
Uninsured motorists coverage
For treatment of the policyholder's injuries as a result of collision with an uninsured driver. No state requires car owners to carry insurance for all these risks. But many states require drivers to carry minimum amount of liability insurance for bodily injury and property damage, as well as personal injury protection coverage.
Waiting Period
Waiting Period is a period of time set forth in a policy which must pass before some or all coverages begin.
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