Auto Insurance Terminology
The definitions appearing in this Glossary are provided solely for general informational purposes. They are not intended to be complete descriptions of all terms, conditions and exclusions applicable to the products and services defined. Also, in the case of any inconsistency between the definitions in this Glossary and the definitions appearing in the actual insurance policy, the definitions contained in the actual policy shall govern.
Additional Insured An individual or organization covered by an insurance policy other than the named insured in the policy declarations. In an automobile policy, anyone who drives the car with the owner’s consent is an additional insured; although, in most cases, the additional insured must be named in the policy.
Appraisal A survey by a Claims Representative or Claims Appraiser estimating the amount of damage to a vehicle and the cost to repair or the determination of a complete loss.
Assigned risk plan An association of insurers in a given state in which automobile risks unable to get insurance in the voluntary market are shared among insurers in proportion to the amount of automobile liability insurance each insurer writes in that state. All companies writing this class are required to participate in this activity.
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 from your carrier.
Basic Limits The lowest coverage amount, as prescribed by law or the company, for which an insurance policy can be written. Basic Limits primarily prescribe limits of liability.
Bodily Injury Injury to the body of a person. In insurance, people often refer to Bodily Injury as the coverage afforded for financial protection against injury of a person resulting from an accident.
Cancellation Termination of an insurance contract before its expiration date, by either the insurance company or the policyholder.
Collision Insurance Collision insurance laws may vary by state, but generally, this insurance covers a loss to the insured’s vehicle caused by its impact with another vehicle or object.
Comprehensive Coverage Comprehensive insurance laws may vary by state, but generally, this insurance protects against any loss or damage to an automobile except those caused by collision or by upset. Examples are coverage against fire, theft, vandalism and glass replacement.
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.
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.
Damages A sum of money that a party is legally obligated to pay to another as compensation for injury.
Declarations The part of the policy that provides detailed information about the insured, the insurer, and the coverages.
Deductible The amount of a claim that the policyholder has agreed to pay. This amount is deducted from a claims payment.
Depreciation A decrease in an automobile’s value over time.
Effective Date The date the coverage begins on an insurance contract (policy).
Electronic Equipment Endorsement Provides coverage for your covered autos’ permanently installed electronic equipment or electronic equipment designed to be permanently installed but can be removed as an anti-theft measure. This endorsement also covers direct and accidental loss to any accessories used with such equipment. There are eligibility requirements for this coverage and this coverage may vary in your state.
Employer’s Non-Owned Auto Liability Liability faced by the employer when an employee uses his or her own personal vehicle on company business
Endorsement An amendment to your policy written especially to cover unique items just for you. An endorsement is also a change to your policy that is made during the policy’s term. 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.
Expiration Date The termination date of an insurance contract (policy).
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.
Glass Insurance Coverage for accidental or malicious breakage to glass.
Gross Vehicle Weight (GVW) As it applies to auto coverage, this is the total of the combined weight of the vehicle itself plus the weight or tonnage that the vehicle is capable of carrying.
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.
Liability This coverage pays for bodily injury or property damage that you become legally responsible for as a result of driving your vehicle. Family members living with you who are listed with the insurance company as drivers on your policy and anyone driving your car with your permission will be covered by the liability coverage for injuries or property damage that you or they become legally responsible for while driving your vehicle.
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 An optional coverage under an automobile liability policy which pays the medical expenses of the policyholder and any of the passengers injured by the insured automobile, irrespective of who was responsible for the accident. In addition, it pays the medical expenses of the policyholder and members of the immediate family injured while passengers in any other automobile or when struck by an automobile.
Mutual Insurance Company A company with no capital stock that is owned and controlled by policyholders.
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.
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-owned auto Liability coverage an employer is exposed to when an employee is driving another employer’s auto or an employee’s personal auto
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.
Payroll Deduction The policyholder authorizes his or her employer to deduct amounts from the employee’s earnings to cover the premium.
Peril The cause of a possible accident, loss, or claim.
Personal Injury Protection (PIP), No-Fault Insurance 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.
Policyholder The party to whom a policy is issued who agrees to pay a premium to an insurer in consideration of the latter’s promise to provide insurance protection.
Premium The amount that a policyholder agrees to pay to the insurance company for an insurance policy.
Property Damage Damage to tangible property. In insurance, Property Damage is the coverage afforded for financial protection against damage to another’s property resulting from an accident.
Rate The cost of insurance per unit; used as a base for the determination of premiums.
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.
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.
Safe Driver Plan A system for adjusting standard rates up or down according to good or bad driving records of the insureds.
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.
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 Motorist This covers your property damage and personal injury in the event you’re hit by an uninsured motorist. It also covers hit-and-run crashes and is required by many states.
Underinsured Motorist This covers your property damage and personal injury caused by another party, when the amount of damage exceeds the other party’s liability limits. This coverage will pick up after the other party’s liability limit is exhausted.