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Car Insurance Terms
Accident:
A sudden fortuitous event. Often used to refer to a collision or insurance
event.
Additional Insured or Additional Interest:
A person or an organization, 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 designed either to reduce the chance an auto will be vandalized or
stolen, or assist in its recovery. Examples include car alarms, keyless
entry, starter disablers, motion detectors, parts of the vehicle etched
with the Vehicle Identification Number, and recovery systems.
Assigned Risk:
A risk not ordinarily acceptable to insurers which is, according to state
law, assigned to insurers participating in a plan in which the insurers
agree to accept their share of these risks.
Automobile Insurance:
A form of insurance that protects against losses involving autos.
Different types are available depending on the needs and wants of those
buying policies. Examples of coverage types include: bodily injury
liability, property damage liability, medical payments, and collision and
comprehensive coverage for physical damage to the insured's vehicle.
Automobile Insurance Plans:
The name for "assigned risk" plans. These are plans set up and monitored
by the state to help people who are unable to secure auto insurance
through standard insurance carriers. See Assigned Risk.
Basic Auto Policy:
Although still used today to insure substandard risks, two-wheel motorized
vehicles, and commercial autos, the Basic Auto Policy has been primarily
replaced by the Personal Auto Policy, which combines both physical damage
coverage and liability insurance for claims arising out of the ownership
or use of a vehicle.
Basic Limits of Liability:
The least amount of liability coverage that can be purchased, which is
generally equivalent to the minimum amount required by state law. In
determining rates, a carrier will use the basic limits to develop the base
rates. If an insured person wants higher limits, the carrier applies an
increased limits factor to the base rate in calculating the new premium
for the increased coverage.
Binder:
An oral or written statement providing immediate insurance protection,
valid for a specific period. Designed to provide temporary coverage until
a policy can be issued or denied.
Claim:
The assertion of a legal right against an insurer that carries with it a
demand for appropriate relief.
Combined Single Limit:
Bodily Injury and Property Damage coverage expressed as one single amount
of coverage.
Commission:
That portion of the premium paid to the agent as compensation for the
agent's services.
Conditions:
The portion of an insurance contract which sets forth the rights and
duties of the insured and insurance company.
Continuous Coverage or Continuous Liability
Insurance:
Continuous coverage refers to the length of time you have maintained
insurance on your vehicle.
Contract:
A legal agreement between two parties promising a certain performance in
exchange for a certain consideration.
Covered Person:
This refers to the individuals (named insured, spouse, resident relatives,
etc.) insured under a policy contract.
Customized Equipment/Special Equipment:
Items not included in standard insurance options available for cars. These
may include extra electronic equipment, special paint or exterior items,
or amenities added to the inside of a van or truck.
Declarations:
The section of an insurance contract which shows who is insured, what
property or risk is covered, when and where coverage is effective and how
much coverage applies. Also, referred as a declaration page or dec page.
Deductible:
Usually, a dollar amount the insured must pay on each loss to which the
deductible applies. The insurance company pays the remainder of each
covered loss up to the policy limits.
Defensive Driver Course:
These are classes either offered through or approved by Departments of
Motor Vehicles to enhance driving skills. These courses may make drivers
eligible for discounts on their premiums. Courses taken for traffic school
because of a moving violation are not eligible.
Drive-Other-Car Endorsement:
Optional coverage that broadens the definition of a covered auto to
include non-owned vehicles the insured person operates.
Driver Education:
State accredited educational course that consist of at least 30 hours of
professional classroom instruction.
Driver Improvement Course:
A voluntary refresher course available for drivers age fifty-five (55) and
older to enhance their driving skills.
Driver Training:
State accredited training course that consists of time spent
behind-the-wheel with professional instruction.
Earned Premium:
The portion of a premium that has been "used up" during a policy term.
With a one-year policy, half of the total premium has been earned after
six months.
Effective Date:
The date that coverage begins on an insurance policy.
Endorsement:
A document, which is attached to the policy and modifies or changes the
original policy in some way.
Exclusion:
Section of the insurance policy, which list property, perils, person, or
situations which are not covered under the policy.
Expiration Date:
The date your coverage ends. There is usually a time of day associated
with this date, for example, an expiration date of 5/1/2002 at 12:01am.
This means your coverage ends one minute after midnight on the date
listed.
Extended Non-Owner Liability:
An endorsement that provides broader liability coverage for specifically
named people operating any non-owned automobile or trailer. It covers
non-owned autos, use of autos to carry people or property for a fee, and
individuals driving employer-furnished cars who do not own vehicles
themselves.
Family Automobile Policy:
Now replaced by the Personal Auto Policy, the Family Auto Policy was a
package policy in which both liability and physical damage protection to
an insured's vehicle was offered on one policy.
Financial Ratings:
Financial ratings reflect a rating organization's opinion on the financial
strength and ability to meet ongoing obligations to policyholders. The
ratings organizations most commonly identified with the insurance industry
are AM Best, Standard & Poor's and Moody's.
Financial Responsibility Law:
Financial responsibility laws require owners and operators of autos to
maintain enough money to compensate those they injure. Liability insurance
is the most common way to satisfy these requirements.
First Party Benefits:
This pays policyholders and others covered by the policy in the event of
injury, no matter who caused the accident. The benefits can include
medical expenses, loss of income, funeral and death benefits. This may
also be called Personal Injury Protection.
Flat Rate Cancellation:
Termination of an insurance contract at inception. This policy is never in
effect.
Fraud:
A false statement intended to deceive the insurer and induce it to part
with something of value or surrender a legal right. May void a policy.
Gap Insurance:
If you are making lease or loan payments and you experience a total loss,
there may be a difference (gap) between the market value of your vehicle
and what you still owe on it. This optional coverage pays the difference.
Read our questions and answers section for more information.
Garage Location:
The zip code where your vehicle is parked when not in use and usually
corresponds to your primary residence.
Good Student Discount:
A premium discount for students with high scholastic grades. Some
statistical research has shown a relationship between good grades and safe
driving.
Hit and Run:
An accident caused by someone who does not stop to assist or provide
information.
ID Card:
An identification card issued by your insurance company that provides
evidence of liability insurance. Such evidence is required in most states.
Inception Date:
The date that coverage begins on an insurance policy.
Indemnity:
A principle of insurance which provides that when a loss occurs, the
insured should be restored to the approximate financial condition occupied
before the loss occurred, no better, no worse.
Insurance:
A contract whereby one undertakes to indemnify another, pay or allow a
specified amount or a determinable benefit upon determinable
contingencies.
Lapse in Coverage:
A point in time when a policy has been canceled or terminated for failure
to pay the premium, or when the policy contract is void for other reasons.
Lender:
Your lender is the institution to which you make car payments.
Lessor:
Your lessor is the institution to which you make your lease payments.
Limits of Liability:
The maximum amount of insurance the insurance company will pay for a
particular loss, or for a loss during a period of time.
Loss Payee/Lien holder:
A person or entity with a legally secured insurable interest in another's
property, usually a financial institution that loaned money to buy a car.
The car is the loan collateral. If the auto is damaged in an accident,
loss payments will be made to you and to the loss payee on your policy.
Motor Vehicle Record (MVR):
A motor vehicle record, also referred to as DL printout, or MVR, contains
information obtained from an individual's driver license application,
abstracts of convictions and accidents.
Multi-car discount:
A discount offered by some insurance companies for those with more than
one vehicle insured on the same policy. In some cases, if you drive a
company car insured by your company, your own insurance company may give
you the multi-car discount.
Named Insured:
Any person, firm or corporation designated by name as the insured person(s)
in a policy. Others may be protected by policy definition even though
their names aren't on the policy, such as other drivers operating (with
consent) the named insured's covered auto.
Named Non-Owner Policy:
A policy endorsement for one who operates any non-owned automobile on a
regular basis, such as driving a car provided by one's employer.
No-Fault Insurance:
Many states have enacted auto accident compensation laws permitting auto
accident victims to collect directly from their own insurance companies
for medical and hospital expenses regardless of who was at fault in the
accident. Although there are many legal variations of no-fault insurance,
most states still allow people to sue the negligent party if the amount of
damages exceeds a certain state-determined threshold. (see "Threshold
Level.")
Non-Owned Auto:
Any vehicle that is not owned, borrowed, or leased by the insured, and
which is used primarily for a business purpose.
Occasional Driver:
The person who is not the primary or principal driver of the vehicle.
Per Occurrence Limit:
This refers to the cap amount an insurance company will pay for all claims
arising from a single incident. In an automobile accident, it comprises
bodily injuries sustained by all parties. When Bodily Injury coverage is
purchased in split limits, the second limit is the "per occurrence" limit:
e.g. $100,000(per person)/$300,000(per occurrence)
Per Person Limit:
This refers to the cap amount an insurance company will pay for any one
person's injuries arising from a single incident. In an automobile
accident, it comprises bodily injuries sustained by each person. When
Bodily Injury is purchased in split limits, the first limit is the "per
person" limit: e.g. $100,000(per person)/$300,000(per occurrence)
Personal Auto Policy:
The most common auto insurance policy sold today. Often referred to as
"PAP," this policy is written in simple wording and provides coverage for
liability, medical payments, uninsured/underinsured motorist coverage, and
physical damage protection.
Physical Damage:
Damage to your covered vehicle from perils including (but not limited to)
collision or upset with another vehicle object, fire, vandalism and theft.
See our coverage definitions page for more information.
Policy:
The written documents of a contract for insurance between the insurance
company and the insured. Such documents include forms, endorsements,
riders and attachments.
Policy Lapse:
A point in time when a policy has been canceled or terminated for failure
to pay the premium, or when the policy contract is void for other reasons.
Policy Period:
The period of time in which a policy is in effect. (For example, six
months or one year).
Policy Term:
The length of time that the policy is in force. Most companies offer
annual and semi-annual policies.
Policyholder:
One who maintains ownership in an insurance policy. This may refer to the
policy owner or those covered under the policy. See also Named Insured.
Preferred Risk:
Any risk considered to be better than the standard risk on which the
premium rate was calculated.
Premium:
The price of insurance an insured person pays for a specified risk for a
specified period of time.
Primary Use:
What your vehicle is mainly used for (pleasure, to and from work,
business, commercial, or farm).
Principal Driver:
The person who drives the car most often.
Private Passenger Automobile:
A four-wheeled motor vehicle that is subject to motor vehicle registration
and used for private personal use.
Private Passenger Autos:
Ordinary cars, station wagons and jeeps, utility autos (pick-ups, panel
trucks and delivery vans of 1,500 lbs. or less, not used commercially) and
utility trailers designed to be pulled by a private passenger auto.
Pro Rata Cancellation:
Termination of an insurance contract before the policy expiration date on
which the premium returned to the insured person is adjusted in proportion
to the amount of time the policy was in effect.
Renewal:
The process of keeping an active policy in force through the issuance of a
renewal policy.
Safe Driver Plan:
A rating system that assigns points for traffic convictions and certain
accidents. Similar to a merit-rating plan, each point increases the
surcharge percentage to the baseline rates.
Salvage:
Damaged property that may be retrieved, reconditioned, and sold to reduce
an insured loss.
Short Rate Cancellation:
A policy termination in which the refunded premium is not proportional to
the amount of time remaining in the policy period due to the fixed
expenses incurred by the company. The insured will generally pay more for
each day of coverage than if the policy had remained in force throughout
the entire policy period.
Split Limit:
Any insurance coverage with separately stated limits for different types
of coverage. Example: an automobile liability policy of 100/300/50
provides a maximum of $100,000 bodily injury coverage per person, $300,000
bodily injury coverage per accident, and a property damage limit of
$50,000 per accident.
SR-22:
A form which must be filed by the insurance company stating that auto
liability insurance is in effect for a particular individual. Required
when insurance is provided to an individual who was in an accident or was
convicted of a traffic offense and was unable to show financial
responsibility.
Stacking of Limits:
The application of more than one policy limit to the same loss or
occurrence. In some jurisdictions, courts have required stacking of limits
when multiple policies, or multiple policy periods, cover an occurrence.
For example, Uninsured motorist bodily injury limits of $100,000/300,000
on two policies owned by the same person may be added together to pay a
loss. In this event, the total amount of coverage available for an
accident would be $200,000/600,000.
Subrogation:
The transfer to the insurance company of the insured's right to collect
for damages.
Term:
The length of time for which a policy or bond is in force.
Threshold Level:
Under some no-fault insurance laws, the threshold level represents the
degree of injury a claimant must establish before being allowed to sue the
negligent party. The threshold may be verbal (regarding the severity of
the injuries) or a dollar amount ($10,000), or both. For example, with a
threshold of $5,000, an injured person may sue if his/her injuries and
other economic damages (rehabilitation expenses, loss of income, etc.)
exceed $5,000.
Tort:
A private wrong or harm (other than a breach of contract) committed
against another, resulting in legal liability. A tort is either
intentional or accidental (negligent). Automobile liability insurance is
purchased to protect one from suits arising from unintentional torts.
Tort Feasor:
One who commits a tort.
Towing and Labor Costs:
This endorsement, which is added to the physical damage coverage, provides
reimbursement up to a specified limit to tow your vehicle or pay for
on-site labor costs.
Transportation Expenses:
Subject to a daily and maximum dollar limit, this coverage (under the
physical damage portion of an automobile policy) pays for transportation
expenses incurred by the named insured only in the event of theft of an
entire covered auto. Coverage generally begins after a stated minimum
waiting period.
Unearned Premium:
The portion of your premium remaining on your policy term. For example,
with a six-month premium, at the end of the first month of the premium
period, five-sixths of the premium is unearned by the insurance company.
Unsatisfied Judgment Fund:
Some states have established laws to reimburse those injured in auto
accidents that have been unable to collect from the responsible party.
Usage:
This refers to the primary function or purpose in which you intend to
operate your vehicle. For example, if you primarily drive your car to and
from work, the usage is considered "commute; "if you're self-employed and
you primarily drive to see customers, the usage is considered "business;"
if you're retired, your usage is considered "pleasure."
Vehicle Identification Number (VIN):
A Vehicle Identification Number is a 17-digit alpha-numeric code that
provides valuable information concerning the vehicle's serial number,
make, model, options, and year in official records (like a Social Security
number for your car).
Waiver of Collision Deductible:
This option pays your collision deductible when you carry collision
coverage on a vehicle that is damaged by an uninsured or hit-and-run
motorist who is at fault. Coverage applies only when there is actual
physical contact and when you can identify the uninsured driver or
vehicle.
Whole Dollar Premium:
Generally, insurance premiums are rounded to the nearest dollar; an amount
of 51 cents or more being rounded up to the next dollar, and any amount
less than that being dropped.
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