It’s truly easy to feel lost when looking for the right car insurance, so it’s advised that we compare the insurance market every year to make sure we’re getting the best deal. Also, it’s probably about time we learned some of that insurance lingo.
We’ve compiled a car insurance glossary to help you get to grips with some of the commonly or frequently used terms and phrases in the industry.
Car Insurance Glossary
While a glossary will help you understand your new policy better, it won’t help you actually to choose one. As such, start looking early so that you can take your time and think about the kind of coverage you’ll need. Here are the most common terms you’ll encounter:
1. Actual Cash Value (ACV)
The actual cash value of your vehicle is determined in the case of it being stolen or written off after a crash. When submitting a claim, your insurance company will need to identify the replacement cost of your car, minus depreciation.
They will take into account the car’s age, miles used, as well as the condition of the vehicle’s bodywork, interior, tires, and any additional equipment. A claim adjuster will then do some research to find similar models in your local area to work out the ACV of your car, pre-accident.
The mathematics and financial theory wizard are responsible for calculating risk and uncertainty. An actuary will pull together calculations around accident frequency to work out accident likelihood, on behalf of insurance companies so that they can assess what level of risk you present to them.
See loss adjuster.
4. All-Risk Policy
A type of insurance policy which covers all risks or perils, such as fire, windstorms, theft, and vandalism, unless specifically excluded.
This is a professional estimation of the value of your vehicle or property. Damage appraisals are a formal estimation of any damage costs written by a loss adjuster or auto mechanic.
6. Assigned Risk Plan
Insurance plans that are managed by the state due to your inability to attain normal liability coverage, obtained from poor driving records.
7. Auto Insurance Policy
Your auto insurance policy is your documentation that contains your terms and conditions of the contract with the insurer. Typical components of a car insurance policy in the USA include liability coverage, uninsured and underinsured motorist coverage, comprehensive coverage, collision coverage, medical payments coverage, and personal injury protection.
8. Bodily Injury Liability Coverage
If you cause an accident, then having this type of coverage may help to pay for another person’s injury costs.
The carrier of your insurance policy holds responsibility for your policy, and its terms and conditions. They are essentially “carrying” the risk of insuring you.
In case of an accident, the casualty refers to loss or liability.
A claim is an application submitted by the policyholder to their insurance company, in an event such as an accident. The application will formally request the insurer to cover the cost of damages incurred in the accident, as laid out in the insurance policy held. This is also referred to as a “first-party claim”, and when you claim against someone else’s policy, it is referred to as a “third-party claim”.
The person who is making a claim for a loss.
This is a property or asset that is secured against a loan. If you default payments on the loan, then the lender can legally seize the property that is pledged, in order to sell and pay off the loan.
14. Collision Coverage
Exactly as it sounds, this coverage may help pay to repair or replace your vehicle in case a collision with another car or with a fence, wall, or building (up to the vehicle’s actual cash value minus the deductible) happens. Unless you are renting or paying off your car, this coverage is normally optional.
15. Combined Single Limit
These types of policies have a single amount that the insurance company will pay out, up to the liability limit, for all financial losses including damage and bodily harm, as opposed to a split limit policy.
14. Community Property
This term refers to assets acquired by spouses during their marriage, so each has his or her own equal shares. It does not include any assets or shares acquired before the marriage or by gift or inheritance to a specific spouse.
15. Comprehensive Coverage
Comprehensive coverage may allow you to claim the full cost of repair or replacement of your vehicle (up to the vehicle’s actual cash value minus the deductible), in the case of events such as fire, theft, or wreckage. This type of coverage is usually optional unless you are renting or have your vehicle on a payment plan.
16. Comprehensive Loss Underwriting Exchange (CLUE)
This is an insurance history database that has a record of all of your previous claim information such as dates of loss, types of loss, vehicles, and amounts claimed. An insurance company will access this information to help assess your risk and work out your premium.
17. Declarations Page
It is an important section in your insurance policy contract since it contains vital information relating to you, your vehicle, and the policy such as policy period, coverage, and premium.
Also called the insurance excess, this represents the amount the money that you, as the policyholder, will need to pay when claiming money from your insurance policy.
19. Deposit Premium
The initial amount paid when applying for an insurance policy. Your final monthly premium amounts will be adjusted to include this payment.
The term that refers to the lowering value of your car over time. Your vehicle’s age, miles driven, and wear and tear on your vehicle, all lower its actual cash value.
21. Extended Coverage
Coverage that goes beyond that which is named in the basic policy. It is usually written into the policy as a clause or endorsement which extends the policy to include additional coverage for risks that weren’t previously named.
22. Free Look Period
The free look period is the period in which the insurer can cancel the insurance policy for any reason. The free look period is often 30 days after the policyholder signs the contract but varies from state to state.
23. Gap Insurance
Also known as loan or lease gap coverage, this is an optional type of coverage that you can get if you have an auto loan on your vehicle. This insurance can help to pay off your loan if your car is stolen or wrecked, in cases where your loan amount is more than the depreciated value of the vehicle.
This is what insurance policies are based upon. The object of having insurance is to protect the policyholder so that they are returned to the same financial position as they were in before an accident or loss occurred.
25. Insured Declared Value
This is the value of the vehicle based on the original value minus depreciation, agreed upon by the insurance company and policyholder at the time the policy is taken out.
26. Liability Coverage
This type of coverage is, more often than not, state mandatory. There are two types of liability coverage which are body injury liability and property damage liability. They both offer coverage for accidents where you are at fault.
27. Loss Adjuster
A loss adjuster will be assigned to investigate and oversee your claim to check its legitimacy with regards to your policy, as well as assess and make payments in accordance with your coverage.
28. Medical Payments Coverage
In case of an accident, this type of coverage may help to pay for costs relating to your injury and your passenger’s injury. Costs incurred could include hospital visits, overnight stays, surgery, scans, and x-rays. This coverage is legally required in some states while remaining optional in others.
29. Motor Vehicle Report (MVR)
Available from the Department of Motor Vehicles (DMV), your MVR contains all of the information found on your driving license and more. It is also a report that cites officially documented violations such as DUI convictions, license points, traffic violations, and accident reports.
Most insurance companies will only be interested in the last few years of the report, and some states only record 75% of incidents on average. You can order a copy for yourself from the DMV if you want to see what yours looks like.
The National Association of Insurance Commissioners is responsible for setting a USA standard for the regulation of insurance companies.
31. No-Fault Insurance
In some states, it is known as PIP. This refers to any type of insurance coverage that covers financial losses of the policyholder (and sometimes passengers), regardless of who caused the accident. This type of insurance prevents expensive litigation in cases where there is a disputed cause.
The person or beneficiary who receives the insurance loss payout. A loss payee refers to the leaseholder or loan company that the vehicle belonged to, if not the policyholder.
A specific mishap or risk that may be covered by an insurance policy that can cause damage or loss such as fire, smoke, theft, vandalism, windstorms, hail, lightning, and flood.
34. Personal Injury Protection (PIP)
This kind of protection can help to cover personal medical expenses, as well as other expenses such as loss of earnings, childcare costs, or funeral, in the event of personal injury, regardless of who’s at fault. In some cases, it will also cover passenger and pedestrian expenses. PIP can be state-mandatory or optional and is not available in all USA states.
This refers to you, or the person named on the insurance policy.
36. Policy Period
The amount of time the insurance policy will be in effect. The period covered, begins and ends at 12:01 AM local time, on the dates specified.
This is the actual amount of money that the policyholder agrees to pay to the insurer for the insurance policy, for an agreed length of time. It can be paid monthly or annually.
38. Property Damage Liability Coverage
If you cause an accident leading to damage to another person’s property, then having this type of coverage may help to pay for repairs.
39. Proximate Cause
A loss that can be legally linked to a cause with an unbroken chain of events, unlike a “cause-in-fact” that is directly related.
40. Specified-Risk Policy
Also known as a named-risk policy, this type of policy only covers risks and causes of loss, that are specifically named within the policy such as fire, theft, vandalism, windstorm, hail, and flood. As opposed to an all-risk policy.
41. Split Limit
A split limit represents a maximum amount of money that the insurer is willing to pay for various components of the coverage. Medical expense coverage, for example, may cover up to $300,000 in medical expenses, with a split limit of $100,000 per passenger (maximum of three passengers).
The process in which you give another person or company (in this case your insurance company), the legal right to recover financial losses from a third party on your behalf. For example, in the case of having collision coverage and being hit by an uninsured driver, you will receive a payout from your insurer and would ordinarily give your insurer the legal right to try to recover their financial loss through the person at fault.
An amount of money that is added to your base rate that will increase your premium. Surcharges are commonly incurred after moving violations and accidents in which you were at fault.
Working on behalf of the insurance provider, the underwriter is responsible for analyzing the risk involved in specific insurance policies. They set out policy terms and work out the premium that should be paid by potential policyholders.
45. Uninsured and Underinsured Motorist Coverage
This type of coverage could help to pay for your hospital bills and car repairs, in case you are hit by another car that is not insured. Or if the other driver doesn’t have the right kind of liability limits to cover your resulting bills (underinsured). This coverage is mandatory in some states and optional in others.
Learning the Lingo
A better understanding of the terms used in the context of insurance will help you when it comes to reading the small print of a new car insurance policy. Bookmark this car insurance glossary now so that you can refer back to it in times of need.
Hopefully, it will help you through the minefield of the insurance industry jargon that you’re faced with when sorting out new insurance coverage.