Auto Insurance Glossary


Accident Report Form – Typically referred to as a police report, this report contains important information about an auto accident, such as circumstances, parties involved and citations given.

Actual cash value (ACV) – The value of your property, based on the current cost to replace it minus depreciation.

Actuary – A statistician who computes the financial impact of risk and uncertainty.

Additional Interest Insured – A company or person who has been named as an additional interest insured on a policy can be liable for an accident that involves an insured person or vehicle.

Adjuster – A person who investigates and settles insurance claims.

Adverse Carrier – A term often used to refer to the other party’s insurance company.

Agent – A person who sells insurance policies.

Amendment – An alteration to the basic policy contract.

Anti-Theft Device – A device, either active or passive, that attempts to prevent vehicle theft. (Car Alarms, Lo-jack, steering wheel locks)

Application – A form you fill out with information about you that an insurance company will use to decide whether to issue you a policy and how much to charge.

Appraisal – The process of determining value, or extent of damage to a vehicle performed by an impartial party.

Arbitration – A process of settling a dispute outside the courts through an impartial party, wherein the resolution is agreed to be bound.

Assigned Risk (AIP) – A driver who does not qualify for insurance in the regular market. He or she must get coverage through a state assigned risk plan which specifies that each insurance company must provide policies for a proportionate share of these drivers.

At-Fault – The party that is legally liable for the damages incurred through an accident.

Auto Insurance – Provides protection from losses to the insured’s property and losses for which the insured is liable as a result of owning or operating a vehicle.

Auto Theft – Refers to a vehicle that is stolen under comprehensive coverage.


Benchmark rate(s) – The rates set annually by the Commissioner of Insurance that rate-regulated insurance companies use to reference their rates. Rate-regulated insurance companies filing rates within a range of 30 percent above or below the benchmarks may use them immediately upon filing without prior approval. A company that wants to set its rates outside this range must receive the Commissioner´s prior approval.

Binder – A temporary insurance contract that provides proof of coverage until you receive a permanent policy.

Bodily injury (BI) – Physical injury to a person.

Bodily Injury Liability Coverage – Pays damages for bodily injury or death resulting from a car accident for which you are at fault and provides you with a legal defense. This coverage is subject to the terms, limits and conditions in your policy contract.


Catastrophe – A disaster affecting a specific geographic area that often causes injuries and extensive property damage. (e.g. Hurricanes, tornadoes and floods)

Cancellation – Termination of an insurance policy by the company or insured before the renewal date.

Claim – A request for payment from an insurance provider based on the terms of your insurance policy.

Claimant – A person who makes an insurance claim.

Claims Adjuster – (See Adjuster)

Collision coverage – Pays for damage to your car without regard to who caused an accident. The company must pay for the repair or up to the actual cash value of your vehicle, minus your deductible.

Comparative Negligence – Both driver’s involved in an accident have their negligence compared to one another, and recovery of loss can be reduced by a percentage of fault or negligence. This principal of law is only applied in some states.

Competitive Auto Repair Parts – Vehicle parts made by a company other than the manufacturer.

Comprehensive coverage (damage other than collision) – Pays for damage to or loss of your automobile from causes other than accidents. These include hail, vandalism, flood, fire, and theft.

Condition – The section of the insurance contract that lists the duties and responsibilities of both the insured and the insurance company following a loss.

Contract – In most cases, the term “contract” refers to an insurance policy. A policy is considered to be a contract between the insurance company and the policyholder.

Continuously Insured – Insurance coverage from an insurer that was in effect at all times, without a break or lapse in coverage for any reason.

Contributory Negligence – A principle of law that, in some states, may prevent claimants from recovering any portion of their damages if they are partially at fault, or negligent.

Coverage – Protection and benefits provided by the insurance company in the insurance contract.

Covered Loss – Any damage to yourself, your vehicle, or other people or property that is covered under your insurance policy[/alert_standard]


Damage – Loss or harm to a person or property.

Damages – Money that one party is legally obligated to pay to another party.

Declarations page – The page in your policy that shows the name and address of the insurer, the period of time a policy is in force, a description of the vehicle, the amount of the premium, and the amount of coverage.

Deductible – The amount the insured must pay in a loss before any payment is due from the company.

Depreciation – The act of lowering an item´s value due to use or wear and tear.

Discount – A reduction in your premium if you or your car meets certain conditions that are likely to reduce the insurer’s losses and expenses.

Driver Improvement Course – Drivers age 55 and older can take a voluntary driver improvement course to refresh and enhance their driving skills. Taking this course may qualify these drivers for a discount if they meet eligibility requirements.

Driver Status – The status of people added to an insurance policy such as: Rated(drives vehicle), Excluded(Not permitted to drive vehicle), Listed(Lives in house, does not drive vehicle).


Earned premium – The portion of a policy premium that has been used to actually buy coverage, or that the insurance company has “earned.” For instance, if you have a six-month policy that you paid for in advance, two months into the policy, there would be two months of earned premium. The remaining four months of premium is called unearned premium.

Electronic Funds Transfer (EFT) – EFT is an electronic payment method that lets you make your premium payments with automatic deductions from your bank account.

Endorsement – A written agreement attached to a policy expanding or limiting the benefits otherwise payable under the policy. Same as a “rider.”

Exclusions – Specifically identified situations that are not covered by your auto insurance policy


Financial Responsibility – Refers to state law requiring motorists to have certain insurance coverage minimums, a cash deposit, or bond to cover loss, damage, and injury.

First Party -Term used to refer to the insured.

First Party Claims – A claim made for damages, loss or injury made by an insured.

Full Coverage – “Full coverage” is a common term that people use to describe how much auto insurance coverage they have. Though there is no such thing as “full coverage,” it often implies that the policy has more than just Liability coverage.


Gap Insurance – Insurance that pays the difference between the actual cash value of a vehicle and the amount still to be paid on the loan, Some gap policies may also cover the amount of the deductible.

Garaging Location – The place you primarily park your vehicle when you’re not using it. (generally your primary residence)


Hazard – Anything that increases the chance of loss or an accident occurring.


Indemnification – The act of providing payment for a loss with the intent to restore an individual to the approximate financial position prior to the loss.

Indemnity – Compensation for a loss intended to restore an individual or entity to the approximate financial position prior to the loss. Forms of indemnity include cash payments, repairs, replacement, and reinstatement.

Independent Agent / Agency – An insurance agent or agency not directly employed by an insurance company.

Independent Adjuster – An individual who estimates losses on behalf of an insurance company, but is not an employee of that company.

Inspection – Confirmation of a car’s physical condition.

Insurable Interest – Exists when an individual would suffer a financial loss as the result of damage to property or bodily injury.

Insurance – A system in which groups of people who have similar chances of suffering a loss transfer their risk of loss to an insurer who pools the risk of many people together. In exchange for payment of premium, the insurer promises compensation for specific potential future losses.

Insurance Fraud – The act of falsifying the facts of an accident to an insurance company to obtain payment that would not otherwise be made. Common types of insurance fraud are staged accidents, exaggerated injuries, and inflated medical bills.

Insured – An individual or organization covered by an insurance policy.

Insurer – An organization that provides insurance.


Lapse – Termination of a policy due to non-payment of premiums.

Liability insurance / coverage – Pays for injuries to the other party and damages to the other vehicle resulting from an accident you caused. It also pays if the accident was caused by someone covered by your policy, including a driver operating your car with your permission.

Liability limits – The maximum amount your liability policy will pay. Your policy must pay at least $XX,000 for each injured person, up to a total of $XX,000 per accident, and $XX,000 for property damage per accident. This basic coverage is called “## / ## / ##” coverage. These Variables, or actual amounts, are determined per state. State required minimums can be seen in our info center Here.

Lien – A claim on property as a security for the payment of a debt.

Lien holder – A person or organization with a financial interest in property up to the amount of money borrowed or still owed on the property.

Limit – The maximum amount an insurance company will pay for damages or injuries that apply to the coverage. Most states have laws that specify the minimum limit that must be purchased for each required insurance coverage.

Limits of Liability – The amount named in your policy up to which the insurance company will protect you.

Loan/Lease Payoff Coverage – ( See Gap Insurance )

Loss – The amount an insurance company pays on a claim.

Loss of Use – Compensation to a third-party claimant for financial losses resulting from the inability to use the property as the result of accident-related damage.


Malicious Mischief – Intentional damage of personal property with malice of planning.

McCarran-Ferguson – Enacted by Congress in 1945, this law grants authority to the states to tax and regulate the business of insurance

Medical payments and personal injury protection (PIP) – Both pay limited medical and funeral expenses if you, a family member, or a passenger in your car is injured or killed in a motor vehicle accident. PIP also pays lost-income benefits.

Misrepresentation – Inaccurate or deliberately false representation of the nature of somebody or something.

Motor vehicle report (MVR) – A state record of licensing status, violations, suspensions, and other infractions a driver has acquired.

Multi-Car Discount – Available to policyholders who insure more than one vehicle at the same location.


Named driver exclusion – An endorsement that provides that a policy does not cover accidents when a specifically named person is the driver.

Named driver policy – A policy that covers only the drivers specifically named in the
policy. Generally, all other drivers are excluded from coverage under the policy. This type of policy is usually written by surplus lines companies.

Named Insured – The person or entity stated on the policy declarations page.

Negligence – A civil wrong causing injury or harm to another person or property as the result of doing something or failing to provide a proper or reasonable level of care.

No-Fault Auto Insurance – A type of auto insurance coverage that allows motorists to recover financial losses from their own individual insurance providers regardless of who is at fault. There are 12 states that use a no fault system.

No-Fault State – A state the uses a system designed to discourage law suits. In order to sue for medical expenses, a driver’s injuries must exceed No-Fault Insurance state minimum monetary thresholds.

Non-owners policy – Insurance coverage that offers liability, uninsured motorist, and medical payments to a named insured who does not own a vehicle.

Non-renewal – A decision by an insurance company not to renew a policy.


Occurrence – An event or repeated exposure to conditions, which unexpectedly causes injury or damage.

Original Equipment Manufacturer Parts – Auto parts acquired from the original manufacturer of the car or supplier of the original part.

Occasional Driver – A person who is not the primary or principal driver of the insured vehicle is an occasional driver.


Passive Restraint System – A passenger safety system, such as an air-bag, that activates automatically and instantaneously in the event of an accident.

Payment Recovery Adjuster – The Payment Recovery Adjuster is responsible for recovering your deductible from the other party’s insurance company.

Peril – A danger or hazard that can cause a loss.

Personal Injury Protection (PIP) – Often referred to as “No-Fault Insurance”, Personal Injury Protection covers medical expenses, lost wages, essential services (lawn maintenance, house keeping), and funeral costs.

Policy – A contract between you, the insured, and the insurance company.

Policy Change – Any change made to your insurance policy during the period that the policy is active.

Policy Expiration Date – The date when your current insurance policy ends. Generally found on the declarations page.

Policyholder – The named person or entity listed on the policy declarations page, who has purchased the insurance policy.

Policy period – The period a policy is in force, from the beginning or effective date to the expiration date.

Policy Term – The length of time your policy is active

Pre-accident Condition – The state and condition of the vehicle prior to the accident, including damage not related to the accident, mileage, options, and other factors.

Premium – The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.

Primary Residence – The place where you live for the majority of the year, or policy term.

Primary Use – How you generally use your vehicle. ( to and from work/school, for business, pleasure, etc )

Principal Driver – The person who drives the car most often.

Proof of Loss – A statement made regarding the scope of the claim; it may be requested in accordance with the conditions of the policy.

Property damage (PD) – Physical damage to property.

Proximate Cause – An act or omission initiating a continuous sequence of events resulting in bodily injury or property damage.


Quote – A report of the premium that will be charged for insurance coverages based on precise information provided by the individual requesting the quote including drivers, vehicles, and driving record. Quotes are used to compare rates between providers and ensure the insured is receiving the most for their money.


Rate – Often used as a synonym for premium but in fact refers to the base rating units that are used to determine the final premium.

Rating Plan – The system that determines your insurance premium rate. These rules change the base rates by applying discounts and surcharges based on your personal uniqueness, for example, using your seat belt, having anti-lock brakes, and insuring more than one vehicle.

Re-inspection – A review of an estimate or appraisal done by an adjuster during or after repairs to a vehicle.

Rental reimbursement coverage – Pays a set daily amount for a rental car if your car is being repaired because of damage covered by your auto policy.

Rider – A written agreement attached to the policy expanding or limiting the benefits otherwise payable under the policy. Same as an “endorsement.”

Reinstatement – The process by which an insurance company puts a policy back in force after it lapsed because of nonpayment of renewal premiums.

Roadside Assistance Coverage – Provides services such as locksmith services, Flat tire change, battery jump start, towing etc. (AAA, Onstar)


Salvage Titles – A special title required by some states, when a vehicle is considered a total loss OR the damage sustained is equal to or higher than retail value.

Second Named Insured – The named insured or listed agent/broker on a policy may request to designate any other person listed on the policy as a second named insured. The second named insured has the same coverage under the policy as the named insured.

SR-22 – A document required by the court that demonstrates proof of financial responsibility for persons convicted of certain traffic violations.

Surcharge – An extra charge added to your premium by an insurance company. For automobile insurance, a surcharge is usually added if you have at-fault accidents or traffic violations.

Surplus lines – Coverage from out-of-state companies not licensed in Texas but legally eligible to sell insurance on a “surplus lines” basis. Surplus lines companies generally charge more than licensed companies and often offer less coverage.


Third Party – Anyone other than the policyholder(first party), and the insurance company(second party) is considered third party in an insurance contract.

Tort – A wrongful act resulting in damage or injury, on which a civil action can be based. Also used to refer to states that ARE NOT No-fault states. In a Tort state a driver may sue the at-fault party for damages without meeting a monetary threshold.

Towing and labor coverage – Pays for towing charges when your car can´t be driven.
Also pays labor charges, such as changing a flat tire, at the place where your car broke down.


Underwriter – The person who reviews an application for insurance and decides if the applicant is acceptable and at what premium rate.

Underwriting – The process an insurance company uses to decide whether to accept or reject an application for a policy.

Uninsured/underinsured motorist (UM/UIM) coverage – Pays for your injuries and property damage caused by a hit-and-run driver or a motorist without liability insurance. It will also pay when your medical and car repair bills are higher than the other driver´s liability coverage.


Vehicle Identification Number (VIN) – The Vehicle Identification Number (VIN) for your vehicle is usually found on the driver’s side of your dashboard, the vehicle registration or the title. The VIN is a combination of 17 letters and numbers that can be used to identify the make, model and year of a car.

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