Definitions of Commonly-Used Car Insurance Terms
Welcome to our insurance glossary of car insurance terms. If you have any questions about terms that are not included on this page please contact us.
Additional Interest: A person or other entity (i.e. a corporation) that has an insurable interest in your vehicle, and may be named as such in your insurance policy. For example, when you finance a car through a bank, the bank is considered to have an "additional interest" in the car.
Anti-Theft Device: Any device designed to reduce the chance of a vehicle being stolen, or aid in the recovery of a vehicle if it is stolen. Examples include car alarms, keyless entry, starter disablers, "The Club"; etc.
Bodily Injury Liability: Legal liability for causing injury or death to another person.
Car Insurance Coverage: There are many "coverages." Liability, medical payments, uninsured motorists, collision, and comprehensive are the five major types of car insurance coverage.
Claim: The request for reimbursement that you make to the insurance company when you’ve been injured or your car has been damaged.
Claims Adjuster: Claim adjusters work for your insurance provider to assess the damage done to your vehicle after it's been damaged and you make a claim in order to find a fair estimate on the repairs you'll need. Some insurance companies hire independent adjusters for an unbiased report.
Collision Coverage: This is the coverage that provides protection for your car in the event of damage by an inanimate object, such as another car, a tree, or the side of a building.
Collision Deductible Waiver: If you have this type of coverage with your car insurance policy, your insurance company will pay your deductible if you are in an accident that is the fault of an uninsured motorist. This is not available in all states or with all policies.
Comprehensive Coverage: This coverage provides protection in the event of damage not caused by a collision (that kind of damage would be covered by your collision coverage). These other kinds of damage can include theft, fire, damage by extreme weather, etc.
Continuous Coverage: The length of time that you have maintained the legally required insurance on your vehicle. Lapses in coverage can result in higher rates.
Continuously Insured: The amount of time that you’ve been insured, without gaps. You can switch companies as many times as you want, but if you’ve let your coverage lapse, you could end up with higher premiums.
Credit Rating: Each individual consumer has a credit file with each of the three major credit bureaus - Equifax, Experian, and TransUnion. Each company uses a formula developed by Fair Issac's; Co. (FICO) to determine the consumer's credit rating. Insurers consider your credit rating when determining your insurance rates, since their own advanced statistical models have determined that consumers with good credit are better insurance risks, and vice versa.
Deductible: This is the amount that you are required to pay towards any damages. Your car insurance will cover any costs above this amount. The size of your deductible can greatly affect your car insurance costs.
Declarations Page (Dec Page): This is a one or two page document that details all the facts about your car insurance, such as your name and address, the vehicles covered, the deductible, the types of coverage, etc.
Defensive Driver Course: Classes offered or approved by the DMV designed to enhance defensive driving skills. Most car insurance companies offer discounts to customers who successfully complete these courses.
Depreciation: Age and wear can cause your car’s value to depreciate, or go down, over time.
Drive-Other-Car Endorsement: An endorsement or "rider" that broadens the definition of "covered auto" to include vehicles owned by others that are operated by the insured.
Earned Premium: The portion of the premium that is "consumed" during a partial policy term. If you terminate your policy early, you are only responsible for the earned premium portion (plus expenses), regardless of what you may have paid.
Effective Date: The date your coverage begins. You can find this on your dec page.
Emergency Road Service: This is optional coverage that provides services like tire changing, lock-out help, gas delivery, or towing.
Endorsements: These are also known as riders. They are changes to your coverage that are made after the effective date, like adding another car or raising your deductible.
Exclusions: Situations that are not covered by your car insurance. Your policy will show your specific exclusions.
Extraordinary Medical: This is optional coverage that protects you above and beyond your standard medical benefit coverage. Usually this would cover you if you were hospitalized long-term or permanently disabled.
Expiration Date: The date and time that your coverage ceases. Normally, the time is 12:01 AM - meaning one minute after midnight.
Extended Non-Owner Liability: An endorsement or "rider" that extends liability coverage for specifically named people operating any non-owned vehicle.
Financial Ratings: This term refers to the credit-worthiness and financial stability of insurance companies. AM Best, Standard & Poor's, and Moody's are the three agencies that assign financial ratings to insurance companies.
Financial Responsibility Laws: Each state requires motorists to be financially able to compensate the victims of bodily or property damage for which they are liable. Liability insurance is the easiest way to meet these requirements, however, those who can afford to do so may opt to post bonds instead.
Full Coverage Car Insurance: This is a confusing term. Many people think that having "full coverage" means that they will be covered no matter what happens to them. In reality, it only means that you have the full legal requirements needed in your state. Depending on your home state, it could be very little coverage in reality.
Funeral Benefits: This is optional coverage. If you were to die in a car-related accident, the insurance company would pay for a portion of your funeral costs.
Gap Insurance: Optional coverage for the difference in the amount owed on a vehicle and its replacement value. For example, if your car's replacement value is $4,000, but you still owe $5,000 on it and it's totaled, your insurance company will only pay you $4,000 (unless you have gap insurance). The company that lent you the money for your car will require an immediate payment of $5,000. Gap insurance makes up this difference.
Garaging Location: It is assumed by car insurance companies that you keep your car at your home address. However, if you primarily keep your car in a different location, make sure your insurance company knows. It can affect your rates.
Good Student Discount: Most insurers provide discounts to high school students who receive good grades. The reasoning behind this discount is that insurers have found that students who are responsible enough to get good grades are generally more responsible drivers, and thus they pose less risk for the insurers.
HEV: Hybrid Electric Vehicle. If you drive an HEV, your rates may differ from those for a standard car. Make sure your car insurance company knows if you drive an HEV.
Hit and Run: An accident caused by someone who flees the scene before police arrive and without leaving insurance information.
Income Loss: This is optional coverage that protects you if you are in an accident that leaves you unable to work. Your insurance company can help compensate you for lost wages.
Indemnity: Restoration to the financial place you were prior to the accident. Insurance is designed to make you "whole again," but not to "enrich" you. Thus, it gives you indemnity - making you "whole" again.
Independent Agent: An agent who does not work for just one insurance company. Instead, he or she searches the market for the best place for his/her client's business.
Insurance Premium: Rates charged to an insured, reflecting the insurer's expectations for loss and adding in an element of profit. Premiums are typically paid monthly, but discounts are often offered for paying in advance, either quarterly, semiannually, or yearly.
Insurance Score: Score given to each insurance customer, based on complex statistical models, in order to determine his or her insurance risk. The better your insurance score, the lower car insurance rates you can expect to pay.
Insured: The person/people covered by an insurance contract. Insurance agreements commonly refer to the "insured" or "insureds."
Judgment: A decision by a court of law, typically ordering one party to pay another party a sum of money. Additional legal action is normally required in order to ensure that judgments are enforced. Many judgments go unenforced. When enforced, a the winner of a judgment can potentially garnish the wages and "attach" the bank accounts of the person or entity at fault.
Liability: A legal obligation to perform or not perform certain acts. Most commonly, this refers to monetary sums that must be paid in order to compensate for damages to people and/or property. The term can also be used to assign "responsibility" or "fault."
Liability Coverage: Insurance to cover damages that the insured is ordered to pay as a result of a court's decision holding the insured liable for injuries caused to people and/or property.
Lien Holder: A person or other entity (i.e. a corporation - usually a bank) with a legally securable interest in your vehicle. For example, a lending institution that loans you money for the purchase of your car has a lien on it.
Limits: The maximum amount an insurance company will pay. For example, if your collision coverage limit is $10,000, but your car sustains $15,000 worth of damage, you are liable to pay for the $5,000 worth of damage that goes beyond your insurer's limit.
Medical Payments Coverage: Insurance coverage that pays for damages sustained to the insured and his or her passengers without regard to fault. Also pays for damages suffered by the insured and covered family members for injuries sustained as a pedestrian at the hands of non-exempt vehicles.
MVR (Motor Vehicle Record): Also known as a "DL Printout," your MVR contains information about your driving record - tickets, accidents, convictions, etc.
No-Fault Insurance: Type of insurance in which the insured's own insurance company provides indemnity for damages sustained to the insured's own person and property without regard to fault. The purpose of no-fault insurance is to expedite the insurance claims process and keep cases from clogging the legal system.
No-Fault State: Any state that has at least some form of no-fault insurance as a matter of law. No state has "pure" no-fault insurance, but Michigan comes the closest.
Non-Passive Alarm: Alarm in which action on your part is required in order for it to be activated. Most insurers will offer a discount if your automobile is armed with a non-passive alarm - but a slightly greater discount if it has a passive alarm.
Passive Alarm: Alarm in which your action is not necessary in order for it to be activated. Most insurers will offer discounts for cars armed with passive alarm systems that are even greater than cars with non-passive alarms.
Personal Auto Policy (PAP): Standard car insurance policy contract that includes liability, medical payments, uninsured motorist, and physical damage protection.
Personal Injury Protection: Often called PIP, this insurance applies to no-fault states and covers the basic expenses incurred by the insured or his family in an automobile accident without regard to fault.
Physical Damage: Refers to damage to your vehicle. Such damage is normally covered by either collision or comprehensive insurance.
Pleasure Use: A vehicle that is not typically used for commuting to work or for any business purpose, but rather, primarily for enjoyment.
Policy Lapse: Any period of time in which your car is not insured. Policy lapses result in higher rates.
Policy Period: Time period in which the policy is active. Also referred to as "policy term."
Preferred Risk: Refers to an individual who is considered to present less risk to an insurer than the average motorist.
Premium: An individual's price for car insurance.
Primary Driver: The person who drives the car most frequently. If two or more people drive a car, the primary driver's record is taken into greater account than the secondary or tertiary drivers.
Primary Use: How the covered auto is most commonly used. Insurers typically classify vehicles into one of three categories - commuting (most personal autos), business use (corporate-owned or used by the self-employed for business purposes), or pleasure use.
Private Passenger Auto: A four-wheeled motor vehicle that is subject to registration and used for private (non-business) use. Examples of vehicles that would not be considered private passenger autos include dune buggies, UPS trucks, busses, ATVs, etc.
Property Damage Liability Coverage: Insurance in which the insurer pays for damages to another party's property for which the insured is held liable.
Pro-Rata Cancellation: Termination of a policy before its expiration date. In this case, policyholders are responsible only for the earned premium. Every dollar in excess of the earned premium is considered "unearned," and is to be refunded to the policyholder. Insurance companies may, however, charge small fees for fixed expenses - see "short rate cancellation," below.
Property Damage Liability Insurance: This is insurance coverage for damage caused to other people's property. Damage to one's own property is considered "physical damage" and covered by collision and comprehensive coverages.
Rental Car Reimbursement: A common rider or endorsement in which the insured is reimbursed for the cost of a rental car while his covered auto is unusable.
Secondary Driver: A driver other than the primary driver who also is insured for the particular automobile. The secondary driver's driving record is given less weight in determining the insurance rates that the insured will be charged.
Short Rate Cancellation: This term refers to the non-prorated portion of a policy that is terminated early and must be refunded. Insurance companies are allowed to allocate expenses to the front end of a policyholder's term, and therefore, the daily cost of an insurance policy goes down each day.
Split Limits: This term refers to a set of three numbers dealing with liability insurance. For example, 35/50/10 means $35,000 in bodily injury liability coverage per individual; $50,000 in bodily injury liability coverage per accident; and $10,000 of property damage liability coverage per accident.
SR-22: An official document showing proof of "financial responsibility," most commonly needed by people convicted of certain major traffic violations in order to have their driver's licenses reinstated.
Stacking: Applies to underinsured motorist / uninsured motorist coverage, and allows the insured to multiply the limits of each coverage by the number of cars being insured.
State Minimum: Each state has minimum requirements on the insurance coverages that motorists must carry in order to legally drive on the public roads. These minimums are expressed by three numbers; the first and second referring to bodily injury liability limits per person and per accident, respectively, and the third number referring to the maximum property damage coverage per accident.
Steering Restraint: An anti-theft device that makes it difficult for potential thieves to access your car's ignition system. The most commonly known steering restraint is "The Club." Most insurers offer discounts for cars fitted with steering restraints.
Term: The period of time for which a policy is active.
Tort: A legal wrong, most commonly negligence or acts of omission. Courts provide remedy for torts in the form of suits for damages.
Towing Coverage: Optional insurance coverage that provides payment for towing (but not repairs) if your car breaks down or is disabled as result of an accident.
Underinsured Motorists Coverage: Insurance that covers damages caused by motorists who meet the state's minimum insurance requirements but still do not have enough coverage to satisfy damages.
Uninsured Motorists Coverage: Insurance that covers damages caused by uninsured or unidentified (hit-and-run) motorists.
Unsatisfied Judgment Fund: Many states have funds that reimburse victims injured in automobile accidents who are unable to collect from the liable party.
Usage: Refers to the purpose for which you use your vehicle. Different rates are established for different usages. Example usages include "pleasure," "commute," and "business."
VIN: Vehicle Identification Number. Each car has a unique VIN, which consists of 17 numbers, and is necessary for receiving insurance coverage.