Glossary: Automobile Insurance Terms

Understanding the various terms used when discussing automobile insurance can be daunting. In many cases, your auto insurance policy may define these terms. Words that your policy doesn't define may come up in conversation with your insurance agent, or when making a claim after a car accident.

Below, you will find a glossary of common terms used in relation to automobile insurance. Knowing these definitions will help you:

• Better understand the specifics of your policy terms, including the amount of coverage you need and covered events
• Keep up in conversations with your agent and insurance adjusters
• Make informed decisions when navigating the insurance process and choosing a policy and provider

Note that particular insurance policies may have different definitions for these terms, which may make a difference if you submit a claim.

Car Insurance Terms to Know

Actual Cash Value (ACV):  The actual market value of your vehicle after depreciation. The formula for ACV is based on the replacement cost of your vehicle minus depreciation.

Additional Insured: An individual who is not specifically named as an insured within the policy itself, but for whom modifications to the policy provide a degree of protection. Some states treat an additional insured differently from an additional named insured, who is named within the policy itself and to whom all of the terms of the policy apply.

Adjuster: An employee of the insurance company who assesses claims made by policyholders. The adjuster investigates an accident or loss, determines the covered damages, and works to settle claims. Adjusters often negotiate with involved parties and facilitate benefit payments.

Assigned Risk: When a state-assigned risk plan assigns a high-risk insurance applicant to an insurance company. Assigned risk ensures that drivers who may struggle to secure coverage still have access to auto insurance. These drivers often have more expensive premiums or higher deductibles.

At-Fault Accident: When one driver is primarily responsible for a traffic collision. In these cases, the at-fault driver's insurance is often responsible for covering vehicle damages and injuries for themselves and other involved parties.

Binder: A temporary agreement that provides immediate coverage before a formal policy is issued. It serves as proof of insurance and outlines the policy terms until the insurance company finalizes the official documents.

Bodily Injury Liability Coverage: This coverage applies when you are legally liable for injuring other people in an auto accident. Bodily injury liability provides payments to injured individuals and pays your legal defense costs as well. Such coverage is often combined with property damage liability.

Cancellation: The termination of an insurance contract before its scheduled end date. Reasons for policy cancellation include:

• Non-payment of premiums
• Policyholder request
• Specific traffic offenses

Casualty Insurance: Coverage that protects against financial loss resulting from bodily injury or property damage for which the insured is legally responsible. Casualty insurance includes liability coverage. It may also cover medical payments, uninsured motorist protection, and other events.

Claim: The request that a policyholder makes to an insurance company to recover losses covered by an insurance policy.

Claimant: The individual making an insurance claim.

Collision Insurance: Collision coverage under a policy pays for damage to, or loss of, your own automobile from an upset or collision with another object or vehicle. Collision insurance does not cover bodily or personal injury. It also may not cover other property damage liability resulting from the collision.

Comprehensive Insurance: Comprehensive coverage reimburses you for damage to your own car from causes other than a collision, upset, or general wear and tear. Comprehensive insurance may cover:

• Hail and flooding
• Theft, mischief, and vandalism
• Damage from animals
• Falling objects, explosions, and earthquakes
• Many other events

Coverage Limit: The maximum amount an insurance policy will pay for a covered loss. It sets the cap on the reimbursement the policyholder can receive.

Covered Loss: Protected incidents or events outlined in the terms of your insurance policy that the insurance company may provide compensation. These include damages to the insured vehicle or injuries to the insured party.

Declarations Page: The portion of your insurance policy that summarizes key information. This often includes:

• The policyholder's name and address
• Coverage limits
• Premium amounts
• Details about the insured vehicles

It serves as a quick reference guide for key policy details and is one of the first pages in an insurance policy document.

Deductible: The amount of the loss that you must pay before the insurance company begins to pay under the policy. For example, if you have a $500 deductible and have been in an accident in which $3,500 in damage to your car occurred, you must pay the first $500 before the insurance company pays the remaining $3,000.

Depreciation: The reduction in the value of a vehicle over time due to age, wear and tear, and market conditions. Insurance companies consider depreciation when determining the actual cash value of a damaged or totaled vehicle.

Drive-Other-Car Endorsement (DOC): Sometimes referred to only as an "other-car endorsement." This addition allows you to protect drivers named in the endorsement when they are driving cars:

• Not owned by those individuals
• Not named within the policy

Effective Date: The date when coverage provided by the policy officially begins.

Endorsement: A modification to your insurance policy that adjusts or expands its terms, conditions, or coverage. Endorsements allow you to customize your coverage to better fit your specific needs or circumstances. They can include:

• Adding or removing coverage
• Adjusting policy limits
• Incorporating special provisions

Expiration Date: The date when coverage provided by the policy officially ends. This also signifies the point where you must renew your policy to maintain coverage.

Fair Market Value: The dollar amount a knowledgeable buyer or seller who is not under pressure is willing to pay or accept for your vehicle.

First-Party Coverage: Compensation you receive under your own insurance policy as opposed to receiving payment from someone else's insurance policy, such as the person who caused an accident. Examples of first-party coverage include collision insurance and comprehensive insurance, in which your own insurance company pays you for losses to your own car.

Gap Insurance: Gap coverage pays the difference, or gap, between the outstanding balance on a car loan or lease and the actual cash value of the vehicle. Gap insurance often comes into play when a vehicle is a total loss. It helps bridge the financial gap, ensuring the policyholder is not left with out-of-pocket expenses in certain situations.

Grace Period: The additional time granted to pay your insurance premium after the due date without a penalty.

Indemnity: Compensation to the policyholder for financial losses incurred due to covered events. Indemnity ensures the insured party is reimbursed for actual financial losses, up to the limits specified in the insurance policy.

Liability Insurance: Liability coverage pays others who sustain bodily injury or experience property damage caused by you or someone else covered under your policy.

Loss: The root of an insurance claim. To have a claim, there must first be a financial loss, like damage to a vehicle. Insurers may also refer to a loss as a payment made on behalf of an insured to cover such damage.

Medical Payments Coverage (MP): Coverage that pays for medical expenses incurred by the policyholder and passengers in the insured vehicle, regardless of who is at fault in the accident. It covers medical bills, hospital expenses, and funeral costs.

Minimal Limits: The minimum amount of auto insurance required by your state law. Minimum coverage limits vary by state.

Motor Vehicle Record (MVR): The written record of a driver's accidents and traffic violations. Insurance agents will review your MVR when giving a quote for automobile insurance rates. The more accidents and violations you have in your MVR, the higher your premiums will likely be.

Named Driver Exclusion: An addendum on an insurance policy that names a single driver in your household and excludes that person from coverage. This means the policy will not cover a claim if the named driver was operating the insured vehicle. Named driver exclusions are often used if there is someone in your household with:

• A suspended driver's license
• Poor driving history
• Other high-risk driving behavior

No-Fault Protection: Available in many states, no-fault insurance pays you, or others covered under your policy, for medical expenses or injuries that occur as the result of an accident, regardless of who was at fault.

Personal Injury Protection (PIP): The part of an insurance policy, often a no-fault policy, that provides protection against personal injury and related losses, as opposed to damage to your vehicle. PIP will cover up to a specific per-person dollar amount. PIP may include benefits for medical expenses, loss of work income, and accidental death and funeral expenses.

Property Damage Liability Coverage: The portion of a car insurance policy that covers resulting losses if you damage someone else's personal property.

Policy Period: The specific duration an insurance policy is in effect and providing coverage. It starts with the policy's effective date and ends on the policy's expiration date.

Policy Premium: The amount of money you pay, either monthly, quarterly, or yearly, to maintain your automobile insurance. If you fail to pay your premiums, your insurance provider can cancel your policy.

Property Damage Liability: Insurance that protects you and pays on your behalf for automobile-related damage that you cause to another person's property. It can be offered with bodily injury liability.

Replacement Cost: The dollar amount needed to replace a damaged vehicle with a new one of similar make, model, and quality. This coverage option often provides a higher level of reimbursement compared to actual cash value, as it doesn't factor in depreciation.

Subrogation: When an insurance company, having paid a claim, assumes the right to recover reimbursement from a third party who may be responsible for the loss. Subrogation allows the insurance company to pursue recovery from the at-fault party to offset the costs paid out in the claim.

Threshold: A term used in conjunction with a modified no-fault plan. Most no-fault plans set a point at which the insured may bring legal action to recover for losses such as pain and suffering. Before the threshold is reached, tort actions are not allowed. Typically, the threshold is reached if medical bills reach a certain expense level or if disfigurement or death occurs.

Total Loss: Situations where the cost of repairing a damaged vehicle exceeds its actual cash value. When an adjuster deems a vehicle a total loss, the insurance company typically pays the actual cash value of the vehicle at the time of the loss, minus your deductible, rather than the cost of repairs. This is often referred to as a totaled vehicle.

Underinsured Motorist (UIM): Motorists whose automobile insurance maximum is insufficient to cover a specific loss. UIM pays you, or those people covered under your policy, for bodily injury losses if the other driver is liable and has coverage that does not fully compensate you for your losses. The maximum of a UIM recovery is your policy limit.

Underwriting: The step in the insurance process where the insurance company evaluates the risk associated with insuring a particular driver. This includes assessing factors like driving record, age, location, and other variables to determine the appropriate policy coverage and premium.

Uninsured Motorist (UM): Motorists who do not have any automobile insurance. Uninsured motorist coverage protects insureds, up to the limit of their policies, against bodily injury losses caused by a negligent motorist who has not obtained insurance coverage.

This is also sometimes called Uninsured Motorist Property Damage Coverage (UMPD).

Vehicle Identification Number (VIN): A unique number assigned to the car. The VIN is engraved on a metal plate affixed to the dashboard, which is visible through the windshield. Most auto insurance providers require the VIN for each insured vehicle before approving a policy.

Auto Insurance Issues? Talk to a Lawyer

Navigating auto insurance can be overwhelming, and there are several scenarios where working with an experienced attorney can be beneficial. Some of these situations include:

• Uncooperative insurance companies
• Hit-and-run accidents
• Physical damage from an uninsured driver
• Being sued as a result of a car accident

If you are facing any of the challenges above, an insurance attorney in your area can help protect your interests. An experienced attorney can also guide you through the specifics of your policy.