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Car Insurance Glossary

Our extensive auto insurance glossary can help you be an educated vehicle insurance policy holder. If you have ever wondered what terms in your quote or premium statement mean, this glossary can help you understand them. Learning these insurance terms can help you better understand available car insurance discounts and auto insurance coverages. The availability of different coverages in different states can be daunting, be sure you are covered in case of any type of of auto accident.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Actual Cash Value

This is a monetary amount that is equivalent to the market value of a stolen or damaged item before the damage occurs. For anything that is not a car, the current going rate of the market for the item before it is damaged determines the amount. For automobiles, the market value is based upon the Kelley Blue Book value of the vehicle before the damage occurs.

Admitted Insurance Company

This is insurance that has been purchased from an insurance company that has been formally licensed and registered in the state where the policy is bought. The insurance agent or broker is licensed in the state, and the state regulates the broker and the company in their marketing practices, also keeping an eye on the insurance policies that are sold.

Agent

An agent is an employee of an insurance company that must be licensed in the state(s) where he or she works. The main purpose of an agent is to provide answers to questions about the company's policies and services and to recommend solutions to various problems. Outside of car insurance, an agent may also sell life insurance and health insurance.

Aircraft Insurance

This is a form of coverage offered by a highly specialized insurance company that provides monetary compensation for medical expenses and property damages in the event of an accident. It will also provide for repairs to an aircraft if an owner's negligent actions contribute to the detriment of the aircraft while flying. The different forms of aircraft insurance include owner's, renter's, and CFI coverage.

Automobile Insurance

This is a form of coverage for a motorist that will provide protective funds for the risks that are associated with owning and operating a vehicle. The most common forms of coverage include liability, collision, and comprehensive insurance. Automobile insurance is required by the law for the legal operation of a vehicle, and the different forms of insurance a motorist must carry are determined by the state the person lives in.  Automobile insurance is also referred to as car insurance or vehicle insurance.

Binder

A binder is term that is most often referred to as an offer of purchase. In the insurance industry, it is a preliminary agreement between an insurance company and a consumer that will provide the consumer with coverage until the fine details of the policy can be finalized.

Bodily Injury

Bodily injury refers to injury that physically occurs to a motorist or passenger in an automobile accident. Bodily Injury Protection is a branch of liability coverage that is specifically designed to cover the medical expenses of a third party should an accident occur. This coverage would be the responsibility of the at-fault driver. 

Boiler Insurance

Boiler insurance is not applicable only to boilers, but any machine that generates electrical power (generators, motors, etc.). Boiler and machinery insurance include the damage to not just the machine, but also to the surrounding area through explosions, fire, and other events.

Broker

An insurance broker (also called an agent) finds sources for contracts of insurance on behalf of customers. The term is usually applied only to those who deal in automotive, health, and homeowner's insurance.

Burglary

Burglary is the unauthorized, forceful entrance into a home or vehicle that results in a loss of property for the insured. A homeowner's or renter's insurance is usually involved in claims resulting from the theft of property.

Cancellation

Cancellations occurs when an insurance policy is terminated before the end of the policy period. This action thus terminates any coverage resulting from that policy. Cancellation can occur due to the insured's request or due to a lack of payment on the premiums of the policy. If the latter occurs, there are usually fees associated with the cancellation.

Claim

A claim is a legal action to obtain money, property, or the enforcement of a right against another party. It can be any communication notifying the addressee of alleged faulty execution that resulted in damages, often expressed in an amount of money the party should pay or reimburse. Although filing a claim is rather straight forward, it still must be done properly according to your insurance company's guidelines.

Claimant

This person is the party in an accident who initiates the filing of a claim with an insurance company. This person does so to seek reimbursement for the medical expenses or property damage repairs associated with an accident.

Collision Deductible Waiver

In some states, a motorist is required to purchase a form of coverage called the collision deductible waiver in conjunction with a collision insurance policy. The collision deductible waiver will cover collision deductible if an insured car is involved in a wreck for which an uninsured driver is held legally responsible. It is considered helpful if you have a high deductible on your policy.

Collision Insurance

This is a form of insurance that is required by law for a motorist to carry if he or she maintains an outstanding loan on the vehicle that he or she drives.  This policy will provide a monetary amount towards the repair of your vehicle that will not exceed the current market value of the car.

Common Carrier Liability

This is a form of coverage that is provided specifically for transportation companies (most commonly trucking companies) that transfer customers' goods. If the goods are damaged in the process, the insurance will cover the cost of the loss. It is only provided to customers who are willing to pay an extra amount for it.

Comprehensive Glass Insurance

This is an extra form of insurance that is usually offered to a consumer as an add-on to their policy. This form of insurance will cover the cost of any window or windshield in your vehicle in spite of the manner in which it was broken.

Comprehensive Insurance

This is another form of optional insurance that is generally used as a supplement to collision insurance. Comprehensive insurance covers the full cost of repairs to a vehicle in the event of an accident. It will also provide for the cost of repairs for damages that may be incurred by an 'act of nature' or vandalism. 

Credit Life Insurance

This form of coverage is usually taken out by a creditor on a consumer that they lend a substantial sum of money to. In the event that the borrower passes away, the insurance company will pay the balance of the debt owed to the creditor.

Decline

A decline of services occurs when an insurance company refuses to insure the consumer. In the automobile insurance industry, this may be due to a variety of factors based upon a person's driving license record and claims history.

Deductible

The deductible is a certain monetary amount that the insured is required to pay towards the repairs to his or her vehicle before the benefits of the insurance company kick in. If you maintain a high deductible on your policy, you will generally have lower premiums each month.

Depreciation

This is a decline in a car's value. It can be attributed to a variety of factors, including the age and wear on a vehicle.

Disability Insurance

This is a form of coverage provided by a comprehensive health insurance plan that will issue payments to the insured if he or she is unable to work. The loss of work must be attributed to illness, sickness, or an accident. The monetary amounts generally do not exceed three-fourths of the insured personís usual amount of income.

Endorsement

An endorsement is an amendment that is added to an original policy in order to add or remove a form of coverage. Dependent upon the services being added or removed, a person's insurance rates may increase or decrease accordingly. An endorsement can also be referred to as a 'rider'.

Exclusion

An exclusion is an addendum within the content of an insurance policy that refuses to extend coverage for certain actions, property, or for certain types of damages.

Expiration Date

This is the day on which a policy and the associated coverage ends.

Face Amount

This is a term most commonly associated with life insurance. It is the dollar amount that will be paid to a beneficiary if the policyholder should become deceased. It is possible that other amounts of money may be available to a beneficiary due to dividends or a policy rider, but those are not included in the face amount value.

Financial Guarantee Insurance

This is an insurance policy, insured by a provider, in which monetary compensation will be provided to the claimant upon proof of the occurrence of financial loss.

GAP Insurance

The 'GAP' in GAP insurance stands for guaranteed auto protection insurance. It represents the gap between the amount of money owed on a car and what the car is actually worth. If a new vehicle is totaled in an accident, GAP insurance will work to cover the balance that is owed after collision insurance pays the market value of the vehicle.

Good Driver Discount

This is a discount on premiums that is extended to a policyholder from an insurance company. It is one of the most well known discounts a motorist can receive. In order to qualify for it, a driver must have been licensed for at least three years and have had no more than one point (for any infraction) added to their driver's license record. They also must not be involved in any accident for which they are considered to be at fault.

Grace Period

This is a period of time (most commonly 30 days) after a premium's due date in which the payment must be made. A driver's coverage is still in effect for those 30 days. However, if the payment is not made after this time period, the policy and the coverage are usually terminated.

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Incontestable Clause

This is an amendment to a policy which states that an insurance company will not dispute the validity of a contract a motorist made with the company after a certain period of time.

Insured

Insured is a term that refers to the holder of a policy with an insurance company. The insured is the one who is protected in the event of a loss of property or physical injury.

Insurer

The insurer is a term used to reference the insurance company who holds the policy for a motorist.

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Liability Insurance

This is the most common form of automobile insurance in the industry. Most states in the country require all drivers to carry this form of insurance. The required minimum monetary amounts of coverage vary from state to state. Liability insurance will cover the medical expenses and the cost of property damage repairs to another party if a person is found to be at fault in an accident.

Limit

This is the maximum monetary amount of damages a policy will pay under the terms of coverage.

Medical Payments

These are the payments an insurance company will make towards the costs of the driver's, passengers', and another party's medical expense according to the terms of insurance coverage allotted in the insured's policy.

Misquote

A misquote is an inaccurate estimation of what an insurance premium might be.

Misrepresentation

This term is used to describe a situation in which a policyholder provides inaccurate information relevant to his or her application for coverage. If an insurance company discovers that a policyholder has misrepresented themselves on an application, an they can, at will, terminate the policy and subsequent coverage.

No Fault System

A no-fault system is a series of guidelines a state employs when dealing with an automobile accident. Under this system, no one driver is singled out as the cause of an accident. Each party involved in the accident (and their respective insurance companies) are responsible for only their medical expenses and/or the cost of repairs for their property damage.

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PIP Insurance

PIP insurance is a shortened term for personal injury protection insurance. This form of coverage provides funds for a driver's or passengers' medical expenses in the event of an accident. If a person lives in a state that operates under a no-fault system, he or she will be required to maintain this form of coverage. As the majority of people are covered by comprehensive health insurance, most motorists do not elect to purchase more than the required minimum amounts.

Policy

This is the written contract, including all of the terms of service and coverage, between a person and an insurance company.

Policy Limit

A policy limit is the amount of money, determined by contract, that an insurance provider will pay overall towards medical expenses or property damage repair bills.

Premium

This is the amount of money that an insurance provider will charge a person to purchase a policy. It can be paid in a lump sum or divided up into monthly installments.

Property Damage

This term refers to damage sustained by the driver's or another party's property in an accident.

Quote

This is an estimation of how much it will cost a consumer to purchase a policy from an insurance company.

Reinstatement

Reinstatement is the restoration of a lapsed policy.

Rider

A rider is also known as a binder. It is an addendum to an insurance policy that will add or delete coverage to a policy. Dependent upon the actions stated in the addendum, a person's insurance premiums may increase or decrease with the addition of a rider.

Surcharge

This is an extra charge that may be applied to a person's account with an insurance provider. A great example of when this is likely to occur is when a policyholder gets a speeding ticket. 

Tort System

This is the most common system states use when dealing with an automobile accident. Under the guidelines of a Tort system, one party in an accident must be determined to be at fault. This party, and his or her insurance company, then assumes all financial responsibility for the medical expenses and property damage costs of all other parties involved in the accident. It is the exact opposite of a no-fault system.

Underinsured Motorist Insurance

This insurance is allotted for accidents where the at fault party does not have enough coverage to provide funding for all of the damages. The policyholder's insurance company will cover the remaining cost to ensure that he or she maintains a full recovery.

Uninsured Motorist Insurance

This form of insurance is split into two branches of coverage - uninsured motorist bodily injury coverage and uninsured motorist property damage coverage. In the event that a person is involved in an accident where the at fault party is not insured, this form of coverage will assume the cost of repairs or medical bills. Many states, although not all, will require a motorist to carry this form of coverage.

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