Topic: Auto Insurance Glossary

Actual Cash Value

An amount equivalent to the replacement cost of a stolen or damaged property at the time of the loss, less depreciation. For vehicles, this amount would be determined by a local area private party sales and dealer quotations. Kelly Blue Book would only be used as a guide and not the final word.

Admitted Company

An insurance company authorized to do business in your state.

Additional Insured / Additional Interest

A person or an organization, other than the named insured or covered person, who is protected under the named insured’s auto policy. If an auto is leased, the leasing company may want to be listed as an Additional Insured as well as a lien holder or loss payee. This protects the leasing company if it’s named in a lawsuit for an accident caused by a policyholder.

Agent

A licensed person or organization authorized to sell Insurance by or on behalf of an Insurance company.

Assigned Risk

A risk not ordinarily acceptable to insurers which is, according to state law, assigned to insurers participating in a plan in which the insurers agree to accept their share of these risks.

Automobile Insurance

Coverage on the risks associated with driving or owning an automobile. It can include collision, liability, comprehensive, medical, and uninsured motorist coverages.

Binder

A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.

Bodily Injury – Liability

Bodily injury liability protects you against financial loss (including the cost of your legal defense), when you are found liable for injuring another person in an automobile accident. You could be responsible for any damages that exceed your covered limits.

Broker

A broker is a licensed person or organization who shops on behalf of the client to find and start insurance coverage with an appropriate insurance carrier.

Brokers are authorized by numerous different insurance carriers to get rates and start insurance coverage for the client, unlike “captive agents” or “direct writers” who are authorized by just oneinsurance carrier to get rates and start coverage.

Cancellation

The termination of Insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge.

Carrier

A company that actually issues and assumes the risk of an insurance policy.

Also referred to as “insurance company”.

Claim

A request to an insurer for compensation for a loss.

Claimant

Any person who asserts right of recovery under an insurance policy.

Collision Coverage

Auto insurance for the purpose of covering the cost of repair or replacement of the insured’s car in case of an accident (regardless of who is at fault). Collision coverage often requires the payment of adeductible when a claim is made. Collision may be required to qualify for a new car loan.

Collision Deductible

Collision coverage pays to repair your car or replace it at fair market value when it’s damaged – regardless of who is at fault. The deductible is the amount you pay for a covered loss, the insurance company pays the amount above the deductible up to the market value of your vehicle. The greater your deductible, the less expensive your insurance will be.

Comprehensive Coverage

Auto insurance for the purpose of covering the cost of repair or replacement of the insured’s car in case of damage caused by something other than an accident. Comprehensive coverage often requires the payment of a deductible when a claim is made. Comprehensive may be required to qualify for a new car loan.

Comprehensive Deductible

Comprehensive insurance pays for replacement or repairs for your vehicle if it is stolen or damaged. Comprehensive is also referred to as other than collision. The deductible is the amount you pay for a covered loss, the insurance company pays the amount above the deductible up to the market value of your vehicle. The greater your deductible, the less expensive your insurance will be.

Customized Equipment / Special Equipment

Items not included in standard insurance options available for cars. These may include extra electronic equipment, special paint or exterior items, or amenities added to the inside of a van or truck.

Decline

The company refuses to accept the request for Insurance coverage.

Deductible

The amount of the loss which the insured is responsible to pay before benefits from the Insurance company are payable. You may choose a higher deductible to lower your premium.

Depreciation

The loss of an asset’s value over time.

Discounts

Ways that insurance carriers allow consumers to reduce the cost of their insurance premiums. Discounts vary by carrier, but some examples of the types of discounts offered for auto insurance are:

Endorsement

An agreement added to a policy to change the amount of coverage offered by that policy. Once attached, an endorsement supersedes the original terms of the policy.

Exclusion

Certain causes and conditions, listed in the policy, which are not covered.

Expiration Date

The date on which the policy ends.

Face Amount

The dollar amount to be paid to the beneficiary when the insured dies. It does not include other amounts that may be paid from Insurance purchased with dividends or any policy riders.

Flood Zone

Area in which the likelihood of a flood is much higher than average.

Good Student Discount

A premium discount for students with high scholastic grades. Some statistical research has shown a relationship between good grades and safe driving.

Grace Period

A period of time after the premium due date, during which an overdue premium may be paid. The policy may remain in force throughout this period, although there may be a “lapse in coverage” during the time the payment was not received.

Guaranteed Insurability

An option that permits the policy holder to buy additional stated amounts of life Insurance at stated times in the future without evidence of insurability.

Health Insurance

A policy that will pay specifies sums for medical expenses or treatments. Health policies can offer many options and vary in their approaches to coverage.

Hull Insurance

Portion of an aircraft or a yacht policy that covers physical damage to the insured craft.

Incontestable Clause

A policy provision in which the company agrees not to contest the validity of the contract after it has been in force for a certain period of time, usually two years.

Insurer

The Insurance company (not your agent or broker) is known as the “insurer.”

Insured

The policyholder – the person(s) protected in case of a loss or claim.

Liability Coverage

Refers to coverage for liability that an individual has if he or she should negligently injure another person or another person’s property.

Life Insurance

A policy that will pay a specified sum to beneficiaries upon the death of the insured.

Limit

Maximum amount a policy will pay either overall or under a particular coverage.

Loan / Lease Gap Coverage

Covers the difference between a car’s actual cash value and the amount still owed on a loan or lease.

Loan Value

The amount which can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. In the event the policyholder dies with the debt partially or fully unpaid, then the amount borrowed plus any interest is deducted from the amount payable.

Loss Payee / Lienholder

A person or entity with a legally secured insurable interest in another’s property, usually a financial institution that loaned money to buy a car. The car is the loan collateral. If the auto is damaged in an accident, loss payments will be made to you and to the loss payee on your policy.

Minimum Auto Insurance Requirement

Generally written in shorthand (e.g.: 15/30/5 or 25/50/10), the minimum auto insurance requirements vary by state. But the first two numbers always refer to bodily injury liability limits and the third number refers to the property damage liability limit.

For example, the first two numbers in 25/50/10 mean that in an accident each person injured will receive up to $25,000 with a maximum of $50,000 per accident (If there are multiple people filing claims, and the need is greater than the maximum coverage, whoever files first gets first access to the $50,000 limit. The insured may be sued for any additional amount if he/she is at fault!). The last number refers to the total coverage for property damage per accident, which in this case is $10,000.

The Minimum Auto Insurance Requirement for Leased Vehicles is probably different in your state.

Minimum Auto Insurance Requirement – Leased Vehicles

Most automobile leases will require you to have greater auto insurance coverage than your state’s minimum liability requirements. You will probably have to purchase liability coverage with bodily injury maximums of $100,000 per person and $300,000 per accident, and $50,000 for property damage liability (also known as 100/300/50).

Also, you’ll probably be required (by the lease) to buy collision and comprehensive insurance to cover any losses due to fire, theft, vandalism, civil riot and collisions with animals. Both coverages require a deductible, which may be subject to a cap.

Material Misrepresentation

The policyholder/applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle is garaged.

Medical Payments Coverage

Covers the medical bills incurred by policyholders and their passengers after an auto accident, regardless of who is at fault.

Multi-car Discount

A discount offered by some insurance companies for those with more than one vehicle insured on the same policy. In some cases, if you drive a company car insured by your company, your own insurance company may give you the multi-car discount.

National Organizations and Resources

There are a number of international organizations, both independent and government operated, which work to protect consumers in the insurance marketplace.

Negligence

Failure to exercise care, resulting in injury to others or damage to property.

No-Fault

In some states, where no-fault insurance is allowed, you may opt for a no-fault insurance policy, which may pay for damages to the policy holder’s vehicle regardless of who was at fault for the accident. There are currently 12 no-fault states. Click your state name below to see coverage details in your state.

Non-Renewal

Means only that a company does not want to offer the driver a policy any longer, possibly because of the driving or claims record over the last three to five years. More than likely, other insurers will provide insurance at a higher price.