Frequently Used Auto Insurance Glossary of Terms
Actual Cash Value. The amount awarded for property damage losses, usually equal to the cost of replacing the damaged item, minus depreciation.
Assigned Risk. If an applicant for auto insurance cannot find a company able to insure him or her voluntarily, the applicant can use this alternative marketplace in which the state assigns him/her to an insurance company doing business in that state.
Average Loss Payment per Insured Vehicle Year. Dollar total of all collision or theft loss payments made for the claims for a group of vehicles divided by the total exposure for that group, expressed as dollars per insured vehicle year.
Automobile Shared Market Plans. All automobile insurers in a state participate in programs to make coverage available to car owners who are unable to obtain insurance in the regular marketplace. These are usually called assigned risk plans, joint underwriting associations or reinsurance facilities (see Assigned Risk, above).
Bodily Injury Liability. Coverage that protects you against financial loss and pays legal defense costs when you are legally liable for injuring other persons in an auto accident. In auto insurance, both Bodily Injury and Property Damage liability are usually required by state law. The two are often referred to jointly as liability insurance.
Claim. A policyholder’s request to recover losses covered by an insurance policy.
Claim Frequency Number of injury claims for a group of vehicles divided by the exposure for that group, expressed as claims per 1,000 insured vehicle years.
Collision Coverage’s. Coverage’s under which people insure their own vehicles against loss caused by collision.
Collision Insurance. Coverage that reimburses you for damage to your own car resulting from a rollover or collision with another object (not necessarily another vehicle, subject to a deductible).
Comprehensive Insurance. Coverage that reimburses you for damage to your own car from causes other than collision, rollover or general wear-and-tear. It covers dangers such as hail, flood, theft, fire, glass breakage, falling objects, missiles, explosions, earthquakes, windstorms, vandalism or malicious mischief, and damage from a bird or animal. Subject to a deductible.
Coverage. Indicates the type of coverage and/or the protection your insurance policy will provide.
Deductible. The amount you must pay before your insurance coverage begins paying. For example, if you had a $250 deductible and a loss of $800, you would pay the first $250 and the insurance company would pay the remaining $550. However, if the loss were less than or equal to $250, you would pay the entire amount and the insurance company would pay nothing.
Depreciation. The decrease in the value of your car or its parts due to age and general wear-and-tear.
Exclusion. A type of loss your policy will not cover.
First Party Coverage. Compensation for your losses by your own insurance company vs. receiving payment from the insurer of the person who caused an accident (for example, collision and comprehensive insurance).
Insured. A person covered by a policy.
Liability. Any legally enforceable obligation.
Liability Insurance. Covers accidental losses resulting from injury to the body or damage to the property of someone else for which the insured is legally responsible (legally liable). If the loss is covered by the insurance policy, the payment is made directly to the party that suffered the loss.
Limits. The maximum amount of insurance that can be paid for a covered loss. For example, if you have a $5,000 loss and the limit on your policy is $2,500, then $2,500 is the maximum your insurance company will pay.
Loss. The basis for an insurance claim. For example, a loss occurs when the quality or value of an automobile is reduced due to an accident. Insurers also refer to losses as payments made on behalf of the insured.
Medical Payments Insurance. Coverage that reimburses you and your passengers – regardless of legal liability – for medical or funeral expenses stemming from bodily injury or death by accident.
No-Fault Insurance. Each insured person’s insurance company pays for certain financial losses, such as medical expenses and lost wages, regardless of who caused the accident. In exchange for these benefits, the right to sue may be restricted in some cases.
Peril. The cause of a loss. Perils include theft, glass breakage, flood, hail and fire.
Personal Injury Protection (PIP). A broader form of medical payments insurance coverage under the no-fault concept. PIP offers protection for expenses actually incurred, up to a specific, per-person dollar amount. States with no-fault laws require drivers to buy PIP. It also is offered as an optional coverage in some states without no-fault laws. Coverage varies from state to state.
Policyholder. The person who pays a premium to an insurance company in exchange for the protection outlined in an insurance policy.
Premium. The amount of money paid for an insurance policy.
Property Damage Liability. Insurance that protects you against financial loss if you are legally liable to others for auto-related damage to their property.
Renewal. A policy renewal takes place when the coverage of a policy or standard certificate are to continue by the insurance provider in exchange for your payment for another policy period (typically six months or one year).
Vehicle Body Style and Size Groups. The six-vehicle style groups are station wagons/passenger vans, utility vehicles, regular four-door cars, regular two-door cars, luxury cars, and sports cars. Each of these groups is further divided into subgroups (large, midsize, and small) according to the wheelbase.