The premise of car insurance is that you buy protection for you and your car in case you get in an accident. Despite its simple premise, you’ll find uncommon words that insurance companies use to describe your protection and your contract agreement.
We guide you through car insurance terms and definitions, so you can choose the right coverage and compare the options and features that fit your needs. Use these definitions as a guide for the insurance industry in general.
Contact your car insurance company about specific terms that you don’t understand in your policy.
A to Z car insurance glossary
Term
Definition
Accident
An unintentional incident that results in damage to your vehicle, such as sliding on ice and driving into a tree or crashing into another car.
Actual cash value (ACV)
Also known as market value, this amount is your car’s value before an accident, including depreciation. Used to decide your payout after a claim.
Actuary
A specialist who calculates risk, especially for insurance-related situations like life expectancy, accident frequency and loss reserving.
Additional insured
A licensed driver who is a member of the policyholder’s household and is covered as a driver on the policy.
Adjuster
An individual employed by an insurance company to settle claims filed by policyholders or claimants. The adjuster analyzes each claim, then makes a payment to the claimant based on the coverage outlined in the policy contract.
Agent
An agent assists customers in finding appropriate insurance coverage. Agents can either be captive — meaning they work exclusively for one provider — or they can be independent. Independent agents can find insurance offered across multiple insurance providers.
Agreed value
Agreed value is when a car is insured at a set dollar amount you and your insurance company agree on, rather than the car’s market value.
Antitheft device
Any device that reduces the chance of a car being stolen. For example, steering wheel immobilizers or theft alarms.
Appraisal
A formal estimation of the value of property. Damage appraisals are usually completed by an insurance adjuster or vehicle repair specialist.
Assigned risk plan
A state-sponsored insurance policy for drivers who can’t get coverage elsewhere.
At-fault accident
This is a car accident that you caused. Liability insurance will cover you in this instance.
Automobile insurance
This is an agreement between you and your insurance company that in exchange for a set monthly premium, your provider will pay for possible future damage, injury or loss.
Binder
Temporary proof of insurance provided by your insurance company while you’re still in the underwriting process.
Bodily injury
A physical injury occurring to you or another driver.
Broad form
Insurance that covers only one driver with the minimum coverage required and excludes other drivers from coverage.
Bundling
Also referred to as a multi-policy discount, it is a discount for holding multiple policies with the same insurer. For example, you might buy home insurance and car insurance with the same company.
Car insurance quote
This is an estimate of how much a provider may charge you for your car insurance coverage based on your personal details and coverage selections. See premium.
The person who submits a claim for car accident damage.
CLUE report
Also know as a comprehensive loss underwriting exchange report, this official document includes the past seven years of your auto and property claims, usually reviewed during the underwriting process.
Combined single limit
Also known as CSL, combined single limit is a number that combines the maximum insurance payment for bodily injury liability coverage and property damage liability coverage. Typically these types of coverage have separate payout limits.
Collateral
Assets given to a lender until a loan is repaid. If the borrower defaults, the lender has the legal right to seize the collateral. Comprehensive and collision coverages are required by lenders when a car is the collateral for a loan.
Collision coverage
This covers damage to your car when you cause a car accident. Usually optional, but if you finance or lease your car, the lender might require it.
Commercial car insurance
Commercial car insurance covers situations and usage not covered by a personal car insurance policy. It covers cars, vans and trucks used for business purposes.
Comprehensive coverage
The type of car insurance that covers noncollision-related accidents. It includes coverage for storms, hail, theft or vandalism.
Covered incident/damage/loss
This is damage that your insurance company will cover after a car accident. Depending on the type of car insurance, you might be claiming for different types of damage. For example, liability covers injury damages, while comprehensive car insurance can cover damage to your car. Loss can refer to the cost of the damage.
Declarations page
The section of an insurance contract detailing information like the name, description and location of insured property; personal information of the policyholders; period for which the policy is in effect; premiums payable; and the amount of coverage. Also called a binder.
Deductible
The payment to start a claim before your insurer covers the rest. For example, if you get in an accident that caused $3,000 in damage and you have a $500 deductible, you’ll need to pay $500 to your insurer or repair shop before your insurer covers the other $2,500.
Depreciation
When a car or other item becomes less valuable over time. For example, it’s said that as soon as you drive a new car off the lot it’s worth about 20% less than it used to be. This is depreciation. Not all cars will depreciate. Collector’s items or limited edition vehicles might actually increase in value over time. This is known as appreciation.
Discount
Offers from the insurance company to save money if you meet specific requirements to lower your car insurance premiums. For example, a discount might take the form of 10% lower premiums per month.
Driving record
A history of your driving, such as recent traffic tickets and previous accidents. Your driving record can affect your car insurance premiums.
DUI/DWI – Driving Under the Influence
Driving under the influence of drugs or alcohol is one of the most serious driving violations that you can receive, and will likely result in a suspension or termination of your license.
Duty of disclosure
our obligation to let insurers know about anything that increases the risk they take in offering you coverage. For example, if you have previously had a suspended driver’s license then you may need to inform insurers of this.
Items or situations that aren’t covered by your car insurance. For example, drunk driving or disobeying the road rules are common exclusions. This means an insurer may not pay out for claims resulting from drunk driving, disobeying road rules or other exclusions.
Extras/options
Additional coverage features, such as replacement locks and keys, coverage for a trailer that is being towed by the insured vehicle, and more. These might be available as free extras, or optional extras that you can add to your policy at extra cost.
(At) fault
The at-fault party in an accident is the one who is found responsible for the accident. If another driver was at fault for an accident, you may not have to pay a deductible for your claim.
Free look period
This is a period of time, usually up to 30 days, after buying a policy where you can change your mind for a full refund, minus processing fees.
FR-44.
Similar to an SR-22, this certificate of financial responsibility is required after a driving conviction before you can legally drive in your state. Unlike a more general SR-22, an FR-44 is specific to DUI or DWI convictions.
Some companies offer a grace period that allows customers to make a payment after the due date. However, many companies won’t accept a payment after the date shown on a cancellation notice.
Gap insurance
A type of insurance policy that pays the difference between your car’s value and its outstanding loan amount. Some gap policies may also cover the amount of the deductible.
Hybrid electric vehicles
Hybrids, HEVs or hybrid-electrics are powered by a combo of gas and an electric battery.
ID card
This is a card proving you have insurance. You must carry it with you when you are driving. It is usually the size of a credit card, and sometimes can be saved to a smartphone.
Indemnity
The guiding principle of all insurance contracts. The objective of insurance is to restore the insured to the same financial position they were in prior to a loss.
This is the person who is covered by the insurance policy.
Insurer
The company that you buy the policy from. This is not always the same as the underwriter but will be in many cases.
Joint underwriting association
A state-based, nonprofit risk pool to support high-risk individuals who need car insurance. Risk is shared among multiple insurers.
Kit car
Replica cars or kit cars is a DIY car assembled from a group of prepackaged parts plus components from other cars. You’ll need to get approved for insurance for a street-legal kit car.
Lapse
The expiration of a right or privilege when one party does not live up to its obligations during the allotted time. A lapse in auto insurance coverage may result in paying higher premiums for a new policy. This is because drivers who maintain continuous coverage are less likely to make an insurance claim compared to those who let a policy lapse.
Letter of experience
A document from a previous insurer that shows your record as a policyholder.
Liability
One’s legal obligation to pay for or otherwise compensate another party for damage or loss. This can be covered by car insurance. See third party property car insurance for more information.
Liability insurance
The minimum amount of car insurance that’s required in all states except New Hampshire and Virginia. Liability insurance will cover repairing the property that you damage by an accident along with medical bills from resulting injuries.
Lienholder
This is the financial institution or dealership that provided the loan for your car.
Limits
The maximum amounts that an insurer will pay for injuries, property damage or other covered incidents.
Market value
Market value is when a car is insured at its current reasonable market value, including depreciation. Many insurers will let you choose between either of the cover types, while some might only offer one or the other.
Aftermarket upgrades or changes to your vehicle that were not offered by the manufacturer. For example, if you install your own sound system rather than use the one provided by the manufacturer.
Motor Vehicle Report (MVR)
Record of moving violations and license status
Multi-policy discount
A commonly found discount for holding multiple policies from the same insurer. For example, if you have home insurance and car insurance with the same provider.
New car replacement
A policy term that can replace your vehicle with a new equivalent or identical model if your insured car is written off. This policy term is usually only available when insuring a brand new vehicle, and will only be available for the first 12 or 24 months of the policy.
No claims bonus
A discount for no at-fault claims that may increase over time and reach its limits after several years of continuous coverage. Not all insurers offer this discount.
No-fault
A policy that covers your losses no matter who’s at fault in an accident.
Nominated/listed driver
The person listed as the driver on your insurance policy, and the person whose risk factors primarily determine the premiums. Sometimes you might have more than one listed driver.
Nonowner insurance
This is a policy for car-less drivers but who drive regularly. It is sometimes necessary if you’re required to have an SR-22.
Overinsurance
When the sum insured of a car is more than its actual value. A policy will typically not pay more than the actual cost of damage, so overinsurance means you’re probably paying too much for coverage.
Pay as you drive
Also known as pay-as-you-go or pay-per-mile car insurance, this is a policy that lets you enjoy lower premiums if you drive less mileage per year. Policies that use telematics to track your driving also may rate you based on your safety habits.
Personal injury coverage
Insurance that covers the cost of injuries, disability or even death. Also called personal injury protection (PIP).
A policy feature that pays for damage to your personal property kept in the car that was damaged in a claimable event. Sometimes referred to as valuables coverage.
Policy
The insurance contract you register for, and whose terms you agree with. This is the actual product that you buy when you get car insurance and the named benefits you’ll receive after covered situations.
Policyholder
The person who owns the car insurance policy. Typically the policyholder will be the car’s owner and the main driver. The policyholder is the only person who can adjust the terms and conditions of the coverage. There might be more than one policyholder per policy.
Policy term
This is the length of time that your policy provides coverage, usually six months or a year.
Premium
The ongoing cost of maintaining your car insurance policy. The premium might be the price per month, or the price per year, depending on how often you pay your car insurance premiums.
Primary use
This is how you use your car, such as for business or personal driving.
Price matching
When an insurer offers to match or beat a competitor’s price.
Quote
This is an estimate provided by the insurance company for how much you will pay for your insurance.
Rating
Drivers get a rating that determines what kind of premium they might get. Insurance companies consider factors such as type of car, driving record, age and so on.
Regular driver
This is the person who drives a car most. If a policy lets you nominate a driver, then the regular drivers will generally be the nominated drivers. A policy that doesn’t let you nominate drivers will also typically differentiate between regular and occasional drivers.
Renewal
This is when your current policy term is ending and will be re-evaluated for renewal.
Rental car reimbursement coverage
A policy feature that covers your rental car expenses — or at least some of them —while your car is being repaired or replaced following a claim.
Repairs
This specifically refers to the repairs an insurer carries out following a claim. Sometimes not all damage will be repaired under a policy. For example, an insurer might repair a car’s bodywork, but not cover wheels or tires, depending on the situation.
Replacement vehicle
A vehicle that you’re using while your vehicle is being repaired. It might be a borrowed car or a rental, for example. Policies will often specify that a replacement vehicle is covered under your policy in the same way as your original car. Or it might be a new car that you’re getting following the sale or writing off of an old one.
Residual value
The expected value of an asset at the end of a specified period, such as the value of a car at the end of a lease.
Risk
In insurance, this can specifically refer to the chance of you making a claim and how much it’s likely to cost. This directly affects your premiums. Your risk factors include things like age, the type of car you drive and how much it costs.
Safety features
This can broadly refer to any safety features you might find in a vehicle, like seatbelts or airbags. But these days it might more commonly refer to electronic safety and crash avoidance features, like back up cameras, automatic emergency braking and other technologies. Having more of these crash-avoiding safety features in your car can reduce the risk, and lead to lower premiums.
Settlement
The amount you’re paid after making a car insurance claim. Customers may refer to this as a payout.
SR-22
A document that demonstrates proof of financial responsibility after traffic violations. They are often mandatory after license suspensions or other major driving infractions.
SR-50
This is a form sometimes required in Indiana. It states your insurance start and end date.
A third party can refer to anyone else who’s involved in an incident but doesn’t otherwise have any real connection to you. A third party might be a pedestrian you hit or another driver you’ve rear-ended. “Third-party liability” refers to your liability for damaging a third party’s property.
Third-party property coverage
Typically called property damage liability coverage, this type of coverage can cover damage your vehicle causes to other people’s property. Sometimes it also includes uninsured driver coverage, which can pay in the event of a driver without liability insurance of their own damaging your car.
Traffic or moving violation
The act of violating a traffic law, which may or may not result in a ticket. Infractions include running a red light, speeding, and so on.
Traffic violation points.
After repeated or severe traffic violations, you may receive traffic violation points on top of a fine. These points assess the severity of an infraction and may lead to increased insurance premiums or even a suspended or revoked license.
This is when your coverage limit is less than the value of your car. In the event of a total loss, you might not get paid out the car’s full value.
Underwriter
This is the actual insurance company that calculates the risks and writes the policies. The underwriters create the actual insurance products, while the insurers are the companies that sell them. Sometimes the underwriter and the insurer might be the same company. Other times they might be different.
Uninsured/underinsured motorist coverage
Provides coverage if you’re in an accident with an at-fault driver with liability limits to low to cover the damage or who doesn’t have car insurance.
Property kept inside your car, such as watches, handbags and other items, which might be covered as personal belongings by a car insurance policy.
Vanishing deductible
A policy feature that allows your deductible to decrease by a given amount, usually $100, for every year without an accident or claim. With a $500 vanishing deductible and two years of no accidents, your deductible for your next claim would be $300.
Vehicle identification number (VIN)
A unique identifying number you can find on every vehicle. Like your car’s Social Security number, the VIN can be used to track stolen cars, trace a car’s history and identify an individual car among others of its make and model.
Write-off
This is when the cost of repairs exceeds the value of the car. If a car is written off, an insurer will typically opt not to repair it but will instead just pay you the coverage amount and close the policy.
Windshield and glass damage
This is exactly what it sounds like: damage to your car windshield, windows or mirrors. Some policies will offer an option for no-deductible windshield and glass replacements. Typically, in order to actually claim for a broken window, it needs to have suffered significant damage. Policies will usually define this as a complete breakage, a crack that stretches a certain length, or a crack of any length the goes through the entire thickness of the window or windshield. A chip or small crack to one layer of the glass might not be claimable on car insurance, even with this option.
XS (excess policy)
Covers you for loss and damage in excess of another amount or policy.
Young driver
A new or inexperienced driver, usually referring to drivers under the age of 25.
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Roslyn McKenna Ayers is insurance manager at ValuePenguin and a former publisher at Finder, specializing in home and auto coverage. Her expertise and analysis has been featured on Bankrate, MSN and Reader's Digest. She holds a BA in writing and communications from Maryville College.
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