The ultimate A-Z guide to car insurance terms and definitions you should know
It’s a lot easier to understand car insurance when you know exactly what everything means. You can probably guess what most of these words mean in general, but for car insurance they can have more specific meanings.
The following definitions may vary between insurers and policies. These definitions are intended to be generally useful, rather than a guide to a specific policy or insurer.
- Accident. An unintentional incident that results in damage to your vehicle. For example, if you slide on ice and drive into a tree,or if you have a crash with another car.
- Actuary. A specialist who calculates risk, especially as it relates to insurance-related situations like life expectancy, accident frequency, and loss reserving.
- 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.
- Agreed value/Market value. Agreed value is when a car is insured at a specific sum insured. 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 coverage types, while some might only offer one or the other.
- Anti-theft 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.
- Car rental coverage. A policy feature that covers some or all of the costs of a rental car while your car is being repaired or replaced following a claim.
- Claim. This is when you ask the insurer to make a payout in line with your policy terms.
- Claimant. The person who submits a claim for an incurred loss.
- 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.
- Comprehensive coverage. The type of car insurance that offers the widest range of damage coverage. Typically this is the only type of car insurance which will pay out in the event of a car accident with the exception of other policy types that might cover accidents caused by uninsured drivers.
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- Damage/Loss. The result of an incident. 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.
- Deductible. The amount you need to pay towards 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) gets 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. Lowered car insurance premiums. For example, a discount might take the form of 10% lower premiums per month.
- Drive less pay less. Also known as pay as you drive car insurance, this is a policy type that lets you enjoy lower premiums if you drive less distance per year.
- Driving record. A history of your driving. For example, recent traffic tickets and previous accidents. Your driving record can affect your car insurance premiums.
- DUI – Driving Under the Influence. Driving under the influence of drugs or alcohol. This is one of the most severe driving actions you can receive, and will likely result in a suspension or termination of your license.
- Duty of disclosure. Your obligation to let insurers know about anything which increases the risk they take in offering you cover. For example, if you have previously had a suspended driver’s license then you may need to inform insurers of this.
- DWI – Driving Without Insurance. Some sources suggest that DWI stands for driving while impaired, but in this case, DWI refers to driving without insurance. This is a major infraction in which drivers can be charged for driving without adequate or valid car insurance.
- Exclusions. Things 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 or 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 to be responsible for it. If another driver was at fault for an accident then you may not have to pay a deductible for your claim in some situations. Note that you might be found at fault, regardless of how an accident happened, if you fail to get the other driver’s name, address, license and contact details.
- (Third party) fire and theft. The coverage type that insures your vehicle with third party liability coverage, as well as fire and theft damage.
- 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.
- Grace period. Some provider 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 the cash value of a vehicle and the outstanding loan amount. Some gap policies may also cover the amount of the deductible.
- 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.
- Insurer. The company that you buy the policy from. This is not always the same as the underwriter, but not always different either.
- 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.
- 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 Hamshire and Virginia. Liability insurance will cover the cost of repairing any third party property damaged by an accident along with medical bills from resulting injuries.
- Limits. The maximum amounts that an insurer will pay for injuries, property damage, or other covered incidents.
- Market value/agreed value. Agreed value is when a car is insured at a specific sum insured. 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.
- Modifications. 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 or coverage types 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 brand 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 not making any at-fault claims. It usually grows over time, and reaches its limits after several years of continuous coverage. Not all insurers offer this discount.
- Nominated (listed) driver. The person listed as the driver on your car insurance policy, and the person whose risk factors primarily determine the premiums. Sometimes you might have more than one listed driver.
- 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 drive less pay less car insurance, this is a policy type that lets you enjoy lower premiums if you drive less distance per year.
- Personal injury coverage. Insurance that can cover or help with the cost of injuries, disability or even death.
- Personal property coverage. A policy feature that pays out 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 that you sign up to, and whose terms you agree with. This is the actual product that you buy when you get car insurance and the exact benefits you can receive and the situations in which you can get them.
- 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.
- 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.
- Price matching. When an insurer offers to match or beat a competitor’s price.
- Rating. Drivers get a rating which determines what kind of premium they might get. Insurers consider factors such as type of car, driving record, age, and so on.
- Regular driver. This is the person who mostly drives a car. 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.
- Repairs. This can specifically refer to the repairs carried out by an insurer 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 can directly affect 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.
- SR-22. A document that demonstrates proof of financial responsibility for persons convicted of certain traffic violations. They are often mandatory after license suspensions or other major driving infractions.
- Substitute car. See replacement car.
- Third party. 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. This type of car insurance can pay for damage caused by your vehicle to other people’s property. Sometimes it will also include “uninsured driver coverage,” which can pay out 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 sever 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.
- Underinsurance. 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 full value of the car.
- 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.
- Underinsured motorist coverage. Provides coverage if you’re in an accident with an at-fault driver whose liability limits are too low to cover the damage or medical expenses.
- Uninsured driver. A driver without third-party property damage car insurance of their own.
- Uninsured motorist coverage.Protects you if you’re in an accident with an at-fault driver who doesn’t carry liability insurance.
- Valuables. 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 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. It 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.
- Young driver. This usually refers to drivers under the age of 25.