Auto Insurance Glossary

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Actual Cash Value - In many auto insurance policies, the amount awarded for a total loss. This amount usually equals the cost to replace the damaged vehicle with a vehicle of the same make, model, body type, model year, and equipment with substantially similar mileage and physical condition.

Agent - An independent agent is an independent business person who usually represents two or more insurance companies by selling and servicing their policies and who is paid by commissions on each policy sold. An exclusive agent represents only one company, usually on a commission basis. A company that uses salaried employees to sell and service policies is a direct writer.

Automobile Insurance - A contractual relationship, which exists when an insurance company, for a premium, agrees to reimburse an insured or policyholder for vehicle-related losses. The six major automobile insurance coverages are: bodily injury liability, property damage liability, medical payments and no-fault coverage, uninsured/underinsured motorist protection, collision and comprehensive physical damage.

Automobile Shared Market - A program in which all automobile insurers in each state participate to make coverage available to vehicle owners who are unable to obtain auto insurance in the regular marketplace. Usually called assigned risk plans, joint underwriting associations or reinsurance facilities.

Bodily Injury Liability - Coverage that protects you against financial loss by paying for damages when you are legally liable for injuring or killing other persons in an auto accident. It also pays for legal defense costs if you are sued, regardless of fault. The two are often referred to simply as liability insurance.

Claim - A policyholder’s formal demand to recover, from an insurer, losses covered by the insurance policy.

Collision Coverage - Automobile insurance coverage that reimburses you for damage to your own vehicle, when the damage results from overturn or collision with another object — not necessarily a vehicle. Collision with a bird or animal is covered under comprehensive coverage.

Comprehensive Insurance - Insurance coverage that reimburses you for damage to your own vehicle from causes other than collision or overturning. Comprehensive insurance covers perils such as hail, flood, theft, fire, glass breakage, falling objects, missiles, explosions, earthquakes, windstorms, vandalism or malicious mischief, riot or civil commotion, and collision with a bird or animal.

Coverage - A synonym for insurance indicating how much protection it provides. This may mean either the dollar amount purchased or the type of loss covered.

Deductible - The amount you pay before the insurance company begins paying on a loss. For example, a $200 deductible means that in a loss of $1,000, you would pay the first $200 and the insurance company would pay the remaining $800. However, if the loss were only $200, you would pay the entire loss and the insurance company would pay nothing.

Depreciation - The decrease in value of a vehicle or its parts due to wear, tear, and age.

Endorsement - An amendment attached to a standard policy to change the terms of the policy contract. Examples of endorsements include those adding optional coverage or adding a provision such as "additional insured."

Exclusion - A provision in a policy that describes an event or loss that your insurance policy does not cover.

First-Party Coverage - Insurance coverage under which you are compensated for your losses by your own insurance company rather than by the insurer of another person who caused an accident. Collision, Comprehensive and Medical Payments insurance are three examples of first-party coverage.

Hazards - An act or condition that will increase the likelihood or severity of a loss. For instance, ice on a bridge is a hazard because it increases the chance of the vehicle skidding.

Insured - A person or organization covered by an insurance policy.

Insurer - The insurance company providing the coverage.

Liability - Any legally enforceable obligation.

Liability Coverage - Insurance that pays your legal defense costs and claims made against you, when you are responsible for an accident in which you have injured or killed someone or damaged their property.

Limits - The maximum amount of insurance your policy will pay for a covered loss. For example, if you have a $5,000 loss and the limit on your policy is $3,000, then $3,000 is the maximum amount the insurance company will pay.

Loss - The basis for an insurance claim. For example, a loss occurs when a vehicle is damaged in an accident.

Medical Payments Coverage - A coverage available in various liability insurance policies. It reimburses you and your passengers — regardless of legal liability — for medical or funeral expenses stemming from Bodily Injury (BI) or death by accident.

No-Fault Coverage - An insurance concept designed to speed payment to accident victims and lower the cost of auto insurance by reducing the number of lawsuits for minor claims. Under a no-fault system, each insured’s own 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.

Personal Injury Protection (PIP) - A broader form of medical payments coverage that implements the no-fault concept. PIP offers protection for expenses actually incurred, up to a specific, per-person dollar amount. States which have no-fault laws require drivers to buy PIP. It is also offered as an optional coverage in some states without no-fault laws. This coverage varies from state to state but usually includes medical expenses, lost wages, essential services and a death benefit.

Policy - A legal contract that sets forth the rights and obligations of both the policyholder and the insurance company.

Policyholder - A person who pays a premium to an insurance company in exchange for insurance protection detailed in an insurance policy. Also called the named insured.

Premium - The amount of money paid for an insurance policy.

Property Damage Liability - Coverage that protects you against financial loss because of your legal liability to others for vehicle-related damage to another person’s property.

Renewal - In insurance, a policy renewal can take place when a new policy is written or when a standard policy is issued, stating that the same conditions of the old policy will stay in effect for a specified time.

Risk - The chance of injury, damage or loss. Also used by insurance companies to refer to the insured or to property covered by a policy.

Tort - A wrongful act, resulting in injury or damage, on which a civil action may be based. Does not apply to a breach of contract.

Umbrella Liability Insurance - Insurance that covers losses in excess of amounts covered by primary liability insurance policies. Also protects the insured in many situations not covered by the primary automobile or homeowners liability policies.