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Auto Insurance Definitions – Auto Insurance Glossary

Absolute Liability- Liability that occurs for damages even if considered at fault or as negligence is not proven.

Accident- An unforeseen or unplanned event or occurrence that generally results in injury or loss.

Additional insured- An additional person that is named under an insurance policy that they are not the primary policyholder on.

Adjuster- A person whose position is to investigate, assign a value to, and help to settle a loss for a particular insurance carrier.

Adjusting- The way to create a value of a loss and the process under which it is completed.

Adverse Selection- The ability of a person that presents themselves as a a lower risk to obtain insurance coverage or continue the coverage that they have compared to  person that has average or higher risk to apply for the same coverage.

Age Limits- Mandated minimum and maximum age levels at which a company will not accept applications, renew policies, or provide insurance.

Agent- A licensed individual that sells insurance for at least one carrier and may represent many.

All risks Policy- Policies that offer coverage through the insurance contract to cover any losses except those that are specifically excluded in the contract.

Amendment- An appendage of an insurance policy that changes the basic provisions of the policy and is signed and acknowledged by both the insurance company and the policyholder.

Amortization- An option that allows liability that bears interest to be paid through installments that will gradually reduce the amount instead of paying it in one complete payment.

Application- A formal request for an insurance policy that provides information regarding the potential policyholder.

Arbitration- A process that involves an unbiased third party that examines the facts presented by both parties, generally the insurance company and the insured and determines what their idea for a settlement should be.  Arbitration can be both binding, where the decision is final, or non-binding where there are still rights for the insured.

Assurance (Insurance) – A term that is used synonymously with insurance, but is generally used in the United Kingdom and Canada when speaking about insurance.

Automobile Liability Insurance- A type of insurance that provides protection for a driver against financial loss because of their liability for injuries in an automobile or for damages that occur to that property.

Automobile Physical Damage Insurance- Insurance coverage that exists to help pay for any damage that occurs to an automobile because of theft, fire, collision, and other physical damages.

Automobile Reinsurance Facility- AN option for people that are unable to obtain auto insurance because they present too much of a risk, and a shared pool that they are put into that allows them to get mandated coverage generally at a rate that is much higher than the regular risk pools.  This used to be referred to as “assigned risk.”

Auto Replacement Coverage- An auto insurance policy that is supplemental for your car but that guarantees that your car will be replaced or repaired even if the cost actually exceeds the value that it currently holds.

Binder- A temporary written or oral contract that is placed on an insurance policy that has already been put in force when it is not possible to get a new policy issued.  To have a binder in place, it will be subject to any premiums and all of the terms of the previously issued policy.

Binding Receipt- A temporary receipt that is given when an application is taken.  The premium payment is taken with the receipt so that coverage is bound from the day that the application is submitted.  This provides coverage through the approval process in the event that something were to happen.

Bodily Injury Liability Coverage- This is coverage that protects the insured in the event that the other party is injured bodily or dies in an accident and the insured is legally responsible to pay.

Broker- An agent that works with a large variety of insurance carriers so that they can quote them all under one platform and provide all of the quotes to the potential insured.

Cancellation- The option to discontinue your insurance policy before the date of expiration by either the person that is insured or the insurance company.

Certificate of Insurance- The statement that shows that coverage has been issued to a particular individual through a particular insurance company.  This also outlines the benefits of the insurance and shows the provisions of the policy.

Choice No Fault- An option for the insured that allows them to choose to use the tort system and reduce their premium by going with no fault coverage.

Claim- A request made by the insured for the insurance company to pay a certain amount for damages or liability as listed in the terms of your insurance policy.

Claims Adjuster- An individual that is hired by an insurance company that helps to settle claims by providing a value to loss.  This person may be employed by the company or may be an independent employee.

Collision Coverage- Protecting for loss that creates any sort of damage to the policyholder’s vehicle and is caused by a collision with an object or a vehicle.  This coverage is provided whether it is the insured’s fault or the other party’s fault.

Comparative Negligence Law- A law that explains how negligence for an accident is ruled.  With the Negligence Law, it is determined that for any at fault driver, in order to collect they must be more than 50% at fault.  The law also states that you are only able to collect damages that are in proportion to your at fault percentage.  So, if it is determined that you are 30% at fault, you can only collect 70% from the other party since that is all they were deemed at fault for.

Comprehensive Coverage- This is insurance coverage that will pay for any damages that happen to your vehicle other than collision.  This includes events like floods, fire, theft, and vandalism.  This coverage is generally required on a policy if you have a loan on your vehicle.

Compulsory Auto Liability Insurance- This is an insurance mandate that creates minimum requirements for the insurance that people are required to carry.  This is also known as compulsory insurance coverage.

Covered Expenses- The items that are covered under an insurance policy and will be paid for.

Custom/Non factory Equipment Coverage- This is insurance coverage that protects any customizations and equipment that may not have been done in the factory.  This includes items like custom paint jobs, stereo systems, and rims.

Declination- An insurer’s right to refuse coverage to an individual after reviewing the application submitted and any other information that they feel is pertinent to making their decision.

Declarations Page (“Dec Page”) – This is a statement that your insurance company will send you to show you that you have coverage and what the premium is.  Depending on the company, you may get a new page when you renew the policy, or you may not get one unless you make a change to your policy..

Deductible- This is an amount that the insured is responsible for paying out of pocket for a claim before the insurance company is responsible for paying.

Depreciation- This is a decrease in the value of an automobile that occurs over a period of time and is due to age, wear and tear, and the fact that it will become outdated.  This is a value that is used to determine the cash value of any property if a loss occurs.

Driver Education Credit- This is a discount that is provided to student drivers that will reduce their premium payments if the complete a driver’s education course.

Gap Insurance- This is a crucial insurance coverage that will actually cover the difference between what is left on your automobile loan and your car’s cash value in the event that it is totaled.

Endorsement- An amendment that is used on an insurance policy to alter, change, delete, or add coverage.  This is sometimes also referred o as a rider.

Economic Loss- This is the total cost that is estimated of both the insured and uninsured items.  This includes all factors of loss including losses of wages, medical expenses, hospital costs, insurance fees, legal costs, and the property damage.

Effective Date- The date under which the insurance policy will begin and coverage will be binding.

Exclusions- Very particular situations and circumstances that will not be covered on your policy if an event were to occur.

General Damages- These are damages that are given to an injured person for a loss that was intangible and cannot be measured in a dollar amount, this is more commonly known as “pain and suffering” or “mental anguish.”

Glass Insurance- Protection that is provided for loss or damage like cracks to your automobile glass.

Good Student Discount- A discount that provides a premium reduction for your automobile insurance for younger drivers.  These drivers must be in the 20 percent of their class and have a grade point average that is above a 3.0.  This is based on the idea that if they are good students, they are probably better drivers.

Good Driver Plan- A rating class that is offered by certain insurance companies that will actually reduce the amount of premium that you are paying if you have had no violations, tickets, or accidents within a specified period of time.

Grace Period- A period of time that is after your due date in which your policy still remains in force and you may pay your premium with no penalty.  Make sure you know if your insurance company offers a grace period.

High Risk Automobile Insurer- An insurance company that specializes in providing insurance coverage to drivers that have bad driving records, accidents, or have been refused coverage or cancelled coverage by other carriers.

Indemnification- A partial or whole compensation of a loss through either money, repairs, or a replacement.

Indemnity- A legal idea that states that an insured should not able to collect more than the actual cash value of their vehicle and an idea that they should return to a similar state of financial position that they had before the loss.

Independent Agent- An insurance agent that is not captive, meaning that they represent more than one insurance company and are paid on a commission scale.

Insolvent- When you don’t have enough money or assets to cover the liabilities that you have been deemed responsible for.

 

Insurable Risk- These are the following conditions at are considered for a risk.

(1) There must be a definite loss,

(2) Other losses must have occurred to other people,

(3) Any loss must be assigned a value and it must be feasible to provide insurance,

(4) The loss must be unlikely to provide loss to everyone involved, and

(5) The loss must be definite and have the potential to create financial hardship.

Insurance-

(1) The creating of a system where people or organizations pay a sum of money or a premium and are covered through a guaranteed amount of compensation for loss under specified conditions.

(2) Providing protection through a written contract that helps protect against any sort of hazards that may come about financially.

Insured- The person or entity that is covered under a particular insurance policy.  This person could be the primary insured or they may be another party that is covered under the policy terms.

Insurer- The entity that provides and is held to the insurance contract that pays the benefit in the event of the loss.

Joint Underwriting Association- This is an option to use a shared market service that provides insurance to people that are unable to get coverage under a regular market policy.

Judgment Rating- This is particular rate method that is created by determining exposure individually and the underwriter makes the rate based off of that particular situation.

Lapsed Policy- An insurance policy that is terminated for a lack of premium payments that pass the grace period.

Larceny (theft) – An illegal act that involves taking, leading, hauling, or riding away with a person’s property that is not yours.

Liability Coverage-Protecting through insurance that will pay for judgments and claims that are brought against anyone insured under the policy.

Liability Insurance-

(1) Insurance that provides a policyholder with coverage for any legal liabilities that may be brought about because of injuries or property damage.

(2) Assists in providing protection for an insured because of legal loss to a third party.

Loss- An event that occurs that creates damage and will be covered under insurance.

Loss Expense (Allocated)- The way that expenses are handled, whether it is legally or independently, and who will be paying them based on the claim filed.

Loss Expense (Unallocated) – Expenses like salaries that are occurred in connection with claims operations for the claims department and cannot be added to individual claims.

Medical Payment- Insurance coverage that provides assistance for limited medical expenses if someone is hurt in a car accident.

Negligence/Negligent- The ability to determine the fault of an accident that may be caused by carelessness and lack of attention.

No Fault Insurance-

(1) A common type of auto insurance that creates a tort system in which first party benefits are generally gathered through the right to sue the other party involved in the accident because of negligence.

(2) A common type of insurance where financial losses that are caused by an automobile accident are paid by the insured’s insurance company regardless of who was at fault

Non-Bound Application- An application that provides no insurance coverage and no payment until the insurance company determines if you will be accepted.

Non renewal- A notice that is provided by an insurance company in which they are refusing to renew the term of your policy at the end of the term.

Personal Injury Protection- Protection that is provided as a first party benefit in no fault coverage.  The insurer will pay, within the limits any loss of wages, hospital expenses, medical bills, and funeral expenses of the insured.

Physical Damage- Loss or damage that is caused to an automobile by theft, collision, fire, or other issues.

Policy- A contract that is issued by the insuring company that explains the coverage provisions, this is a binding, legal document.

Premium- The price paid, generally monthly, to have insurance coverage.

Proof of Loss- A document that is provided to the insurance company by the insured in the event that a loss occurs so that a claim can be made and can be upheld.

Property Damage Liability- This pays for any damage that happens to another party’s car or property.

Rate- The way that is price is factored and what the insured’s premium amount is based off of.

Rated Policy- A policy that has a premium that extends over the standard rate due to some increased rate that the insured has.

Rebating- Giving an insured or prospect a bribe or a portion of the commission so that they will buy from you.  It is illegal to rebate.

Reimbursement- Paying expenses that are incurred by an accident but don’t exceed limitations in a policy.

Reinstatement- Restarting coverage that has been in a lapsed state.

Renewal- Continuing your coverage with a policy that has extended beyond the original terms of coverage.

Rental Reimbursement/Transportation Expenses- A benefit that is optional in most policies that provides for a rental fee if you have to rent one when your vehicle is being repaired.

Salvage- An ability of an insurance company to recover some of the loss for a claim paid out by paying part of the settlement.

Settlement- After negotiating, the amount you agree to accept from the insurance company as full payment for your loss.

Standard Risk- A person that poses no extra risk to the insurance company based off of their underwriting.

Substandard Risk- A person that poses a risk that is above the standard risk class because of some situation that causes them to be a higher risk.

Third Party- The claimant in a liability policy and is not one of the two parties that is making the claim.

Third party claim- A claim that is made against a person that is a policyholder of another insurer.

Total Loss- The loss when a vehicle cannot be repaired and exceeds the actually cash value of the vehicle.

Towing and Labor Coverage- An option for coverage that reimburses you if your vehicle were to need to be towed.

Umbrella Liability Insurance– A larger policy that floats above your other insurance coverage and makes you hold a certain amount of liability coverage before you can get it.  This covers you if a lawsuit exceeds the amounts on your car insurance policy.

Underinsured Motorist Bodily Injury (UIM) Coverage- Coverage that will protect you in the event that you are hit by a person that is underinsured or uninsured and will pay the difference between the limits you have and the underinsured limits.

Underwriter-

(1) The company that is paid the premium for your insurance policy.

(2) A particular employee of the company that assess your risk.

(3) The person that sells the policy.

Underwriting- A process that uses risk classes to help determine the final premium on the policy and if they will accept the risk of the potential insured.

Uninsured Motorist Bodily Injury (UM) Coverage- Coverage that protects you in the event that the person that causes damage to you is uninsured.

Uninsured Motorist Property Damage Insurance (UMPD) – Insurance that is provided if you do not have collision coverage and will help you in the event that the person that hits you is uninsured.

Verbal Threshold–    An option in a no fault policy that only allows victims to sue in tort only if they properly explain their injuries and they match options for pain and suffering.

Waiver–    An attachment to a policy that will exempt certain items from coverage that would normally be covered under a policy.

 

Youthful Driver– Drivers between the age of 16 and 25.