UPDATED: Apr 10, 2020
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We at 4autoinsurancequote.com have compiled a list of terms and definitions to help you better understand the confusing subject of car insurance. We hope to help explain every term that you may come across. Please view these definitions below:
Accidental Death Coverage – An option on an insurance policy that will pay a beneficiary if the policyholder should die due to accident-related injuries.
Actual Cash Value – A fair market estimation of the cash value of a piece of property
Actuary – A person who studies statistical data to help determine a probability for insurance purposes
Adjustable-Rate – An interest rate that goes up or down based on current market rates
Adjuster – A person in charge of the investigation and settlement of insurance claims
Admitted Assets – State law requires that some of am insurance company’s assets be quickly converted to cash. These are called admitted assets.
Agent – A person who sells insurance for an insurance company. A license is required.
Aggregate Limit – A maximum total of all claim money that will be paid out over the policy term.
Annuitization – Turning a deferred annuity into cash installment payments.
Anti-Theft Recovery System– A device located in the vehicle that sends a location signal, should the car be stolen. Many insurance companies offer discounts if said device is part of the vehicle.
Assets – All property that holds a cash value.
Automobile Liability Insurance – An insurance policy that covers the buyer’s liabilities in the event of a car accident. This type of policy covers the other person’s car and not usually the buyer’s own damage.
Benefit– Amount of money paid by the insurance company, due to an insurance claim.
Benefit Period – The period during which insurance is in place and insurance benefits will be paid.
Broker – An independent insurance salesperson who shops around different companies for the lowest rate for their client. This person works for the client as opposed to the insurance company.
Broker–Agent – A salesperson who sells insurance both on behalf of a company but also works as a broker to shop for the best price whenever possible.
Capital – The total equity of a publicly owned insurance company
Casualty – A loss suffered as a direct result of an accident. Financial or otherwise.
Casualty Insurance – Insurance that focuses on personal injury or personal property damage liabilities.
Claim – A call by the insurance buyer for benefits to be paid out under the terms of the insurance contract.
Coinsurance – Two or more people sharing the cost and benefit of an insurance contract.
Collision Insurance – An insurance policy that covers the cost of damage from an automobile hitting another object, automobile, or otherwise.
Commercial Lines – Insurance policies that are written for businesses.
Commission – An amount paid to the insurance salesperson as compensation for services rendered. Usually, a percentage of the policy.
Comprehensive Insurance – An optional, more inclusive automobile insurance policy that covers both general liabilities and also random accidental damage to the policyholder’s car.
Co-payment – A payment made by the insurance policyholder usually for doctor visits or medicine. The policyholder makes the co-payment and the insurance company covers the rest.
Cost–of–Living Adjustment (COLA) – A wage adjustment that covers the increase in general expenses. Cost of living adjustments are usually made once a year or every couple of years.
Coverage – The amount of protection, in total, that is insured.
Coverage Area – Geographically speaking, the area in which an insurance policy is valid.
Declarations– Page in auto insurance policy describing policyholder, i.e. name, address, premium etc.
Death Benefit – The amount paid out in the event of an insured person’s death.
Deductible – An agreed-upon amount that the insurance policyholder pays in the event of a loss.
Depreciation– An object’s loss of value because of age or wear.
Earned Premium – A portion of a payment remaining after an insurance policy has expired.
Elimination Period – A predetermined period of time that a policyholder must make payments before they become eligible for benefits.
Employers Liability Insurance – Insurance that covers a company’s liability for any damage or loss to an employee that isn’t covered by worker’s compensation.
Exclusions – Anything that an insurance policy does not cover
Expense Ratio – The difference between premiums collected versus operations expenses
Exposure – The risk an insurance company takes by issuing a policy.
Floater – A homeowner’s policy that covers movable property.
General Account – An account that an insurance company keeps to cover the expenses of annuity payments and other monthly payouts.
General Liability Insurance – A policy that covers a business from liabilities.
Grace Period – If payment is not made, this is the period of time a policy stays in effect before coverage lapses.
Guaranteed Renewable – An insurance policy that an insurance company must renew under the terms of the contract.
Hazard – Anything that promotes the likelihood of loss.
Homeowners Insurance– Items stolen from your vehicle are often covered under homeowner’s insurance. The car is cover under auto insurance.
Indemnity – When a policyholder recovers all loss and their financial status is restored to pre-loss conditions.
Inflation Protection – An insurance policy clause that accounts for a rise in cost and raises potential benefits accordingly.
Investment Income – The difference between premiums received and payouts made by an insurance company.
Liability – A financial responsibility that can be enforced by law.
Licensed – A person who has completed the training and is officially allowed to conduct business in the insurance industry.
Limits– The maximum of money an insurance policy will cover in the event of a loss.
Loss Ratio – The amount that is paid out by an insurance company in claims.
Losses Incurred (Pure Losses) – The amount of claim money paid out over a period of time.
Named Perils – The mentioned dangers that a specific policy protects you against.
No-Fault Insurance– Responsibility for an accident does not have to be determined before a claim is paid.
No-Fault State– In specific states insurance companies are required to pay a claim, regardless of who is at fault.
Noncancellable – A guaranteed policy that promises to maintain coverage as long as premiums are paid.
Nonstandard Auto (High-Risk Auto or Substandard Auto) – An auto insurance policy that is issued to drivers who can’t otherwise obtain coverage. Due to poor driving record, credit history, etc
Occurrence – Any bodily or property damage that is covered and takes place while insurance is in place.
Out–of–Pocket Limit – The most a policyholder will have to pay for premiums during the period a policy is in place.
Peril – The reason for the loss.
Personal Injury Protection – A clause on an automobile insurance policy that protects from bodily injuries regardless of the accident’s fault.
Personal Lines – An insurance policy that covers an individual’s personal property and body.
Policy – The written insurance contract.
Preferred Auto – Car insurance for those with better than average driving records.
Pleasure Use– Vehicles that are used for pleasure, not as a primary mode of transportation.
Premium – The payment made by a policyholder to keep insurance in place.
Primary Driver– Person who most frequently drives the vehicle.
Profit – Total income minus all expenses.
Qualifying Event – Anything that starts insurance coverage.
Reinsurance – Insurance purchased by one insurance company from another that helps cover higher-risk policies.
Renewal – Keeping the same policy in place once the time limit has expired. Usually involves a new premium.
Rental Car Reimbursement– An option on most policies that will reimburse a policyholder for use of a rental car due to an accident or loss of use.
Replacement Cost – The amount of money it takes to replace damages incurred by the policyholder
Solvency – An insurance company’s capacity to pay its policyholder’s claims.
Standard Auto – Automobile insurance that is issued to an average driver.
State of Domicile – A state where the policyholder or insurance company permanently resides.
Stop Loss – The point in a claim, measured in dollars, where an insurance company has paid out 100% of the policy.
Subrogation – A legal term that gives an individual the right to collect money for damages caused by another person.
Tort – Harm that is caused to someone by another person that can be collected for financial in litigation.
Total Loss – A full payout of claims for any single policy.
Towing Coverage– An option on most policies that helps cover towing expenses due to an accident.
Umbrella Policy – Covers the insured beyond the scope of a regular insurance policy.
Underinsured Motorist Coverage– Provides coverage if the driver responsible does not have sufficient insurance to cover medical, loss of wages, and other damages.
Underwriter – A person who works on behalf of the insurance company to determine whether or not they should issue insurance to a specific individual or company.
Underwriting – The process where it is determined whether or not an insurance company is willing to accept the risk of writing a specific policy.
Unearned Premium – The amount that has been paid into a policy that hasn’t been claimed by the policyholder.
Uninsured Motorist Coverage – Insurance that protects against accidents with other drivers who do not have insurance.
Valuation – A policy’s current value.
VIN– Vehicle Identification Number. A 17 digit number that is unique to every car.
Waiting Period – The time period before benefits begin.
Waiver of Premium – If a policyholder is unable to pay premiums due to loss or work or injury, this clause protects the policyholder and keeps coverage intact.