Insurance Coverage Definitions
The following definitions are general and not intended to replace definitions found in an insurance policy. Policies differ greatly. Each has its own page of definitions. While you can use these definitions for a general idea, please use your policy's definitions for exact detail. For more information call your insurer.
A.M. Best: An independent company that rates insurance companies as to their financial strength and their ability to satisfy ongoing obligations to policyholders.
Accident: A sudden and unforeseen event.
Actual Cash Value: The cash value an item has on the open market in its current condition.
Admitted Insurance Company: An insurance company authorized to be business in a state by that state's insurance department.
Adjuster: An individual, either working for an insurance company or independent, in the business of settling insurance claims.
Anti-Theft Device: Any device designed to reduce the chance that an auto will be vandalized or stolen or which aids in its recovery.
Antique or Classic Auto: Most often an auto that is at least 20 year old.
Assigned Risk: A risk that is unable to obtain insurance through normal channels which by state law is assigned to a pool of insurers who by agreement will issue a policy on a shared basis.
Basic Limits of Liability: The minimum legal liability limit required by state law.
Binder: Written evidence of temporary insurance given to the insured until a permanent policy can be issued.
Bodily Injury Liability: The legal liability for causing another person's bodily injury or death.
Claim: The notification to an insurance company that something has happened that the claimant feels the insurer is legally obligated to pay.
Collision Coverage: Damage to one's own auto caused by a collision with another auto or object.
Combined Single Limit: The total limit for any claim expressed in a single amount.
Commission: The percentage of the premium paid to the agent as compensation.
Contributory Negligence: Where each party in an accident is considered to be partly at fault. This can be described in percentages such as 25%.
Comprehensive Coverage: This covers damage to one's own auto for any event that is not classified as a "collision."
Conditions: The part of the policy that lists the rights and responsibilities of the insured and the insurance company.
Contract: A legal agreement between two parties wherein each party promises something in exchange for something from the other party.
Covered Person: An individual or individuals that benefit from coverage provided by the policy.
Customized Equipment or Special Equipment: Any item or items on or in your covered auto that are not standard equipment from the original manufacturer of the auto.
Declarations Page: The page in the insurance policy that names the insurance company, the insured, the policy number, the policy period and the main subject the policy covers.
Deductible: The amount an insured person pays when there is a covered loss.
Defensive Driver Course: A class approved by the state to increase driver safety.
Driver Education: A state approved course that provides 30 hours of classroom instruction.
Driver Training: A state approved course that provides six hours of actual driving with an instructor.
Earned Premium: The premium owed or earned for the amount of time the insurance has been in force.
Effective Date / Inception Date: The date shown on the policy giving the date that coverage begins.
Endorsement: Wording attached to the policy that changes it in some way.
Exclusion: Language in the policy that limits coverage in some way.
Expiration Date: The date that coverage ends.
Extended Non-Owner Liability: An endorsement that extends liability coverage to non-owned autos or trailers while the insured person operates them.
Financial Ratings: A rating by various independent organizations that measure financial strength and ability to meet financial obligations.
Financial Responsibility Law: A state law requiring auto owners and operators to maintain a minimum amount of money, usually in the form of insurance, to compensate for bodily injury or death or property damage to another party.
Flat Cancellation: Occurs when you cancel a policy on its effective date.
Gap Insurance: Coverage for the difference in the value of the covered auto just before a loss and what is owed on the auto after the loss.
Garage Address or Location: The address where the auto is kept when not in use.
Good Student Discount: A discount for students with a high grade point average, usually 3.0 or better.
Hit and Run: An accident caused by a person who leaves the scene of the accident without supplying personal and insurance information.
Inception Date: The date the insurance policy begins.
Insurance ID Card: A card issued by your insurance company that provides evidence of liability coverage.
Indemnity: When a loss occurs someone gives you money to reimburse you for the loss without putting you in a better position.
Insurable Interest: Occurs when you have ownership or legal obligation to some degree.
Insurance Policy: A legal contract between an insurance company and a person or entity that transfers risk from the insured to the insurance company for a fee.
Insurance Score: A score given to an individual based on many factors that measure the individual's likelihood to take a risk.
Lapse in Coverage: The expiration or forfeiture of an insurance policy by nonpayment of the premium due.
Lender: The institution or person from whom you got your car loan.
Limit of Liability: The limit in dollars that a policy obligates the insurer to pay out for a claim settlement. This may not include the cost of defense.
Loss Payee / Lien Holder: Any person or organization that has a securable interest in someone else's property.
Medical Payments: Payment for medical and funeral expenses from an auto accident without regard to fault.
Multi-Car Discount: A discount received for having more than one auto on a policy.
MVR: A Motor Vehicle Report or Record. It is a listing of a person's tickets and accidents that have been reported to the state's department of licensing.
Named Insured: The person or entity identified on the declarations page as a named insured. The named insured has all the rights and responsibilities given in the policy and is able to make changes or claims and is responsible for the premiums.
Named Non-Owner Policy: A policy for people who operate autos they do not own on a regular basis.
No Fault Auto Insurance: A form of insurance by which a person's financial losses resulting from an automobile accident, such as medical and hospital expenses and loss or income, are paid by his own insurance company without regard for who was at fault. The right to sue may be restricted in some cases.
Non-Admitted Insurance Company: An insurance company that has not been licensed to business in a particular state.
Non-Owned Auto: Any auto that you do not own.
Occasional Driver: A driver who does not have regular access to an auto.
Per Occurrence Limit: The maximum a policy will pay for once occurrence of incident.
Per Person Limit: The maximum a policy will pay per person for one occurrence or incident.
Personal Injury Protection: Coverage for drivers and passengers that pays without regard to fault for medical expenses, loss of income, essential services, death, funeral expenses and survivor benefits.
Phantom Motorist: When your covered car is parked and you return to find it damaged without notification of who did it, this is called phantom motorist.
Physical Damage: Damage to an auto.
Policy: The same as an "insurance policy" and is a legal contract between an insurance company and a person or an entity that transfers risk from the insured to the insurance company for a fee.
Policy Period: The period of time between the effective date and the expiration date of the policy as listed on the declaration page.
Policy Holder: The person of entity that owns the policy as stated on the declaration page. Also known as the "Named Insured."
Preferred Risk: Any risk that is thought to have less than average risk.
Premium: The payment or one of the regular periodic payments a policyholder is required to make for an insurance policy.
Principal Driver: The person who most often drives a designated vehicle.
Private Passenger Auto: A four wheeled motor vehicle subject to motor vehicle registration and used for private passenger use.
Pro-Rata Cancellation: Termination of an insurance contract or bond, the premium charge being adjusted in proportion to the time the protection has been in force.
Property Damage Liability Insurance: Insurance coverage for damage an individual might cause to another's property.
Reinstatement: (1) Returning a policy to its full protective value after the payment of a claim. This clause may or may not require an additional premium to be paid. (2) Restoration of full rights under a contract which has lapsed or had its benefits or terms reduced because of failure of the insured to pay premium as originally agreed.
Renewal: The reinstatement in force and effect of something that is about to expire. With an insurance policy it is made either by the issuance of a new policy or renewal receipt or certificate under the same conditions to take effect upon the expiration of the old policy.
Rental Reimbursement: Coverage for the cost of a replacement auto when your covered auto is out of service from a covered loss.
Replacement Cost: An insurance provision providing that the insured will be paid the cost of replacing damage property without deduction for depreciation.
Salvage: The sale by the insurer of the damaged or destroyed auto which has been totaled thereby reducing the amount of the loss.
Settlement: The money you get from an insurance company when they pay you for a claim.
Short Rate Cancellation: Rates laid down in the short rate tables and which are in excess of the pro-rata proportion of the yearly premium. Basically this is pro-rata cancellation with an expense factor added.
Split Limits: The limits expressed in more than one number, each number representing a different coverage or coverage cap such as $100,000/$300,000/$50,000. In this case the first number is the maximum paid for any one individual, the second number is the maximum paid for all people involved and the third number is for property damage.
SR-22: A document that is filed with a state or municipality stating that insurance is in effect for an individual and promising to inform the state or municipality if the coverage stops.
Subrogation: The right of the insurance company to recover from a third party the amount paid under the policy.
Term: The length of time a policy is in force.
Total Loss: A term used to describe property that is damaged to the point that it doesn't make sense to repair it.
Towing and Labor Costs: Coverage for the cost to tow your car.
Transportation Expense: Pays for the transportation expenses incurred by the insured only in the event of the theft of an entire covered auto. This is under the physical damage portion of the policy.
Underinsured Motorist: A condition where the party at fault does not carry enough insurance to meet the settlement of an automobile claim.
Underinsured Motorist Provision: A type of coverage for a situation in which the motorist at fault meets at least the state requirements for liability insurance but a judgment is rendered in excess of those limits. This coverage also provides protection against uninsured motorists. This coverage is carried on the policy of the injured party and the damages paid for may be subrogated back against the party at fault.
Uninsured Motorist: A condition where a motorist does not carry any automobile liability insurance.
Usage: This is how you use your vehicle. If you drive it to work – the usage is "to work" and so on.
VIN or Vehicle Identification Number: This is the 17 character alpha numeric identified that automakers, insurance companies, states and municipalities use to identify your auto.
Youthful Driver: Any driver who is single and under the age of 25 or married and under the age of 21.