Shopping for auto insurance or dealing with an insurance claim? It’s common to hit a few potholes on the way to understanding car insurance.
Auto insurance terminology can be difficult to navigate, so this glossary may help you find your way.
Car Insurance Terminology
Here are basic auto insurance terms explained:
Accident Forgiveness
Accident forgiveness is a benefit that can be added to a car insurance policy to prevent a driver’s premium from increasing after their first at-fault accident.
Each insurer’s definition of accident forgiveness may vary, and it isn’t available in every state. Some insurers include it at no charge, or it may be an add-on, which means it could be earned or purchased.
Actual Cash Value
Actual cash value is the term used to describe what a vehicle was worth before it was damaged or stolen, taking depreciation into consideration. The amount is calculated by the insurer.
Adjuster
An adjuster is an employee who evaluates claims for an insurance company. The adjuster investigates the claim and is expected to make a fair and informed decision regarding how much the insurance company should pay.
Agent or Broker
Both agents and brokers help consumers obtain auto insurance, but there are differences in their roles. An agent represents an insurance company (or companies) and sells insurance to and performs services for policyholders.
A broker represents the consumer and may evaluate several companies to find a policy that best suits that individual, family, or organization’s needs.
Both agents and brokers are licensed and regulated by state laws, and both may be paid commissions from insurance companies.
At Fault
Drivers are considered “at fault” in an accident when it’s determined something they did or didn’t do caused the collision to occur. A driver may still be considered at fault even if no ticket was issued or if the insurance company divides the blame between the parties involved in the accident.
In some states, drivers can’t receive an insurance payout if they are found to be more than 50% at fault.
Casualty Insurance
Casualty insurance protects a driver who is legally responsible for another person’s injuries or property damage in a car accident.
Claim
When an insured person asks their insurance company to cover a loss, it’s called a claim.
Claimant
A person who submits an insurance claim.
Collision Coverage
Collision coverage helps pay for damage to an insured driver’s car if the driver causes a crash with another car, hits an object (a mailbox or fence, for example), or causes a rollover.
It also may help if another driver is responsible for the accident but doesn’t have any insurance or enough insurance to cover the costs.
Collision coverage is usually required with an auto loan. Learn more about smarter ways to get a car loan.
Comprehensive Coverage
Comprehensive coverage pays for damage that’s caused by hitting an animal on the road, as well as specified noncollision events, such as car theft, a fire, or a falling object. It is usually required with an auto loan.
Recommended: How Much Auto Insurance Do I Really Need?
Damage Appraisal
When a car is in an accident, an insurance company’s claims adjuster may appraise the damage, and/or the car owner may get repair estimates from one or two body shops that can do the repairs.
Policyholders can appeal an appraisal if it seems low and they have some backup to prove it.
Declarations Page
This page in an insurance policy includes its most significant details, including who is insured, information about the vehicle that’s covered, types of coverage, and coverage limits.
Deductible
This is the predetermined amount the policyholder will pay for repairs before insurance coverage kicks in. Generally, the higher the deductible, the lower the monthly premium.
Depreciation
Depreciation is the value lost from a vehicle’s original price due to age, mileage, overall condition, and other factors. Depreciation is used to determine the actual cash value of a car when the insurer decides it’s a total loss.
Effective Date
This is the exact date that an auto insurance policy starts to cover a vehicle.
Endorsement
An endorsement, or rider, is a written agreement that adds or modifies the coverage provided by an insurance policy.
Exclusion
Exclusions are things that aren’t covered by an auto insurance policy. (Some common exclusions are wear and tear, mechanical breakdowns, and having an accident while racing.)
Full Coverage
Full coverage usually refers to a car insurance policy that includes liability, collision, and comprehensive coverage.
GAP Coverage
Guaranteed asset protection insurance is optional coverage that helps pay off an auto loan if a car is destroyed or stolen and the insured person owes more than the car’s depreciated value. It covers the difference, or gap, between what is owed and what the insurance company would pay on the claim.
Indemnity
Indemnity is the insurance company’s promise to help return policyholders to the position they were in before a covered incident caused a loss. The insurer “indemnifies” the policyholder from losses by taking on some of the financial responsibility.
Liability Insurance
If you’re at fault in an accident, your liability coverage pays for the other driver’s (or drivers’) car repairs and medical bills.
Coverage limits are often expressed in three numbers. For example, if a policy is written as 25/50/15, it means coverage of up to $25,000 for each person injured in an accident and $50,000 for the entire accident and $15,000 worth of property damage.
The cost of liability-only car insurance varies by state, as does the required minimum level of liability insurance.
Recommended: What Does Liability Auto Insurance Typically Cover?
Limit
This is the maximum amount a car insurance policy will pay for a particular incident. Coverage limits can vary greatly from one policy to the next.
Medical Payments Coverage
Medical payments coverage (or medical expense coverage, or MedPay) is optional coverage that can help pay medical expenses related to a vehicle accident.
It covers the insured driver, their passengers, and any pedestrians who are injured when there’s an accident, regardless of who caused it.
It also may cover the policyholder when that person is a passenger in another vehicle or is injured by a vehicle when walking, riding a bike, or riding public transportation. This coverage is not available in all states.
No-Fault Insurance
Several states have no-fault laws, which generally means that when there’s a car accident, everyone involved files a claim with their own insurance company, regardless of fault.
Also known as personal injury protection, no-fault insurance covers medical expenses regardless of who’s at fault. It doesn’t mean, however, that fault won’t be determined. No-fault insurance refers to injuries and medical bills. If a person’s car is damaged in an accident and they were not at fault, the at-fault driver’s insurance company will be responsible for the repairs.
Optional Coverage
Optional coverage refers to any car insurance coverage that is not required by law.
Personal Injury Protection
Several states require personal injury protection (PIP) coverage to help pay for medical expenses that an insured driver and any passengers suffer in an accident, regardless of who’s at fault.
PIP also may cover loss of income, funeral expenses, and other costs. PIP is the basic coverage required by no-fault insurance states.
Primary (and Secondary) Driver
The person who drives an insured car the most often is considered its primary driver. Typically, the primary driver is the person who owns or leases the vehicle. If spouses share an insurance policy, they may both be listed as primary drivers on a car or cars.
A car may have multiple secondary, or occasional, drivers. These are generally licensed drivers who live in the same household (children, grandparents, roommates, nannies, etc.) and may use the insured car occasionally but are not the car’s primary driver.
Recommended: Cost of Car Insurance for Young Drivers
Primary Use
This term refers to how a vehicle will most often be used — for commuting to work, for business, for farming, or for pleasure.
Premium
A premium is the amount a person pays for auto insurance. Premiums may be paid monthly, quarterly, twice a year, or annually, depending on personal choice and what the provider allows.
Replacement Cost
Some insurance companies offer replacement cost coverage for newer vehicles. This means that if a car is damaged or stolen, the insurer will pay to replace it with the same vehicle.
Coverage varies by company, and not every insurance company offers replacement coverage.
State-Required Minimum
Every state has different legal minimum requirements for the types and amounts of insurance coverage drivers must have. The limits are usually low. Lenders may require more coverage for those who are buying or leasing a car.
Total Loss or ‘Totaled’
If a car is severely damaged, the insurer may determine that it is a total loss. That usually means the car is so badly damaged that it either can’t be safely repaired or its market value is less than the price of putting it back together.
If a state has a total-loss threshold, an insurer considers the car a total loss when the cost of the damage exceeds the limit set by the state.
Underwriting
The underwriting process involves evaluating the risks (and determining appropriate rates) in insuring a particular driver.
Insurance underwriting these days is often done with a computer program. But if a case is unusual, a professional may step in to further assess the situation.
Uninsured and Underinsured Motorist Coverage
Uninsured motorist and underinsured motorist coverage protects drivers and their passengers who are involved in an accident with a motorist who has little or no insurance. Some states require this coverage, but the limits vary.
Some states require this coverage, but the limits vary.
Uninsured/underinsured motorist bodily injury insurance covers medical costs. Uninsured/underinsured motorist property damage pays to repair a vehicle.
The Takeaway
Understanding car insurance basics is important for drivers. Knowing auto insurance terms, coverage your state or lender may require, and what other types of coverage could further safeguard your finances can make you a more informed consumer.
When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.
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