Policy Wording and descriptions of Coverages and Terms used in Personal Auto Insurance

Many of the terms used in the insurance business can be confusing. To help you
understand some of these terms a little better, we have presented a glossary for you to
browse. Please understand that specific terms and conditions apply to every insurance
policy, and these terms and conditions may limit the coverage available for any given
accident or loss - they may even modify the meaning of some of the terms listed here. It is
very important for you to note that the precise coverage afforded is subject to applicable
underwriting guidelines and to the terms, conditions and exclusions of the policies issued.

A
Accident - A sudden, unexpected event, identifiable in time and place. 

Actual cash value - When a vehicle is damaged so severely that it becomes more costly
to repair than the vehicle is worth, it is "totalled". The value that is placed on the vehicle
is its worth just before the accident took place. There are several databases that value
used vehicles for this purpose, taking into account excess or light mileage, body condition,
prior damage, engine condition, etc. This valuation results in the "actual cash value" of
the vehicle in the marketplace.

Additional equipment coverage - This provides coverage for optional equipment added
to the vehicle by other than the original manufacturer. Examples: upgraded stereo, car
phone, special paint, special tires, etc.

Additional Interest - A person or company other than the named insured or listed driver
who is protected under the insurance policy.

After-market parts - In case of damage to an insured vehicle, there are several
alternatives for purchasing replacement parts. One of these options is "after-market"
parts, where companies that are not vehicle-makers manufacture common parts for
popular vehicles. This fairly recent development has served to offer the competition
necessary to force the vehicle manufacturers to lower their prices on those parts. There is
a governing body to assess and assure the quality of these parts.

Agent - A person who represents one or more insurance companies in selling insurance to
consumers.

Application Form - A questionnaire to be filled in by the person seeking insurance, used
to determine the insurance coverage to be afforded, as well as the acceptability of the
insurance risk and the correct premium. 

Automobile Insurance Plans - government sponsored (but industry managed) plans
providing auto insurance for those that cannot obtain coverage in the voluntary market.
Sometimes called the Assigned Risk Plan.

Assigned Risk - A driver or owner who cannot qualify for insurance in the regular
market. He/she must get coverage through a state assigned risk plan which specifies that
each company must accept a proportionate share of high risk applicants. Premiums are
usually higher and coverage is restricted.

Automobile Insurance - Insurance against loss to the insured due to damage to or
destruction of automobiles, or due to claims for damages arising from the ownership,
maintenance, or use of automobiles; also, loss to persons insured in certain specific ways
due to cost of medical, surgical or hospital care necessitated by automobile accidents.

B
Basic Limits - state mandated minimum amounts of liability coverage to be provided by
insurance. Many consumers feel more comfortable purchasing higher limits of coverage.

B.I. (Bodily Injury liability insurance) - A coverage protecting against injury to the
body of a person. The term is usually specifically defined in the policy and these
individual definitions have variations, however, it normally applies to injuries the insured
causes to others.

Bind, bind coverage, binder - An insurance agent is usually authorized by the insurance
company to bind coverage, stating that certain specified coverage is in force with a
specific insurance company as of a particular date and time (or immediately). A binder is a
statement that coverage is in force. Its purpose is to provide temporary coverage (in our
case, no more than 5 calendar days) until an actual insurance policy can be issued. 

Broker - A term generally used to describe one who places business with more than one
company, and who has no exclusive contract requiring that his business first be offered to
a single company. Unlike the agent, who is considered to represent his company, the
broker usually is considered as representing the insured. Many states require that
companies license agents rather than selling through brokers. This ensures that the
company has responsibility for the actions of their representatives.

C
Cancellation - Termination of an insurance contract before the end of the policy period,
by the insured or insuror, usually in accordance with provisions in the contract.

CLUE - Abbreviation for Comprehensive Loss Underwriting Exchange. A report that
provides information from a claim history database. The report contains information on
claims and the individual that filed the claims. The report also contains information about
the vehicles.

Claim - A notification by a person or business that is seeking to recover for a loss. A
claim may be made against an individual or against an insurance company.

Claimant - Anyone who presents a claim that might be covered by insurance. For a
liability insurance loss, the claimant is a person or business that has suffered a loss and
seeks to collect for that loss from an insured. For a property insurance loss, the claimant is
the insured who wants the insurance company to pay for repairing or replacing his or her
damaged property.

Collision Insurance - One vehicle running into or being struck by another vehicle or
object.

Comprehensive, Other than Collision - Covers losses to the insured's vehicles, by many
potential perils other than collision. Comprehensive coverage is not truly comprehensive
in scope; but generally coverage: theft, fire and vandalism as it does not cover losses as described in 
the exclusions to the policy (like loss caused by the insured, etc).

Conditions - In an insurance policy, provisions that explain the duties, rights, and options
of the insured and the insurance company.

D
Damage - Loss or harm resulting from injury to a person, to property, or to someone's
reputation. 

"Damage to your Auto" Coverage - Damage to your auto coverage, also known as
auto physical damage coverage, insures against loss resulting from damage to an auto
owned by the insured, and it also provides coverage if the car is stolen.

Damages - Money that the law requires one party to pay to another because of loss or
injury suffered by the other party. 

Declarations, declarations page, dec page - The page or pages of an insurance policy
containing information, such as the insured's name and address, that the policyholder
declared (stated as facts) on the applications for insurance. It includes the coverages
purchased and the premiums charged.

Deductible - The first portion of a covered loss that is not paid by insurance. The
deductible amount is subtracted from the amount the insurer would otherwise be
obligated to pay.

Depreciation - Loss in value of property that develops as items age, wear out, or become
obsolete. In a sense, depreciation reflects value that has already been used up.

Direct Billing - A process through which the insurance company send bills directly to the
policyholder and the policyholder makes payments directly to the insurance company. The
insurance company pays to the producer (agent) commissions or other compensation for
producing new business and servicing renewal business.

Discovery Period - A stated period, often 60 days, at the beginning of a policy term
during which an insuror has the option to cancel a policy for any cause. After that period,
the policy may be canceled only for reasons permitted by the policy or state law.

Draft - Essentially the same as a check written on the insurance company's checking
account. Drafts are used to pay claims and may be written by a claims representative or by
a producer (agent) with draft authority. A draft is only fully paid after it is presented to the
insurance company for payment. The company has until then to withdraw their offer to
pay.

E
Endorsement - A document used to amend the coverage in an otherwise complete
policy.

Estimate - An evaluation of the cost to repair a damaged car. The estimate may be made
by a body shop or a physical damage appraiser, also called a material damage appraiser.

Exclusions - Insurance policy provisions that restrict the broad terms of the insurance
agreement stating some exceptions to coverage - certain activities, loss causes, types of
property, persons, and places - for which the insurer does not provide coverage.

Expiration, expiration date, expire - An insurance policy's coverage ceases, or expires,
at the end of the policy term or policy period. 

F
Financial Responsibility (state) - each state has rules regarding who must have
automobile insurance, and what policy limits must be purchased. These rules are referred
to as the Financial Responsibility laws of that state. If someone who was required to have
insurance is caught without it, he/she is usually required by the state to acquire a
Financial Responsibility filing from an insurance company (SR22), and that company is
then required to inform the state if/when that insured fails to maintain the required
insurance.

Financial Responsibility (company) - this form of financial responsibility revolves
around the bill-paying behavior of applicants for insurance as reflected in their credit
reports. This usually takes the form of a discount or eligibility for lower priced programs.

G
Gap coverage - This coverage provides protection to the insured in cases where the
vehicle is worth less than the loaned or leased value of that vehicle. This typically occurs
early in a lease or loan period, when early depreciation is greater than the downpayment
made on the vehicle.

H
Hazard - Anything that increases the chance of an accident or increases the chance that
any accident that happens will be severe.

I
Identification card - a card provided by the insurance company that should be kept in
the vehicle. It provides proof of coverage should the insured be asked by law enforcement
personnel.

Insurance - A system by which a risk is transferred by a person, business, or organization
to an insurance company (insurer), which reimburses the insured for covered losses and
provides for sharing the costs of losses among all insureds.

Insurance company - Also known as an insurer, an organization that sells insurance
policies that protect insureds against financial hardship caused by financial loss.

Insurance policy - A contract that states the rights and duties of the insurance company
and the insured.

Insurance rate - The price of insurance for each unit of exposure. The rate is multiplied
by the number of exposure units to arrive at a premium. In automobile insurance, the unit
of exposure is one vehicle insured for one year.

Insurance Regulation - Insurance is regulated by the individual states. Each state has an
insurance department headed by an insurance commissioner. All insurance commissioners
are members of the National Association of Insurance Commissioners.

Insured - A person, business, or organization that is covered by an insurance policy.

Insurer - See Insurance Company

Insuring Agreement - A provision in an insurance policy stating, in broad terms, the
promises made by the insurance company. An insurance policy provides coverage only if
the claim is within the scope of the promise expressed in an insuring agreement.

L
Liability Insurance - Liability insurance covers accidental losses resulting from injury to
the body or damage to the property of someone else for which the insured is legally
responsible (legally liable). If the loss is covered by the insurance policy, the payment is
made directly to the party that suffered the loss.

Liability Coverage (auto) - Automobile liability coverage will apply if an insured person
or business is responsible for hurting someone else or damaging someone else's auto or
other property as a result of an auto accident. 

Limits, limits of insurance, limits of liability - Limits, also called limits of insurance,
limits of liability, or policy limits, indicate in an application how much insurance is
requested. Once the policy is issued, the limits in the policy set the maximum dollar
amount the insurance company will pay. The purchased limit appears on the declarations
page.

LKQ (like kind and quality) - This is another option for obtaining replacement parts for
a damaged vehicle. On an older vehicle, there is a database available for locating salvaged
parts of the same model and age as the damaged vehicle. These represent a virtual
replacement for the damaged parts, are often available faster and offer a sizeable discount
over new parts.

Loss Reserve - An insurance company's best current estimate of the total dollar amount
that will be paid in the future for an accident that has already occurred.

Loss payable clause - A clause in an insurance contract that states the loss payee will
receive the proceeds paid out by the insurance company in the event of a loss.

Loss payee (lien holder) - The party that loaned money for the automobile, usually a
bank or other financial institution. The lien holder must be shown on the declarations page
in order to have legal standing in case of a loss to the vehicle.

M
Medical payments - A coverage, written in connection with auto insurance, which
provides medical, surgical, ambulance, etc. Costs for insured and passengers when they
are injured accidentally while riding in the insured car. In case of death from such injury,
funeral expenses are included.

Misrepresentation - Statements or facts included in the application for insurance that
fail to disclose all the requested and/or pertinent characteristics of the insured. Examples
would be the failure to disclose all drivers in the household, or failing to list all driving
violations. Material misrepresentations can be grounds to void the insurance policy.

MVR - Abbreviation for Motor Vehicle Record, a report provided by states which details
the driving record, accidents and convictions of a driver.

N
Named Driver Exclusion - A form signifying that there is limited or no coverage under
the policy for persons listed on the form.

No-Fault auto insurance - Loosely, no-fault insurance means that each policyholder has
a right to recover financial losses from his or her own insurance company, regardless of
whose fault caused the accident. Strictly, no-fault auto insurance applies only to accidents
under a state no-fault law that (1) requires insurance companies to pay policyholders
regardless of fault and (2) restricts the ability of accident victims to sue others for their
injuries.

Non Renew (al) - When an insurer decides not the renew a policy at the end of a policy
period. This is not a cancellation but a non-renewal. The insurer "non-renews" the policy.

O 
OEM (original equipment manufacturer) - The most expensive option for
replacement parts on a damaged vehicle is to use OEM parts. These are usually required
on a very new vehicle, since neither LKQ nor after-market parts are usually available. It
can also make sense from the standpoint of direct value replacement for a nearly new
vehicle to use OEM parts. Also, some parts may only be available from the manufacturer. 

P
Paid in full policy - When an applicant pays for the entire policy premium prior to policy
inception, it is called a paid in full policy. There is sometimes a discount associated with
paying in full, and any installment charges from paying over time would be avoided.

Physical Damages coverage (auto) - Auto physical damage coverage insures against
loss resulting from damage to an auto owned by the insured and it also provides coverage
if the car is stolen. Auto physical damage coverage is property insurance. 

Pleasure Rental - this optional coverage provides a replacement for the coverage
strongly recommended at the rental car counter. It provides protection for the renter in
case of accident or theft of the vehicle. In some states, it will also provide excess liability
coverage over that provided in the rental contract.

Policy - A contract that states the rights and duties of the insurance company and the
insured.

Policy Period - The period during which a policy contract affords insurance protection. 

Policy Limits - See Limits

Property Damage, or PD - A coverage protecting the legal liability of the policyholder
for damage on account of injury to or destruction of property of another.

Premium - An amount of money paid to an insurance company in return for insurance
protection.

Prior Proof - Proof that the insured and/or driver listed on the policy had an insurance
policy prior to being written through a new insurance company. Also referred to as
transfer proof.

R
Rate - The price of insurance for each unit of exposure. The rate is multiplied by the
number of exposure units to arrive at the premium. Rates are based upon risk
characteristics and the statistical calculations regarding the chance of loss.

Renewal - Continuation of an insurance contract beyond the original date of expiration.

Renewal Questionnaire - A form that asks questions to the insured about changes
during the past coverage period.

Rental Reimbursement - optional coverage available to pay for a rental replacement
vehicle if the insured vehicle is disabled due to a covered collision or non-theft
comprehensive claim. The coverage has a per day $ limit and a limit for the number of
days of coverage per covered incident. This does not provide coverage for rentals for
pleasure use, just replacement.

Return Premium - A refund to the policyholder of part of the premium he/she has paid
caused by cancellation, rate reduction, reduction in the amount of insurance, or similar
reasons.

Risk - Simply, the possibility of financial loss. 

S
SR22 - A form provided by the insurance company to the state Department of Motor
Vehicles which confirms that the insured has insurance, and remains inforce until notified
otherwise by the insurance company. This form is usually required for drivers who are
caught driving without insurance, or who have had a DUI (Driving Under the Influence)
violation. There is often a fee or surcharge imposed by the insurance company for
providing this guarantee to the state.

Stated amount value - When an applicant feels that his/her vehicle is worth more than
the normal value for a vehicle of that make and age, a professional appraisal is usually
done to document that belief, and the vehicle will then be insured to the appraised value.
This is called a "stated amount" valuation.

Subrogate, subrogation - When the insurer pays the insured for a loss, the insurer takes
over the insured's right to collect damages from the other party responsible for the loss
through a process called subrogation. The insurance company may subrogate against the
party directly responsible for the loss. If you are hit by an uninsured driver, your insurance
company would pay for your loss (if you purchased Uninsured Motorist protection), and
then possibly negotiate with the uninsured driver.

T
Term - The period during which a policy provides coverage.

Towing and Labor - Coverage with a specified dollar limit that provides for the cost of
towing an insured vehicle to the location of the insured's choice.

U
Unearned Premium - The pro-rated portion of the written premium for which an insurer
has provided no coverage under each policy if it were canceled before the end of the
policy term.

Uninsured Motorist coverage (UM) - A coverage in personal or commercial auto
policies that provides protection against bodily injury loss (also property damage in some
states) when the insured is injured in an accident with a hit-and-run motorist or a motorist
who has no insurance.

V
Vehicle Identification Number (VIN) - The serial number of a car assigned by the
manufacturer, usually found on a metal plate located on top of the dashboard. No two
vehicles have the same number. The VIN contains information about the vehicle; the
year, make, model, manufacturer, engine size, number of doors, restraint systems, etc.

W
Written Premium - the entire amount of premiums written by an insurance