Insurance documents are filled with specialized terminology that can make understanding your coverage challenging. This glossary defines 50 common auto insurance terms in plain language, helping you become a more informed policyholder.
A
Actual Cash Value (ACV)
The current market value of your vehicle, accounting for depreciation. If your car is totaled, ACV is typically what you'll receive (minus your deductible). It's usually less than what you originally paid.
Adjuster
An insurance company employee or contractor who investigates claims, assesses damage, and determines how much the insurance company should pay.
Agent
A licensed professional who sells insurance policies. Agents can be "captive" (representing one company) or "independent" (representing multiple companies).
At-Fault
Being responsible for causing an accident. In at-fault states, the responsible driver's insurance pays for damages. Being at-fault typically increases your future premiums.
B
Binder
A temporary insurance agreement that provides coverage until your formal policy is issued. You might receive a binder when first purchasing insurance.
Bodily Injury Liability
Coverage that pays for injuries you cause to others in an accident. It covers medical bills, lost wages, and legal fees if you're sued. This is required in most states.
Broker
Similar to an independent agent, a broker represents you (the buyer) rather than insurance companies, helping you find the best policy for your needs.
C
Cancellation
The termination of an insurance policy before its scheduled end date. Either you or the insurance company can cancel, though insurance companies can only cancel for specific reasons like non-payment.
Claim
A formal request to your insurance company to pay for a covered loss. You file a claim after an accident or other covered event.
Collision Coverage
Insurance that pays to repair or replace your vehicle after an accident with another vehicle or object, regardless of fault.
Comprehensive Coverage
Insurance that covers damage to your vehicle from non-collision events: theft, vandalism, weather, fire, animal strikes, and falling objects.
Coverage Limit
The maximum amount your insurance will pay for a particular type of claim. Once the limit is reached, you're responsible for additional costs.
D
Declarations Page
A summary document showing your policy details: covered vehicles, drivers, coverage types, limits, deductibles, and premiums. It's the most frequently referenced part of your policy.
Deductible
The amount you pay out of pocket before insurance coverage kicks in. A $500 deductible means you pay the first $500 of a covered repair.
Depreciation
The decrease in your vehicle's value over time due to age, wear, and mileage. Insurance payouts for totaled vehicles reflect depreciated value, not purchase price.
E
Effective Date
The date your insurance coverage begins. You're not covered for incidents before this date.
Endorsement
An addition or change to your standard policy that modifies coverage. Endorsements can add coverage (like rental car reimbursement) or exclude specific situations or drivers.
Exclusion
Something specifically not covered by your policy. Common exclusions include intentional damage, racing, and commercial use of a personal vehicle.
Expiration Date
The date your policy coverage ends. You'll need to renew before this date to maintain continuous coverage.
F
Filing a Claim
The process of notifying your insurance company about an incident and requesting payment for covered losses.
First-Party Claim
A claim you file with your own insurance company for your own damages, such as using your collision coverage after an accident.
G
Gap Insurance
Coverage that pays the difference between what you owe on your car loan and your car's actual cash value if it's totaled. Useful for new cars that depreciate quickly.
Grace Period
A short time after your payment due date during which your policy remains active even if payment is late. Policies vary, but grace periods are typically 10-30 days.
I
Insured
The person or people protected by an insurance policy. The "named insured" is the primary policyholder.
Insurer
The insurance company providing coverage and paying claims.
L
Lapse
A gap in insurance coverage, usually due to non-payment or failure to renew. Lapses can result in higher future premiums and legal penalties.
Liability
Legal responsibility for damages or injuries. Liability coverage pays for harm you cause to others.
Liability Limits
The maximum amounts your liability coverage will pay, expressed as three numbers (like 100/300/100) representing per-person bodily injury, per-accident bodily injury, and property damage limits.
Loss
An event that causes damage covered by your insurance policy.
M
Medical Payments Coverage (MedPay)
Coverage that pays medical expenses for you and your passengers after an accident, regardless of who's at fault.
N
Named Insured
The primary person listed on an insurance policy, typically the one who purchased the policy.
No-Fault Insurance
A system used in some states where each driver's own insurance pays for their injuries regardless of who caused the accident. This limits the ability to sue for minor injuries.
Non-Renewal
When an insurance company chooses not to renew your policy at the end of its term. This is different from cancellation during the policy period.
P
Personal Injury Protection (PIP)
Coverage that pays for medical expenses, lost wages, and other costs for you and your passengers, regardless of fault. Required in no-fault states and optional in others.
Policy
The contract between you and your insurance company defining your coverage, limits, conditions, and premium.
Policy Period
The time frame during which your policy is active, typically six months or one year.
Premium
The amount you pay for your insurance coverage, typically expressed as a monthly, six-month, or annual amount.
Property Damage Liability
Coverage that pays for damage you cause to other people's property, including vehicles, buildings, and other structures.
R
Rental Reimbursement
Optional coverage that pays for a rental car while your vehicle is being repaired after a covered claim.
Rider
Another term for an endorsement—an addition to your policy that modifies coverage.
Roadside Assistance
Optional coverage that provides help for breakdowns, including towing, flat tire changes, battery jumps, and lockout service.
S
SR-22
A form filed by your insurance company proving you have minimum required coverage. Often required after serious violations like DUI or driving without insurance.
Subrogation
The process where your insurance company seeks reimbursement from the at-fault party's insurance after paying your claim.
T
Third-Party Claim
A claim filed against someone else's insurance, such as claiming against the other driver's liability coverage after they hit you.
Tort
A legal term for a wrongful act that causes harm to another person. Auto accidents often involve tort claims for negligence.
Total Loss
When your vehicle is damaged beyond economical repair, or when repair costs exceed the vehicle's value. The insurance company pays the actual cash value instead of repairing it.
U
Umbrella Insurance
Additional liability coverage that kicks in after your auto or homeowners policy limits are exhausted. Provides an extra layer of protection for serious incidents.
Underinsured Motorist Coverage (UIM)
Coverage that protects you when the at-fault driver doesn't have enough insurance to cover your damages.
Underwriting
The process insurance companies use to evaluate your risk and determine whether to offer coverage and at what price.
Uninsured Motorist Coverage (UM)
Coverage that protects you when you're hit by a driver with no insurance.
V
Vehicle Identification Number (VIN)
A unique 17-character code identifying your specific vehicle. Insurance policies reference your VIN to ensure the correct vehicle is covered.
Bookmark This Page
Insurance terminology can be confusing. Keep this glossary handy when reviewing your policy or speaking with your insurance company.
Using This Knowledge
Understanding insurance terminology helps you:
- Read and understand your policy documents
- Ask better questions when shopping for insurance
- Communicate more effectively when filing claims
- Make informed decisions about your coverage
If you encounter a term not listed here, don't hesitate to ask your insurance agent or company for clarification. It's their job to help you understand what you're buying.