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Auto Insurance Glossary

Article 1 of 2 in Auto Insurance Glossary and Liability Chart

Accidental death and dismemberment coverage: coverage that will pay you, your family members, or other occupants of your car a set amount, under the terms of the policy, for certain serious injuries or death resulting from an accident while in your car.

Actual cash value: an amount equal to the cost of replacing a damaged item with a new one, minus depreciation.

Adjuster: is a representative of the automobile insurance company who evaluates the amount the company should pay to settle a claim.

At-fault: responsible for an accident.

Agent: an insurance salesperson who sells and services policies. An independent agent usually represents two or more insurers in a sales and service capacity and is paid on a commission basis. An exclusive agent or captive agent represents only one company, usually on a commission basis.

Arbitration: a determination made by impartial experts as to the value of property or the extent of damage.

Assigned risk plan: a state-supervised insurance plan for people who are unable to obtain insurance coverage in the regular market. The cost of this insurance is substantially higher.

Automobile Liability Insurance: is insurance that provides coverage against liability for bodily injury or property damage resulting from an accident that involves the insured driver’s vehicle.

Binder: a temporary insurance contract that provides proof of coverage until you receive a permanent policy from the company. A binder is subject to the payment of a premium.

Bodily injury liability: insurance that pays for another person’s bodily injury or death in an automobile accident caused by you. It compensates those people for pain, suffering, and other personal hardships, and will also pay for some economic damages (i.e., lost wages).

Broker: an insurance salesperson who deals with agents and companies to find insurance for consumers.

Cancellation: a termination of a policy before its normal expiration date.

Captive agent (or exclusive agent): works for a single insurer or a fleet of insurers and sells insurance for that company or fleet of companies.

Claim: a request for reimbursement for damages on an insured loss. Your claims to your company are "first-party claims." Claims made by one person against another person’s company are known as "third-party claims."

CLUE report: short for Comprehensive Loss Underwriting Exchange which keeps insurance claims history.

Collision coverage: optional insurance that pays for physical damage caused when your own car hits another car or object, regardless of who is at fault. Collision coverage may carry a deductible -- a stated amount that you must first pay out of your own pocket.

Comparative fault: a method of attributing fault to each driver where both contributed to the cause of the accident.

Comprehensive physical damage coverage: pays for damage to your auto caused by fire, theft, vandalism, flood, falling objects, or hail. This coverage may also carry a deductible.

Conditions: part of an insurance policy that states your obligations and those of your insurance company.

Coverage definition: explains and stipulates exactly what is covered by the policy and what losses will be paid.

Declarations page: the front page of your policy containing information such as the exact name of your insurance company, the policy number, your coverages, the amounts of your coverages, and your deductibles.

Deductible: the amount you must pay from your own pocket for each claim or accident before the company pays on a claim. The bigger the deductible, the cheaper the coverage.

Depreciation: the decrease in value of your vehicle or its parts due to wear, tear, and age.

Direct writing company: sell directly to the public through their own agents or by such means as direct mail or Internet, but not through independent agents or brokers.

Discounts for auto insurance: discounts offered by an insurance company from the initial premium in the event the driver or the vehicle has met certain requirements such as installing vehicle safety equipment or a teenage driver’s good grades in school or taking a safe driving course.

Emergency Road Service: policies that offer help for towing or other emergency roadside help if the car breaks down.

Exclusion: a provision in an insurance policy that denies coverage for certain losses, persons, or property.

GAP coverage: pays for the gap between the amount due under a lease and the actual cash value of the car at the time of the accident.

High risk driver: drivers with previous accidents on their records or driving violations may find themselves classified as high risk. Insurance companies may refuse insurance or charge higher rates to such drivers.

Identification card: a wallet-size card issued by your insurance company to indicate your policy number and coverage.

Liability: any legally enforceable obligation.

Liability insurance: insurance that pays when you are liable for injuries to other Persons or damage to their property.

Limits: the maximum amount of benefits the insurance company agrees to pay on a loss.

Medical payments: insurance that pays the medical and funeral expenses for you or any passengers riding in your car at the time of an accident. Medical payments will provide coverage whether the accident was caused by you or someone else.

Negligence: failure to exercise a generally acceptable level of care and caution that results in injury or damage to a third party.

No-fault insurance: a form of insurance available in many states under which each driver in an accident files claims for losses, such as medical expenses, with their own insurance company, regardless of who caused the accident.

Non-renewal: the termination of the insurance contract by electing not to renew the policy at the anniversary date.

Nonstandard auto insurance (also High Risk auto or Substandard auto): insurance companies may not be willing to issue a policy at the basic or "standard" rate if a driver has a history of previous accidents or driving violations. Such a driver would then have to pay a higher premium to purchase a "substandard" policy.

Nonstandard company: sells insurance at high rates to drivers with poor driving records or other problems.

Occurrence: an event that results in an insured loss.

Personal Lines: Personal lines of auto insurance are those that pertain to non-commercial vehicles such as private passenger automobiles.

PIP (personal injury protection): commonly referred to as "no-fault" insurance. This was designed to pay promptly -- regardless of fault or negligence -- for actual economic losses (e.g., medical expenses, lost earnings, and other reasonable and necessary expenses related to injuries sustained) to a driver or passenger injured in the car and to pedestrians injured by your car, because of its use or operation. It applies to personal injuries only, not for physical damages to the vehicle.

Personal Property Liability: the provision of an auto insurance policy that pays for damages to someone else’s vehicle or property resulting from an incident involving your vehicle.

Policy - Auto Insurance: the policy is the document that itemizes and explains the details of what is covered and not covered under an automobile insurance contract.

Policy period: the amount of time an insurance contract or policy provides coverage.

Preferred auto insurance: is the best category of coverage which may be available for drivers who have a clean driving record free of chargeable accidents and violations.

Preferred risk: a person or risk less likely than the average person or risk to make a claim. A preferred risk usually qualifies for a lower premium.

Premium: the amount you pay for insurance.

Proof of loss: documents that you give the insurer to support your request for payment of losses.

Pro rata cancellation: revocation of a policy by an insurance company that returns the unearned premium to the policyholder.

Property damage liability: this coverage protects you from claims and lawsuits by people whose property is damaged as a result of an accident you caused.

Rental reimbursement coverage: may reimburse the expenses for renting a temporary replacement car when a vehicle is being repaired because of an accident.

Rescission: the company voids your policy back to the beginning. There is no coverage at all and the company will return the money you paid.

Risk levels for auto insurance: is the process that insurance company underwriters group people they have insured into groups with similar degrees of risk based on driving records and other relevant factors. Then they categorize the groups with descriptive labels such as Preferred, Standard and Substandard.

Short rate cancellation: cancellation by the insured of an insurance policy for which the returned, unearned premium is diminished by administration costs incurred when the insurance company places the policy on its books.

Standard risk auto coverage: are those drivers with normal risk characteristics that qualify them for a policy with the standard premium.

Surcharge: is an extra charge added to the premium because of a previous accident or violation.

Total loss from an auto accident ("Your case is totaled"): occurs if a car is so badly damaged in an accident that it is not economically feasible to repair it, the car is said to be "totaled" and the insurance company will offer to pay a replacement value, sometimes referred to as a "Blue Book" value.

Underinsured motorist coverage (UIM): provides coverage for bodily injury caused by a driver who is underinsured. It does not cover damage to your car.

Underwriter: an individual in an insurance company who determines what insurance risks will be accepted and on what terms.

Underwriting of auto insurance: occurs when someone applies for auto insurance coverage with an insurer, the company begins the process of evaluating what risk category is applicable and how much the premium would be if the application is accepted.

Uninsured motorist bodily injury coverage (UMBI): insurance that covers the insured and family members if injured by a hit-and-run motorist or an uninsured driver, provided the other driver is at fault.

Unsatisfied judgment fund: a special fund which, subject to several restrictions, pays individuals for bodily injury arising out of the use of a motor vehicle for their damages if the individual obtains a judgment against the responsible party and is unable to collect on that judgment.

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