car insurance glossary_auto insurance

Vehicle insurance, car insurance, and auto insurance are all synonyms for insurance of all motor vehicles including cars, trucks, motorcycles, and any other road legal vehicles. Why is car insurance important? The primary use of auto insurance or car insurance is to provide you or the car or vehicle owner financial protection against physical damage of the car or bodily injury to any human resulting from any traffic accidents and against liabilities that may arise from incidents in a vehicle. What are some of the important car insurance related terms you should be aware of to make informed choices about your auto insurance? Read below the 51 most asked question about car insurance glossary (and their answers!)


Auto Insurance Glossary Q1: What does Auto Replacement Coverage (Vehicle Replacement Coverage) mean?

A: Vehicle replacement coverage is the term referred to explain auxiliary car insurance coverage that guarantees your vehicle will be completely repaired or replaced.

Auto Insurance Glossary Q2: What does Automobile Liability Insurance mean?

A: Automobile Liability Insurance is used to describe coverage terms on your insurance where you get protection in case others hold you legally responsible for bodily injury or any other damage to property or losses incurred as a result of a car accident you were part of. Automobile liability insurance is often used as an umbrella term that encompasses bodily injury (BI) liability and property damage (PD) liability

Auto Insurance Glossary Q3: What does Bodily Injury Liability Coverage mean?

A: The term bodily injury liability coverage usually refers to payment coverage for medical and rehabilitation costs incurred for the other party you injure, in a car accident for which you are at fault

Auto Insurance Glossary Q4: What is a Binder?

A: A “binder” is used to describe a temporary auto insurance contract that works as a proof of coverage until you receive a permanent policy

Auto Insurance Glossary Q5: What is a Cancellation?

A: A “cancellation” refers to the termination of an auto insurance policy before its normal expiration date. It can be for various reasons

Auto Insurance Glossary Q6: What is a Claim?

A: A” claim” is used to describe a request for payment from the car insurance company on an insured loss.

Auto Insurance Glossary Q7: What is Collision Coverage?

A: A “Collision Coverage” term in your auto insurance reimburses or pays repair damages to your car as a result of an accident with another vehicle or object. Most banks require this coverage to receive a vehicle loan

Auto Insurance Glossary Q8: What is Comprehensive Coverage?

A: The term “Comprehensive Coverage” refers to the payment for theft or damages to your car caused by fire, flood, vandalism, or hitting an animal. Most banks require this coverage to receive a vehicle loan

Auto Insurance Glossary Q9: What is a Declarations Page (dec page)?

A: The ‘declarations page’ of your car insurance policy gives you a view of your auto insurance premium and coverages

Auto Insurance Glossary Q10: What does Deductible mean?

A: “Deductible” terms in your car insurance policy refers to the amount you must pay “out-of-pocket” for each claim before the insurance company begins payment

Auto Insurance Glossary Q11: What does Emergency Road Service mean?

A: “Emergency Road Service” usually refers to an optional car insurance coverage in your insurance policy that pays for towing or roadside assistance if your car gets totaled

Auto Insurance Glossary Q12: What is Economic Benefits?

A: ‘Economic benefits’ in the context of your vehicle insurance policy refers to tangible, incurred out-of-pocket expenses like medical costs, rehabilitation costs, wages forfeited and essential services

Auto Insurance Glossary Q13: What is an Endorsement?

A: An ‘endorsement’ in an auto insurance policy refers to a written agreement additionally added to a insurance policy that adds or deducts coverage. If an endorsement is attached to your insurance, it takes precedence over the original terms of the insurance policy

Auto Insurance Glossary Q14: What are Exclusions?

A: The term ‘exclusions’ refers to items that are denied coverage under the terms of your insurance policy

Auto Insurance Glossary Q15: What is the Financial Responsibility (FR) law?

A: The Financial Responsibility law requires you to have a liability insurance or bond that promises to pay other people if you are at fault during a motor vehicle accident. Typically, most states in the United States of America also permit a bond or cash deposit as proof of the ability that you can pay for your negligence that causes losses to others resulting from the operation of a vehicle. It is illegal to drive or operate a vehicle without obtaining proof of insurance. in 47 states and the Columbia district

Auto Insurance Glossary Q16: What is Fair Market Value?

A: ‘Fair market value’ refers to the price at which an asset changes hands between two willing parties (buyer and seller) with reasonable knowledge about the product

Auto Insurance Glossary Q17: What is Free Look Period?

A: A free look period refers to a time period during which an insurer may cancel an auto insurance policy for any reason. It is usually calculated as the first 30 days of the car insurance policy, although the exact number varies in different states of the United States of America

Auto Insurance Glossary Q18: What is Gap Insurance?

A: “Gap insurance” pays the difference between what you owe on your car loan and your car’s market value if it is totaled

Auto Insurance Glossary Q19: What is Grace Period?

A: A ‘grace period’ is referred to the period allowed to a policy holder to make a payment after the due date

Auto Insurance Glossary Q20: Who is the Insured?

A: The term ‘insured’ in your auto insurance policy refers to you, or the person or property covered by the car insurance policy

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Auto Insurance Glossary Q21: Who is the Insurer?

A: The company that provides the auto insurance. The Insurer must have a license in the state in which are you purchasing insurance

Auto Insurance Glossary Q22: What is an Insurance Policy?

A: The term ‘insurance policy’ refers to usually the printed auto insurance policy form that works as the contract between an insurer and an insured

Auto Insurance Glossary Q23: What is Indemnity?

A: Indemnity is the basic principle on which all auto insurance contracts are created. According to the indemnity principle, auto insurance policies operate with the aim of restoring the insured party to the same financial position after a loss as before

Auto Insurance Glossary Q24: Who is an Independent Agent?

A: An ‘independent agent’ refers to an insurance professional that represents multiple insurance companies but is not an employee of any one of those organizations but instead earns commissions based on individual policies sold

Auto Insurance Glossary Q25: What is Liability Insurance?

A: The term ‘liability insurance’ refers to coverage for payment to another person for injuries or damages caused to their property by the insured

Auto Insurance Glossary Q26: What is Limit?

A: The term ‘limit’ is used to describe the amount of insurance for a specific coverage that the auto insurance company pays up to

Auto Insurance Glossary Q27: What does Lapse mean?

A: Lapse in auto insurance terms refers to the expiration of a right or clause when one party does not live up to its share of obligations during the specific time period allowed

Auto Insurance Glossary Q28: What is Medical Payments Coverage (MP or Med Pay)?

A: The term ‘medical payments coverage’ refers to the coverage of payment of medical bills for you and others covered on your auto insurance policy regardless of fault

Auto Insurance Glossary Q29: What is the McCarran-Ferguson law?

A: The McCarran-Ferguson law was first enacted by Congress in the year 1945. This law gives authority to the individual states to tax and regulate the business of insurance

Auto Insurance Glossary Q30: What is Monetary Threshold?

A: ‘Monetary threshold’ refers to the minimum monetary amount required to be reached for medical and rehab costs in some ‘no-fault’ states for you to be able to file a lawsuit for damages for non-monetary damages like pain, suffering, and trauma against the liable driver for an accident


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Auto Insurance Glossary Q31: What is Negligence?

A: ‘Negligence’ in your car insurance policy refers to a situation when your inattention or carelessness results in an accident, ie. a situation in a car accident where you are considered to have been at fault

Auto Insurance Glossary Q32: What is Non-Renewal?

A; ‘Non-renewal’ refers to a notice of the car insurance company’s refusal to renew your policy prior to the end of the policy term

Auto Insurance Glossary Q33: What is a No-Fault Car Insurance?

A: ‘No-fault car insurance’ can refer to various versions of auto insurance laws in 12 states of the USA and Puerto Rico. The no-fault auto insurance law on paper, discourages lawsuits by allowing auto insurance policy holders to recover from financial losses through their own insurance company without the need to prove that anyone is at fault in a vehicle accident. According to the no-fault insurance law, you may only file a lawsuit for injuries and for pain and suffering if your case meets a certain required minimum conditions (usually a minimum dollar amount)

Auto Insurance Glossary Q34: What are Non-Economic Benefits?

A: ‘Non-economic benefits’ refer to the intangible aspects involved in a car accident like pain and suffering, inconvenience, emotional stress, impairment of quality of life, loss of consortium, etc.

Auto Insurance Glossary Q35: What is Personal Injury Protection (PIP)?

A: ‘Personal injury protection’ clauses are usually required in no-fault states as a mandatory part of car insurance policies. PIP pays for medical expenses, lost wages and essential services for you and other people in your vehicle

Auto Insurance Glossary Q36: What is Property Damage Liability (PD)?

A: ‘Property damage liability’ term in your auto insurance policy refers to a situation where in a car accident where you are at fault, the property damage liability coverage pays for the other party’s property damages

Auto Insurance Glossary Q37: What is Premium?

A: In car insurance policy terms, the term “premium” refers to the amount you pay for the auto insurance policy

Auto Insurance Glossary Q38: What is Proximate Cause?

A: A ‘proximate cause’ refers to the cause of a loss whereby the cause and all related events form an unbroken sequence

Auto Insurance Glossary Q39: Who is a Payee?

A: A ‘Payee’ usually refers to the insured individual or a beneficiary who receives the payment from the policy when its required

Auto Insurance Glossary Q40: What is Rental Car Reimbursement Coverage?

A: ‘Rental car reimbursement coverage’ refers to the optional car insurance coverage that pays for a rental car if your car is damaged or stolen


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Auto Insurance Glossary Q41: What does Rate mean?

A: ‘Rate’ usually refers to the cost of a unit of insurance measured on the basis of past history of loss experience for similar risks

Auto Insurance Glossary Q42: What does Regulation mean?

A: ‘Regulations’ refers to the various state insurance laws, in turn administered by insurance departments

Auto Insurance Glossary Q43: What is Residual Value?

A: ‘Residual value’ refers to the expected value of an asset described under your car insurance, at the end of a specified time period

Auto Insurance Glossary Q44: What is Subrogation?

A: Subrogation in car insurance terms means the procedure through which you assign your insurance company the legal right to recover the monetary amount of loss from another party who is legally liable

Auto Insurance Glossary Q45: What is Surcharge?

A: ‘Surcharge’ refers to the increase in your car insurance premium because of an at-fault accident or a traffic violation

Auto Insurance Glossary Q46: What does Territory mean?

A: ‘Territory’ in your car insurance policy refers to the geographical area where the auto insurance company charges the same premium for drivers with similar characteristics

Auto Insurance Glossary Q47: What is Total Loss?

A: “Total loss” in terms of car insurance policy refers to a situation when the cost to repair a motor vehicle exceeds the vehicle’s actual cash value

Auto Insurance Glossary Q48: Who is a Third Party?

A: A ‘third-party’ is used to denote anyone in an insurance policy other than the policyholder and the family members covered under the particular auto insurance policy. The policyholder is called the ‘first party’, while the auto insurance company is referred to as ‘the second party’

Auto Insurance Glossary Q49: What is Tort?

A: A ‘tort’ refers to a wrongful act or situation that results in damage or injury, over which a civil action suit can be filed. The tort clause in your car insurance policy usually does not include breach of contract

Auto Insurance Glossary Q50: What is Uninsured Motorist (UM) coverage?

A: The ‘uninsured motorist coverage’ clause in your car insurance pays for medical expenses for you and whoever else is insured under the policy if you are hit by an uninsured motorist

Auto Insurance Glossary Q51: What is the Underinsured Motorist (UIM) coverage?

The ‘underinsured motorist (UIM) coverage’ clause in your car insurance pays for medical expenses for you and whoever else is insured under the policy if you are hit by an uninsured motorist who does not have enough insurance to cover your claims


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