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Auto Insurance Terms

Actuary - A business professional who deals with the financial impact of risk and uncertainty.

Assigned Risk Plans - Contracts set up by the state to help high risk drivers get coverage, because they are unable to secure auto insurance through most insurance carriers.

Auto Insurance - A contract covering damage to or occupants in the vehicle whereby one undertakes to indemnify another, pay or allow a specified amount or a determinable benefit upon determinable contingencies.

Basic Auto Policy - Although still used today to insure substandard risks, two-wheel motorized vehicles, and commercial autos, the Basic Auto Policy has been primarily replaced by the Personal Auto Policy, which combines both physical damage coverage and liability insurance for claims arising out of the ownership or use of a vehicle.

Basic Limits of Liability - The least amount of liability coverage that can be purchased, which is generally equivalent to the minimum amount required by state law. In determining rates, a carrier will use the basic limits to develop the base rates. If an insured person wants higher limits, the carrier applies an increased limits factor to the base rate in calculating the new premium for the increased coverage.

Binder - An oral or written statement providing immediate insurance protection, valid for a specific period. Designed to provide temporary coverage until a policy can be issued or denied.

Claim - The assertion of a legal right against an insurer that carries with it a demand for appropriate relief.

Collector Car Insurance - Collector vehicle insurance properly insures the investment that car buffs have made in their vehicles. Owners of collector vehicles often assume – incorrectly - that the only insurance option for their classic is to put it on their family auto policy. However, collector vehicle insurance is much more affordable than standard auto insurance and provides broader coverage. Most collector vehicle insurance companies have some criteria that must be met in order to qualify for their programs. For example, many companies have a driver’s age restrictions, mileage limitations, garaging requirements and vehicle age qualifications.

Collision - Collision coverage provides coverage for an insured's vehicle that is involved in an accident, subject to a deductible. This coverage is designed to provide payments to repair the damaged vehicle, or payment of the cash value of the vehicle if it is not repairable. Collision coverage is optional.

Collision Damage Waiver - Optional collision coverage available while renting a vehicle. CDW transfers some risk from the car renter to the rental company. However rental companies do not call it insurance, since they are not licensed to offer insurance, and it is not regulated by insurance commissioners. See Credit Card Coverage of Damage Waiver.

CDW - See Collision Damage Waiver.

Combined Single Limit - Bodily Injury and Property Damage coverage expressed as one single amount of coverage.

Commission - That portion of the premium paid to the agent as compensation for the agent's services.

Conditions - The portion of an insurance contract which sets forth the rights and duties of the insured and insurance company.

Continuous Coverage - Refers to the length of time you have maintained insurance on your vehicle.

Continuous Liability Insurance - See Continuous Coverage.

Contract - A legal agreement between two parties promising a certain performance in exchange for a certain consideration.

Comprehensive - Comprehensive (a.k.a. - Other Than Collision) coverage provides coverage, subject to a deductible, for an insured's vehicle that is damaged by incidents that are not considered Collisions. For example, fire, theft (or attempted theft), vandalism, weather, or impacts with animals are types of Comprehensive losses.

Compulsory Auto Insurance - The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory liability states this proof, which is usually in the form of an insurance policy, is required before you can legally drive a car.

Compulsory Excess - The minimum deductible your insurer will accept on your insurance policy. Minimum excesses vary according to your personal details, driving record and insurance company.

Covered Person - Refers to the individuals (named insured, spouse, resident relatives, etc.) insured under a policy contract.

Credit Card Coverage of Damage Waiver - Collision coverage automatically offered when renting a vehicle through the various credit card companies. MasterCard and Amex cover collisions, theft, vandalism and weather; Visa covers collisions and theft, but omits vandalism and weather; while Discover covers only collisions. However MasterCard is not useful in areas with dirt or gravel roads. Even among these brands, some cards lack coverage, especially debit cards and cards with low credit limits.

Customized Equipment - Items not included in standard insurance options available for cars. These may include extra electronic equipment, special paint or exterior items, or amenities added to the inside of a van or truck.

Declarations - The section of an insurance contract which shows who is insured, what property or risk is covered, when and where coverage is effective and how much coverage applies. Also, referred as a declaration page or dec page.

Deductible - A fixed amount you must pay each time your car is repaired through your car insurance policy.

Defensive Driver Course - These are classes either offered through or approved by Departments of Motor Vehicles to enhance driving skills. These courses may make drivers eligible for discounts on their premiums. Courses taken for traffic school because of a moving violation are not eligible.

Drive-Other-Car Endorsement - Optional coverage that broadens the definition of a covered auto to include non-owned vehicles the insured person operates.

Driver Education - State accredited educational course that consist of at least 30 hours of professional classroom instruction.

Driver Improvement Course - A voluntary refresher course available for drivers age fifty-five (55) and older to enhance their driving skills.

Driver Training - State accredited training course that consists of time spent behind-the-wheel with professional instruction.

Earned Premium - The portion of a premium that has been "used up" during a policy term. With a one-year policy, half of the total premium has been earned after six months.

Effective Date - The date that coverage begins on an insurance policy.

Endorsement - A document, which is attached to the policy and modifies or changes the original policy in some way.

Excess Payment - See Deductible.

Exclusion - Section of the insurance policy, which list property, perils, person, or situations which are not covered under the policy.

Expiration Date - The date and time your auto insurance contract ends, usually at midnight on the date listed.

Extended Non-Owner Liability - An endorsement that provides broader liability coverage for specifically named people operating any non-owned automobile or trailer. It covers non-owned autos, use of autos to carry people or property for a fee, and individuals driving employer-furnished cars who do not own vehicles themselves.

Family Automobile Policy - Now replaced by the Personal Auto Policy, the Family Auto Policy was a package policy in which both liability and physical damage protection to an insured's vehicle was offered on one policy.

Financial Ratings - Financial ratings reflect a rating organization's opinion on the financial strength and ability to meet ongoing obligations to policyholders. The ratings organizations most commonly identified with the insurance industry are AM Best, Standard & Poor's and Moody's.

Financial Responsibility Law - Financial responsibility laws require owners and operators of autos to maintain enough money to compensate those they injure. Liability insurance is the most common way to satisfy these requirements.

First Party Benefits - This pays policyholders and others covered by the policy in the event of injury, no matter who caused the accident. The benefits can include medical expenses, loss of income, funeral and death benefits. This may also be called Personal Injury Protection.

Flat Rate Cancellation - Termination of an insurance contract at inception. This policy is never in effect.

Fraud - A false statement intended to deceive the insurer and induce it to part with something of value or surrender a legal right. May void a policy.

Gap Insurance - If you are making lease or loan payments and you experience a total loss, there may be a difference (gap) between the market value of your vehicle and what you still owe on it. This optional coverage pays the difference. Read our questions and answers section for more information.

Garage Location - The zip code where your vehicle is parked when not in use and usually corresponds to your primary residence.

Good Student Discount - A premium discount for students with high scholastic grades. Some statistical research has shown a relationship between good grades and safe driving.

Hit and Run - An accident caused by someone who does not stop to assist or provide information.

ID Card - An identification card issued by your insurance company that provides evidence of liability insurance. Such evidence is required in most states.

Inception Date - The date that coverage begins on an insurance policy.

Indemnity - A principle of insurance which provides that when a loss occurs, the insured should be restored to the approximate financial condition occupied before the loss occurred, no better, no worse.

Insurance - A contract whereby one undertakes to indemnify another, pay or allow a specified amount or a determinable benefit upon determinable contingencies.

Lapse in Coverage - When a policy has been canceled or terminated for failure to pay the premium, or when the policy contract is void for other reasons.

Lender - The institution that gives the selling party the buy price, and in return, you make car payments of principal plus interest.

Lessor - An institution to which you make your lease payments.

Liability - A fixed dollar amount of coverage for damages that an insured driver becomes legally liable to pay due to an accident or other negligence. For example, if an insured driver drives into a house and damages the House, liability coverage pays for the damage to the House.

Lien Holder - See Loss Payee.

Limits of Liability - The maximum amount of insurance the insurance company will pay for a particular loss, or for a loss during a period of time.

Loan/Lease Payoff - See Gap Insurance.

Loss of Use - Provides reimbursement for rental expenses associated with having an insured vehicle repaired due to a covered loss. Aka rental coverage.

Loss Payee - A person or entity with a legally secured insurable interest in another's property, usually a financial institution that loaned money to buy a car. The car is the loan collateral. If the auto is damaged in an accident, loss payments will be made to you and to the loss payee on your policy.

Motor Vehicle Record - A motor vehicle record, also referred to as DL printout, or MVR, contains information obtained from an individual's driver license application, abstracts of convictions and accidents.

Multi-Car Discount - A discount offered by some insurance companies for those with more than one vehicle insured on the same policy. In some cases, if you drive a company car insured by your company, your own insurance company may give you the multi-car discount.

MVR - See Motor Vehicle Record.

Named Insured - Any person, firm or corporation designated by name as the insured person(s) in a policy. Others may be protected by policy definition even though their names aren't on the policy, such as other drivers operating (with consent) the named insured's covered auto.

Named Non-Owner Policy - A policy endorsement for one who operates any non-owned automobile on a regular basis, such as driving a car provided by one's employer.

No-Fault Insurance - Many states have enacted auto accident compensation laws permitting auto accident victims to collect directly from their own insurance companies for medical and hospital expenses regardless of who was at fault in the accident. Although there are many legal variations of no-fault insurance, most states still allow people to sue the negligent party if the amount of damages exceeds a certain state-determined threshold. See Threshold Level.

Non-Owned Auto - Any vehicle that is not owned, borrowed, or leased by the insured, and which is used primarily for a business purpose.

Occasional Driver - The person who is not the primary or principal driver of the vehicle.

PAP - See Personal Auto Policy.

Per Occurrence Limit - This refers to the cap amount an insurance company will pay for all claims arising from a single incident. In an automobile accident, it comprises bodily injuries sustained by all parties. When Bodily Injury coverage is purchased in split limits, the second limit is the "per occurrence" limit: e.g. $100,000(per person)/$300,000(per occurrence).

Per Person Limit - This refers to the cap amount an insurance company will pay for any one person's injuries arising from a single incident. In an automobile accident, it comprises bodily injuries sustained by each person. When Bodily Injury is purchased in split limits, the first limit is the "per person" limit: e.g. $100,000(per person)/$300,000(per occurrence).

Personal Auto Policy - A contract insuring your car that provides coverage for liability, medical payments, uninsured/underinsured motorist coverage, and physical damage protection.

Physical Damage - Injury to your covered vehicle from perils including (but not limited to) collision or upset with another vehicle object, fire, vandalism and theft.

Policy - The written documents of a contract for insurance between the insurance company and the insured. Such documents include forms, endorsements, riders and attachments.

Policy Lapse - A point in time when a policy has been canceled or terminated for failure to pay the premium, or when the policy contract is void for other reasons.

Policy Period - The period of time in which a policy is in effect. (For example, six months or one year).

Policy Term - The length of time that the policy is in force, usually six to twelve months. Preferred Risk - Any risk considered to be better than the standard risk on which the premium rate was calculated.

Premium - The price of insurance an insured person pays for a specified risk for a specified period of time.

Primary Use - What your vehicle is mainly used for (pleasure, to and from work, business, commercial, or farm).

Principal Driver - The person who operates the car most often.

Private Passenger Automobile - A four-wheeled motor vehicle that is subject to motor vehicle registration and used for private personal use.

Private Passenger Autos - Ordinary cars, station wagons and jeeps, utility autos (pick-ups, panel trucks and delivery vans of 1,500 lbs. or less, not used commercially) and utility trailers designed to be pulled by a private passenger auto.

Pro Rata Cancellation - Termination of an insurance contract before the policy expiration date on which the premium returned to the insured person is adjusted in proportion to the amount of time the policy was in effect.

Renewal - The process of keeping an active policy in force through the issuance of a renewal policy.

Rental Coverage - See Loss of Use.

Risk selection - Is the process by which vehicle insurers determine whether or not to insure an individual and what insurance premium to charge. Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company in accordance to a framework of regulations set by the government.

Safe Driver Plan - A rating system that assigns points for traffic convictions and certain accidents. Similar to a merit-rating plan, each point increases the surcharge percentage to the baseline rates.

Salvage - Damaged property that may be retrieved, reconditioned, and sold to reduce an insured loss.

Short Rate Cancellation - A policy termination in which the refunded premium is not proportional to the amount of time remaining in the policy period due to the fixed expenses incurred by the company. The insured will generally pay more for each day of coverage than if the policy had remained in force throughout the entire policy period.

Combined Single Limit - Combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, an insured driver with a combine single liability limit strikes another vehicle and injures the driver and the passenger. Payments for the damages to the other driver's car, as well as payments for injury claims for the driver and passenger, would be paid out under this same coverage.

Special Equipment - See Customized Equipment.

Split Limit - Any insurance coverage with separately stated limits for different types of coverage. Example: an automobile liability policy of 100/300/50 provides a maximum of $100,000 bodily injury coverage per person, $300,000 bodily injury coverage per accident, and a property damage limit of $50,000 per accident.

SR-22 - A form which must be filed by the insurance company stating that auto liability insurance is in effect for a particular individual. Required when insurance is provided to an individual who was in an accident or was convicted of a traffic offense and was unable to show financial responsibility.

Stacking of Limits - The application of more than one policy limit to the same loss or occurrence. In some jurisdictions, courts have required stacking of limits when multiple policies, or multiple policy periods, cover an occurrence. For example, Uninsured motorist bodily injury limits of $100,000/300,000 on two policies owned by the same person may be added together to pay a loss. In this event, the total amount of coverage available for an accident would be $200,000/600,000.

Subrogation - The transfer to the insurance company of the insured's right to collect for damages.

Term - The length of time for which a policy or bond is in force.

The length of time that the policy is in force, usually six to twelve months. - One who maintains ownership in an insurance policy. This may refer to the policy owner or those covered under the policy. See also Named Insured.

Threshold Level - Represents the degree of injury a claimant must establish before being allowed to sue the negligent party (Under no-fault insurance laws). The threshold may be verbal (regarding the severity of the injuries) or a dollar amount ($10,000), or both. For example, with a threshold of $5,000, an injured person may sue if his/her injuries and other economic damages (rehabilitation expenses, loss of income, etc.) exceed $5,000.

Tort - A private wrong or harm (other than a breach of contract) committed against another, resulting in legal liability. A tort is either intentional or accidental (negligent). Automobile liability insurance is purchased to protect one from suits arising from unintentional torts.

Tort Feasor - One who commits wrong or harm.

Towing and Labor Costs - An endorsement which is added to the physical damage coverage, provides reimbursement up to a specified limit to tow your vehicle or pay for on-site labor costs.

Transportation Expenses - Subject to a daily and maximum dollar limit, this coverage (under the physical damage portion of an automobile policy) pays for transportation expenses incurred by the named insured only in the event of theft of an entire covered auto. Coverage generally begins after a stated minimum waiting period.

Underinsured Coverage - Provides coverage if another at-fault party either does not have insurance, or does not have enough insurance. In effect, your insurance company acts as at fault party's insurance company.

Unearned Premium - The portion of your premium remaining on your policy term. For example, with a six-month premium, at the end of the first month of the premium period, five-sixths of the premium is unearned by the insurance company.

UM/UIM - See Uninsured / UnderInsured Motorist Coverage.

Unsatisfied Judgment Fund - Some states have established laws to reimburse those injured in auto accidents that have been unable to collect from the responsible party.

Usage - The purpose in which you intend to operate your vehicle. For example, if you primarily drive your car to and from work, the usage is considered "commute; "if you're self-employed and you primarily drive to see customers, the usage is considered "business;" if you're retired, your usage is considered pleasure.

Vehicle Identification Number - A Vehicle Identification Number is a 17-digit alpha-numeric code that provides valuable information concerning the vehicle's serial number, make, model, options, and year in official records (like a Social Security number for your car). Located on the drivers side of the dash, on the drivers door, and on the engine.

VIN - See Vehicle Identification Number.

Voluntary Excess - The extra amount over and above the compulsory excess that you agree to pay in the event of a claim on the policy. As a bigger excess reduces the financial risk carried by your insurer, your insurer is able to offer you a significantly lower premium.

Waiver of Collision Deductible - This option pays your collision deductible when you carry collision coverage on a vehicle that is damaged by an uninsured or hit-and-run motorist who is at fault. Coverage applies only when there is actual physical contact and when you can identify the uninsured driver or vehicle.

Whole Dollar Premium - Generally, insurance premiums are rounded to the nearest dollar; an amount of 51 cents or more being rounded up to the next dollar, and any amount less than that being dropped.

Vintage Car Insurance - See Collector Car Insurance.

More questions? Contact us.


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