Glossary of Auto Insurance Terms

• Absolute Liability

  Liability for damages even though fault or negligence cannot be proven.

• Accident

  An event or occurrence which is unforeseen and unintended.

• Additional insured

  An assured party specifically named under an insurance policy.

• Adjuster

  A person who investigates and settles losses for an insurance carrier.

• Adjusting

  The process of investigating and settling losses with or by an insurance carrier.

• Adverse Selection

  The tendency of persons who present a poorer-than-average risk to apply for, or continue, insurance to a greater extent than do persons with average or better-than-average expectations of loss.

• Age Limits

  Stipulated minimum and maximum ages below and above which the company will not accept applications or may not renew policies.

• Agent

  An insurance company representative licensed by the state who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder for the insurer.

• All-risks Policy

  Coverage by an insurance contract that promises to cover all losses except those losses specifically excluded in the policy.

• Amendment

  A formal document changing the provisions of an insurance policy signed jointly by the insurance company officer and the policy holder or his authorized representative.

• Amortization

  Paying an interest-bearing liability by gradual reduction through a series of installments, as opposed to one lump-sum payment.

• Assurance (Insurance)

  These terms are today generally accepted as synonymous, although not originally so. The term "assurance" is used more commonly in Ca and Great Britain than in the United States.

• Automobile Liability Insurance

  Protection for the insured against financial loss because of legal liability for car-related injuries to others or damage to their property.

• Automobile Physical Damage Insurance

  Coverage to pay for damage to or loss of an insured automobile resulting from collision, fire, theft, or other perils.

• Automobile Reinsurance Facility

  One of several types of "shared market" mechanisms where persons who are unable to obtain such insurance in the voluntary market are assigned to a particular company, usually at a higher rate than the voluntary market. Formerly called "Assigned Risk."

• Binder

  A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.

• Binding Receipt

  A receipt given for a premium payment accompanying the application for insurance. If the policy is approved, this binds the company to make the policy effective from the date of the receipt.

• Broker

  A marketing specialist who represents insurance organizations and who deals with either agents or companies in arranging for the coverage required by the customer.

• Cancellation

  The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

• Certificate of Insurance

  A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.

• Choice No-Fault

  Allows auto insureds the choice of remaining under the tort system or choosing no-fault at a reduced premium.

• Claim

  A request for payment of a loss which may come under the terms of an insurance contract.

• Collision Insurance

  Protection against loss resulting from any damage to the policyholder's car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured's fault or not.

• Commission

  The part of an insurance premium paid by the insurer to an agent or broker for his services in procuring and servicing the insurance.

• Comprehensive Automobile Insurance

  Protection against loss resulting from damage to the insured auto, other than loss by collision or upset.

• Compulsory Auto Liability Insurance

  Insurance laws in some states required motorists to carry at least certain minimum auto coverages. This is called "compulsory" insurance.

• Coverage for Damage to Your Auto

  Personal auto policy insuring payment for damage or theft of the insured automobile. This optional coverage can be used to insure both collision and other-than-collision losses.

• Declination

  The insurer's refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.

• Deductible

  An amount which a policyholder agrees to pay, per claim or per accident, toward the total amount of an insured loss.

• Depreciation

  A decrease in the value of property (Automobile) over a period of time due to wear and tear or obsolescence. Depreciation is used to determine the actual cash value of property (Automobile) at time of loss.

• Driver Education Credit

  Student discount or reduction in premium amount for which young drivers become eligible on completion of a driver education course.

• Economic Loss

  The estimated total cost, both insured and uninsured, of mishaps (such as motor vehicle accidents, work accidents, and fires); includes such factors as property damage, funeral expenses, wage loss, insurance administration costs, and medical, hospital and legal costs.

• Effective Date

  The date on which the insurance under a policy begins.

• Exclusions

  Specific conditions or circumstances listed in the policy for which the policy will not provide benefit payments.

• General Damages

  Damages awarded to an injured person for intangible loss which cannot be measured directly by dollars. Popularly known as "pain and suffering." General damages are distinguished from special damages which are awarded for actual economic loss, such as medical costs, loss of income, etc.

• Glass Insurance

  Protection for loss of or damage to glass and its appurtenances.

• Good Student Discount

  Reduction of automobile premium for a young driver at least sixteen who ranks in the upper 20 percent of his or her class, has a B or 3.0 average, or is on the Dean's list or honor roll. It is based on the premise that good students are better drivers.

• Grace Period

  A specified period after a premium payment is due, in which the policyholder may make such payment, and during which the protection of the policy continues.

• High-Risk Automobile Insurer

  Company that specializes in insuring motorists who have poor driving records or have been canceled or refused insurance.

• Indemnification

  Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.

• Indemnity

  Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.

• Independent Agent

  An independent business person who usually represents two or more insurance companies in a sales and service capacity and who is paid on a commission basis.

• Insolvent

  Having insufficient financial resources (assets) to meet financial obligations (liabilities).

• Insurable Risk

  The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not under the control of the insured, (b) there must be a large number of homogeneous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all insureds simultaneously, and (e) the loss produced by a risk must be definite and have a potential to be financially serious.

• Insurance

  (1) A system under which individuals, businesses, and other organizations or entities, in exchange for payment of a sum of money (a premium), are guaranteed compensation for losses resulting from certain perils under specified conditions. (2)Protection by written contract against the financial hazards (in whole or in part) of the happenings of specified fortuitous events.

• Insured

  A person or organization covered by an insurance policy, including the "named insured" and any other parties for whom protection is provided under the policy terms.

• Insurer

  The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.

• Joint Underwriting Association

  One of several types of "shared market" mechanisms used to make automobile insurance available to persons who are unable to obtain such insurance in the regular market. JUAs also have been created in some states to help alleviate availability problems in the fields of medical malpractice and commercial insurance.

• Judgment Rating

  Rate-making method for which each exposure is individually evaluated and the rate is determined largely by the underwriter's judgment.

• Lapse

  The termination or discontinuance of an insurance policy due to non-payment of a premium.

• Larceny-theft

  The unlawful taking, carrying, leading or riding away of another person's property.

• Liability Insurance

  (1)Insurance covering the policyholder's legal liability resulting from injuries to other persons or damage to their property. (2) Provides protection for the insured against loss arising out of legal liability to third parties.

• Loss

  The happening of the event for which insurance pays

• Loss Expense - Allocated

  Handling expenses, such as legal or independent adjuster fees, paid by an insurance company in settling a claim which can be definitely charged to that particular claim.

• Loss Expense - Unallocated

  Salaries and other expenses incurred in connection with the operation of a claim department of an insurance carrier which cannot be charged to individual claims.

• No-Fault Insurance

  (1)A type of auto insurance mechanism whereby the right to sue another party for damages caused by negligence is limited and, in exchange, expanded first party benefits are offered. (2)A form of insurance by which a person's financial losses resulting from an automobile accident are paid by his or her own insurer regardless of who was at fault.

• Personal Injury Protection

  First-party no-fault coverage in which an insurer pays, within the specified limits, the wage loss, medical, hospital and funeral expenses of the insured.

• Physical Damage

  Damage to or loss of the automobile resulting from collision, fire, theft or other perils.

• Premium

  The sum paid by a policyholder to keep an insurance policy in force.

• Proof of Loss

  Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy. For automotive insurance itemized estimates must also be included.

• Property Damage Coverage

  An agreement by an insurance carrier to protect an insured against legal liability for damage by an insured automobile to the property of another.

• Rate

  The pricing factor upon which the insurance buyer's premium is based.

• Rated Policy

  Sometimes called an "extra-risk" policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has had a DUI or other traffic violations.

• Rebating

  Giving any valuable consideration, usually all or part of the commission, to the prospect or insured as an inducement to buy or renew. Insurance rebating is prohibited by law.

• Reimbursement

  The payment of the expenses actually incurred as a result of an accident, but not to exceed any amount specified in the policy.

• Reinstatement

  The resumption of coverage under a policy which has lapsed.

• Renewal

  Continuance of coverage under a policy beyond its original term by the insurer's acceptance of the premium for a new policy term.

• Salvage

  Recovery made by an insurance company by the sale of property which has been taken over from the insured as a part of loss settlement.

• Standard Risk

  A person who, according to a company's underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.

• Substandard Risk

  A risk that cannot meet the normal requirements of an auto insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge. Substandard risks may include those persons who are rated because of poor driving habits.

• Third Party

  The claimant under a liability policy. So called because the person making the claim is not one of the two parties, insured and insurer, to the insurance contract. Third party claim: a demand made by a person against a policyholder of another company and any payment that will be made by that company.

• Underwriter

  (a) A company that receives the premiums and accepts responsibility for the fulfillment of the policy contract; (b) the company employee who decides whether or not the company should assume a particular risk; (c) the agent who sells the policy.

• Underwriting

  The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk.

• Uninsured (Underinsured) Motorist Coverage

  A form of insurance that pays the policy holder and passengers in his/her car for bodily injury caused by the owner or operator of an uninsured or inadequately insured automobile.

• Verbal Threshold

  In no-fault auto insurance states with a verbal threshold, victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that render one eligible to recover for pain and suffering.

• Waiver

  An agreement attached to a policy which exempts from coverage certain disabilities or injuries that otherwise would be covered by the policy.