The Headache-Free Guide to Insurance Terms
All the terms you need to know, easily explained on this page!
A
Accident: An occurrence in which your vehicle gets damaged by another vehicle, fixed object / structure, or by leaving the road when no other vehicles are involved.
Actual Cash Value (ACV): This is the cost to replace your vehicle minus the depreciation. Mileage, age and vehicle condition are the biggest drivers of depreciation which causes the ACV of your car to diminish over time. Insurance companies us this valuation process to determine how much should be paid for the vehicle at the time of loss.
Agent: A licensed person who helps you to fin the absolute best rate on your insurance. They can be self-employed, work directly for one insurance company, or be licensed to sell policies from many insurance companies, ensuring that you save the most on your coverage.
At-Fault: You Crashed into someone or something and were deemed at fault for the incident.
Automobile Insurance: You pay an insurance company monthly and in return, the company promise to pay for possible future damage, injury, or loss. In other words, because you know that statistics say you will have an accident at some point, you pay to protect against future damages rather than paying for the whole thing after the fact.
B
Binder: This is another term for the Declarations Page normally used by car dealers. This is what your salesperson needs to verify that you have the right insurance before you drive off the lot.
Bodily Injury: Any physical injury suffered by a person (either you or the other driver). This is not about your vehicles body but your personal body.
Bundling: Carrying more than one insurance policy with a single company. Bundling can lead to a multi-policy discount whether you decide to bundle as a homeowner or renter.
C
Carrier: Another word for an insurance company
Claim: This is what you will file with your insurance company after an accident
CLUE Report: An official document which contains claims information from previous insurance providers. CLUE stands for Comprehensive Loss Underwriting Exchange. This is usually used in conjunction with an MVR to verify the accuracy of the driving history information that you provided. These two reports are normally run prior to the company taking payment and starting a policy.
Collision Insurance: Collision coverage protect you against damage to a vehicle in the event of an accident. It's the "sister" of comprehensive coverage (see below); they are almost always sold together.
Comprehensive Insurance: Comprehensive insurance covers damage to your vehicle in the event of all kinds of unexpected, non-accident-with-another-car blunders, including but not limited to weather damage, theft, and fire. This is often written as "other than collision" coverage.
Covered Loss: This means that any damage caused to your vehicle is covered and will get repaired. This is also referred to as "Covered Peril".
D
Declarations Page: This is often referred to as "Dec Page" or "Binder". This document breaks down the coverage on your policy, how much each individual line of coverage costs, and the total premium. It will also include your policy term length, vehicles covered on the policy, drivers covered on the policy, and a lienholder (Bank) if you are financing your vehicle. When purchasing a vehicle, this is the document that your salesperson will need to have faxed or emailed to the dealership before you can drive the car off the lot. Homeowners policies also have a similar declaration page that lays out coverage types and limits.
Deductible: The amount you have to pay before your insurance benefits begin. You'll agree on this amount when you first buy your policy. For example, a $500 deductible means that large door dent that will cost $350 to repair at the shop is all on your dime, but anything above $500 is covered by the insurance company.
Dwelling Policy: Different than a homeowners policy, a dwelling policy covers a secondary home or vacation dwelling. Examples of this include hunting cabins, dwellings currently under construction, vacation homes, and other dwellings that go unoccupied for long stretches of time.
E
Endorsement: Additions and/or changes to home and auto policies
Exclusions: Things that an insurance policy does not cover, which will be specifically listed. An example would be if you live somewhere that rarely experiences earthquakes, earthquakes might be excluded from your policy.
F
FR-44: Often referred to as a financial responsibility filing, this certification is attached to your insurance policy and filed with the state. FR-44's may be required if you commit a major driving infraction such as a DUI / DWI. Stipulations may require higher limits of liability coverage to obtain an FR-44. You will be notified by the court or the DMV if you are required to obtain an FR-44.
Full Coverage: This term is used by auto loan lenders and dealerships to refer to Comprehensive and Collision coverages on your auto policy — it may be required when financing or leasing a vehicle. Since the bank owns your car until the loan balance has been paid off, they want to make sure they are "fully covered" if something happens to the vehicle. This doesn't mean that you are fully covered as a driver, just that the actual cash value of the car will be paid if it is totaled due to a covered loss. This does not necessarily include optional coverages like medical, roadside, or rental car reimbursement.
G
Gap Insurance: Gap insurance pays any additional amount that is owed on a car loan if the vehicle is totaled and the payout from the insurance company is less than what you still owe the bank. If your vehicle is valued at $20,000 but your auto loan totals $25,000 then you have a $5,000 gap that would be owed to your finance company if the car were totaled. This type of coverage does not normally have a cap so it offers more protection than Loan/Lease Payoff Coverage offered through your insurance company but it's normally also quite a bit more expensive.
Grace Period: If you are currently insured, this is the amount of time you have to add a new car to your policy. It is a commonly misunderstood that drivers with no policy have a grace period after purchasing a car. This is not the case as you must always carry car insurance, even right after your purchase.
H
Homeowners Insurance: This is a policy that covers your dwelling and personal belongings. It also provides a certain amount of liability coverage to cover you in case you are held liable for damages or injury to another person. Commonly referred to as "HO" policies, property owners can often choose from the following policy types:
- HO-1: This is the most basic policy type which provides no protection for liability or personal property
- HO-2: The "Broad Form Policy" which is fairly basic but provides more coverage than HO-1
- HO-3: The "Special Form Policy" which is the most common policy type
- HO-4: "Renters Insurance Policies" are also known by this name
- HO-5: The "Comprehensive Form Policy" which is the most extensive homeowners policy
- HO-6: The "Condo Insurance Policy" is also known by this name
- HO-7: Mobile - or manufactured - home policies are also known by this name
- HO-8: The "Modified Coverage Form" which is a policy type used for older and hard-to-replace homes
I
ID card: This is your proof of insurance and is usually printed on a piece of paper (or a document saved to your smartphone which is legal in many states) to show proof that you have at least the minimum legally required coverage for your particular state. It will normally include the name of the insurance company, the name of the primary driver, the Vehicle Identification Number (VIN), and the start and expiration date of your policy.
Independent agent: A person on a mission to help you find the best insurance policy and price, no matter which company is offering it. (Ovation is independent agency whose only interest is getting you the best rates and coverages you need)
Insured: This refers to someone (You) covered on an auto insurance policy as a driver
Insurer: Your insurance company that backs you up so you don’t have to pay for damages out-of-pocket.
L
Lapse: The term used when your insurance policy cancels or expires. This should be avoided at all costs: a lapse in coverage — for even a single day — will raise your rates across the board.
Letter of experience: This document states the length of time you were with a particular insurance company. Most insurance companies offer a discount for being previously insured before starting a new policy and will request a letter of experience from your old company which verifies how long you were actually insured as a condition of keeping the discount.
Liability Insurance: In both auto and home insurance policies, liability is what protects you and your assets in the event that you cause an accident or someone is injured on your property. Liability never pays you — it only ever covers those who suffer injury or a loss in which you are personally held liable.
Lienholder: The bank or dealership to whom you make monthly car payments. The lienholder is listed on your declarations page. If your vehicle is totaled, you will receive payment after the bank has been paid if your car is worth more than what you still owe.
Loan/lease payoff coverage: Loan/lease payoff coverage is normally available through an auto insurance company, which requires comprehensive and collision coverage in order to add this option. The coverage varies by company, but it normally only covers an additional 25% of your vehicle's value when the car is totaled and you owe more than the car is worth. Gap insurance will generally cover any remaining amount which offers much more coverage than what you get through your insurance company with Loan/Lease Payoff.
Loss: The unintended damage caused by a peril. This also describes the amount paid by an insurance company due to a claim.
Loss of Use: Known as "Coverage D" in a homeowners policy, it also applies to auto policies. For homeowners coverage, this covers temporary living arrangements, while auto coverage provides funds for a rental car while your vehicle is being repaired.
M
Medical Payments to Others (MED Pay): This coverage is offered in both homeowners and auto coverage. For auto insurance, Med Pay is similar to personal injury protection in that it covers injuries for those inside your vehicle at the time of an accident. In homeowners insurance, this coverage is referred to as "Coverage F", and it provides a small amount of money (usually $1,000 - $5,000) in the event that a guest injures themselves on your property.
Motor Vehicle Report (MVR): An official document that has tons of info about your driving record—crashes, moving and non-moving violations, and your license history from the DMV. This is normally used in addition to your CLUE Report to verify whether you provided accurate information about your driving history. These two reports normally run prior to the company taking payment to start your policy.
Multi-Policy Discount: This is a discount offered by most insurance companies for "bundling" or carrying multiple policies with the same company. An example would be insuring your auto and home with the same insurance provider.
N
No-Fault: An insurance policy where you are covered for any losses by your own insurance company, regardless of who is at fault in an accident. If you are in a "No-Fault" state, that means even if the other driver is at fault and you suffer injury, your insurance company pays for your injuries instead of the other driver's insurance.
Non-Owners' Auto Insurance: Type of policy that offers minimum state-required auto insurance coverage for people who do not own a vehicle but still need to be insured. If you drive on occasion or your state is requiring that you have an SR22 and you don't own a vehicle, then a non-owner policy is right for you!
P
Personal Injury Protection (PIP) Coverage: Required auto coverage in some states, PIP insurance covers the cost of medical bills for you and your passengers in the event of an accident and it also normally covers work loss of varying percentages or amounts.
Personal Liability Coverage: A standard part of most homeowners insurance policies, this coverage protects you and members of your household against damages other than bodily injury or property damage. Usually, you can increase the limits of your personal liability protection for an added premium.
Physical damage coverage: This term defines the combination of comprehensive and collision coverage and is more accurate than using "full coverage".
Policy: This is what you purchase from an insurance company: the specific agreement you and the company come to that includes how much you’ll pay, what is covered, and the length of your policy term.
Policy term: The length of coverage provided on a policy. Policy terms are generally annual (12-month) or bi-annual (6-month) and at the expiration of the of the term the insured has the option to renew the policy, switch to a different company, or let the insurance lapse (not recommended)
Premium: What you pay the insurance company each month (your bill)
Prior insurance: If you have at least six months of prior insurance coverage without a lapse, you may qualify for a discount. The longer you maintain auto insurance coverage, the better the discount will be when you shop for a new policy. To prove your length of prior insurance, your new provider will ask for a Letter of Experience to keep the discount applied.
Q
Quote: The insurance company’s price offer for a selected policy.
R
Renewal: The time when your current policy is expiring and your new policy term is set to begin (normally every six or twelve months). This is generally when your insurance company will reevaluate your policy risk so you may see your rate increase, decrease, or stay the same.
Renters insurance: Also known as an HO-4 policy, this insurance covers renters for their home contents and general liability.
Replacement Cost Value: A coverage option that replaces your home, car, or other personal property without factoring in depreciation, meaning that the insurance company will pay enough to fully replace your property.
S
SR-22: Also called a Financial Responsibility Filing, an SR-22 is a document that is attached to your auto insurance policy that gets filed with your state's DMV. An SR-22 is normally required by your state to reinstate your license but may not be required in every suspension situation. You would be notified at court or via snail mail if you were required to carry this filing on your insurance.
SR-50: Only applies to the state of Indiana. This is a form that your insurance provider fills out and sends to the state to verify your insurance start and end date. If you are being told you need one, call your insurance company. Your insurer should be able to file the form within a few minutes.
State minimum: The minimum insurance coverage required to drive legally in a state. Some states require only liability insurance as their minimum, while others require additional coverage like Uninsured Motorist or PIP coverage. Ask for "state minimum" coverage to ensure your agent sets you up with the correct policy.
U
Umbrella insurance: Additional liability coverage that applies when you exceed the liability portion of your home or auto insurance. This coverage helps to protect you in the event of a lawsuit or a major insurance claim filed against you.
Underwriting: The process of evaluating the potential risk of offering insurance to a driver.
Uninsured/Underinsured Motorist Coverage: These policy options protect you from the damage done to yourself or your car by those who do not have insurance (uninsured) or do not have enough insurance (underinsured).
V
Vehicle Identification Number (VIN): This is your car’s serial number which can usually be found where the dashboard meets the front window, on the inside of the driver’s side door, or on a previous insurance policy document.