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Deciphering insurance lingo can be a challenge to say the least. Here’s a glossary of auto insurance and other general insurance terms to help you better understand your coverage.

Actual Cash Value

This term is found in most insurance policies because most auto insurance coverage reimburses you only for the actual cash value of your car. Your car's actual cash value is calculated by determining its original value, minus the amount your car has depreciated since you bought it.

Additional Insured or Additional Interest

A person or an organization, other than the named insured or covered person, who is protected under the named insured's auto policy. If an auto is leased, the leasing company may want to be listed as an additional insured as well as a lien holder or loss payee. This protects the leasing company if it's named in a lawsuit for an accident caused by a policyholder.

Adjuster

An adjuster is the person who investigates and settles auto insurance claims.

Anti-theft Recovery System

These systems consist of an electronic device that is installed in a concealed area of your car. If your car gets stolen, you can activate the device and it will emit a signal that can be used to locate your car.
By installing an anti-theft recovery system, you may be eligible for an auto insurance discount.

Assigned Risk

By state law, insurers who participate in “assigned risk” or “residual market” plans must accept a certain share of auto insurance policies that they would not ordinarily accept.

Benefit

A benefit is the amount paid by an auto insurance company to you or your beneficiary when you file an auto insurance claim.

Business/Commercial Use

This means that you mainly use your car for business purposes, such as sales or delivery calls and other work-related driving. Commuting to and from work is not considered business use.

Claim

An auto insurance claim is a policyholder's request to be reimbursed for a loss that's covered by the policy.

Continuously Insured

The length of time you've been continuously insured is the number of years you have been covered by one or more insurance companies without a lapse in your auto insurance coverage.

Declarations

The declarations page of your auto insurance policy summarizes the factual information essential to your auto insurance coverage: the policyholder's name and address, a description of the insured vehicles, the auto insurance premium, as well as the coverages, limits, and deductibles.

Deductible

For certain types of auto insurance coverage, you are asked to choose a deductible. A deductible is the amount of damages you agree to pay if you file an auto insurance claim. Choosing a higher deductible can substantially lower your auto insurance premium. If you file an auto insurance claim, you'll have to pay the full, pre-established amount of the deductible out of your own pocket to receive payment from your auto insurance company.

Depreciation

Depreciation is the decline in an object's value due to age, wear-and-tear or obsolescence.

Effective Date

The effective date is the date your auto insurance coverage begins. You are not covered by car insurance prior to an auto insurance policy's effective date.

Endorsements

Also known as “riders,” endorsements are changes to the original insurance contract. In auto insurance coverage, endorsements may include changing your deductibles or adding a new car to your auto insurance policy.

Exclusions

Exclusions are situations that are not covered by a given auto insurance policy. Specific exclusions are listed in your auto insurance policy.

Extraordinary Medical

Extraordinary medical coverage protects you in the event you suffer accident-related injuries that require serious and/or long-term medical care. Extraordinary medical coverage begins once you have exhausted the limit on your standard medical benefits coverage.

Funeral Benefits

In some policies, this auto insurance coverage pays for a portion of funeral expenses for a covered person who dies from accident-related injuries regardless of who is at fault in an accident.

Gap Insurance

If you are making lease or loan payments and your car is totaled, there may be a difference or “gap” between the market value of your vehicle and what you still owe on it. This optional coverage pays the difference.

Garaging Location

This is where your insured car is parked most of the time. This location is usually defined by the zip code of the policyholder's primary residence.

Homeowners Insurance

You should always report if your car is vandalized or stolen to your auto insurance company. But items stolen from your car are usually covered under your homeowners insurance.

Income Loss

Income loss coverage protects you if you're unable to work due to accident-related injuries. This auto insurance coverage helps you recover portions of your lost salary and other expenses you may incur as you try to return to work.

Indemnity

An indemnity is a pre-determined sum paid for a covered loss.

Insurance Claim Report

Insurance claim reports provide details about auto insurance claims you or other insured drivers have filed with insurance companies. These reports are provided by independent consumer reporting agencies that collect auto insurance claim information from a variety of insurance companies. One of the most common agencies issuing such reports is the Comprehensive Loss Underwriting Exchange (C.L.U.E).

Insured

The insured is an individual covered by an auto insurance or other insurance policy.

Liability

Liability is a term that broadly means legal responsibility. If you run a stop sign and hit another car, you may be found liable for the damages to the other driver's car.

Limits

Limits are the maximum amount an insurance company will pay for a covered loss. Though you can choose your limits for certain coverages, some states require you to buy certain levels of auto insurance coverage. In such states, you'll have to choose limits that at least meet your state's auto insurance requirements.

Medical Benefits

Medical benefits cover expenses that are the direct result of accident-related injuries. Covered medical expenses are capped at the limits you choose when you buy your auto insurance policy.

Motor Vehicle Report

A Motor Vehicle Report (MVR) provides information on your driving record. This report includes accidents and moving violations. Auto insurance companies obtain MVRs from states where you or other insured drivers have been licensed to drive.

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.

Named Insured

Any person, firm or corporation designated by name as insured 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.

No-Fault Insurance

If a type of auto insurance coverage is described as “no-fault,” this generally refers to the way the insurance company settles a covered auto insurance claim. Generally, if coverage is no-fault, responsibility doesn't have to be assigned before the claim is settled.

No-Fault States

In no-fault states, insurance companies are legally required to pay a policyholder's covered losses, regardless of who's held responsible for an accident. Some no-fault states also restrict the right to sue for damages. In states without no-fault regulations, the insurance company covering the person who caused an accident is responsible for covered losses.

Physical Damage

This refers to damage to your covered vehicle from perils including, but not limited to collision with another vehicle, fire, vandalism and theft.

Policy Expiration Date

Your auto insurance policy's expiration date is the date when auto insurance coverage ends if your auto insurance policy isn't renewed. The expiration date can be found on the declarations page of your auto insurance policy, on a proof of insurance card, or on a recent auto insurance renewal notice.

Policy Term/Period

A policy term is the length of time an auto insurance policy is valid.

Primary Policyholder

The primary policyholder is the person who serves as the main point of contact with the insurer. Typically, the primary policyholder is also the person billed for your auto insurance policy.

Primary Use

A vehicle's primary use is how the car is typically used. Auto insurance companies usually classify primary use as commuting, business/commercial, or pleasure use.

Pro Rata Cancellation

Termination of an insurance contract before the policy expiration date. The premium returned to the insured person is adjusted in proportion to the amount of time the policy was in effect.

Safe Driver Plan

Insurers use this rating system to help determine the rate to charge for auto insurance. The insurer assigns points for a motorist’s traffic convictions and certain accidents. Similar to a merit-rating plan, each point increases the surcharge percentage to the baseline rates.

Secondary Driver

A secondary driver is one of the drivers listed on your auto insurance policy who's insured for driving an insured vehicle. A secondary driver is also sometimes known as an occasional driver in auto insurance terminology.

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.

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.

Threshold Level

Under some no-fault insurance laws, the threshold level represents the degree of injury a claimant must establish before being allowed to sue the negligent party. The threshold may be verbal (regarding the severity of the injuries) or a dollar amount (10,000) or both.

Tort

Tort is a legal term used to describe instances when someone is deemed legally responsible for injuring another person or damaging his or her property. Some states ask you to select a tort provision. In these states, you can limit your right to sue for nonmonetary damages, such as pain and suffering, in exchange for a reduced auto insurance premium.

Towing Coverage

This optional form of auto insurance coverage pays a fixed amount toward towing if your car breaks down or if it's disabled in an accident.

Vehicle Identification Number (VIN)

The VIN is the unique 17-digit number found on every car. The VIN contains the vehicle's serial number, as well as abbreviations for the make, model, and year. The VIN appears on your vehicle registration card. It's also engraved in your car, near the base of the windshield on the driver's side dashboard and/or on the edge of the driver's side door.

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