Insurance Glossary
If you don’t understand an auto insurance term check our easy to use glossary below for a definition. If you want an auto insurance quote click on the banner ABOVE or the banner at the end of the glossary.
Actual Cash Value – The amount awarded for property damage loss. This amount usually equals the cost to replace the damaged item with a new one, minus depreciation.
ABS – See Anti-Lock Braking System
Annual percentage rate (APR) – The yearly cost of credit expressed as a percentage; used in finance agreements. In leasing agreements, the equivalent is the money factor. All lenders are obligated by law to disclose a loan’s APR.
Annual Premium – The total price for insurance coverage for a specified period of time (typically one year). This premium can often be divided into monthly payments to make it more affordable.
AnnualCreditReport.com – A centralized service operated by the three credit reporting agencies (credit bureaus) that processes all requests from consumers who wish to receive their free credit report from each agency.
Anti-Lock-Braking-System (ABS) – A computer-controlled braking system that monitors the speed of the wheels and senses if braking is causing any difference in wheel spped that indicates a wheel is seizing and, if so, pulses the brakes to prevent that problem so the driver can maintain steerng control.
APR - See Annual Percentage Rate
Auto Lease Agreement -A legally binding document between a lessor and a lessee that outlines the details, terms, and limitations of the lease, as well as the length, costs and fees associated with. Also know as a lease.
Automobile Insurance - Insurance that protects agaist losses involving motor vehicles. The basic types of coverage are bodily injury liability, property damage liability, medical payments or personal injury protection, collision, comprehensive physical damage, and uninsured or underinsured motorist.
Automobile Shared Market - A program in which all automobile insurers in each state participate to make coverage available to car owners who are unable to obtain auto insurance in the regular marketplace. Usually called assigned risk plans , joint underwriting associations, or reinsurance facilities.
Bodily Injury Liability = Insurance coverae that pays your leal defense costs and claims against you or family members living with you and others driving your behicle with your permission if your vehicle is involved in an accident that causes injury or death.
Capitalized Cost (Cap Cost) – The negotiated total price of a new vehicle being leased. It’s comparable to the negotiated price of a new vehicle being purchased.
Claim – A policy holders formal demand to recover, from an insurer, losses covered by the insurance policy.
Closed-End Lease – A vehicle lease that ends at the conclusion of the term: the lessee returns the vehicle and has no further responsibilities (other than to pay for any excessive mileage.
Collision – This insurance coverage pays for damages to your vehicle if your vehicle is involved in a collision with another vehicle or any other object or in a rollover, regardless of who is responsible.
Comprehensive Physical Damage - This insurance coverage pays for losses if your vehicle suffers damages from theft, fire, hail, wind, flood,vandalism, falling objects, or various other causes (excluding collision or upset).
Deductible - The amount the holder of the insurance policy must pay out-of-pocket before the insurance company pays the remainder of a covered loss, up to specified coverage limits. A deductible can be anywhere from zero to $1,500.00 or higher. The lower the deductible, the higher the annual premium.
Deductible – The amount you pay before the insurance company begins paying on a loss. For example, a $200 deductible means that in a loss totaling $1,000, you would pay the first $200 and the insurance company would pay the remaining $800. However, if the loss were only $200, you would pay the entire loss and the insurance company would pay nothing.
Depreciation – The loss of value of a vehicle over a given time. What it is worth at any given time is the residual value.
Disposition Fee – A fee often charged by a lessor to cover the costs of preparing and selling the lease vehicle at the end of the lease. Also known as a disposal fee and a termination fee.
EPA – U.S. Environmental Protection Agency, source of mileage estimates of fuel economy.
EPA Size Class – Any of the categories into which the Environmental Protection Agency groups motor vehicles – passenger cars according to interior volume and light truck according to gross vehicle weight rating, the weight of the vehicle, and its carrying capacity-for comparisons of fuel economy.
Exclusion – An event or loss that your insurance policy does not cover.
FICO Score - Another term for your credit score. FICO is a registered trademark of Fair Issaac Corporation, the pioneer of the FICO credit score that’s used by many lenders to evaluate consumer credit risk. Scores calculated by credit reporting agencies from models developed by Fair Isaac Corporation are commonly called FICO scores. These scores are derived solely from the information available on credit reporting agency reports.
First Party Coverage – Insurance coverage under which you are compensated for your losses by your own insurance company rather than by the insurer of another person who caused an accident. Collision and comprehensive insurance are two examples.
Gap Insurance - A policy on a leased vehicle that covers the policyholder’s termination liability under the lease contract if the vehicle is deemed a complete loss befoe the end of the lese term. It covers the difference between what the lessee owes and the value of the vehicle at the time of the loss. Gap insurance is typically associated with vehicle that are totaled or stolen. Also know as gap coverage or gap protection.
Hazards – An act or condition that will increase the likelihood or severity of a loss. For instance, ice on a bridge is a hazard because it increases the chance of a car skidding.
Insured – A person or organization covered by an insurance policy.
Kelly Blue Book Value - The market value of a vehicle according to a company that’s been the industry expert on used car values for 80 years and the source of prices made available on most Web sites.
Lease - See Auto Lease Agreement and Vehicle Lease
Lessee - The party that allows use of a vehicle from a lessor through a lease.
Lessor - The company that allows use of a vehicle to a lessee through a lease.
Liability - Any legally enforceable obligation.
Liability Insurance – Insurance that pays claims against you and your legal defense costs when you are responsible for an accident in which you have injured someone or damaged his or her property.
Limits - The maximum amount of insurance that can be paid for a covered loss. For example, if you have a $5,000 loss and the limit on your policy is $3,000, then $3,000 is the maximum amount the insurance company will pay.
Loss – The basis for an insurance claim. For example, a loss occurs when the quality or value of an automobile is reduced by an accident. Insurers also refer to losses as payment made on behalf of insured.
Medical Payment of Personal Injury Protection - Insurance coverage that pays medical expenses and possibly other expenses (such as lost earning, rehabilitation, replacement of services, and funeral expenses, depending on the policy), for you or any passengers in your behicle if your behcile is involved in an accident and pays medical expenses and possibly other expenses for you or family members injured or killed while riding in another vehicle or injured by another vehicle while walking.
No fault Insurance - An insurance concept designed to speed payment to accident victims and lower the cost of auto insurance by reducing the number of lawsuits for minor claims. Under a no-fault system, each insured’s own insurance company pays for certain financial losses-suhc as medical expenses and lost wages-regardless of who caused the accident. In exchange for these benefits, the right to sue may be restricted.
Open-End Lease - A vehicle lease that requires the lessee at the conclusion of the term to pay any difference between the residual value of the vehicle and the market value. An open-end lease allows unlimited mileage. This type of lease is used primarily for commercial purposes; it is typically not suitable for personal use. Also know as a finance lease.
Personal Injury Protection - See Medical Payments
Policy – A legal contract that sets forth the rights and obligations of both the policy holder and the insurance company.
Policy Holder – A person who pays a premium to an insurance company in exchange for insurance protections detailed in an insurance policy.
Premium – The amount of money paid for an insurance policy.
Property Damage Liability - Insurance coverage that pays your legal defense costs and claims against you or family members living with you and others driving your vehicle with your permission, but not the cost of damages to your property, including your vehicle, if your vehicle damages another’s property.
Renewal - In insurance, a policy renewal can take place when a new policy is written or when a standard certificate is issued, stating that the same conditions of the old policy will stay in effect for a specified time.
Resale Value - The current value of a used car, based on the year, make, model, mileage, and condition. This value will differ depending on whether the vehicle is being sold by a private seller or being accepted as a trade-in-by a dealerships. Dealerships buy used vehicles based on their wholesale value.
Residual Value - The worth of a vehicle at a given time, the difference between the purchase price and the amount of depreciation. In a vehicle lease, this value is estimated at the beginning of the lease and used as the basis for calculating the monthly payments. The actual value of the vehicle at the end of the lease period could be significantly higher or lower.
Risk - The chance of injury,damage, or loss. Also used by insurance companies to refer to the insured or to property covered by a policy.
Tort – A wrongful act, resulting in injury or damage, onwhic a civil action may be based. Does not apply to breach of contract.
Umbrella insurance an additional insurance product that pays on top of existing automobile and homeowners policies. For example, if an insured has $300,000 of liability coverage and has a claim against a automobile policy for $500,000, the umbrella policy will cover the additional $200,000. Umbrella liability insurance can also cover any gaps in coverage that exist for other events that may not be covered by your policy.
Uninsured or Underinsured Motorist - Insurance coverage that pays for any resulting costs if an uninsured, underinsured, or hit-and-run driver causes property damage or injuries to you or family members and other passengers in your vehicle.
Vehicle Identification Number (VIN) A unique serial number given to every vehicle manufactured and imprinted on the vehicle. The VIN is used to register the vehicle with the state Department of Motor Vehicles or Registry of Motor Vehicles. It can be used to track a vehicle’s history.
Vehicle Lease – A legal agreement between the lessor and the lessee about the use of a vehicle. A lease is documented by a contract that specifies the terms and limitations of that use, the length of the agreement, and the monthly payment for use of that behicle. A typical vehicle lease can last for 24, 36, 48, or 60 months.
VIN - See Vehicle Identification Number
Walk-away lease – See Closed End Lease.
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