Have you ever felt like you needed specialized training in how to “speak insurance”? If you feel that understanding the terms of the industry is akin to mastering a new language, you aren’t alone.
Thankfully, at Winter-Dent, we have done the work for you and have defined some of the most common terms you will find within the auto insurance industry. Read them over to make sure you know what you are buying:
Glossary of Auto Insurance Terms
Adjuster
A claims adjuster is an employee of the insurance company, whose job is to negotiate the claim settlement that is brought by the claimant and/or policyholder. Each claim is evaluated by the adjuster and then the payment is made based on the policy contract and the coverage that was purchased.
Actual Cash Value (ACV)
Vehicle claims (Including UTV, boat, golf cart, motorcycle, etc) are settled by the insurance company by using the “Actual Cash Value" method. This is the fair market value of your vehicle prior to the accident, meaning this is the amount you would expect to be compensated by the insurance company for your car if you sold it the day before the accident, not what you paid for it originally. There are circumstances where you could purchase a Replacement Cost endorsement on your auto policy for your vehicle, but this endorsement is usually only available if the vehicle is less than 2-3 years old.
Appraisal
This is the process that is often completed by a third party that determines the value of your property or your vehicle. Again, this isn’t what you paid for your property, but what is valued on the market from the perspective of an unbiased party.
Bodily Injury Liability
A bodily injury is an injury that is sustained by a person. Therefore, bodily injury liability is a type of insurance coverage that pays for the damage a person suffers in an accident if the accident was caused by you. This can include court fees and other costs as well. Types of covered losses usually include coverage for lost income, pain and suffering, medical expenses, and more.
Broker
An insurance broker is an intermediary who sells, solicits, or negotiates insurance on behalf of a client for compensation. Many independent insurance agents use an Insurance Broker when they do not have an in-house insurance company with whom to place the coverage.
Claim
A claim is a request by you as an insurance customer to pay for a covered incurred loss. The way claims are filed depends on each company’s preferences, but they usually can be filed online, in writing, or by phone.
Collision Coverage
This is a type of coverage within an auto policy that pays for the damage that occurs to your vehicle during a collision. Collision coverage usually involves a deductible, which can be set at varying amounts but is commonly either $500 or $1000. Once the cost to repair your damage is discovered, you will receive this amount minus the deductible, which is your portion to pay.
Comprehensive Coverage
Comprehensive coverage provides vehicle coverage for any damage to your vehicle, excluding collision. If the insured has purchased comprehensive coverage on their auto policy (sometimes referred to as “other than collision” coverage), the vehicle is covered for any physical damage other than collision coverage. Similar to collision coverage, comprehensive coverage also has a deductible that you are responsible for. It works the same way in terms of the insurance company will pay for the vehicle repairs or in the case of a total loss, the insurance company will pay the Actual Cash Value of the vehicle minus the amount of your deductible.
Credit-Based Insurance Score
A credit-based insurance score is used by most insurance companies as part of the rating bases. This is not a true credit score, it is a “soft hit” on your credit rating and is called an “insurance score” by the insurance industry. Therefore, insureds with a high credit score will get a better insurance rate than insureds with a low credit score. The reason is that the insurance industry has found that insureds with a low credit score are more likely to file a claim and/or make a fraudulent claim.
Deductible
A deductible is an amount owed by the insured when a claim is made. The higher deductible you have, the lower your insurance premium will be.
Diminished Value
Diminished value is the decreased value of your vehicle due to an auto accident. It is the difference between the value of your vehicle before the accident and the value of your vehicle after the repairs have been made.
Endorsement
This is a way to alter a policy contract by adding an amendment to the policy to add or change coverage.
Exclusion
An exclusion is something that is not covered under your policy.
Gap Insurance
Gap insurance provides protection for you if your car is a total loss and you owe more on the car than what it is worth. If this coverage is purchased on your auto policy, the insurance company will pay the additional amount due to pay off your loan.
Lease
Under a lease agreement, you do not have ownership of the vehicle, but you are instead renting it under contract.
Liability
Any responsibility or obligation that can be legally forced to cover damages or injury to another person is a liability.
Limit
Your preset limit is the largest or greatest amount an insurance company will pay for a claim, per the limit of coverage stated in your policy.
Premium
This is the “billed” amount you owe for your auto policy. You can either pay it monthly, quarterly, semi-annually or annually. The policy is an annual or semi-annually policy, then the premium is billed out according to the payment plan you select.
Property Damage Liability
Property damage liability is part of the auto coverage which provides coverage for damages to another person’s property in the event that your cause the accident. The insurance company will pay damages up to the limit of coverage stated in the insurance policy.
Replacement Cost (RC)
This is the amount that it will take to repair or replace lost or damaged property, not taking into account depreciation in value. It is also not based on market value.
Totaled
If a wrecked or damaged vehicle cannot be repaired for a reasonable cost or be made safe to operate again, then it will be totaled. This means the vehicle is a total loss.
Surcharge
In some cases, you might note an increase in your premium amount after a moving violation or due to an accident that was your fault. This increase is called a surcharge.
Umbrella Liability
When you purchase umbrella liability coverage, you are adding protection to your existing auto, home, boat, UTV, rental property, etc. policies. The Umbrella policy is purchased in increments of million dollar limits. This policy will add additional “liability” coverage in the event of a serious accident and the limits on the primary policy become exhausted.
Uninsured Motorist Coverage
Another part of standard auto insurance provides protection for you if you are involved in an accident with either a driver who is uninsured or one who is inadequately insured. Uninsured motorist coverage is required in most states, however, Underinsured motorist coverage is usually optional.
Warranty
A warranty is the written guarantee made by the manufacturer of a product that ensures integrity and makes providing repair or replacement parts their responsibility.
Now You Are Ready, Thanks to This Glossary of Standard Insurance Terms
With some of these key auto insurance terms in your pocket, you can ensure that you understand what you are buying. Contact us at Winter-Dent to learn more about your auto insurance and to get the right coverage for your needs. While you might not know every term by heart or understand exactly what it means, the information above will at least give you an idea, so you know what you are buying and what you want in terms of your auto insurance coverage.