Insurance 101 - Auto
Reading an insurance policy from front to back is
not a common practice by most consumers; however, doing so will educate
you on your policy terms and coverages so you can confirm that
you’re receiving the protection you really need.
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Insurance 101 is designed to help simplify the definitions of
insurance terms commonly used in the business. We do encourage you to
speak with an insurance agent to answer any of your questions or provide
the additional information.
Actual Cost Value
The value of the insured property, in dollars,
at the time of loss. This amount is whatever it will cost to replace the
property, minus a deduction for depreciation (age, wear and tear, etc.)
The person who handles the settlement of a
claim on behalf of the insurance company, either as an employee of the
company or an independent engaged by contract. Also known as a claim
A legal agreement between an insurance buyer
and an insurance company or its agent. It provides temporary insurance
coverage until a policy is either issued or refused.
Injury to the body of a person as specifically
defined in an insurance policy. Bodily injury liability is the legal
responsibility for medical and related costs that may result from injury
to the life or health of another person.
Liability Coverage which covers the injuries to
others that you are deemed responsible for as the result of an at-fault
The guarantee to pay if specific losses occur,
according to the terms of the insurance policy.
The largest total amount the insurance company
will pay for covered losses. Many policies have multiple limits a
certain amount per person, another amount per accident, and sometimes an
aggregate limit on all losses paid during the policy term.
Covers damage to the auto not resulting from a
collision. Example: Car is parked in a parking lot and a tree limb
falls, breaking the windshield.
Insurance against a loss resulting from damage
to the covered auto through collision with another object
Normally the first page of a policy, it
includes the insured's name, how long the coverage applies and how much
insurance is being provided. Also called the declarations page.
The estimated or claimed amount of money due in
reparation for injury or loss suffered.
A specified amount that is deducted from a loss
before policy coverage begins. (Example: Auto insured on a policy with a
$250 deductible sustains $1,000 in damage, then the policyholder pays
the first $250 and the insurance company pays the $750 balance.)
An amendment to an insurance policy to provide
coverage for special circumstances not included in the basic contract,
usually for an additional premium.
The day and hour when the policy will terminate
if not canceled earlier or continued by payment of renewal premium.
Provisions of an insurance policy that state
what the company will not pay for.
Refers to the possibility of loss faced by the
policyholder (Example: Having a fireplace in the home presents a higher
exposure due to the possibility of a fire.)
Lapse in Coverage
Expiration or cancellation of an insurance
policy by nonpayment of premium.
A hold or claim one party has on the property
of another, usually as security for a debt or other obligation. An
example would be an automobile loan.
The party who holds the lien on the vehicle.
Usually a bank or automobile finance company. (e.g. Ford Motor Credit)
The basis of a claim for indemnity, most often
referring to a financial loss through a decrease in the quantity,
quality or value of insured property, due to an occurrence insured
against by the policy.
A condition of being bound by law to do
something, enforceable in the courts. For insurance purposes it most
often involves the payment of damages.
The person on whom, or on whose property, the
insurance is written. Most often this will be the policyholder. The
person who applied for, pays for, and is issued the insurance policy.
An accidental event, or series of events, that
leads to a loss.
Normally refers to the comprehensive and
collision coverages of a vehicle policy.
The person who applied for, pays for, and is issued the insurance policy.
The period of time that an insurance policy is to continue in force. Common policy terms are six months and one year.
The money paid for an insurance policy.
Proof of Loss
A written statement, with supporting
documentation (if any) provided to the insurance company as a basis for
paying a claim.
Refers to damage to the property of others.
Liability Coverage which covers the damages to
the property of others that you are deemed responsible for as the result
of an at-fault accident.
This provision, sometimes included in the basic
policy and sometimes added by endorsement, covers replacement of the
property lost without a deduction for depreciation.
Recovery of money from a third party, by the
insurance company, in connection with payment of a loss to a
A condition of having policy limits that are
not adequate to cover all needs that can reasonably be anticipated.
The auto policy provision pays the policyholder
in the event an accident is caused by a driver whose liability insurance
is not adequate to cover the full amount of damages.
The auto policy provision pays the policyholder
in the event an accident is caused by a driver who has no liability