Auto insurance jargon can be tougher to comprehend than Shakespeare’s Elizabethan English. You shouldn’t need CliffsNotes to shop for insurance quotes, but you may need an auto insurance glossary. Fortunately, you’re in the right place.
The glossary below covers car insurance basics and must-know terms related to coverages, policy details, and legal concepts.
Car insurance protects you from financial losses that arise from driving or owning a car with different types of coverage applying to specific situations. For example, you need one coverage type to repair someone else’s car if you cause an accident, and another type to repair your own car.
Also, every U.S. state, except New Hampshire, requires car owners to insure their vehicles. So you need it to drive legally. Even in New Hampshire, many drivers carry insurance anyway to protect their vehicles and wallets.
Learn more: How does car insurance work? The basics explained.
With a good grasp of key auto insurance terms, you can make better insurance decisions and keep your costs as low as possible. Use this auto insurance glossary as your guide.
Coverage types and terms
Bodily injury liability (BI)
If you cause a car accident, bodily injury liability helps pay for resulting injuries to another person. The payments are capped by amounts specified in your policy. Normally, there are per-person and per-accident caps.
Bodily injury liability insurance is usually required in at-fault states, which are defined below.
Property damage liability (PD)
Property damage liability helps pay to repair someone else’s property after an accident you caused. PD insurance has a maximum payout that applies per incident.
All states except New Hampshire require drivers to have property damage liability insurance.
Bodily injury and property damage liability are often sold together and collectively called auto liability insurance.
Liability limits
Liability limits specify a policy’s maximum liability payouts in different situations. They are often stated as a series of three numbers, such as 25/50/25:
1. The first number is the per-person bodily injury limit, as in $25,000.
2. The second number is the per-accident bodily injury limit, as in $50,000.
3. The third number is the per-accident property damage liability limit, as in $25,000.
Learn more: How to choose the right level of liability limits
State-required minimum
The state-required minimum is the lowest level of car insurance required to drive legally in the state. Most states mandate minimum levels of liability insurance, and some states require other additional coverages, like uninsured motorist coverage or PIP.
Full coverage
Full coverage car insurance fulfills state-required minimums and includes optional coverages comprehensive and collision. Auto lenders require full coverage on financed vehicles.
Comprehensive
Comprehensive insurance pays for damage to your car from mostly non-collision events, up to the car’s market value. Incidents that can result in a comprehensive claim include theft, vandalism, storms, and falling objects. The car’s market value usually determines how much the insurance company will pay for repairs.
States do not require comprehensive insurance, but auto lenders do. Comprehensive insurance has a deductible.
Collision
Collision insurance pays for damage to your car arising from a collision, up to the car’s market value. You can file a collision claim if you caused the damage or the responsible party refuses to pay or even flees the scene.
Collision is often sold with comprehensive insurance. Like comprehensive, collision is required by auto lenders but not by states. Collision insurance has a deductible.
Gap insurance
Gap insurance helps you pay off your auto loan or lease if your insurance company deems your car a total loss. In a total loss scenario, the insurance company pays you the car’s value instead of repairing it. If the payout is less than what you owe on your loan or lease, gap insurance funds the difference.
Personal injury protection (PIP)
Personal injury protection (PIP) insurance helps cover your injury-related expenses arising from a car accident, no matter who was at fault. Covered expenses may include medical bills, lost wages, the cost of services you can’t perform due to the injury, such as mowing the lawn, and funeral costs, among other things.
No-fault states require PIP coverage. In at-fault states, PIP is either optional or not available. PIP has a payout maximum and may also have a deductible.
MedPay
MedPay or medical payments insurance works like PIP but with a shorter list of covered expenses. MedPay will fund your medical or funeral costs related to a car accident, but not lost wages or the cost of services you can no longer perform. As with PIP, you can use it regardless of fault, and it may also cover your passengers.
MedPay has no deductible. It will cover your health insurance deductible and co-payments.
Pay-per-mile insurance
Pay-per-mile insurance, designed for low-mileage drivers, links the insurance premium to how much you drive. The total premium includes a base rate, payable if you don’t drive anywhere, plus a per-mile rate. Pay-per-mile policies can have the usual coverage options, including liability, comprehensive, and collision.
Classic car insurance
Classic car insurance is full coverage insurance designed for collectable vehicles. It uses an agreed value as the maximum payout for comprehensive and collision claims, while standard policies use market value. Some classic car policies may have deductible-free options.
Non-owners policy
Non-owner car insurance provides liability insurance to drivers who do not own a vehicle but occasionally drive someone else’s.
Rental reimbursement coverage
Rental reimbursement is optional insurance that helps pay for a rental car when your primary vehicle is damaged in a covered accident. The coverage may specify limits for daily rental costs, total rental costs, and the number of days you keep the rental. If your rental needs exceed the policy limits, you can pay for the overages.
Generally, you must have comprehensive and collision insurance to add rental reimbursement to your policy. Note that you can’t use rental reimbursement for optional car rentals or when your car is in the shop for repairs.
Uninsured motorist coverage
Uninsured motorist coverage helps pay your medical expenses and car repairs if you are hit by a driver who has no insurance. This coverage is separated into uninsured bodily injury insurance and uninsured property damage insurance. Depending on the laws in your state, you may have a deductible for uninsured property damage claims.
Many states mandate uninsured motorist coverage.
Underinsured motorist coverage
Underinsured motorist coverage pays excess costs you incur after an at-fault driver’s policy pays out its liability limits. Underinsured motorist insurance is separated into bodily injury and property damage coverages. There may be a deductible on underinsured property damage claims. Also, your state may combine uninsured motorist and underinsured motorist coverage, with stated bodily injury and property damage limits for each.
Roadside assistance
Roadside assistance provides services to help you recover from a car breakdown. If you have a dead battery, flat tire, empty gas tank, or keys locked inside the car, you can call a dispatch line and request a service technician. The technician will try to resolve the issue by jumping the battery or changing the tire, etc. If the car is still inoperable, the coverage may include limited towing to transport the car to a service station.
Learn more: Do I need emergency roadside assistance?
Cost and policy terms
Depreciation
Car depreciation is the decrease in your car’s market value over time. New cars lose value quickly, sometimes 20% or more in the first year. This impacts your insurance because your car’s value influences the maximum an insurance company will pay for repairs. If the insurer decides not to pay for repairs, your car’s value determines how much you receive as a payout.
Deductible
A car insurance deductible is an amount you must pay before your insurance company will cover any costs. Comprehensive and collision insurance have deductibles. Other coverages like PIP and uninsured motorist property damage may also have deductibles.
Say you have a $500 deductible on your comprehensive and collision insurance. If a tree branch falls on your car and causes $1,500 worth of damage, you pay the first $500 and your insurer should pay the remaining $1,000.
Out-of-pocket
Out-of-pocket describes costs that you pay personally. A deductible is an out-of-pocket cost.
Named insured driver
A named insured driver is the person who owns and pays for the insurance policy.
Premium
A car insurance premium is the cost of insurance coverage for a specified time. Car insurance premiums are often quoted for six or 12 months of coverage.
Actual cash value (ACV)
Actual cash value is your car’s market value or the replacement cost minus depreciation. Many standard insurance policies use ACV to determine your payout if your car becomes a total loss. Some insurers offer the option to upgrade the coverage to replacement value, which would pay for a new version of your car.
Declarations page
A declarations page is a summary of your insurance coverage that’s included with your policy documents. The declarations page usually lists your name along with coverages and limits, deductibles, vehicles covered, and policy start and end dates.
Exclusion
Exclusions describe situations that are not covered by your policy. A standard exclusion for auto insurance is an intentional collision. If you drive through your neighbor’s front door on purpose, your insurance company will not pay for the damages. Your policy’s exclusions will be explained in your insurance documentation.
Auto insurance score
An auto insurance score is a risk measurement based on your credit history. Insurance companies calculate these scores and use them as a rating factor. Rating factors are the characteristics insurers review to decide if they should offer you coverage and how much to charge.
Learn more: How credit history impacts car insurance rates: A comprehensive guide
Total loss
Insurance companies use “total loss” to describe vehicles with extensive damage for which the repair costs would exceed the car’s value. Insurers do not pay to repair total-loss cars. Instead, they compensate the owner for the car’s market value less any applicable deductible.
Learn more: What happens when your car is totaled?
Salvage title
A car receives a salvage title after an insurance company declares it a total loss. Salvage title cars have not been repaired and are not legal to drive on public roads.
Learn more: Insuring a salvage car is possible. Here’s how.
Rebuilt title
Cars with rebuilt titles are salvage cars that have been repaired, inspected by the state motor vehicle department, and retitled. You can insure and legally drive rebuilt title cars.
At-fault
At-fault describes a driver who caused an accident. The phrase also describes a state’s regulatory stance on financial responsibility related to car accidents. In at-fault states, drivers who cause accidents are legally responsible for any resulting damages and injuries. Property damage liability and bodily injury liability can pay for these costs, up to policy limits.
No-fault
In no-fault states, you file an insurance claim with your own insurance company to cover medical bills after an accident. It does not matter who caused the accident. Drivers in no-fault states must have PIP insurance to handle these claims.
Tort state
Tort states are at-fault states. If you cause an accident in a tort state, you are financially responsible for any resulting damages or injuries.
Certificate of financial responsibility (CFR or COFR)
A certificate of financial responsibility is a document an insurance company files with the state on your behalf. The document confirms you have a minimum level of car insurance. The insurance company will notify the state if your insurance lapses for any reason. Most drivers do not need to file CFRs. States only require the filing after a serious violation.
SR-22
An SR-22 is a type of CFR. It verifies that your car insurance meets state-required minimums. Your state will notify you of an SR-22 requirement — usually after an accident or moving violation.
FR-44
An FR-44 is a type of CFR used in Florida and Virginia for drivers with extreme infractions like second or third Driving Under the Influence (DUI) convictions. The FR-44 mandates higher insurance limits than state minimums.
Learn more: Here’s how a DUI impacts your car insurance
Claimant
A claimant is the person who files a claim. You can file a claim with your own insurance company. Or if you were at-fault, someone else can file a third-party claim with your insurance company.
Lapse
A lapse is a temporary or permanent disruption in your insurance coverage. Depending on why the insurance lapsed, you may be able to reinstate it. For example, you may be late on a payment but within a grace period. If you can’t reinstate the old policy, secure a new one before you drive your car.
Learn more: What happens when your car insurance lapses?
Liability
In the legal sense, liability is a financial responsibility for something. The laws in your state define the specifics of your legal liabilities as a driver. Generally, you are liable for property damages you cause while driving and you may also be responsible for injuries.
Learn more: What is liability insurance and how much do you need?
Negligence
Negligence is careless action that results in injury or property damage. Driving 30 miles over the speed limit and colliding with another car could be deemed a negligent act. Negligent driving can result in more severe penalties after an accident, including jail time.
Subrogation
Subrogation is an insurance company’s right to pursue damages from a third-party on your behalf. This can happen in situations when insurance companies don’t agree on who caused the accident. Say you get hit by another driver and your estimated repair costs are $3,500. The other driver’s insurance company refuses to pay, arguing that you caused the accident. You decide to file a collision claim, pay your deductible, and have your car fixed.
In this scenario, your insurance company can use its subrogation right to pursue payment from the at-fault driver’s policy. If successful, your insurer may reimburse you for some or all of your deductible.
Understanding these must-know car insurance terms can help you save money while securing more suitable coverages. You’ll be able to spot discrepancies between rate quotes, ask pointed questions, and identify the policy options that best protect your wealth.
