Auto Insurance Glossary
51 insurance terms explained in plain English. No jargon, no fine print.
A
Actual Cash Value
What your car is worth right now, accounting for depreciation. If your car is totaled, the insurer pays the actual cash value minus your deductible. This is not what you paid for the car or what it would cost to buy a new replacement. A five-year-old sedan that cost $30,000 new might have an ACV of $15,000 today.
Adjuster
The person from the insurance company who investigates your claim, assesses the damage, and determines how much the insurer will pay. Adjusters may inspect your vehicle in person, review police reports, and interview witnesses. Some claims are handled by desk adjusters who work remotely using photos and repair estimates you submit.
Assigned Risk Pool
A state-mandated program that provides auto insurance to high-risk drivers who cannot find coverage in the regular market. Drivers with DUIs, multiple at-fault accidents, or SR-22 requirements often end up here. Rates in assigned risk pools are typically much higher than standard policies, so the goal is to build a clean record and move back to the regular market as soon as possible.
At-Fault Accident
An accident where you are determined to be primarily responsible. At-fault accidents typically stay on your insurance record for 3 to 5 years and can increase your premiums significantly. The exact surcharge depends on the severity of the accident, your insurer, and your state. Some insurers offer accident forgiveness for your first at-fault claim.
B
Binder
A temporary proof of insurance that provides coverage while your full policy is being processed. Binders are typically valid for 30 to 90 days. You might receive one when you buy a new car and need immediate proof of coverage before the formal policy documents are issued.
Bodily Injury
The part of liability coverage that pays for medical bills, lost wages, and pain and suffering of people you injure in an at-fault accident. Your state sets a minimum required amount, expressed as per-person and per-accident limits. For example, 50/100 means up to $50,000 per person and $100,000 per accident. Carrying only the state minimum can leave you personally liable if injuries exceed your limits.
C
Claim
A formal request to your insurance company to pay for a covered loss or damage. When you are in an accident or your car is damaged, you file a claim and an adjuster reviews it to determine how much the insurer will pay. Filing a claim can affect your future premiums, so some drivers pay for minor damage out of pocket to avoid a rate increase.
Collision Coverage
Pays to repair or replace your own car after an accident with another vehicle or object (tree, guardrail, pole), regardless of who is at fault. You pay your deductible first, then insurance covers the rest up to your car's actual cash value. Collision coverage is optional unless you have a car loan or lease, in which case your lender will require it.
Combined Single Limit
A single dollar amount that covers all bodily injury and property damage claims from one accident, instead of splitting limits between categories. A $300,000 CSL can be applied however needed across all claims from one accident. This gives you more flexibility than split limits, since the full amount is available where the damage is greatest.
Comparative Negligence
A legal rule used in many states where fault for an accident is shared between drivers. Your compensation is reduced by your percentage of fault. If you are 20% at fault, you receive 80% of your damages. Some states use "modified" comparative negligence, which bars recovery entirely if you are 50% or 51% at fault, depending on the state.
Comprehensive Coverage
Pays to repair or replace your car for damage from events other than collisions: theft, vandalism, hail, flooding, fire, falling objects, or hitting an animal. You pay your deductible first, then the insurer covers the rest. Like collision, comprehensive is optional unless your lender requires it. It does not cover mechanical breakdowns or normal wear and tear.
Coverage Limit
The maximum amount your insurance company will pay for a covered claim. For example, a $100,000 bodily injury limit means the insurer pays up to $100,000 per person for injuries. Anything above that limit is your personal responsibility. Choosing higher limits costs more in premiums but protects you from large out-of-pocket expenses after a serious accident.
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The practice of using your credit history to set your insurance premium. Most states allow insurers to consider credit, and studies show a correlation between credit and claim frequency. Drivers with lower credit scores tend to pay higher premiums. A few states (California, Hawaii, Massachusetts) ban this practice entirely.
D
Declarations Page
The summary page of your insurance policy that lists your name, vehicle, coverage types, limits, deductibles, premium, and policy dates. It is the quickest way to see exactly what you are covered for and what you are paying. When comparing quotes, use your current declarations page to make sure you are matching the same coverage levels.
Deductible
The amount you pay out of pocket before your insurance coverage kicks in. With a $500 deductible, you pay the first $500 of a covered claim and your insurer pays the rest. Higher deductibles usually mean lower premiums, since you are taking on more of the financial risk yourself. Choosing between a $500 and $1,000 deductible is one of the most common coverage decisions drivers face.
Diminished Value
The loss in your car's resale value after it has been in an accident and repaired. Even with perfect repairs, a car with an accident history is worth less than an identical car with a clean title. Some states allow you to file a diminished value claim against the at-fault driver's insurer to recover that lost value.
E
Endorsement
A change or addition to your existing insurance policy. Endorsements can add, remove, or modify coverage. Common endorsements include adding rideshare coverage, increasing your liability limits, or adding custom equipment coverage for aftermarket modifications. Endorsements are also sometimes called riders.
Exclusion
Something your insurance policy specifically will not cover. Common exclusions include intentional damage, racing, using your personal car for commercial delivery without the proper endorsement, and normal wear and tear. Always read your policy's exclusions section so you know what situations would leave you paying out of pocket.
F
FR-44
Similar to an SR-22 but requires higher liability limits. Only used in Florida and Virginia, typically after a DUI conviction. FR-44 requires coverage limits significantly above the state minimum, which means higher premiums on top of the already elevated rates that come with a DUI on your record.
Full Coverage
Not an official insurance term, but commonly used to mean liability plus collision plus comprehensive coverage. Lenders and lease companies typically require "full coverage" on financed vehicles to protect their investment. The cost difference between minimum liability and full coverage varies by state and driver profile, but it is usually substantial.
G
GAP Insurance
Covers the difference between what your car is worth and what you still owe on your loan or lease if your car is totaled. Without it, you could owe thousands on a car you can no longer drive. GAP insurance through your auto insurer typically costs $50 to $150 per year, while the same coverage at a dealership can cost five to ten times more.
Good Driver Discount
A discount for drivers with no accidents, violations, or claims over a set period, usually 3 to 5 years. This can reduce premiums significantly. Some insurers call it a safe driver or claims-free discount. Maintaining a clean record is consistently one of the most effective ways to keep your insurance costs down.
I
Insurance Score
A number calculated from your credit history that insurers use to predict how likely you are to file a claim. It is different from your regular credit score but uses similar data (payment history, outstanding debt, length of credit history). A higher insurance score typically means lower premiums. This practice is banned in a few states.
L
Lapse in Coverage
Any period where you do not have active auto insurance. Even a short lapse can lead to higher premiums when you buy a new policy, because insurers view it as a risk indicator. Some states also impose fines, suspend your registration, or require an SR-22 filing after a coverage lapse.
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Insurance that pays for injuries or damage you cause to other people or their property in an accident. Required in almost every state. It has two parts: bodily injury (BI) covers the other person's medical bills and lost wages, and property damage (PD) covers repairs to their vehicle or other property. Liability coverage does not pay for your own injuries or vehicle damage.
M
Medical Payments Coverage
Pays for medical expenses for you and your passengers after an accident, regardless of fault. Similar to PIP but typically covers only medical bills, not lost wages or other expenses. Available in most states as an optional add-on. MedPay can also cover you as a pedestrian or while riding in someone else's car.
Minimum Coverage
The lowest amount of insurance your state legally requires you to carry. Usually expressed as three numbers like 25/50/25, meaning $25,000 per person bodily injury, $50,000 per accident bodily injury, and $25,000 property damage. Carrying only the minimum saves on premiums but leaves you exposed to significant out-of-pocket costs if you cause a serious accident.
Multi-Policy Discount
A discount you get for having more than one type of insurance (like auto and home) with the same company. Bundling typically saves 5% to 25% on your premiums depending on the insurer. This is one of the easiest discounts to qualify for, and most major insurers offer it.
N
NAIC
The National Association of Insurance Commissioners, a regulatory organization of insurance commissioners from all 50 states, DC, and U.S. territories. The NAIC publishes the most authoritative data on auto insurance premiums and market trends. Their Auto Insurance Database Report is the primary source for state-by-state average premium comparisons.
Named Insured
The person or people specifically listed on the insurance policy as the primary insured. The named insured has the most rights under the policy, including the ability to make changes, add or remove drivers, file claims, and cancel coverage. Other drivers in your household may be covered but do not have these administrative rights.
No-Fault Insurance
A system used in some states where each driver's own insurance pays for their injuries regardless of who caused the accident. No-fault states require PIP coverage. The trade-off is that you generally cannot sue the other driver unless injuries meet a certain severity threshold defined by your state.
P
Personal Injury Protection
Pays for your own medical bills, lost wages, and related expenses after an accident, regardless of who caused it. Required in no-fault states. PIP covers you and sometimes your passengers. It is broader than MedPay because it can include lost income, childcare costs, and funeral expenses in addition to medical bills.
Policy
The contract between you and your insurance company. It spells out what is covered, what is excluded, your coverage limits, your deductibles, and how much you pay. Auto insurance policies typically last six months or one year. Review your policy at each renewal period to make sure your coverage still matches your needs.
Proof of Insurance
Documentation that shows you have active auto insurance. Required in every state. Proof of insurance can be a physical card, a digital card on your phone, or your declarations page. You need it at traffic stops, after accidents, and when registering your vehicle. Driving without proof of insurance can result in fines even if you are insured.
Property Damage
The part of liability coverage that pays for damage you cause to someone else's vehicle or property (fences, buildings, mailboxes) in an at-fault accident. Your state sets a minimum required amount. Property damage liability is one of the three numbers in your split limit (the third number in 25/50/25).
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Rate Filing
The formal process where insurance companies submit their proposed rates to the state Department of Insurance for review. Depending on the state, rates may need prior approval before they can be charged, or companies may file and use them immediately under a "file and use" system. Rate filings are public record in most states.
Renewal
When your existing policy period ends and a new one begins. Your insurer will send a renewal notice with your new premium, which may be higher or lower than your current rate. Renewal time is the best opportunity to shop around and compare rates from other companies, since switching mid-term can sometimes involve cancellation fees.
Rental Reimbursement
Pays for a rental car while your vehicle is being repaired after a covered claim. This coverage typically has a daily limit ($30 to $50 per day) and a maximum number of days (usually 30). Without it, you are responsible for your own transportation costs while your car is in the shop.
Rider
Another name for an endorsement. A modification to your standard policy that adds or changes coverage. Common riders include rental car coverage, custom equipment coverage for aftermarket parts, and rideshare coverage for drivers who work for services like Uber or Lyft.
Roadside Assistance
An optional coverage that pays for towing, flat tire changes, jump starts, lockout service, and fuel delivery if your car breaks down. Usually costs a few dollars per month to add to your policy. Before adding it, check whether your car manufacturer, credit card, or membership (like AAA) already includes roadside assistance to avoid paying twice.
S
Split Limits
A way of expressing liability coverage as three separate numbers, like 100/300/100. The first number is per-person bodily injury, the second is per-accident bodily injury, and the third is property damage. Most states use split limits for their minimum coverage requirements. Higher split limits give you more protection but cost more in premiums.
SR-22
A certificate your insurance company files with the state proving you carry the required minimum coverage. Usually required after serious violations like DUI, driving without insurance, or multiple at-fault accidents. It is not a type of insurance; it is proof of insurance filed on your behalf. SR-22 requirements typically last 3 to 5 years, and any lapse can restart the clock.
Subrogation
The process where your insurance company recovers money from the at-fault driver's insurer after paying your claim. Your insurer pays your repairs first so you are not waiting for the other company, then pursues the other driver's insurer to get reimbursed. If subrogation is successful, you may also get your deductible refunded.
T
Telematics
Technology that tracks your driving behavior (speed, braking, mileage, time of day) through a plug-in device or smartphone app. Insurers use this data to offer usage-based discounts to safe drivers, typically 10% to 40% off your premium. If you are a low-mileage driver or have safe driving habits, telematics programs can lead to significant savings.
Tort
The legal system used in most states where the at-fault driver is responsible for paying the other driver's damages. In tort states (also called at-fault states), you can sue the driver who caused the accident for your injuries and losses. The majority of U.S. states use the tort system for auto insurance claims.
Total Loss
When your car's repair costs exceed its market value (or a threshold set by your state, usually 70% to 100% of value). The insurer declares it a total loss, pays you the car's actual cash value minus your deductible, and takes the vehicle. If you owe more on your loan than the car is worth, GAP insurance covers the difference.
U
Umbrella Policy
Extra liability coverage that kicks in when your regular auto or home insurance limits are exhausted. Typically sold in $1 million increments at a relatively low cost. An umbrella policy protects your personal assets (savings, home equity, investments) if you are sued for a serious accident where damages exceed your standard coverage limits.
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Pays the difference when the at-fault driver's insurance is not enough to cover your injuries or damage. If your medical bills are $80,000 but the other driver only has $50,000 in coverage, underinsured motorist coverage can pay the remaining $30,000. Some states require this coverage; others offer it as an optional add-on.
Uninsured Motorist
Pays for your injuries and sometimes vehicle damage if you are hit by a driver who has no insurance at all. Required in many states. This coverage protects you when the at-fault driver cannot pay. It can also apply in hit-and-run situations where the other driver is never identified.
Usage-Based Insurance
A type of insurance where your premium is based on how much and how well you drive, tracked through telematics. Low-mileage drivers can save significantly compared to traditional policies. Some programs charge a base rate plus a per-mile fee, while others adjust your rate based on driving behavior scores at each renewal.
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