It is very helpful to know some of the terminology when you are buying or looking at your auto insurance policy. These terms are not as complicated as you may think and they will stay in your mind once you learn them. Otherwise, it may be confusing to go over your vehicle insurance coverage. Every policyholder should know at least the basics so that they are not scared when they see a policy document or when they are talking to the insurer, broker or agent.
A person licensed by the Department of Insurance whose job is to evaluate the amount of loss and to recommend the amount the insurance company will pay.
A person licensed by the Department of Insurance to solicit and service insurance policies.
The person (driver) who caused the accident.
You will see three numbers when you are buying liability coverage. They represent (in the $ thousands) your liability limits for per-person bodily injury, bodily injury for all persons injured in any one accident, and property damage liability. Most states require mandatory minimum coverage and companies offer the option to purchase more. Find out why is car insurance mandatory?
Auto Liability Insurance
Protection in case others hold you legally responsible for bodily injury and/or damage to property losses incurred as the result of a motor vehicle accident. In other words, coverage in case you cause an accident where there is either physical or property damage to other people. This is a general term that covers bodily injury (BI) liability and property damage (PD) liability. See explanation of limits, above.
Bodily Injury Liability Insurance (BI)
BI pays for injuries to other people when the insured vehicle’s driver is legally at fault.
A request made to an insurance company for payment of a loss as a result of insured perils.
The amount of risk covered by an insurer. This generally mean the upper limits of your policy or maximum amounts your insurance company would pay. Also, it generally means the whole coverage including liabilities and protection of your automobile and your family.
Optional coverage for when your car is damaged as a result of colliding with another object—a brick wall, for example, or a rollover. It also can come into play if you hit a pothole that severely damages your car. This insurance applies only to your car. It doesn’t cover whatever the car collided with (that’s what your property damage liability is for).
Optional coverage for when your car is stolen or damaged in ways that don’t involve a collision. Examples include: hail damage, glass breakage, fire, vandalism, damage from an animal, flood, earthquakes, falling objects and theft. The price of comprehensive insurance is affected by the risk of loss, meaning the likelihood that an insured car will be stolen or damaged, and the car’s value at the time of the loss.
The first page of the insurance policy that generally includes your name, address, the insured property, its location and description, the policy period (how long the coverage will be in force), the amount of the insurance coverage, the premiums and additional specific information provided by the insured.
This is your out-of-pocket expense that you agree to pay for losses up to set amount, such as $250 or $1,000. If you can afford to carry a higher deductible on collision and comprehensive coverage, you can substantially lower your costs.
Tangible, out-of-pocket expenses, such as medical expenses, rehabilitation expenses, lost wages and essential services.
An amendment to an insurance contract, creating a change in the original terms.
A provision in an insurance contract that removes coverage for certain losses or property.
The three years immediately preceding the date of application or the preparation of renewal.
A person related to you by blood, marriage or adoption who is a resident of your household,
including a ward or foster child.
Financial Responsibility Law
Typically, this refers to the law that requires motorists to have auto insurance, however most states also permit a bond or cash deposit as evidence of the ability to pay for negligence in causing losses to others from the operation of a motor vehicle. In 47 states and the District of Columbia, it is illegal to operate a vehicle without obtaining proof of insurance.
The insurance company that is underwriting the contract of insurance.
The maximum amount the insurance company will pay in the event of a loss.
The person or persons covered by the insurance contract.
Personal Injury Protection (PIP)
This coverage (usually optional) pays the doctor, hospital bills, and funeral expenses for injuries to you and the passengers in your car, regardless of who causes the accident, up to the policy limits. PIP is sold in states with traditional tort insurance laws. In states where PIP is optional, drivers may choose to rely on their own and their passengers’ own health insurance to cover resulting injuries. Most insurance companies offer a wide range of coverage amounts.
In some “no-fault” states, a dollar amount for medical and rehab expenses that must be reached in order to file a lawsuit for damages for non-economic damages (i.e. pain and suffering) against the driver who caused the accident. For example, under Colorado’s old no-fault law, you could sue for pain and suffering if you racked up a threshold of $2,500 in medical expenses (nullifying the no-fault law). See verbal threshold.
The failure to act as a reasonably prudent person would have acted under similar circumstances.
No-Fault Auto Insurance
There are different versions of no-fault auto insurance laws in 12 states and Puerto Rico. In theory, the system is supposed to discourage lawsuits by allowing policyholders to recover financial losses from their own insurance company without having to prove that anyone is at fault in an accident. Motorists may only sue for injuries and for pain and suffering if their case meets certain minimum conditions. Seven states, including Utah, require that you meet a minimum dollar threshold to be able to bring a lawsuit over damages over and above your economic losses. Florida, Michigan, New Jersey, New York and Pennsylvania use a verbal description as a threshold (i.e. severe disfigurement, disability or death). In New Jersey, Pennsylvania and Kentucky, motorists may choose to reject the lawsuit threshold on their insurance policy and keep their right to sue for any auto-related injuries.
Intangible benefits, such as pain and suffering, inconvenience, emotional stress, impairment of quality of life, loss of consortium, etc.
Personal Injury Protection (PIP)
This a package of first-party medical benefits that provides broad protection for medical costs, lost wages, loss of essential services normally provided by the injured person (i.e. childcare, housekeeping), and funeral costs. It is usually associated with a no-fault auto insurance system.
Property Damage Liability (PD)
This coverage is for when you damage someone else’s property with your vehicle. Usually it’s someone’s car, but it can apply to other property such as buildings, utility poles, fences and garage doors.
The amount paid in consideration for an insurance policy.
Premium Finance Company
A lending institution approved by the North Carolina Department of Insurance, which finances insurance premiums for a fee.
This is the cost of a unit of insurance (usually $1,000 worth). Insurance is based on the history of loss experience for similar risks. What a driver pays for auto insurance is based in part on past experience by that company with drivers categorized by similar factors such as age, gender, marital status, driving record and make and model of car.
The insurance industry is state regulated. State insurance laws are administered by insurance departments whose job includes approval of rates and policy forms, investigation of company practices, review of annual financial statements, periodic examination of books and liquidation of insolvent insurers.
In an insurance contract, a third party is anyone other than the policyholder and the family members covered under the insurance policy. The policyholder is the first party. The insurance company is the second party in the contract. Anyone else is a third party.
A cutoff point, which, if met, allows the injured person to file a lawsuit to attempt to recover damages for bodily injury, such as “pain and suffering,” from the driver who caused the accident.
A wrongful act resulting in damage or injury, on which a civil action can be based. This does not include breach of contract.
Uninsured/Underinsured Motorist Coverage (UM)
It pays (up to the coverage limit) the insured person and other passengers in the vehicle when they’re injured as the result of an accident where the at-fault driver is uninsured, underinsured or a hit-and-run. This also comes in a second form – UMPD – to cover damage to your vehicle if hit by an uninsured or underinsured driver. However, most people do not purchase the second form because they carry collision and comprehensive coverage.
Verbal (or Descriptive) Threshold
A description of the type of serious injury a person must sustain before being allowed to file a lawsuit for damages for bodily injury against the driver who caused the accident. See monetary threshold.