It is very helpful to know some of the terminology when buying or looking for an automobile insurance. These terms are not as complicated as you may think and they will stay in mind once you learn them. Otherwise, it may be confusing to go over coverage. Every policyholder should know at least the basics so that they are not scared when they see the documents or when they are talking to agents and brokers. Let’s go through them in alphabetic order.
A licensed person whose job is to evaluate the loss and recommend the settlement amount. They usually work for carriers but people can employ their own too.
A licensed person to solicit and service policies. They usually are tied to one or a group of companies and therefore they cannot be impartial when advising clients.
It is a state of being held as the responsible driver for an accident. Generally, they or their insurers end up paying for own and third party losses.
You will see three numbers when you are buying liability. They represent (in the $ thousands) maximum policy limits per-person, for all persons injured in any one accident, and property damage in that order. Most states require mandatory minimum car insurance and you have the option of purchasing more.
Auto Liability Insurance
It is a protection in case others hold you legally responsible for bodily injury and/or damage to property incurred as a result of a vehicle accident. This is a general term that includes bodily injury (BI) and property damage (PD) liability.
BI pays for other people hurt when the vehicle’s driver is legally at fault. The costs can be large since it is difficult to estimate these things.
A licensed person who usually can sell for many companies. That is why they can search the market, find the best deal and report back.
A compensation request made to an insurance company for a loss suffered as a result of a listed peril.
It is the types of protections included in a policy and maximum amounts payable under each component. In case of an auto, it usually includes liabilities, collision, comprehensive, personal injury protection and UMC.
It compensates own vehicle damages when it collides with another auto, wall, road fixings and anything else, including rolling over on its own. It also can come into play if you hit a pothole that severely harms the car. It is optional.
It deals with theft, vandalism, windscreen, fire, hail storms, flood, falling objects, hitting an animal and anything else that doesn’t involve a collision. The upper limit for both collision and comprehensive is the auto’s open market value.
The first page of a policy that generally includes the name, address, property, description, period, premium, amount of coverage and additional specific information relating to this risk.
This is an out-of-pocket expense that you agree to pay up to a set amount, such as $250 or $1,000. If you can afford to carry a higher deductible you can probably lower costs.
Tangible, out-of-pocket expenses, such as medical bills, rehabilitation costs, lost wages and essential services.
An amendment to a policy, creating a change in the original terms. It is used for things like excluded persons and custom parts.
A provision in an insurance contract that removes coverage for certain risks or persons.
The three years immediately preceding the date of application or the preparation of renewal.
A person who is related to you by blood, marriage or adoption, including a ward or foster child, and live with you in the same address.
Financial Responsibility Law
Typically, this refers to the law that requires motorists to have at least minimum enforced vehicle insurance. It is the case in 47 states and the District of Columbia. However few of them also permit a bond or cash deposit as evidence of the ability to pay for negligence in causing losses to others while operating an automobile.
It is the underwriter of policy contracts. They control every aspect of it including acceptability of risks, amount of premium to be charged, settlement process, and investment of funds.
The maximum amount a carrier would spend in case of claims.
The person or persons protected by the contract. They pay the premium and they benefit from its provisions.
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).
It is 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 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 carriers without having to prove that anyone is at fault in an accident. Motorists may only sue for injuries and for pain and suffering if the 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 policies 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
This usually handles hospital bills for you and the family members, loss of wages and funeral costs, regardless of who caused the accident, up to the limits. PIP is sold in states with traditional tort laws but it is compulsory in no-fault systems. Where PIP is optional, drivers may choose to rely on health plans for such expenses.
Property Damage Liability
It 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 the coverage.
Premium Finance Company
There are a few of them that help motorists finance premiums for a fee or interest. Often people think that they reached an installment agreement with a carrier but it may actually be a finance company that settles it for them and collect the installments.
This is the cost of a unit of insurance (usually $1,000 worth). It is based on the history of loss experience for similar risks. When determining a premium chargeable to a particular applicant an underwriter looks at past loss experience from a group of drivers with similar age, gender, marital status and DMV record as the applicant. Then, other factors like make and model of the car, zip code and competition in the market are added into the equation.
The industry is state regulated and 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 ones.
A third party is anyone other than the policyholder (first party) and the family members covered under the policy. The carrier is the second party in the contract. Anyone else is a third party. They claim on it if the listed drivers cause them harm in any way.
it is a cut-off point and meeting it allows people to file a lawsuit to attempt to recover damages for bodily injury, such as “pain and suffering,” from the person 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 Motorist Coverage (UMC)
It pays (up to the limit) the policyholder and family when they’re injured as a result of an accident where the at-fault driver is uninsured or a hit-and-run. This also comes in a second form – UMPD – to cover damage to the vehicle if hit. However, most people do not purchase the second form because they carry collision and comprehensive.
Verbal (or Descriptive) Threshold
A description of the type of serious injury a person must sustain before being allowed to file a lawsuit for it against the driver who caused the accident.