The Most Confusing Auto Insurance Terms Every Driver Should Know
When it comes to navigating new insurance policies, it’s easy to get confused by all the jargon that comes your way. However, you must understand all the confusing terms in order to make the best decisions to protect your car and yourself. Whether you’re in the market for a new car or need to navigate your current car insurance , here are some of the basic terms you need to know.
Basic auto insurance terms you should know
These are some of the most common auto insurance terms and conditions, listed alphabetically.
Forgiveness of accidents
Additional coverage to your insurance policy that will not increase your rate as a result of your first faulty accident. You may qualify for this additional insurance if you have five years of accident-free driving.
Actual Cash Value (ACV)
The amount needed to replace damaged or stolen property, less depreciation. You can also see that this is technically defined as “replacement cost less depreciation”. ACV does not replace your property, but refunds you for its value at the time of loss.
Amendment
Changing the main policy agreement. An amendment changes a policy, not to be confused with an approval that supplements it.
Anti-theft device
Vehicle anti-theft device. This is good to know because these devices may qualify you for a discount on your insurance premiums.
Assigned Risk Plan (AIP)
If the insurance company thinks you are too risky (i.e. too costly) to cover the costs, you must get coverage under a government-mandated risk plan. Unfortunately, these plans cost more than regular car insurance.
Guarantee
The one who has an insurance policy. Means the same as the insured or policyholder.
binder
Interim agreement that the policy is in effect; this is used to protect the policyholder when it is not possible to issue or validate the policy immediately.
Collision coverage
This will make up for the damage done to your car, no matter who is at fault. It’s a wise move (or even mandatory) to get collision insurance for a new car, especially if you’re funding it. However, for a very old used car, this may not be necessary.
Comprehensive coverage
This pays for damage to your vehicle outside of the scope of a collision with another vehicle. Think of a hailstorm, a fire, a reckless deer, or a reckless deer that set your car on fire during a hailstorm.
Don’t get confused by the wording here – full coverage is not a description of your policy, but instead refers to the specific additional coverage of an existing policy.
Comparative negligence
It states that when an accident occurs, each side’s negligence is compared to the other’s negligence to assign blame. This allows insurers to pay insurance claims accordingly.
Franchise
As with other types of insurance, this is the amount you pay out of pocket on demand before your insurance covers the rest. The higher your deductible, the lower your monthly payments.
Announcement Page
This is a summary of your coverage.
Full coverage
Don’t get your hopes up – full coverage is not as full and complete as it seems. “Full coverage” is not an actual type of coverage, but a general description used to describe a policy that combines liability, full coverage, and collision insurance.
Gap insurance
This type of insurance covers the difference (gap) between the current value of the vehicle and the amount you actually owe for it. The key here is that the value of your car starts to depreciate as soon as you drive out of the dealership. Generally speaking, your policy will only cover costs lower than what the car was worth when you first bought it.
If you’re renting or paying for a car, then it’s worth considering gap insurance. For those who are in full control of their trip, no break insurance is needed.
Liability Insurance
Covers damage and injury to the other party in an accident caused by you, but does not cover what happened to you or your vehicle. There are two types of liability insurance: personal injury liability and property damage liability. This is the minimum insurance amount you need.
Material damage
All losses associated with damage to property are covered by the policy.
insurance without fault
Blaming is the worst part of the insurance game. No-fault insurance simplifies things by stating that each party’s insurance will pay out the insurance claim to the policyholder, regardless of who was technically at fault. It does not cover property damage.
Personal Injury Protection Equipment (PIP)
If you drive in good condition, this is the basic required coverage. Details vary by state, but in general, PIP covers medical expenses, lost wages, and other accident-related expenses, regardless of who caused the accident.
SR-22, Certificate of Financial Responsibility (CFR)
SR-22 or CFR is a government-issued certificate to verify that an individual maintains auto insurance liability coverage. In other words, it is proof of insurance for someone who has had their driver’s license suspended for some reason. If you need one of these, you will be notified by your state Department of Motor Vehicles.
subrogation
This is called a chargeback or “subro” when your insurance company asks for a refund from the culprit after they’ve covered your claim.
total loss
When your car is beyond repair. TEAR.
umbrella insurance
Simply put, this type of insurance provides additional coverage over and above the existing limitations of your other policies.
underwriting
This is when the insurance company evaluates whether they will approve the applicant for coverage.
Of course, the above list only scratches the surface of the complex world of auto insurance. For more terms, use the GEICO glossary search tool here .