Key Terms for Understanding Car Insurance Quotes

Simple, easy-to-understand definitions to help you understand the world of car insurance.

NerdWalletMay 20, 2019

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A glossary of auto insurance terms can really help you understand your policy as you deal with a claim. It can also help you compare car insurance rates accurately as you’re shopping for car insurance.

Here are no-nonsense definitions of common insurance terms.

Car insurance definitions

Term

Definition

Additional insured

A household member of the policyowner, who is also covered by the policy as a driver — typically all licensed drivers in the home aside from the primary driver.

At-fault accident

A crash that you cause, either partially or completely. After an at-fault accident, your liability insurance pays out up to the chosen limits for other people's injury and property damage bills, plus your legal defense costs if you're sued.

Auto insurance claim

A request for payment from your car insurer to cover vehicle repairs, injury treatment or other costs.

An estimate of how much a company will charge you for car insurance.

Pays to fix your vehicle if you cause a crash or have a one-car accident, such as hitting a tree. Typically required with an auto loan.

Pays to repair your car after animal collisions, and also covers a specific list of noncollision issues — including car theft, falling objects and fire, among others. Typically required with an auto loan.

Covered incident (or covered accident or covered risk)

Something your policy will pay for.

Declarations page

A page in your policy listing its most important details, including your car’s VIN and other information, your address, drivers insured on the policy, liability limits and included coverage.

Deductible

Predetermined amount your insurer subtracts from your settlement for collision and comprehensive claims. If your car repairs cost $5,000 and your deductible is $500, you'll get a claim check for $4,500.

Choosing a higher deductible means cheaper rates, but your insurer pays less if a claim occurs. Deductibles do not apply to liability claims.

Effective date

The exact day your auto policy starts. You're not covered for accidents that happen before this date.

Exclusion

Something your policy won't pay for.

A policy that includes liability insurance plus collision and comprehensive coverage.

If your car is totaled or stolen, pays the difference between its dollar value and your remaining auto loan balance, if the balance is the higher number. Sometimes required with an auto loan.

Pays for others' injury treatment and property damage if you cause a crash, as well as your legal defense costs if you're sued.

Liability limits often appear in shorthand numbers — for example, 100/300/50 means you have up to $100,000 bodily injury coverage for each injured person, up to $300,000 bodily injury coverage per crash and up to $50,000 property damage coverage per crash.

Limit

The maximum amount your policy will pay for a given accident. Each coverage type has its own limits.

Medical payments coverage (MedPay)

Pays for your own injury treatment and that of your passengers no matter who caused the crash up to your policy limit.

Similar to MedPay, PIP pays for your injury treatment and that of your passengers regardless of who caused the accident. It also pays for some costs that MedPay won't, such as lost income and physical therapy.

Primary use

How you most commonly use your vehicle, such as for commuting, pleasure or business.

Premium

The cost of your auto insurance, either monthly, yearly or per six-month period.

Official document some states require to prove you have sufficient car insurance. The SR-22, filed by your insurance company, allows you to keep or reinstate your driving privileges after serious or repeated traffic-related offenses, such as DUIs or driving without insurance.

The car insurance coverages and limits that states require their residents to carry. These limits are often very low and would be insufficient if you caused a large accident.

Underwriting

The insurance company's process of evaluating how risky you are, based on factors such as your vehicle, location, accident history, credit and age. An insurer uses its underwriting findings to calculate your rates.

If you're hit by a driver who lacks car insurance or has insufficient insurance, your coverage for uninsured/underinsured motorist bodily injury (or UMBI/UIMBI) pays for treatment of your injuries and those of your passengers, while coverage for uninsured/underinsured motorist property damage (or UMPD/UIMPD) pays to repair your car.

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