Car insurance glossary

How to use this glossary

Insurance documents use precise words, and small differences matter. A "deductible" is not the same as a "premium," "cancellation" is not the same as "nonrenewal," and "full coverage" is not an official type of policy at all. When a word on your policy or in a letter from your insurer is unclear, look it up here before you sign, pay or argue a claim.

Each term page starts with a short definition, then explains how the term works, often with a simple example in round numbers. Related terms and a link to the full guide come next, followed by the official sources behind the page, such as state insurance departments and the National Association of Insurance Commissioners (NAIC).

Many terms work differently from state to state. Where a term only applies in certain states, such as an FR-44 in Florida and Virginia or choice no-fault in 3 states, the page says so. For the exact rules where you live, check your state's page or your state insurance department.

The 10 terms most people need first

1. Premium: the price you pay for the policy.
2. Deductible: the part of a claim you pay before the insurer pays.
3. Liability insurance: pays for injuries and damage you cause to others.
4. Liability limits: the most your liability coverage will pay, often written like 50/100/25.
5. Collision coverage: pays for damage to your own car in a crash.
6. Comprehensive coverage: pays for theft, weather, fire and other non-crash damage.
7. Full coverage: an informal label for liability plus collision and comprehensive.
8. Uninsured motorist coverage: protects you when the at-fault driver has no insurance or flees.
9. Personal injury protection: pays your own medical costs and more, whoever caused the crash, in many states.
10. Declarations page: the summary page that shows your coverages, limits and deductibles.

When a claim is involved, actual cash value, at-fault and adjuster are the next terms worth knowing. For a fuller picture, our guides on coverage types, costs and claims put these terms in context.

All car insurance terms A to Z

Every term in the glossary, sorted alphabetically. Select a term to read its definition.

A

• Accident forgivenessAccident forgiveness is an insurer's promise not to raise your premium because of a qualifying at-fault accident.
• Actual cash valueActual cash value is what your car was worth just before a loss, usually replacement cost minus depreciation.
• Add-on stateAn add-on state lets drivers get injury benefits from their own policy while keeping the full right to sue the at-fault driver.
• AdjusterAn adjuster is the person who investigates a car insurance claim, inspects the damage and estimates what the insurer should pay.
• Aftermarket partsAftermarket parts are replacement parts made by companies other than the carmaker, also called non-OEM parts.
• Agreed valueAgreed value is a car's value that you and the insurer settle on in advance and write into the policy, common for classic cars.
• Appraisal clauseAn appraisal clause lets you and your insurer settle a dispute over the amount of a loss using appraisers and an umpire.
• ArbitrationArbitration settles an insurance dispute outside court: a neutral arbitrator hears both sides and issues a decision, usually binding.
• Assigned risk planAn assigned risk plan is a state program that places drivers who can't find regular car insurance with an insurer.
• At-faultAt-fault means being legally responsible for a crash; in at-fault states, the responsible driver's insurance pays for the damage.

B

• Bad faithBad faith is an insurer handling a claim unfairly, such as refusing to pay or settle without a reasonable basis or investigation.
• BinderA binder is a short-term agreement that gives you temporary insurance coverage until the insurer issues or delivers the policy.
• Bodily injury liabilityBodily injury liability pays for injuries you cause to other people in a crash, up to your per-person and per-accident limits.

C

• CancellationCancellation is when you or your insurer end a car insurance policy before its normal expiration date.
• Captive agentA captive agent sells and services insurance for one company, or one group of companies, rather than several insurers.
• Choice no-faultChoice no-fault lets drivers pick a policy that limits lawsuits for a lower price or one that keeps the full right to sue.
• ClaimA claim is a formal request asking an insurance company to pay for a loss that may be covered by a policy.
• CLUE reportA CLUE report is a LexisNexis record of your past auto and home insurance claims that insurers check when pricing a policy.
• Collision coverageCollision coverage pays to repair or replace your own car after it hits another vehicle or object, minus your deductible.
• Combined single limitA combined single limit is one liability limit covering all bodily injury and property damage from an accident, instead of split limits.
• Comparative negligenceComparative negligence splits fault between drivers and reduces what each person can recover by their own share of the blame.
• Comprehensive coverageComprehensive coverage pays for damage to your car from causes other than a collision, such as theft, fire, hail, flood or animals.
• Contributory negligenceContributory negligence is a strict fault rule: an injured person who was even slightly at fault cannot recover damages.
• Credit-based insurance scoreA credit-based insurance score is a rating built from your credit history that insurers may use to predict losses and set prices.

D

• Declarations pageThe declarations page summarizes your car insurance policy: who and what is insured, your coverages, limits, deductibles and price.
• DeductibleA deductible is the part of a covered loss you pay yourself before your car insurance pays the rest.
• DepreciationDepreciation is the loss in a car's value from age and wear and tear, which insurers subtract when they pay actual cash value.
• Diminished valueDiminished value is the drop in a car's resale value after it has been damaged in a crash and repaired.

E

• EndorsementAn endorsement is a written change to an insurance policy that adds, removes or alters coverage and overrides the standard wording.
• ExclusionAn exclusion is a policy provision that removes or limits coverage for certain losses, uses, property or people.

F

• Financial responsibility lawA financial responsibility law requires drivers to show they can pay for crash damage and injuries they cause, usually with insurance.
• First-party claimA first-party claim is one you make on your own insurance policy, such as collision or comprehensive, rather than on someone else's.
• FR-44An FR-44 is a certificate your insurer files in Florida or Virginia to prove you carry higher liability limits after a DUI.
• Full coverageFull coverage is an informal term for liability plus collision and comprehensive, not a policy that covers everything.

G

• Gap insuranceGap insurance pays the difference between your car's value and what you still owe on the loan or lease if it is totaled or stolen.
• Garaging addressA garaging address is where your car is mainly kept and driven from, which insurers use to set your price.
• Good driver discountA good driver discount is a lower car insurance rate for drivers with a clean record; California requires insurers to offer one.
• Grace periodA grace period is extra time to pay a premium before coverage ends; car insurance often has no legally required one.

H

• High-risk driverA high-risk driver is someone insurers expect to file more or costlier claims, often because of a DUI, tickets or at-fault crashes.
• Hit-and-runA hit-and-run is a crash in which a driver leaves the scene without stopping to give their information or help.

I

• Independent agentAn independent agent represents several insurance companies and can quote and service policies from each of them.
• Insurance agentAn insurance agent is a state-licensed person or business authorized to sell and service insurance policies for insurers.
• Insurance brokerAn insurance broker is a licensed professional who sells and services insurance on your behalf and may charge a broker fee.
• Insurance fraudInsurance fraud is a deliberate deception to get money or a lower price from insurance that a person is not entitled to.
• InsuredAn insured is any person covered by an insurance policy, including the named insured and others the policy defines as covered.

L

• Lapse in coverageA lapse is a period when your car has no active insurance, usually because a policy ended before new coverage began.
• Liability insuranceLiability insurance pays for injuries and property damage you legally cause to other people, up to your policy limits.
• Liability limitsLiability limits are the most your insurer will pay for injuries and damage you cause, usually shown as three numbers.
• LienholderA lienholder is the lender that has a legal claim on your car until the loan is paid off.
• Loss of useLoss of use is the cost of being without your car while it is repaired or replaced after a covered loss.
• Loss payeeA loss payee is a party, usually your lender or lessor, entitled to share in claim payments for damage to your car.

M

• Medical payments coverage (MedPay)Medical payments coverage pays medical bills for you and your passengers after a crash, whoever caused it, up to a set limit.
• Mini-tort (Michigan)Mini-tort is a Michigan rule that lets a driver recover limited uninsured vehicle damage from the driver who caused the crash.
• Multi-policy discountA multi-policy discount is a lower price for buying more than one policy, such as auto and home, from the same insurer.

N

• Named driver exclusionA named driver exclusion removes coverage when one specific, listed person drives the cars on your policy.
• Named insuredThe named insured is the person or people the policy names as the insured, usually shown on the declarations page.
• No-fault insuranceNo-fault insurance means your own policy pays your injury costs after a crash, whoever caused it, and lawsuits are limited.
• Non-owner car insuranceNon-owner car insurance is a liability policy for people who drive but do not own a car, covering harm they cause to others.
• NonrenewalNonrenewal is an insurer's decision not to continue your policy after its current term ends.

O

• OEM partsOEM parts are replacement parts made by or for the vehicle's original manufacturer, as opposed to aftermarket parts.

P

• Permissive usePermissive use means someone drives your car with your permission, which most policies cover unless that driver is excluded.
• Personal auto policy (PAP)A personal auto policy is the standard car insurance contract for privately owned vehicles used for personal driving.
• Personal injury protection (PIP)Personal injury protection pays medical bills and often lost wages for you and your passengers after a crash, regardless of fault.
• Policy termThe policy term is the period your car insurance is in effect, from the effective date to the expiration date.
• PolicyholderThe policyholder is the person who owns the insurance contract and pays its premium, also called the first party.
• PremiumA premium is the price you pay an insurer for your policy, usually set for each policy term.
• Primary and secondary coveragePrimary coverage pays first when more than one policy applies; secondary or excess coverage pays only after the primary is used up.
• Proof of insuranceProof of insurance is a document or record showing your vehicle has the liability coverage your state requires.
• Property damage liabilityProperty damage liability pays for damage you cause to other people's vehicles and property, up to your policy's limit.
• Property protection insurance (PPI)Property protection insurance is a required Michigan coverage that pays for damage your car does to other people's property in Michigan.

R

• Rate filingA rate filing is the set of rates and rating rules an insurer submits to a state insurance regulator for review.
• Rating factorsRating factors are the characteristics insurers use to calculate your premium, such as driving record, location and vehicle.
• ReinstatementReinstatement means restoring something that was canceled or suspended, such as an insurance policy or driving privileges.
• Rental reimbursementRental reimbursement is optional coverage that pays for a rental car while yours is being repaired after a covered claim.
• Replacement costReplacement cost is the amount needed to replace damaged property with new property of similar kind and quality, without depreciation.
• Rideshare endorsementA rideshare endorsement is an add-on to a personal auto policy that extends coverage to time spent driving for a ride-hailing app.
• Roadside assistance (towing and labor)Roadside assistance, or towing and labor coverage, pays for help when your car breaks down, such as a tow or a jump-start.

S

• Salvage titleA salvage title is a branded title a state issues for a badly damaged car, often after an insurer declares it a total loss.
• Short-rate cancellationShort-rate cancellation lets an insurer keep part of your unearned premium when you cancel early, so your refund is below pro rata.
• SR-22An SR-22 is a certificate an insurer files with the state to prove a driver carries the required liability insurance.
• Stacking (stacked coverage)Stacking lets you add together the uninsured motorist limits for each car on your policy to get a higher limit for one accident.
• State insurance departmentA state insurance department is the government agency that regulates insurers and agents and helps insurance consumers in that state.
• SubrogationSubrogation is your insurer's right to recover the money it paid on your claim from the party who caused the loss.
• SurchargeA surcharge is an extra charge added to your premium, usually after an at-fault accident or a moving violation.

T

• Telematics (usage-based insurance)Telematics is technology that records how, when and how much a car is driven, used by insurers for usage-based pricing.
• Third-party claimA third-party claim is a claim you make against someone else's insurance policy, usually the at-fault driver's liability coverage.
• Tort thresholdA tort threshold is the injury severity or medical cost level you must reach in a no-fault state before suing the at-fault driver.
• Total lossA total loss is a car so damaged that repairs would cost too much compared with its value, so the insurer pays its value instead.

U

• Umbrella insuranceUmbrella insurance is extra liability coverage that pays after the limits of your auto or home policy are used up.
• Underinsured motorist coverage (UIM)Underinsured motorist coverage pays you when the at-fault driver has insurance, but not enough to cover your losses.
• UnderwritingUnderwriting is how an insurer evaluates your risk to decide whether to insure you and at what price.
• Uninsured motorist coverage (UM)Uninsured motorist coverage pays for your injuries, and sometimes car damage, when the at-fault driver has no insurance.
• Uninsured motorist property damage (UMPD)Uninsured motorist property damage pays for damage to your car caused by a driver who has no insurance.

V

• VIN (vehicle identification number)A VIN is the unique code a manufacturer assigns to each vehicle, used to identify it on titles, registrations and insurance policies.