Car Insurance 101: Glossary of Terms

Understanding relevant car insurance terms is essential to choosing a good car insurance policy.

Danny Smith
Written byDanny Smith
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Danny Smith
  • Licensed auto and home insurance agent

  • 4+ years in content creation and marketing

As Insurify’s home and pet insurance editor, Danny also specializes in auto insurance. His goal is to help consumers navigate the complex world of insurance buying.

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Katie Powers
Edited byKatie Powers
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Katie PowersAuto and Life Insurance Editor
  • Licensed auto and home insurance agent

  • 3+ years experience in insurance and personal finance editing

Katie uses her knowledge and expertise as a licensed property and casualty agent in Massachusetts to help readers understand the complexities of insurance shopping.

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Updated August 14, 2024

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Basic car insurance terms

Below are some of the most essential car insurance terms you’ll likely see in your insurance policy. Understanding car insurance terms and coverages is important when comparing car insurance quotes and companies.

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Claim

An insurance claim is a request the policyholder submits to the insurer for payment to cover vehicle damages, medical costs, and other expenses after a covered event.

Coverage

Your coverage is what your car insurance policy covers. Liability coverage is generally the minimum amount of coverage your state will require you to carry.

Deductible

Your deductible is the amount that you, the policyholder, will need to pay out of pocket when making a claim before your insurance company begins to pay. For example, if you have a $500 deductible, you’ll need to pay $500 before your insurer covers the remaining physical damage or loss.

Premium

A premium is your monthly car insurance payment. Insurance companies often also refer to this as your rate.

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17 Factors That Affect Car Insurance Rates

Quote

A quote is an estimated price from a car insurance company for how much your policy would cost based on your unique driving characteristics.

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Insurance players

This section covers the different relevant players involved in the car insurance process. It’s important to understand who these people are and how each plays a role in your car insurance policy.

Insurance agent

An insurance agent is a person who sells insurance policies on behalf of an insurance company. Insurance agents are either captive or independent. An independent insurance agent represents multiple insurance companies, while a captive insurance agent only represents one.[1]

Insurance broker

An insurance broker is someone who helps drivers navigate insurance policies. While they help you find a policy like an insurance agent, an insurance broker represents you, not the insurer. That said, brokers don’t underwrite insurance policies.

Insurer

An insurer — also known as an insurance company — is a company that provides a car insurance policy to an insured person, issued in a written agreement with an effective date.

Policyholder

The policyholder is you, the driver. Also known as the insured, the policyholder enters into an insurance contract with an insurer for a car insurance policy at an agreed-upon premium charge.

Main car insurance coverages

This section will cover the main car insurance coverages you’ll need to know and consider when buying a policy.

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    Collision

    Collision coverage pays for vehicle repairs after a collision with another vehicle or object, regardless of whether you’re the at-fault driver. It’s one of the main components of a full-coverage insurance policy.

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    Comprehensive

    Comprehensive insurance pays for damages to your vehicle caused by something other than a collision, such as vandalism, falling objects, or severe weather. It’s the other main component of full coverage.

  • illustration card https://a.storyblok.com/f/162273/x/73ee7a876e/repair.svg

    Full coverage

    Full coverage is the name for a car insurance policy that includes your state’s minimum liability insurance requirements, collision coverage, and comprehensive coverage. It’s generally a good idea to carry full coverage because it provides the most thorough protection from financial loss. If you lease or finance your car, your lender will probably require you to have full coverage.

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    Liability

    Liability insurance covers loss and damages for the other driver in the event of a claim. A liability policy includes bodily injury liability coverage, which covers injuries you cause to another driver or passenger, and property damage liability insurance, which covers damage you cause to another driver’s car or the property of others. It can also cover your legal defense costs if the other driver sues you.

  • illustration card https://a.storyblok.com/f/162273/x/4c9753bdbe/medical-payments.svg

    Medical payments

    Medical payments (MedPay) covers the injuries and medical expenses of the insured driver or a family member who’s driving. It also covers the passengers of the insured vehicle.

  • illustration card https://a.storyblok.com/f/162273/x/e30eeeebc5/personal-injury-protection.svg

    Personal injury protection

    Personal injury protection, commonly referred to as PIP, is similar to medical payments. It covers injuries to the driver and passengers, but it’s more comprehensive. It often also covers lost wages, funeral expenses, and other costs.

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    Uninsured/underinsured motorist

    Uninsured/underinsured motorist coverage pays for damages caused by a driver who has no car insurance or insufficient insurance to pay for the damages. It also covers you if you’re the victim of a hit-and-run. This is often an optional coverage.[2]

Common car insurance endorsements

This section will touch on some of the most common car insurance endorsements that you can add to your auto policy. Also known as riders, endorsements are supplemental coverages that allow you to increase your policy’s effectiveness and, in some cases, save money.

Accident forgiveness

Accident forgiveness is an endorsement that some car insurance companies offer to allow you to maintain your car insurance rates after your first motor-vehicle accident.

Custom parts and equipment value

This coverage pays for the replacement or repair of custom parts that you’ve permanently installed into your vehicle, such as custom electronics or specialty wheels.

Gap insurance

Gap (guaranteed asset protection) insurance covers the financial difference between how much you owe on your car and its actual cash value in case you total it before paying it off.

Rental reimbursement

Rental reimbursement coverage is an endorsement that covers the cost of a rental vehicle following covered damage or total loss.

Rideshare

A rideshare endorsement covers your car if you decide to use it while driving for a rideshare company such as Uber or Lyft. It’s important to note that if you have an auto accident while driving for a rideshare company, your standard auto insurance won’t cover the damages.

Roadside assistance

Roadside assistance is a common endorsement you can add to your policy that can cover the cost of a tow truck, a battery jump, or spare-tire installation.

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How Much Car Insurance Do You Need?

Specialty and non-standard car insurance terms

This section will cover less common car insurance terms that come up in non-standard car insurance situations.

Classic car

Classic car insurance is just what it sounds like. It’s car insurance specially designed for classic or antique cars, which often have difficult parts to find and are expensive to repair.

Pay-per-mile

Pay-per-mile insurance is a type of car insurance policy for people who don’t drive very often. Pay-per-mile policyholders pay a base rate for each day and then a set amount per mile.

SR-22/FR-44

SR-22 and FR-44 certificates are documents of financial responsibility that show proof of coverage. Typically, only people who have serious offenses on their driving records, such as DUIs, need these forms. Your insurance company will have to file this for you with your state.

Telematics program

A telematics program is an increasingly common program that tracks how you drive, ultimately rewarding safe drivers with lower premiums. Telematics programs typically require you to install a device in your car or use an app on your phone to track your driving patterns.

Usage-based

Usage-based car insurance is a type of car insurance that tracks how drivers use their vehicle and their driving habits. It often utilizes a telematics device to track this data and set a premium based on it. Safe drivers typically earn cheaper rates or auto insurance discounts.

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Policy terms

This section covers some other important policy terms that you should know when buying a policy. Knowing how car insurance works can help you determine the coverage you need.

Covered peril

A covered peril is an event that your car insurance company will cover. For example, an auto policy with comprehensive insurance would cover a branch falling onto your car.

Declarations page

The declarations page is typically in the front of your car insurance policy. It summarizes your policy, its coverages, your deductible and premium, and other basic information.

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How to Read Your Car Insurance Policy

Endorsement

An endorsement is something that you add to your policy for a specific coverage purpose. Also known as a “rider” or “add-on,” an endorsement strengthens your policy in a specific area for an increased premium.

Exclusions

Exclusions are events your policy explicitly won’t cover. A common example of a car insurance exclusion is the theft of personal property or personal belongings.

Insurance lapse

An insurance lapse refers to when you have a registered car but no car insurance. This can happen if you don’t renew your policy or your insurer drops you. You’ll need to get a new car insurance policy before getting on the road again.

Grace period

In car insurance, a grace period is a set amount of time during which car insurance coverage still applies after a policyholder fails to make a premium payment. This period often lasts between one week and 30 days.

Liability limits

Liability limits are the maximum amount that your car insurance company will pay in a given insurance claim or policy period. You have a say in how high your liability limits are — the higher they are, the more expensive your policy will be.

Policy period

Your policy period is the specified period of time your car insurance policy is effective. Insurance companies typically issue car insurance policies in 6-month or 12-month periods.

Renewal

Renewal is the process of renewing your car insurance coverage at the end of your given policy period. This is often a fairly straightforward process — many companies offer an automatic renewal option.

Car insurance terms FAQs

Understanding car insurance and all its details can be challenging. Check out these answers to some of the most commonly asked questions about car insurance terms.

  • What are the common mandatory parts of an auto insurance policy?

    The three common mandatory parts of an auto insurance policy are bodily injury liability coverage per person, bodily injury liability insurance per accident, and property damage coverage per accident.

    These three coverages make up most states’ minimum auto insurance requirements, though the exact requirements vary by state law. Some states also require uninsured motorist coverage, personal injury protection, and medical payments coverage.

  • What’s the difference between collision and comprehensive insurance?

    Collision insurance covers vehicle repairs after a collision with another car or object. Comprehensive insurance covers damages to your car caused by something other than a collision, such as severe weather, vandalism, or falling objects.

  • How much insurance coverage do you need?

    How much insurance coverage you need depends on your specific situation. First, you’ll need to carry your state’s minimum auto insurance requirements. Then, consider how you use your vehicle.

    If you drive frequently, you should probably carry full coverage. And if you have a loan or lease on your car, your lender will likely require you to carry full coverage, anyway.

  • What factors can affect my insurance premium?

    Insurers consider different factors when setting your car insurance premium — namely your driving record. If you have a history of getting into accidents or speeding, or if you have a DUI, you’ll likely pay much higher rates than your peers with clean driving records. Age, gender, location, and credit history can also affect insurance premiums.[3]

Sources

  1. National Association of Insurance Commissioners. "Glossary of Insurance Terms."
  2. Insurance Information Institute. "What is covered by a basic auto insurance policy?."
  3. Insurance Information Institute. "What determines the price of an auto insurance policy?."
Danny Smith
Danny Smith

Danny is a Brooklyn-based writer with a producer’s license for property and casualty insurance. A former editor at Insurify, he specializes in auto, home, and pet insurance. He works to translate his insurance expertise into digestible, easy-to-understand content for drivers, homeowners, and pet owners alike.

Danny has been a contributor at Insurify since March 2022.

Katie Powers
Edited byKatie PowersAuto and Life Insurance Editor
Photo of an Insurify author
Katie PowersAuto and Life Insurance Editor
  • Licensed auto and home insurance agent

  • 3+ years experience in insurance and personal finance editing

Katie uses her knowledge and expertise as a licensed property and casualty agent in Massachusetts to help readers understand the complexities of insurance shopping.

Featured in

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