Glossary of Car Insurance Terms

Accident Forgiveness

If you're at fault in an accident, your car insurance premiums could increase by as much as 50%. Accidents will likely stay on your record for three to five years, depending on your insurer and state. Accident forgiveness is extra coverage you can add to your policy to prevent your premium from going up after an at-fault accident. Some insurers offer it as a free perk as part of their loyalty program.

Actual Cash Value (ACV)

Your car's actual cash value will affect how much your insurer will pay if your vehicle is stolen or totaled. Every insurance company uses its own formula to calculate ACV, but it usually considers the car's current market value, condition and depreciation. Your insurer might also rely on third-party estimation data and tools, as well as the input of an insurance adjuster or appraiser.

Aftermarket Parts

When making car repairs, you might be able to choose between original equipment manufacturer (OEM) car parts or aftermarket parts. Aftermarket parts are manufactured by third-party providers, not the original manufacturer. They're meant to provide a cheaper alternative to OEM parts, though price and quality can vary greatly. Using aftermarket parts after a collision might also affect the car's value.

Anti-Theft Device

Anti-theft devices could help deter criminals and prevent break-ins. In some cases, installing one might even reduce your insurance rate. Some common anti-theft devices include dash cams, smart keys, steering wheel locks and vehicle tracking tools.

Appraisal

A car appraisal can give you an idea of how much your vehicle is worth. You might get your car appraised if you're planning on selling it or trading it in. You can do this through a professional appraiser, a car dealership or online appraisal tool.

Learn more: Do Safety Features Lower Car Insurance?

Binder

When buying or leasing a car, you'll need an active car insurance policy right away. But it might take a few days for the insurance company to finalize the policy. An insurance binder provides proof of insurance so that you can start driving before your policy is issued.

Bodily Injury Liability

Most states require drivers to carry some level of liability insurance. Bodily injury liability covers another person's medical bills and funeral costs if you cause an accident. That includes other drivers and their passengers. It also covers lost wages if their injuries prevent them from working. And if they choose to sue you, it can help pay your legal costs.

Learn more: Factors That Impact Liability Car Insurance Rates

Claim

If you experience a covered event, you'll need to file an insurance claim with your insurer to receive a payout. You'll likely fill out a form to document the details of what happened and request payment. You might file a claim if you're in an accident, your car is stolen or your vehicle is damaged by extreme weather.

Learn more: How to File a Car Insurance Claim

Collision Coverage

Collision insurance covers damage to your car that's caused by a collision when you're driving—whether that's with another car or a telephone pole, or if you roll your car or sustain damage from a pothole. It's optional at the state level, but your lender might require you to carry a minimum amount of collision coverage.

Comprehensive Coverage

If you're the victim of a break-in or your car is stolen, comprehensive car insurance can help cover your losses. Personal belongings that are stolen from your vehicle won't be covered by your car insurance policy, but your renters or homeowners insurance might provide some protection.

Declaration Page

This is the page of your car insurance policy that provides the nuts and bolts of your plan. It typically includes your name and address, your covered vehicles, your insurance start date, your premium amount and your coverage limits. The declaration page is generally the first page of your policy.

Deductible

If you file a car insurance claim that gets approved, you'll need to pay up to your deductible amount before your policy picks up their share. Your deductible will depend on your coverage and premium. Generally speaking, the higher your deductible, the lower your premium (and vice versa).

Endorsement

An endorsement allows you to modify your car insurance policy after it's already active. That might involve increasing or reducing your existing coverage, or adding optional coverage you didn't have before. Your policy should outline whether the endorsement expires before your policy is set to renew.

Estimate

If you file a claim to help cover car repairs, you'll need to get a car insurance estimate. This is a document that lists each repair that needs to be made, along with their costs. A representative from the insurance company or a car repair shop will assess the vehicle and provide their estimate. If your car is damaged, reach out to your insurer to clarify their estimate process.

Excluded Driver

In most cases, car insurance companies require you to list all eligible drivers in your household on your insurance policy. This includes children of driving age, spouses, partners and even roommates. However, if you do not want a driver in your household to drive your vehicle—perhaps because they have a history of moving violations that makes them expensive to insure—you can list them on your policy as an excluded driver.

Exclusion

Exclusions are events that are not covered by your car insurance policy. For example, your liability insurance won't cover lost wages or medical care for you or your passengers after an accident. (You'll need personal injury protection for that.) Exclusions may also apply to accidents that happen outside of the United States.

Gap Insurance

If your car is totaled in an accident, your insurance payout might be less than the outstanding balance on your car loan, or what you owe to your lessor if you're leasing your vehicle. Guaranteed asset protection (gap) insurance is an optional coverage that can cover the difference.

Good Student Discount

A good student discount is a car insurance break for full-time high school and college students who maintain a B average or above. Teens and young adults typically pay more for insurance, thanks to their lack of experience and their likelihood of being risky drivers. This discount can help them save on their premiums.

Learn more: How to Get the Best Car Insurance for Teens and Drivers Under 25

Insurable Interest

If you have an insurable interest in a car, that means you have a financial stake in that vehicle. It's usually a requirement when getting a car insurance policy. This is why you typically can't insure a car that isn't registered in your name.

Insurance Adjuster

Insurance adjusters work for car insurance companies and are tasked with investigating accidents. Their main goal is to determine the insurer's liability. If you file a claim, an adjuster will likely schedule an inspection. They might also review policy reports and talk to witnesses to help decide how much the insurance company will pay out on your claim.

Insurance ID Card

Your insurance ID card is a physical or digital card that provides proof of insurance. You may be able to view your ID card through your insurer's app or add it to your digital wallet. You'll need your ID card if you get pulled over, are involved in an accident, buy or lease a car, or register or renew your vehicle registration.

Lease

A car lease is akin to renting a vehicle. Instead of buying it outright or taking out an auto loan to finance it, you'll put money down upfront and then make monthly payments for a predetermined amount of time. When the lease ends, you might have the option to buy the car. Insuring a leased car is similar to insuring a financed car.

Learn more: Is Leasing a Car a Good Idea?

Liability

Liability refers to a legal obligation or responsibility that someone assumes after they cause injury or damage to another person. In the car insurance world, an at-fault driver may be responsible for any damages or injuries they caused during an accident.

Liability Insurance

Liability insurance covers property damage and medical bills that another person experiences because of an accident that you caused. The majority of states require drivers to have a minimum amount of liability coverage. This type of insurance does not cover damage to your vehicle or your injuries.

Limit

Car insurance policies have coverage limits, which are the maximum amounts they'll contribute toward different types of claims. Your state and auto loan lender might also require you to carry a minimum amount of car insurance. Beyond that, you may choose to increase your limits so that you're better protected.

Medical Payments Coverage

Also known as MedPay, medical payments coverage can cover medical costs for you and your passengers after an accident. It's available in most states as an optional add-on, though a few states require it. MedPay usually isn't offered in no-fault states, which typically offer personal injury protection instead.

Learn more: Auto Insurance Add-Ons That Can Save You Money

Motor Vehicle Report

Insurance companies use your motor vehicle report (MVR) to assess your risk as a driver, which can affect your premium. It's a running record of your driving history and includes any accidents, traffic offenses or moving violations you've incurred. You can view your MVR by contacting whichever agency handles MVR requests in your state.

Multi-Car Discount

Just as you can get a discount by bundling your home and auto insurance, you might also save money by insuring multiple cars with the same carrier. Every insurance company is different, but it may be possible to save as much as 20% with a multi-car discount.

No-Fault Insurance

No-fault insurance, also called personal injury protection, helps cover medical bills and lost wages you suffer after an accident, no matter who's at fault. Your passengers are also covered. Some states have no-fault insurance laws that require you to file injury claims with your insurer first. They also limit your ability to sue an at-fault driver.

Non-Renewal

When your car insurance policy comes to an end, it will likely renew on its own. But your insurance company might not renew your policy if you have a less-than-perfect driving record. Non-renewal can also happen if the insurer stops operating in your state. Either way, they should provide advance notice explaining their reason for dropping you.

Original Equipment Manufacturer Parts (OEM)

If you're involved in an accident and need to make repairs, you might be able to choose between OEM parts and aftermarket parts. OEM parts are made specifically for your vehicle and are sourced directly by the manufacturer. Most OEM parts come with a warranty. You might also qualify for manufacturer discounts if you use OEM parts.

Personal Injury Protection (PIP)

This term is used interchangeably with no-fault insurance. Personal injury protection can protect you if you're in an accident that injures you or your passengers, regardless of which driver was at fault. PIP covers medical bills and lost wages. It can also cover other services like child care and house cleaning to make up for duties you may be unable to perform after an accident.

Policy

Your car insurance policy is the contract you have with your insurance carrier. It outlines your coverage, limits, premium, deductible, exclusions and other core details of your car insurance plan. You can likely view your policy online or through your insurer's app.

Policyholder

This is the person who took out the car insurance policy and is responsible for paying the premiums. The policyholder is listed in the declarations page of the policy.

Premium

Your car insurance premium is the amount you pay to keep your policy active. It's usually due every six or 12 months. Your rate is determined by where you live, your driving record, the type of car you have and your level of coverage, among other factors.

Primary Insurance

If you rent a car and opt in to the rental company's insurance, that's considered the primary coverage. If you're in an accident, or the car is stolen or vandalized, you'd file a claim with the primary insurance first, before your own car insurance. That can help you avoid a premium increase for your policy.

Property Damage Liability Coverage

If you're at fault in a car accident and cause damage, property damage liability insurance can offer some protection. It can help pay to fix or replace the damaged property, whether that's another car, a building, a fence or anything in between. Some level of coverage is required in most states.

Quote

If you're looking to take out a new insurance policy or switch carriers, an insurance quote will give you an estimate of how much your coverage would cost with a specific insurer. You can gather quotes from multiple carriers, then compare premiums, deductible amounts and coverage limits to choose the best policy for you.

Learn more: How to Compare Car Insurance Rates

Rate

This is another word for your insurance premium. Your car insurance rate is what you pay to maintain your coverage. Rates can vary widely depending on the insurer, your level of coverage and your state's required car insurance minimums. Your driving record and car will also play a key role.

Rental Reimbursement

This is an optional coverage that you can add to your car insurance policy. If your car is totaled or in the shop due to a covered event, rental car reimbursement can help cover the cost of a daily rental car. It also applies to other transportation costs, such as bus fare, train tickets and rideshare services.

Salvage

If your car is totaled in a covered event, your insurance company should provide a payout based on the actual cash value. From there, they'll likely take possession of the vehicle through a title transfer. In some cases, you might be able to keep the car, but you can expect your insurer to deduct the salvage value from the amount of your settlement.

SR-22

An SR-22 is a form verifying that you have the required car insurance coverage in your state. You might need one if you're found guilty of certain driving-related crimes—like driving without a license, reckless driving or driving under the influence. Having an SR-22 can make it harder and more expensive to obtain car insurance.

Learn more: How Do Traffic Tickets Affect Insurance?

Subrogation

If you were involved in an accident that wasn't your fault and your car insurer paid out a claim, they might pursue subrogation. This is when they seek reimbursement from the at-fault driver's insurance company. The rules around subrogation depend on your state.

Title

A car's title is a legal document that includes basic vehicle information and the details of ownership. If you own your car outright, meaning you don't have a car loan, you'll obtain the title. You can also receive the title through an ownership transfer. If you have an auto loan, your lender may hold the title until the balance is paid off.

Tort

Car insurance varies from one state to the next. In tort states, also called at-fault states, the at-fault driver's insurance company is responsible for paying the medical expenses of any injured parties. Tort insurance allows you to sue the driver who caused the accident to recover medical bills, lost wages, property damage, pain and suffering.

Total Loss

If your car is an accident and your insurer declares it a total loss, it means that the car has been deemed unfixable. In other words, the cost of the repairs would be greater than the car's value. Your insurance might cover a total loss if you have comprehensive and collision coverage.

Underwriting

When finalizing a new car insurance policy, the insurer will have its own eligibility standards and procedures. Underwriting helps them determine whether they'll provide coverage or not—and at what price. They'll largely consider how risky it will be to insure you.

Uninsured/Underinsured Motorist Coverage

These types of insurance protect you if you get into an accident that's caused by a driver who either doesn't have insurance or lacks adequate coverage. Many states require drivers to carry a certain amount of uninsured motorist insurance. It usually covers injuries, property damage or both.

Warranty

If you have a car warranty, it'll help pay for repairs if your vehicle experiences a defect or mechanical failure. It doesn't apply to accidents. You might get a manufacturer's warranty when you purchase a new car, and they usually expire after a certain number of years or miles. Beyond that, you can buy an extended warranty at any point.

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How to Get Car Insurance

Once you're clear on the car insurance terms above, you can use that information to select an insurance company and policy that feels like a good fit. Here are the steps to get car insurance:

1. Gather Your Personal Information

This includes your:

• Full name
• Address
• Birth date
• Social Security number
• Driver's license number
• Phone number
• Email address
• Where you plan on parking your car (a garage or on the street, for example)

2. Organize Your Vehicle Details

The insurance company will likely request your car's:

• Make, model and year
• Vehicle identification number (VIN)
• Current mileage and expected annual mileage
• Ownership status
• Safety features
• Anti-theft features
• Aftermarket modifications, if applicable

3. Choose Your Coverage

The amount of car insurance you need will depend on your state and lender requirements. Some types of car insurance, such as liability coverage and uninsured and underinsured motorist coverage, are state-mandated. Your auto lender might also require collision and comprehensive coverage.

Your personal risk tolerance and financial situation are important as well. How much risk are you willing to assume if you get into an accident or your car is vandalized or stolen? And how much can you afford to pay in insurance premiums?

4. Get Quotes and Compare Insurers

Shopping around and gathering multiple auto insurance quotes allows you to compare different insurers and policies. Zero in on coverage limits, premiums and deductible amounts. It's also wise to read online customer reviews and see if you qualify for any discounts. You can get quotes by working with an insurance agent or using a free online car insurance comparison tool like Experian's.

5. Apply and Pay Your Premium

Once you've chosen an insurance company, you can submit an application and wait for them to review your driving record. Some states can also consider your credit-based insurance score when determining your rate. This score considers information including what appears on your credit report, so a good credit score could help reduce your premium costs. Once you're approved, you'll pay your first premium to activate your policy.

The Bottom Line

There are lots of car insurance terms to sort through, but having a quick reference guide on hand can make things a whole lot easier. From there, you can choose a policy that meets your state and lender requirements and is aligned with your risk tolerance and budget.