Low Cost Auto Insurance: Understanding Commonly Used Terms
Saturday, January 31st, 2009Author: Vernon L. Williams
Article:
In order to shop for low cost insurance, you must be familiar
with the language used in the industry. Here, then, are some of
the terms you will hear most often.
Anti-Theft Device — Devices designed either to reduce the chance
an auto will be vandalized or stolen, or assist in its recovery.
Examples include car alarms, keyless entry, starter disablers,
motion detectors, parts of the vehicle etched with the Vehicle
Identification Number, and recovery systems.
Assigned Risk — A risk not ordinarily acceptable to insurers.
Basic Limits of Liability — The least amount of liability
coverage that can be purchased, which is generally equivalent to
the minimum amount required by state law. In determining rates,
a carrier will use the basic limits to develop the base rates.
If an insured person wants higher limits, the carrier applies an
increased limits factor to the base rate in calculating the new
premium for the increased coverage.
Bodily Injury Liability — Legal liability for causing physical
injury or death to another.
Collision Insurance — This covers loss to the insured person’s
own auto caused by its collision with another vehicle or object.
Combined Single Limit — Bodily Injury and Property Damage
coverage expressed as one single amount of coverage.
Comprehensive Coverage — Covers damage to a vehicle caused by an
event other than a collision or overturn. Examples include fire,
theft, vandalism, and falling objects.
Continuous Coverage — The length of time the insured person has
maintained insurance on a vehicle.
Covered Person — The individual(s) (named insured, spouse,
resident relatives, etc.) insured under a policy contract.
Customized Equipment/Special Equipment — Items not included in
standard insurance options available for cars. These may include
extra electronic equipment, special paint or exterior items, or
amenities added to the inside of a van or truck.
Deductible — The amount an insured person must pay before the
insurance company pays the remainder of each covered loss, up to
the policy limits.
Defensive Driver Course — Classes either offered through or
approved by Departments of Motor Vehicles to enhance driving
skills. These courses may make drivers eligible for discounts on
their premiums. Courses taken for traffic school because of a
moving violation are not eligible. Drive-Other-Car Endorsement —
Optional coverage that broadens the definition of a covered auto
to include non-owned vehicles the insured person operates.
Driver Education — State accredited educational course that
consists of at least 30 hours of professional classroom
instruction.
Driver Training — State accredited training course that consists
of at least six hours of behind-the-wheel professional
instruction.
Effective Date/Inception Date — The date that coverage begins on
an insurance policy.
Expiration Date — The date coverage ends. There is usually a
time of day associated with this date, e.g. 5/1/2008 at
12:01a.m.
Extended Non-Owner Liability — An endorsement that provides
broader liability coverage for specifically named people
operating any non-owned vehicle. It covers non-owned autos, use
of autos to carry people or property for a fee, and individuals
driving employer-furnished cars who do not own those vehicles
themselves.
Family Automobile Policy — Now replaced by the Personal Auto
Policy, the Family Auto Policy was a package policy in which
both liability and physical damage protection were offered under
one policy.
Financial Ratings — Financial ratings reflect a rating
organization’s opinion on an insurance company’s financial
strength and ability to meet ongoing obligations to
policyholders. The ratings organizations most commonly
identified with the insurance industry are A.M. Best, Standard &
Poor’s and Moody’s.
First Party Benefits — This pays policyholders and other covered
persons in the event of injury, no matter who caused the
accident. The benefits can include medical expenses, loss of
income, funeral and death benefits. This is called Personal
Injury Protection (PIP).
Gap Insurance — If you are making lease or loan payments and you
experience a total loss, there may be a difference between the
market value of your vehicle and what you still owe on it. This
optional coverage pays the difference.
Good Student Discount — A premium discount for students with
high scholastic grades. Some statistical research has shown a
relationship between good grades and safe driving.
Lapse in Coverage/Policy Lapse — A point in time when a policy
has been canceled or terminated for failure to pay the premium.
Medical Payments — This pays for medical and funeral expenses,
regardless of fault. It covers injuries sustained by passengers
in the insured’s car, or while the insured is operating someone
else’s car. It also covers injuries to the insured and the
insured’s family members when they are pedestrians.
Multi-car discount — A discount offered by some insurance
companies for those with more than one vehicle insured on the
same policy.
Motor Vehicle Record (MVR) — This contains information obtained
from an individual’s driver license application, abstracts of
convictions and accidents.
Named Insured — Any person, firm or corporation designated by
name as the insured person(s) in a policy. Others may be
protected by policy definition even though their names aren’t on
the policy, such as other drivers operating (with consent) the
named insured’s covered auto.
Named Non-Owner Policy — A policy endorsement for one who
operates any non-owned automobile on a regular basis, such as
driving a car provided by one’s employer.
No-Fault Insurance — Many states have enacted compensation laws
permitting auto accident victims to collect medical and hospital
expenses directly from their own insurance companies, regardless
of who was at fault in the accident. Although there are many
legal variations of no-fault insurance, most states still allow
people to sue the negligent party if the amount of damages
exceeds a certain state-determined threshold.
Non-Owned Auto — Any vehicle that is not owned, borrowed, or
leased by the insured, and which is used primarily for business
purposes.
Per Occurrence Limit — This refers to the cap amount an
insurance company will pay for all claims arising from a single
incident. In an automobile accident, it comprises bodily
injuries sustained by all parties. When Bodily Injury coverage
is purchased in split limits, the second limit is the “per
occurrence” limit, e.g. $100,000 per person, $300,000 per
occurrence.
Per Person Limit — This refers to the cap amount an insurance
company will pay for any one person’s injuries arising from a
single incident. In an automobile accident, it comprises bodily
injuries sustained by each person. When Bodily Injury is
purchased in split limits, the first limit is the “per person”
limit, e.g. $100,000 per person, $300,000 per occurrence.
Personal Auto Policy — The most common auto insurance policy
sold today. Often referred to as “PAP,” this policy is written
in simple wording and provides coverage for liability, medical
payments, uninsured/underinsured motorist coverage, and physical
damage.
Personal Injury Protection — The name usually given to no-fault
benefits in states that have enacted mandatory or optional
no-fault auto insurance laws. Personal Injury Protection (PIP)
usually includes benefits for medical expenses, loss of income,
essential services, accidental death, funeral expenses, and
survivor benefits.
Physical Damage — Damage to a covered vehicle from perils
including (but not limited to) collision with another vehicle
object, fire, vandalism and theft.
Policy — The written documents between the insurance company and
the insured. Such documents include forms, endorsements, riders
and attachments.
Policy Period — The period of time in which a policy is in
effect.
Policyholder — One who maintains ownership in a policy. This may
refer to the policy owner or those covered under the policy. See
also Named Insured.
Preferred Risk — Any risk considered to be better than the
standard risk on which the premium rate was calculated.
Premium — The price an insured person pays for insurance for a
specified period of time.
Private Passenger Automobile — A four-wheeled motor vehicle that
is subject to motor vehicle registration and is used for
personal reasons.
Pro Rata Cancellation — Termination of a policy before the
expiration date. In this case, the insurance company deducts the
amount of the premium for the time the policy was in force and
returns a refund to the policyholder for the unused portion.
Property Damage Liability Insurance — Protection against
liability for damage to another’s tangible property, including
loss of use. Although this coverage is different from liability
for bodily injury to another person, it is generally written
with it.
Renewal — The process of keeping a policy in force through the
issuance of a renewal policy.
Rental Reimbursement — This optional coverage will reimburses
the insured for a rental car if the insured’s vehicle is
disabled due to a covered loss. This coverage will pay all or
part of the rental car costs.
Safe Driver Plan — A rating system that assigns points for
traffic convictions and certain accidents. Similar to a
merit-rating plan, each point increases the surcharge percentage
to the baseline rates.
Split Limit — Any insurance coverage with separately stated
limits for different types of coverage. For example, an
automobile liability policy of 100/300/50 provides a maximum of
$100,000 bodily injury coverage per person, $300,000 bodily
injury coverage per accident, and a property damage limit of
$50,000 per accident.
Stacking of Limits — The application of more than one policy
limit to the same loss or occurrence. In some jurisdictions,
courts have required stacking of limits when multiple policies,
or multiple policy periods, cover an occurrence. For example,
Uninsured motorist bodily injury limits of $100,000/300,000 on
two policies owned by the same person may be added together to
pay a loss. In this event, the total amount of coverage
available for an accident would be $200,000/600,000.
Term — The length of time which a policy is in force.
Threshold Level — Under some no-fault insurance laws, the
threshold level represents the degree of injury a claimant must
establish before being allowed to sue the negligent party. The
threshold may be verbal (regarding the severity of the
injuries), a dollar amount or both. For example, with a
threshold of $5,000, an injured person may sue if his/her
injuries and other economic damages (rehabilitation expenses,
loss of income, etc.) exceed $5,000.
Towing and Labor Costs — This endorsement, which is added to the
physical damage coverage, provides reimbursement up to a
specified limit to tow the insured’s vehicle or pay for on-site
labor costs.
Transportation Expenses — Subject to a daily and maximum dollar
limit, this coverage (under the physical damage portion of a
policy) pays for transportation expenses incurred by the named
insured in the event of theft of a covered auto. Coverage
generally begins after a stated minimum waiting period.
Uninsured Motorists Bodily Injury — This coverage, which must be
offered in most states, pays for a covered person’s bodily
injuries for which an uninsured motorist is legally liable, but
is unable to pay.
Underinsured Motorists Bodily Injury — This coverage, which must
be offered in most states, pays for a covered person’s bodily
injuries for which a motorist is legally liable, but does not
have enough insurance to cover the claim.
Uninsured Motorists Property Damage — This coverage pays for
property damages caused by an uninsured motorist.
Unearned Premium — The portion of the premium remaining in a
policy term. For example, with a six-month premium, at the end
of the first month of the premium period, five-sixths of the
premium is unearned by the insurance company.
Usage — This refers to the primary way in which you intend to
operate your vehicle. For example, if the insured primarily
drives the car to and from work, the usage is considered
“commute.” If the insured is self-employed and primarily drives
to see customers, the usage is considered “business.” If the
insured is retired, the usage is considered “pleasure.”
Waiver of Collision Deductible — This option pays the collision
deductible when the insured carries collision coverage on a
vehicle that is damaged by an uninsured motorist who is at
fault. Coverage applies only when there is actual physical
contact and the insured can identify the uninsured driver or
vehicle.
Whole Dollar Premium — Since premiums are rounded to the nearest
dollar, an amount of 51 cents or more would be rounded up to the
next dollar. Any amount less than 50 cents would be dropped.
There are over 1500 insurance companies. In order to get low
cost policy, you should shop around.
Get free auto insurance quotes at http://www.howtocutexpenses.com
About the author:
With over 20 years of experience as a personal financial
educator and counselor, Vernon Williams has developed in depth
knowledge of what it takes to achieve financial success. Today,
he is a sought after trainer and speaker by organizations from
both the public and private sector. He is the author of 425 Ways
to Stretch Your $$$$ and 3 Rules that Guarantee Financial
Success. Visit Vernon at http://www.howtocutexpenses.com
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