Endorsement A written agreement attached to an insurance policy to add or subtract coverage. Once attached, the endorsement takes precedence over the original terms of the policy.
Exclusions Items that are specifically denied coverage under the terms of an insurance policy. For example, most auto insurance policies exclude coverage for normal wear and tear, drag racing and intentional acts.
Extended Coverage | An endorsement added to an insurance policy, or a clause included in the policy, to provide additional coverage for risks other than those covered under the basic policy provisions.
Fair Market Value | The price at which property would change hands between a willing buyer and a willing seller, where both parties have reasonable knowledge of the relevant facts and neither party is under any compulsion to buy or sell.
Financial Responsibility Law | A law that requires the owner of a vehicle to show proof of financial ability to pay for auto-related losses. In most states, proof of insurance takes the form of a minimum amount of automobile liability insurance, but some states permit self-insurance or a financial responsibility bond.
Free Look Period | An insurer may cancel an auto insurance policy for any reason during the Free Look Period, which is usually the first 30 days of the policy. The exact number of days varies by state.
Grace Period | Some auto insurance policies have a grace period that allows customers to make a payment after the due date. But, many companies will not accept a payment after the date shown on a cancellation notice. Online payments and EFT can prevent policy lapses.
Indemnity The principle upon which all auto insurance contracts are based. According to this principle, the objective of insurance is to restore the insured to the same financial position after a loss that he or she was in prior to the loss.
Independent Agent | An insurance professional who represents different insurance companies, is not an employee of any one of those companes, and earns commissions from policies sold.
Lapse The expiration of a right or privilege when one party does not live up to its obligations during the time allowed. A lapse in auto insurance coverage may result in paying higher premiums for a new policy, because insurers have determined that drivers who maintain continuous coverage are less likely to make an insurance claim that those who let a policy lapse.
Liability insurance | Coverage for sums that an insured becomes legally obligated to pay because of bodily injuries or property damage, or financial losses caused to other people.
Medical Payments Coverage | Part of a standard auto insurance policy that provides coverage of medical expenses and funeral bills incurred by you and your passengers in the event of an accident, regardless of who is at fault.
Motor Vehicle Report (MVR) | Record of moving violations and license status. Not every traffic incident actually appears on your MVR. Some states only record 75 percent of incidents on an average MVR.
No-Fault Insurance | Auto insurance laws in some states require companies to cover losses, regardless of who caused the accident. Personal Injury Protection is the basic coverage that pays for your own medical, hospital and funeral expenses, as well as those of your passengers and any pedestrians. Lost wages and other accident-related expenses may also be covered.
Payee An insured individual or a beneficiary who receives a loss payment from an insurer. On an auto insurance policy, a Loss Payee is the institution that financed the loan or lease of the vehicle. In the event of a total loss, the insurance company makes payment to the Loss Payee first.
Personal Injury Protection | Personal injury protection (PIP) is a coverage in which your own insurance company pays you for medical, hospital and funeral expenses resulting from a car accident, regardless of who's at fault. It can sometimes also cover your passengers and/or other types of expenses.
Policy Period | Time period during which an insurance policy is in force. Auto insurance policy periods begin and end at 12:01 am in the local time zone.
Premium The payment required for an insurance policy to remain in force. Auto insurance premiums are quoted for either 6 month or annual policy periods.
Property Damage Liability Coverage | Part of a standard auto insurance policy that covers you, up to the policy limit, for losses that result when you damage or destroy someone else's personal property. This is required coverage in most states.
Proximate Cause | In property/casualty insurance, the cause of a loss whereby that cause, the loss itself, and all intervening events form an unbroken chain.
Replacement Cost | The cost of replacing or repairing lost or damaged property without allowing for depreciation in value or considering the market value. Some auto insurance companies offer Guaranteed Replacement Cost coverage on new cars, if the loss occurs within the first 12 months of ownership or 12,000 miles driven.
Residual Value | The expected value of an asset at the end of a specified period, such as the value of a car at the end of the lease.
Split Limit | Split limit policies have three separate amounts for liability payment limits: one for bodily injury per person, one for bodily injury per accident, and one for property damage per accident, usually in that order. Often expressed in the form $100/$300/$100, with the amounts referring to thousands of dollars.
Subrogation The process by which you assign your insurance company the legal right to recover the amount of the loss from another party who is legally liable. For example, if a third party damages your car, but has no insurance, your own insurance will pay you for the loss, if you have Collision coverage, and the company will then attempt to collect that money from the uninsured driver.
Surcharge An increase in your auto insurance premium due to an at-fault accident or a moving violation.
Uninsured and Underinsured Motorist Coverage | Part of a standard auto insurance policy that provides coverage for injuries you and others suffer when you're involved in an accident with an uninsured driver, or a driver without adequate insurance. UM/UIM is not a required coverage in every state, but it is highly recommended.