When trying to decipher an insurance policy or compare different carriers, insurance jargon can get in the way. And unfortunately, skimming over car insurance terms you don’t know can lead to purchasing mistakes. Before you buy your next policy or claim an accident, make sure you know these car insurance definitions.
Exclusion
An exclusion in a car insurance policy is a restriction that removes certain property or people from coverage. A named driver exclusion is an endorsement on a car insurance policy that names a specific driver who will not be covered under the policy.
An exclusion can be added to car insurance for a variety of reasons. If someone in your family has been involved in too many accidents or has incurred too many violations, for instance, he might be excluded by the insurance company because he constitutes a prohibitively high risk.
Negligence
One of the words that gets thrown around frequently when discussing car insurance is the legal concept of negligence. In the case of car insurance, negligence refers to the fault of a certain party when property is damaged or a person is injured.
Like many other car insurance terms, negligence has a vague definition and can apply differently depending on the situation. Contributory negligence refers to a situation in which a driver cannot recover compensation for a loss because he contributed in some way to a collision (bears some or all fault). Comparative negligence, on the other hand, is applicable in some states where the law permits drivers to recover partial damages when they are only partly at fault in an accident.
Risk is an important concept in the car insurance industry because insurance companies must determine whether customers are likely to get into an accident if they are covered under a policy. Assigned risk is a car insurance pool for drivers who cannot obtain car insurance through traditional avenues. They might have caused lots of accidents or accrued too many violations.
Essentially, an assigned risk pool is a more expensive car insurance option in which the driver is randomly assigned to a particular insurance company. The chosen firm is legally obligated to insure him or her.
Subrogation
If you are involved in a car accident and the other party is at fault, your car insurance company might pursue subrogation. This is the process by which an insurance company seeks compensation from the at-fault party in a car accident that they have had to cover.
This is a car insurance term that applies when a vehicle is totaled in a car accident. If the policy provides for actual cash value replacement, this means that you will receive payment for the value of the car at the time it was destroyed.
Many car insurance policyholders wrongly assume that they are entitled to replacement cost value, which means that the insurance company pays out the amount required to replace the vehicle with a new one. Very rarely do car insurance policies provide for this unless the policyholder is paying extra.
Insurance Score
Some states in the U.S. use an insurance score to determine the risk level of a particular consumer. It takes into account myriad factors, from credit history to moving violations, and the car insurance company will use this score to set a premium for the consumer.
This is one of the more confusing car insurance terms. An endorsement is a type of coverage that is added to a basic car insurance policy. It is also called a “rider,” and does not change the specifics of the original policy. An endorsement can be added or removed at any time, though it will probably affect your premium.
Amendment
Similar to an endorsement, an amendment is a provision that is added to a basic car insurance policy, but it changes something in the original contract.
Primary Use
This is a car insurance term that is used to determine how a vehicle is used by the owner or driver. For example, a retired customer might use his vehicle primarily for pleasure, while a young executive might use it for commuting to and from work. Farm use refers to vehicles that are used for farm work, while business use refers to vehicles that serve a commercial purpose.
Split Limit
Many different types of car insurance coverage involve split limits. This means that there are different limits for claims depending on the type of damage. For example, liability insurance coverage might include three numbers: bodily injury per person, bodily injury per incident and property damage.
