Auto Insurance Glossary

Shopping for auto insurance means dealing with confusing terminology. Knowing what these terms mean helps you make better decisions, find coverage that protects you and save hundreds of dollars.

An accident is an unexpected event that causes damage or injury. In auto insurance, accidents include collisions or incidents involving a vehicle that may trigger coverage and affect your premium for three to five years, depending on severity and fault.

Accident forgiveness is an optional feature some insurers offer that keeps your first at-fault accident from raising your premium. It's available to drivers with clean records and either costs extra or comes as a loyalty benefit.

Actual cash value is your car's value at the time of loss, accounting for depreciation. Insurers use this amount to determine payouts for totaled vehicles, 20% to 30% less than what you originally paid.

Actuaries use statistics and math to evaluate risk and help insurance companies set rates. They analyze driving patterns, claims history and demographic data to determine pricing models that affect your premiums.

An additional insured is someone added to your insurance policy who receives coverage. This often includes family members, business partners or lienholders with a financial interest in protecting the insured vehicle.

An adjuster investigates insurance claims to determine how much the insurer should pay. They assess damage, review documents and negotiate settlements. Adjusters are your main contact during the claims process and influence your compensation amount.

An agent is a licensed professional who sells insurance policies. They can be independent (representing multiple companies) or captive (representing one company). Agents help you understand coverage options, apply discounts and file claims efficiently.

An agreed price is the repair cost that the insurer and repair shop settle on after you file a claim. This negotiated amount determines what your insurance company pays. If you choose a shop outside your insurer's network, you pay any difference out of pocket.

An amendment is a formal change to an existing policy that alters its terms or coverage. These modifications add protection, change deductibles or update vehicle information. Amendments increase or decrease your premium based on risk changes.

An application is the form a driver fills out when requesting insurance coverage. It collects information needed to underwrite a policy, including driving history, vehicle details and personal data that directly influences eligibility and rate.

An appraisal evaluates your vehicle's value or damage to determine claim payments. Policyholders or insurers can request this professional assessment to resolve disputes about a vehicle's worth or repair costs.

Arbitration resolves disputes between a driver and their insurance company without going to court. This legally binding process costs less and moves faster than litigation. A neutral third party makes the final decision about claim settlements.

Assigned risk refers to a high-risk driver who can't get coverage through standard insurers and is assigned to an insurer by the state. These policies cost 50% to 100% more than standard coverage but let drivers with serious violations maintain legal coverage.

Assured is another term for the insured person or party on an insurance policy. This person receives the policy benefits and must meet the policy's terms and conditions, including paying premiums on time.

At-fault means a driver is legally responsible for causing an accident, which can affect premiums and liability. Being found at fault increases premiums by 20% to 40% for several years. It also makes you financially responsible for damages to others.

Auto damage refers to physical harm to a vehicle from a collision, vandalism or another event. The extent of damage determines whether your vehicle can be repaired or must be declared a total loss, affecting your claim settlement amount.

Auto insurance is a contract between you and an insurer that provides financial protection for accidents, theft or other vehicle-related losses. This coverage protects your assets from lawsuits and helps repair or replace damaged vehicles. Policies renew every six or 12 months.

The benchmark rate is the base rate that regulators or insurers set to guide premium pricing. Insurers adjust this rate using your personal risk factors, location and vehicle type to calculate your premium. The industry may update these rates yearly based on claims data.

A binder is a temporary insurance contract that proves coverage before your official policy is issued. It covers you during the underwriting process and lasts 30 to 90 days.

Betterment happens when repairs or replacements improve your property beyond its pre-loss condition. You pay for the betterment portion. For example, if your old roof is replaced with newer materials, you might pay the difference in value.

Bodily injury liability covers medical expenses and legal fees if you're at fault in an accident injuring someone. This mandatory coverage in most states uses two numbers (e.g., 100/300, meaning $100,000 per person and $300,000 per accident) and protects your assets from costly lawsuits.

Cancellation is when an insurance policy ends before its scheduled date, either by the insurer or the policyholder. If you cancel early, you may receive a partial premium refund. Insurers often cancel policies because of missed payments or fraud.

A carrier is an insurance company that provides coverage and underwrites policies. These financial institutions assess risk, process claims and manage reserves to ensure they can pay out claims. Their financial strength ratings indicate their ability to meet long-term obligations.

A catastrophe is a major disaster like a hurricane or earthquake that causes extensive damage and triggers many insurance claims. Insurers use special claim handling procedures for these events and often apply deductibles of 1% to 5% of your car's value for certain coverage types.

A certificate of financial responsibility proves you carry your state's minimum required insurance. Most states use SR-22 forms for this purpose. You'll need one after serious violations like DUIs or driving without insurance.

You must keep the certificate active for three to five years. Your insurer files it directly with the state, and your premiums increase by about 30% during this period. Coverage lapses trigger immediate state reporting and license suspension.

A certificate of satisfaction confirms you agree with your insurer's repair or claim settlement. The document releases your insurer from further claim obligations and prevents future disputes about repair quality or completeness.

A claim is a formal request to your insurance company for payment after a covered loss. The process includes damage assessment, coverage determination and payment. Your payout timeline and amount depend on your policy terms and claim complexity.

Claim examiners review insurance claims for accuracy and eligibility before processing. They verify coverage, investigate circumstances and ensure claims follow policy terms. Their work directly affects your claim approval and payout amount.

Your claim history is the record of insurance claims you've filed. Insurers use this information to assess your risk level and set your rates. Filing frequent or high-value claims increases your insurance costs.

A claimant is the person making a claim against an insurance policy, either the insured or a third party. Claimants must document damage, provide statements and sometimes negotiate settlements to receive fair compensation.

Claims documentation includes the specific paperwork and evidence you must provide when filing a claim: photos of damage, police reports for accidents, receipts for repairs or replacement items and completed claim forms from your insurer. Proper documentation speeds up the claims process and ensures you receive your full payout.

The claims settlement procedure is the step-by-step process your insurer follows to resolve your claim and determine your payout. Your insurer investigates the incident, reviews your coverage, calculates damages and issues payment or explains denial reasons. Most straightforward claims settle within a few weeks once you submit all documentation, though complex claims take longer.

Collision coverage pays for damage to your vehicle from a crash with another car or object, regardless of who's at fault. This optional financial protection usually includes a deductible of $500 to $1,000. It's required for newer vehicles or those with outstanding loans.

Comparative negligence assigns a percentage of fault to each driver in an accident, which affects claim payouts. In states following this rule, your compensation decreases by your percentage of fault. Document accidents thoroughly and collect witness statements to protect your interests.

Comprehensive coverage pays for noncollision damage to your car, such as theft, fire or natural disasters. Sometimes called 'other than collision,' it covers events beyond your control and costs 15% to 30% less than collision coverage for the same vehicle.

A condition is a requirement in your insurance policy that must be met for coverage to apply. These obligations include reporting accidents promptly, cooperating during investigations and allowing inspections. If you fail to meet these conditions, your insurer can deny your claims.

A contract or an insurance policy is a legally binding agreement between the insurer and policyholder that outlines coverage terms. It specifies what's covered, excluded and required of both parties. The declarations page, coverage forms and endorsements make up the complete contract.

Contributory negligence means you can't recover damages if you're found even slightly at fault in an accident. Only a few states use this strict standard. If you live in one of these states, carry comprehensive coverage and drive defensively. Even a minor fault eliminates your ability to collect from other parties.

Coverage means the specific financial protections your insurance policy provides. Insurers group coverages by type (liability, collision and comprehensive) with defined limits and exclusions. These details determine what situations qualify for payment and how much you'll receive for covered losses.

Damages are the monetary value of physical injury or property loss caused by an accident. Costs include vehicle repairs, medical expenses, lost wages and sometimes pain and suffering. Calculation methods vary based on injury severity and state laws.

Your declarations page outlines policy details, including coverage limits, deductibles and the insured vehicle. The document serves as a quick reference for your coverage. Review it at each renewal to ensure it reflects your current needs and situation.

A deductible is the amount you pay out of pocket before insurance covers a claim. Selecting a higher deductible, usually between $500 and $2,000, reduces your premium but increases your out-of-pocket costs during a claim. Choose a deductible that balances monthly expenses with potential emergency costs.

Defensive driving courses teach techniques that qualify you for insurance discounts of 5% to 15%. Many insurers offer rate reductions for completing state-approved defensive driving programs.

Depreciation is how much a vehicle loses in value over time due to use, age and miles driven. This decline averages 15% to 25% in the first year and 15% to 18% each year after. Depreciation affects claim payouts for total losses since insurance covers actual cash value, not replacement cost.

Diminished value is the drop in a vehicle's market value after it's been damaged and repaired. Even when repairs fully restore the car's function, its accident history lowers resale value. Some policies cover this loss, but many don't.

Discounts lower your premium based on good driving, bundling or vehicle safety features. Savings range from 5% to 25% and include multi-policy, good student, safe driver and anti-theft discounts. Ask your agent about all available discounts to maximize your savings.

Some insurers operate drive-in locations where you can bring your car for damage inspection after an accident. These facilities streamline claims by providing quick, standardized assessments and often issue payments on the spot for minor damage.

Earned premium is the portion of your premium your insurer has "earned" based on how long your policy has been active. If you cancel midterm, it determines your refund amount — the unearned portion minus any cancellation fees.

Your effective date is the day your auto insurance coverage begins. This date matters when you switch policies or buy a car to avoid coverage gaps.

Emergency road service coverage pays for roadside assistance services like towing, flat tire repair and jump-starts. It costs $5 to $15 per six-month period. This affordable add-on saves you $50 to $100 per service call and prevents you from being stranded in unsafe situations.

An endorsement, also called a rider, is an optional add-on that changes or extends your coverage. Endorsements protect custom equipment, pay for rental cars or cover the gap between what you owe and your car's value. They tailor your policy to your needs beyond standard financial protections.

An estimate is a written assessment of vehicle repair costs. It includes parts, labor and materials needed for repairs. Insurers require one or more estimates before approving claim payments.

An exclusion is a situation or item not covered by your insurance policy. Common exclusions include intentional damage, mechanical breakdowns and racing activities. Your policy clearly states these limitations to prevent claim misunderstandings.

The expiration date is when your current policy ends unless renewed. Policies often renew automatically if you've arranged continuous coverage. Missing payments before this date leads to coverage lapses and higher rates.

FAIR Plans are state-mandated insurance programs providing basic coverage to high-risk properties when standard insurers won't provide coverage. These plans cost 25% to 50% more than standard policies.

Financial responsibility laws are your state's requirement to prove you can pay for damage you cause in accidents. You satisfy this requirement by carrying minimum liability insurance or posting bonds with state authorities.

The first party is the policyholder or insured person under the contract. This person has direct rights under the policy, including filing claims, receiving payments and making coverage changes. Their responsibilities include paying premiums and reporting accurate information.

Full coverage insurance combines liability coverage plus comprehensive and collision coverage. It doesn't increase liability limits but adds physical damage protection to your liability policy.

Gap insurance covers the difference between what you owe on your car loan or lease and the car's actual cash value if it's totaled. This coverage costs about $20 to $40 yearly and is especially valuable for new vehicles, which lose 20% to 30% of their value in the first year while loan balances decrease more slowly.

Hazards like icy roads and poor lighting increase the likelihood of a loss. Insurers assess these risk factors when determining rates and coverage eligibility. Some hazards, such as regular mountain driving or street parking in high-theft areas, may increase your premiums.

Hit and run coverage protects you when the at-fault driver leaves the accident scene. Your state's laws determine whether this falls under uninsured motorist coverage or collision coverage.

IBNR (Incurred But Not Reported) is an insurance industry term for claims that have occurred but haven't been reported yet. Insurers set aside reserves for these anticipated claims when calculating rates.

Indemnity means the insurance company compensates you to restore your financial situation to what it was before the accident or damage. It covers repairs or replacements at their current value but doesn't pay extra for upgrades or improvements.

Insurable interest means you'd suffer a financial loss if the insured car were damaged or lost. This legal requirement for valid insurance prevents people from profiting from insurance on property they don't own. You have insurable interest if you own, lease or have a loan on a vehicle.

Insurance fraud involves false claims or misrepresentations made to gain benefits from a policy. This criminal offense includes exaggerating damage, staging accidents and filing false claims. It costs the industry $40 billion yearly and leads to higher premiums for all drivers.

An insurance ID card proves you have the required coverage and is usually needed for driving or registering a car. This document shows your policy number, effective dates and covered vehicles. Keep it in your vehicle to show during traffic stops or accidents.

Insurance scores are credit-based numbers insurers use to determine your premium. This rating measures how likely you are to file claims based on your financial behaviors and influences rates by 20% to 50%. Better credit results in lower premiums in most states.

The insured is the person or entity covered under the auto insurance policy. This individual or organization receives the financial protection and benefits outlined in the policy and must follow policy terms to maintain coverage.

The insurer is the company that provides your coverage. This regulated financial institution collects premiums, assesses risks, processes claims and maintains financial reserves to meet its obligations to policyholders during catastrophic events.

A lapse is a break in auto insurance coverage due to missed payments or nonrenewal. Coverage gaps lead to legal penalties, suspended vehicle registration and 10% to 30% higher rates when you get insurance again. Maintain continuous coverage to avoid these issues.

Legal liability means you're legally responsible for harming others or their property through your actions or negligence. In auto insurance, you must compensate others for damage you cause.

Many states use comparative negligence, where fault splits between parties. A few states follow contributory negligence rules, where any fault on the victim's part eliminates your liability.

Liability coverage pays for injuries and damage you cause to others in an accident. Most states require this coverage, which includes separate limits for bodily injury and property damage to shield your assets from lawsuits.

Liability examiners review claims to determine who is at fault and financially responsible. They study police reports, statements and evidence to determine who caused an accident. Their decision affects whose insurance pays and whether your rates increase.

A lien is a legal claim on your vehicle, usually held by a lender until you pay off your loan. The lienholder may require comprehensive and collision coverage and must be listed as a loss payee on claims checks.

A lienholder is the lender or financial institution with a financial interest in your vehicle. The lienholder must be listed on your policy and notified of coverage changes. Claims payments for major damage often require the lienholder's endorsement to protect its investment.

A loss is damage or injury that leads to an insurance claim. To qualify for payment, the event must fall under covered perils. The frequency and severity of past losses directly affect your future premiums.

Loss of use coverage pays for rental cars, rideshares or public transportation while your car is in the shop after a covered loss.

Material damage refers to physical harm to a vehicle or property. Adjusters evaluate damage ranging from minor scratches to major structural issues to estimate repair costs and determine if the vehicle can be safely restored to its pre-accident condition.

Material misrepresentation means providing false information that affects your insurer's decision to provide coverage or set rates. Insurers void policies for material misrepresentation, whether you made the error intentionally or accidentally.

This optional coverage works like an extended warranty and covers gaps left by standard policies, which exclude wear and tear or mechanical issues. It can save you thousands on major repairs.

A medical claim examiner reviews injury-related medical expenses and documents. These specialists check if treatments are necessary, reasonably priced and related to the accident. Their assessment determines how much of your medical bills will be covered.

This coverage pays you and your passengers for medical expenses after an accident, regardless of who caused it. This optional financial protection comes in amounts from $1,000 to $25,000 and supplements health insurance by covering deductibles and copays without determining fault.

Merit rating is the system insurers use to adjust rates based on your driving record and claims history. Good drivers receive discounts while those with violations pay surcharges.

Misrepresentation means providing false or misleading information when applying for insurance. This serious issue voids your coverage, whether intentional or accidental, and leads to denied claims and canceled policies. Accurately share your driving history and vehicle usage to avoid these consequences.

Motorcycle insurance covers liability and physical damage for motorcycles and similar vehicles. This specialized policy addresses the risks of two-wheeled vehicles, and rates reflect riders' higher injury potential and seasonal use patterns.

The named insured is the primary person on an insurance policy who can make changes, file claims and receive notifications. Other household members are often covered but have limited policy management rights.

Negligence is the failure to exercise reasonable care, leading to damage or injury. Insurers consider negligence a primary factor when determining fault in accidents because drivers must follow traffic laws and operate vehicles safely to avoid liability.

No-fault insurance pays your medical expenses and lost wages after an accident, regardless of who caused it. This system, used in 12 states plus Puerto Rico, speeds up injury payments by removing the need to prove fault for basic medical claims. It limits your right to sue except for serious injuries.

A non-owner policy gives liability coverage to drivers who don't own cars but sometimes drive others' vehicles. This affordable option ($200 to $500 yearly) protects against liability claims when borrowing or renting cars and helps maintain continuous insurance history.

Nonrenewal means your insurance company decides not to continue your policy when it expires. The company must give you advance notice (usually 30 to 60 days). This happens because of your claims history, driving violations or company policy changes. You'll need to find new coverage before your financial protection ends.

Original Equipment Manufacturer (OEM) parts are made by your car's manufacturer, while aftermarket parts come from other companies. OEM parts cost more but insurers or lenders may require them for newer vehicles.

An occurrence is a single event that results in a claim. Insurance policies define what counts as a separate occurrence, which affects deductible application and policy limits. Multiple damages from the same cause count as one occurrence.

Overseas insurance covers vehicles while traveling or stationed outside the U.S. Standard auto policies don't cover international driving. This specialized coverage addresses risks like different liability standards and higher repair costs in foreign countries.

Paperless billing sends your bills and policy documents electronically instead of by mail. This environmentally friendly option includes a small discount (1% to 3%), provides faster document delivery and reduces paper clutter.

Payment plans let you break your premium into monthly or quarterly installments. These options usually include a small service fee of $3 to $10 per payment but make coverage more affordable by spreading costs over time instead of requiring one large payment.

Payment recovery happens when your insurer seeks money from another party responsible for your loss. Also called subrogation, this process may refund your deductible if your insurer successfully collects from the at-fault party.

Per-occurrence limits cap payouts for single incidents, while aggregate limits cap total payouts over the policy period. Know both types to avoid coverage gaps.

The per-claim limit is the maximum amount your insurer will pay for a single covered incident. This differs from aggregate limits, which cap the total amount payable over the policy term.

A peril is the specific cause of a loss, like theft or fire. Insurance policies may cover all perils except those excluded (comprehensive coverage) or only those listed as named perils. Understanding the difference clarifies what events your policy covers.

Personal injury protection covers medical expenses, lost income and other costs after an accident, regardless of fault. Mandatory in no-fault states and optional elsewhere, it provides fast payments for injuries and covers services not included in health insurance.

Personal property includes items inside your vehicle that aren’t part of the car itself. Standard policies cover these belongings up to $200 to $500. Homeowners or renters insurance better covers higher-value items like electronics.

Physical damage refers to harm to your vehicle’s body, engine or systems. It includes collision and comprehensive claims, with coverage depending on the cause of damage and the deductible.

A policy is a contract outlining your auto insurance coverage. This legal document includes declarations, coverages, exclusions and conditions that together define your financial protection and obligations. When all forms are included, it runs 20 to 50 pages.

A policy change modifies your coverage terms, limits or listed drivers. You can make these adjustments midterm. They increase or decrease your premium depending on whether they add risk (e.g., adding a teen driver) or reduce it (e.g., increasing deductibles).

The policy period is the timeframe when your insurance is active. It runs for six or 12 months and offers guaranteed rates. Rates change at renewal based on claims, violations or industry-wide rate changes.

The policyholder owns and manages the insurance policy. They're responsible for paying premiums, receiving notifications and making coverage changes or cancellations.

A policy limit is the maximum amount an insurer will pay for a covered loss. Limits apply separately to different coverage types, including per-person, per-accident or total aggregate caps on financial protection.

Pre-accident condition refers to your vehicle's state before damage occurred. Insurers must restore your vehicle to this condition, excluding any pre-existing damage or wear not caused by the covered incident.

Your premium is the amount you pay for insurance coverage based on factors like driving history, vehicle type and location. You can pay it in full or through installments. The premium reflects the risk you pose to your insurer.

Primary insurance pays first when you have multiple policies covering the same loss. It handles claims before any secondary or excess policies kick in, with rules preventing double recovery and ensuring efficient claims handling.

Proof of loss is documentation submitted to support a claim showing what was lost or damaged. It may include photos, repair estimates and purchase receipts to establish the claim's value. Submit proof of loss within specified timeframes.

Property damage liability pays for repairs to others' property you damage in an accident. This required coverage protects you when you damage another vehicle, building or fixed object. State minimums range from $5,000 to $25,000, though these amounts don't always cover costly claims.

Proximate cause is the event directly responsible for a loss or injury. Insurers use proximate cause to determine coverage by establishing whether damage resulted from a covered peril or an excluded cause, which affects whether your claim gets paid.

Pure premium is the basic coverage cost before insurers add expenses and profit. Actuaries use this baseline figure to calculate your final rates.

A quote is an estimate of your insurance premium based on your information. This personalized calculation reflects your risk profile and coverage selections. Final rates may change if verification shows different information than you initially provided.

A rate is the pricing factor used to determine your insurance premium. Insurers combine base rates with individual risk factors and file them with state regulators to ensure fairness and actuarial soundness.

Insurers use rating plans to set premiums based on risk factors. The system considers factors like driving history, vehicle type and location to generate personalized pricing, with each company emphasizing different elements in its calculations.

Reinspection is a follow-up check of your vehicle's damage or repairs. This quality control step ensures repairs match the approved estimate and meet standards. It protects you and your insurer from poor workmanship.

Reinstatement is the process of restoring a canceled policy. It requires payment of past-due premiums and fees, allowing coverage to continue without a new application. Reinstated policies don't cover losses that occurred during the lapsed period.

A release is a legal document that waives further claims once you accept a settlement. Insurers require you to sign a release before receiving payment for a total loss or injury, preventing you from seeking additional compensation for the same incident later.

Your renewal date marks when your insurance policy ends and a new term begins. Insurers review risk profiles and adjust premiums at renewal. Review your coverage and shop for better rates before renewal to avoid coverage gaps or automatic renewal at higher rates.

This coverage pays for a rental car while your vehicle is being repaired after a covered loss. Costing $2 to $5 monthly with limits like $30 per day for up to 30 days, this affordable add-on prevents out-of-pocket transportation costs during lengthy repairs.

A repair guarantee is a promise insurers make when you use their approved shops. Insurers stand behind the work for as long as you own the car, protecting you from poor repairs.

The residual market is a state-supervised insurance mechanism providing coverage to high-risk drivers who can't get insurance through regular markets. It includes assigned risk pools and state-run programs.

The retained limit is the amount you pay before umbrella insurance starts. It matches your regular policy limits and connects your primary and excess coverage for major liability claims.

Risk is the chance of loss or damage that insurers measure to set prices. Insurers use statistics and past data to calculate these probabilities. Your personal risk factors determine your rate.

A risk pool groups high-risk drivers whose coverage costs are shared among insurance companies in a state. This ensures coverage availability for drivers with serious violations.

Salvage is what's left of a totaled vehicle that can be auctioned. This leftover value, usually 20% to 40% of the car's worth before the accident, gets subtracted from your payment when the insurer takes ownership of your totaled car.

An SR-22 is a certificate of financial responsibility that your insurance company files with your state's DMV to prove you carry the required minimum coverage. States require SR-22s after serious violations like DUIs, reckless driving or driving without insurance.
The filing happens automatically through your insurer, but you'll pay an additional filing fee plus higher premiums. Most states require SR-22 maintenance for three to five years. Any coverage lapse triggers immediate license suspension.

Subrogation happens when your insurer seeks payment from the at-fault party's insurer after paying your claim. This behind-the-scenes process refunds your deductible and protects your premium from increases when someone else caused the accident.

Surcharges add extra charges to premiums after violations like at-fault accidents, DUIs or major traffic offenses. Minor violations like speeding tickets add 10% to 25% to base rates, while major violations like DUIs increase premiums by 50% to 100%. Surcharges remain for three to five years, depending on the violation and state regulations.

Surplus lines are insurance policies sold by non-state-licensed insurers for high-risk or unusual coverage needs. These special markets serve drivers who can't get coverage from regular insurance companies because of extreme risk factors. Unlike standard insurance, surplus lines policies aren't protected by state guarantee funds.

Theft is the unauthorized taking of your vehicle or personal property. For a comprehensive coverage claim, you'll need a police report and proof of ownership. Insurers settle theft claims using your vehicle's actual cash value or the cost of replacing stolen items.

A third party is someone other than you or your insurer who can file a claim under your policy. These are drivers or property owners you've damaged in an accident. They have rights under your liability coverage, even though they aren't part of your insurance contract.

A tort is a harmful action that legally holds someone responsible for causing injury or property damage. This legal concept is the basis for insurance claims. Courts determine who's at fault and how much money the injured person should receive after an accident.

A total loss occurs when repair costs exceed your vehicle's actual cash value. Insurers declare total loss when repairs hit 70% to 80% of pre-accident value. Instead of paying for repairs, your insurer offers a market value settlement and takes ownership of the damaged vehicle.

Towing and labor coverage pays for towing and roadside services when your car breaks down. It costs about $5 to $15 for six months and saves you money on emergency service calls for problems like lockouts, dead batteries and mechanical failures.

Umbrella insurance adds extra liability protection beyond your regular policy limits. This added coverage, usually sold in $1 million increments for $150 to $300 per year, helps protect your assets from major lawsuits.

This coverage pays for injuries or property damage when an at-fault driver has no or too little insurance. Though optional in most states, we recommend this coverage to protect you from financially irresponsible drivers who can't pay.

Underwriting is how insurance companies assess risk and set your rates. Underwriters review your application, driving record, credit history and vehicle details to determine your price and coverage options.

Uninsured motorist coverage pays for injuries or property damage when at-fault drivers have no insurance. It's mandatory in many states and provides budget-friendly financial protection against irresponsible drivers.

The Vehicle Identification Number (VIN) is a unique 17-digit code that identifies your car. This ID shows your vehicle's manufacturer, features and history. It helps insurers correctly rate your vehicle and process claims for the right model.

Understanding auto insurance terms lets you manage coverage and communicate with your insurer more effectively. These definitions make reviewing your policy or filing a claim easier and show you where to save money on coverage.

These frequently asked questions clarify common car insurance terms to help you better understand your policy and coverage options.