Many of our users have told us that they do not understand a lot of the important car insurance terms and definitions used in their car insurance policy and requested that we give them a helping hand and explain these terms in more simple words. Well, this wasn’t an easy task, but that’s what we are here for. So, for your conveneince, we have compiled a list of terms and definitions from the average policies. We have tried to simplify each term as best possible, some of them we couldn’t do much though, afterall, this is insurance we are talking about. Here they are:
Car Insurance Terms and Definitions
Accident report form, or a police report: The official information about a car accident, which your insurance company will need before it agrees to pay out.
Act of God: An unexpected event which causes damage or destruction to your possessions. Most insurance companies will not pay for acts of God or acts of war.
Amendment: Any change made to your original insurance agreement, e.g.: change of driver, or change in average mileage.
Anti-Theft Device: Anything which makes it harder for your car to be stolen, such as immobilisers, steering wheel locks, car alarms, etc. Insurance companies will usually reduce your car insurance rate if you install anti-theft devices.
Approved repairer: Someone whom the insurance company has approved to repair your car.
Arbitration clause: For if you and your insurance company should be unable to agree on an ‘appropriate claim settlement’. You would hire an appraiser whom you both accept to settle the dispute.
At fault: The extent to which you caused the accident, which will determine whose car insurance company will pay which part of the damages.
Cancellation: Ending an insurance policy early. You may have to pay a cancellation fee if you cancel a policy early.
Claim: Your request to the insurance company to pay for damage to or loss of your car, or to cover your personal injury.
Claims history: The record of how many times you have made a claim (see above) in the past. Insurance companies will look at your claims history to assess how much of a risk you are as a customer. Someone with a large claims history will pay higher premiums, and may find it harder to arrange insurance.
Claims adjuster: The car insurance representative who investigates and settles your claims and tries to arrange a fair compensation for every party.
Cover: What your insurance company will pay for.
- Comprehensive Cover: Covers the cost of replacing a vehicle due to theft or hijacking; the cost of repairing any accidental or fire damage; any damage which you may cause to another car or injury to another person resulting from an accident in which you were involved; your own medical expenses (with limitations to the amount).
- Personal/Bodily injury coverage: If the accident was your fault, your car insurance will cover your medical costs as well as the medical expenses and damages for others who were involved in the accident.
- Third Party Only cover is the most basic and what is required by law. It only covers personal injury and damage caused by you to another car or individual. It does not cover your own car or personal injury at all.
- Balance of Third Party, Fire and Theft cover gives you cover for theft, hijacking and fire damage to your own car as well the third-party cover.
- Essential Cover: For older and lower-value vehicles, where you choose the level and amount of cover for your vehicle.
- Liability to Other People cover provides payment in the event of personal injury to others or damage to their property;
- Limited cover insurance combines both liability to others and fire and theft insurance, but does not include damage to your own vehicle or your own personal injury.
Covered loss: Any loss that is covered by the terms of your insurance policy.
Co-insurance: When two insurance companies share the cover of one risk.
Cover note: A temporary insurance document while the permanent insurance document is being prepared.
Depreciation: When the value of your car goes down due to regular wear and tear.
Endorsement: Any change that has been made to an existing policy.
Effective date, inception date, or commencement date: The date when your insurance policy becomes active and from which you are covered by it.
Excess: The first portion of any loss, which you have agreed with your insurance company will be paid by you. The excess is a flexible amount that must be agreed upon in advance. You will have to pay it whether the accident which you are claiming for was your fault or someone else’s. Generally speaking, if you agree on a higher excess, you will pay less in your monthly premiums.
Exclusions: Particular conditions under which an insurance company won’t pay out. These are set out in your insurance policy document and you should check them carefully before you sign.
Fault claim: A claim that you make where either you caused the accident or loss, or there is no one from whom the insurance company can reclaim the costs. An accident that you caused would be a fault claim. But damage caused to your car by someone hitting it while it was parked and driving away without leaving any details would also be a fault claim, because the insurance company cannot reclaim the costs.
Gap/Top-up Insurance: If your car is stolen while you are still paying off a loan for it, the market value of the insurance payout may not be enough to cover the amount you own. Gap or Top-up insurance will cover the difference.
Independent Agent/Agency: An insurance agent or agency which is independent of any insurance company. When looking for car insurance, it is best to consult an independent insurance agent in order to benefit for an objective opinion.
Non-fault claim: An insurance claim where all the costs can be reclaimed from another party.
Indemnity: The principle of covering any financial loss that the insured person may experience.
Insurable interest: The individual which owns the property which is being insured. If you do not own the property, you cannot insure it.
Insured value: The amount which an insurance company will pay if your car is stolen or written off. The type of value you choose determines how big your motor insurance quotes will be. Make sure that you read the terms and conditions carefully so that you know what you are paying for and how much you would receive should the need arise. There are a few different ways of estimating this:
- Retail value: the amount which you paid when you bought the car. This is the highest value, as in the event of total write-off of your car, you will receive the amount which the car cost to buy. The disadvantage to this is that every year the value of the car will go down, but unless you contact your car insurance company each year to reassess your car’s retail value, your premiums will stay the same.
- Trade value lies at the other end of the scale and is the amount which a car dealer would give you to buy your car in its pre-accident state. This is obviously less than the amount a dealer would charge if you were buying the same car from him, since it does not include the markup he would add.
- Market value is an average of retail and trade value, and is complicated to calculate since it is affected by the details of a car’s condition, mileage, service history, and more. Buying car insurance for the market value of your car will get you lower motor insurance premiums, but if your car is written off you may not receive enough money to replace it.
- Specially agreed value: collectors’ and/or vintage cars are often insured for a value agreed between you and the car insurance company, based on the valuation of an approved assessor.
Insurance premium: The amount that you will pay every month or year for your car insurance.
Main/regular driver: Whoever uses the car most often. You must tell the insurer who the main driver is, since it will affect the size of the premiums.
Material fact: any information that affects whether or not an insurance company would accept an insurance policy, or the size of the premiums it would charge. If you do not tell an insurance company about a material fact, your policy could be invalid.
Modifications: Any alterations (beyond factory standard) that were made to your car after it was produced. If you fail to inform your insurance company when you buy the policy, they can refuse to pay out when you make a claim, or cancel your insurance.
Named driver: The individual down as the designated driver of the insured vehicle.
No-claims bonus: Most insurance companies will reduce your premiums somewhat for every year that passes without your making a claim.
Ombudsman: A regulatory body for the car insurance companies, which is there to help consumers to settle disputes with insurance companies.
Policy: The written contract which sets out what the insurance company will pay, under which conditions and with which limitations, for your insurance coverage.
Policy term: The length of time when your insurance policy is active.
Policy lapse: Your insurance policy will be cancelled – lapsed – if you repeatedly do not make your payments on time.
Policyholder: the person who holds the insurance policy.
Premium: the monthly or yearly cost of your policy.
Rate: The price of insurance, usually figured as the cost per unit of cover, and listed as how many Rand per R1000 of cover. So R5 per R1000 would mean it costs R5 for every R1000 of possessions insured.
Renewal: Continuing your insurance with the same company and conditions, after the initial policy term has ended.
Risk: How likely it is that you would submit an insurance claim. The insurance company will assess your risk before deciding the size of the insurance quote.
Roadside assistance service: An insurance ‘extra’ that will cover the cost of fixing your car by the side of the road if you should break down, or towing it if it cannot be easily fixed.
Salvage: If your property was replaced by the insurance company after you made a claim, salvage means that it now belongs to them.
Schedule: A document which gives the details of your insurance policy, including how much you are insured for, any discounts, the policy term, and the premium you have to pay.
Settlement or Sum Insured: The amount that your insurer actually pays when you make a claim.
Stripped down policy (also called ‘essential cover’): A basic insurance policy that covers only the bare essentials of your car. It is intended to keep the cost of insurance as low as possible, and so may include a higher excess.
Third party: Someone who is part of an insurance claim, but is not the policyholder. E.g. in the event of an accident, the driver of the other car would be a third party.
Underwriter: Someone who examines your risk level and decides whether or not to accept your request for insurance, and calculates your premiums.
Underinsured: When you do not have enough insurance to cover the maximum possible loss or damage.
Uninsured losses: Any loss that you experience which your insurance policy does not cover.
Uninsured loss recovery: Assistance offered by your insurance company to reclaim your uninsured losses from the third party (if the accident was not your fault).
Use (class of use)/usage: The main ways in which you use your car in your daily life. There are different categories:
- Private use means using your car only for your social and recreational purposes. This includes driving from you home to your workplace.
- Professional use means that you use your car as part of your work, but it is not essential to carrying out your work, e.g. Lawyer, Doctor, Architect etc, as well as private use.
- Business use means that you can only carry out your work through using your car. It also includes private use.
Vehicle identification number (VIN): The serial number of your car, as issued by the manufacturer. It identifies the make, model and year of your car, as well as any other specifications.
Waiver of excess: If you choose this option, you will not have to pay any excess when you make a claim. But you would usually have to pay a higher premium.
Write-off: When your vehicle is damaged beyond repair, or the cost of repairing are more than the vehicle is worth.
If you think we missed any definitions, comment here below and we will add them to our “Car Insurance Terms and Definitions” page
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