Auto Insurance Coverage Glossary (2026)

A financial heuristic for deciding when to drop collision and comprehensive: if your annual full-coverage premium exceeds 10% of your car's current market value, dropping physical damage coverage is mathematically justified. Requires the car to be paid off and an emergency fund to cover replacement.

The market value of your vehicle at the time of a loss -- replacement cost minus depreciation. Insurers pay ACV (not what you paid or new-car cost) on collision and comprehensive claims. ACV is determined using CCC One, Kelley Blue Book, NADA, and local comparable sales. Typically 10-20% below owner expectations.

The portion of liability insurance that pays for injuries to other people when you cause an accident. Covers medical bills, lost wages, pain and suffering, and legal defense. Expressed as the per-person / per-accident limit (e.g., 100/300 means $100k per person, $300k total per accident).

Covers damage to your own car when it is involved in a collision -- hitting another vehicle, a tree, a guardrail, or any other object. Also covers single-vehicle rollovers. Your deductible applies. Pays ACV minus deductible.

Covers damage to your car from events other than collisions: theft, vandalism, fire, flood, hail, falling objects, and animal strikes. Hitting a deer is comprehensive, not collision. Your deductible applies.

The summary page of your auto insurance policy listing the named insured, vehicles covered, coverage types, limits, deductibles, and premium. Review this annually to confirm your limits are adequate and your information is accurate.

The amount you pay out of pocket before your insurance coverage kicks in on a claim. Standard deductibles for collision and comprehensive are $500, with options from $250 to $1,500. Higher deductibles reduce your premium -- moving from $500 to $1,000 typically saves 15-30% on the physical damage portion.

A specific situation, event, or cause of loss that your policy explicitly does not cover. Common exclusions include: intentional damage, mechanical breakdown, wear and tear, personal items in the car, and rideshare use without a specific endorsement.

Insurance placed by a lender on a financed vehicle when the borrower fails to maintain required coverage. Typically costs 2-3 times a standard policy and usually covers only the lender's interest, not the borrower's liability or personal injury. Avoid by maintaining your own policy.

Not a legal term -- marketing shorthand for a policy that includes liability, collision, and comprehensive. What one carrier calls 'full coverage' may differ from another. Always verify exactly which coverages are included in any quote.

Guaranteed Asset Protection -- pays the difference between your car's ACV and your remaining loan balance after a total loss. Necessary when loan balance exceeds ACV, typically in years 1-3 of a loan with less than 20% down. Usually built into lease contracts.

Covers damage and injuries you cause to other people in an accident. Required by law in 48 states. Has two components: bodily injury (BI) liability and property damage (PD) liability. Does not cover your own car or your own injuries.

Optional coverage that pays for your and your passengers' medical bills regardless of who caused the accident. Available in most states as an alternative or supplement to PIP. Typically covers $1,000-$10,000 in medical expenses.

A system where each driver's own insurance pays their medical expenses regardless of who caused the accident, through Personal Injury Protection (PIP). Used in about 12 states including Florida, Michigan, New York, and New Jersey. Reduces lawsuits but typically increases premiums.

Covers medical bills, lost wages, and sometimes funeral expenses for you and your passengers regardless of fault. Required in no-fault states. Covers your injuries whether you were at fault or not -- unlike bodily injury liability, which covers the other party's injuries.

The maximum amount your insurance company will pay for a single claim or per policy period. Expressed as a dollar amount (e.g., $100,000 PD limit) or as a per-person/per-accident split (e.g., 100/300 BI).

The portion of liability insurance that pays for damage you cause to other people's property -- primarily their vehicles, but also fences, buildings, lamp posts, and other property you hit.

Optional add-on coverage that pays for a rental car while your vehicle is being repaired after a covered claim. Typically costs $2-10/month. Not included in standard full coverage -- must be added separately.

The cost to replace your vehicle with a new equivalent model at current prices -- before depreciation. Standard insurance pays ACV (replacement cost minus depreciation), not replacement cost. New-car replacement coverage is an optional endorsement available from some carriers for newer vehicles.

Optional coverage for towing, jump-starts, flat tire changes, fuel delivery, and lockouts. Can be added to most auto policies for $3-7/month, or purchased through AAA, Better World Club, or manufacturer programs.

A certificate of financial responsibility filed by your insurer with the state, proving you have the minimum required liability coverage. Required after certain violations (DUI, reckless driving, driving without insurance). Not an insurance type -- a filing requirement. Significantly increases premiums.

A coverage method where you and the insurer agree on a stated value for the vehicle (common with classic cars). The insurer pays the lesser of: the stated amount, ACV at time of loss, or cost to repair. Different from agreed value, which pays the stated amount without ACV comparison.

The process by which your insurer, after paying your claim, pursues reimbursement from the at-fault party or their insurer. You typically cooperate with subrogation, and if your insurer recovers money, you may receive your deductible back.

A rating method that uses driving behavior data (speed, braking, time of day, mileage) to set premiums. Programs include Progressive Snapshot, Allstate Drivewise, Geico DriveEasy. Safe drivers can save 10-30%. Poor driving behavior can increase rates.

Liability coverage that sits on top of your auto and home policies, typically adding $1-5 million. Costs $200-400/year for $1M coverage. Recommended when net worth exceeds $250,000. Requires maintaining underlying auto and home liability at specified minimums (usually 100/300/100).

Coverage that pays when a driver who causes an accident has insurance but not enough to fully cover your damages. Pays your excess damages above their payout, up to your UIM limit. Often bundled with UM coverage.

Coverage that pays your medical bills, lost wages, and sometimes car repair costs when you are hit by a driver with no insurance at all. Costs $3-6/month for 25/50 limits. Required in 20+ states. Especially critical if you have dropped collision coverage.

A coverage option available in about 25 states that covers damage to your car from an uninsured driver, separate from UM bodily injury coverage. Fills the gap left by dropping collision: if an uninsured driver damages your car, UMPD pays for repairs. Deductibles often $200-500.