Insurance 101
Basic Automobile Insurance Terms
ADJUSTER
There are several varieties of adjusters: 1) An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. 2) Public adjusters negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. 3) Independent adjusters are independent contractors who adjust claims for different insurance companies.
ADMITTED COMPANY
An insurance company licensed and authorized to conduct business in a particular state.
AGENT
There are two types of insurance agents: independent agents are self-employed and represent several insurance companies; and exclusive (or captive) agents, who represent only one insurance company.
ASSIGNED RISK PLANS
These are entities through which drivers can obtain auto insurance if they are unable to buy it in the voluntary market. In an assigned risk plan, all insurers selling auto insurance in the state are assigned a percentage of these drivers, based on the company's auto insurance market share in the state.
AUTO INSURANCE POLICY
There are basically six different types of coverages. Some may be required by law, while others are optional:
  • Bodily Injury Liability, for injuries the policyholder causes to someone else.
  • Medical Payments for treatment of injuries to the driver and passengers of the policyholder's car.
  • Property Damage Liability, for damage the policyholder causes to someone else's property.
  • Collision, for damage to the policyholder's car from a collision.
  • Comprehensive, for damage to the policyholder's car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.
  • Uninsured (Underinsurance) Motorists Coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance. Underinsurance Coverage is when a driver does not enough insurance to cover the losses.
AUTO INSURANCE PREMIUM
The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company, depending on many factors, including: the amount and type of coverage purchased; the make and model of the car; the insured's driving record; the years of driving; the number of miles the car is driven per year; the commuting distance; personal data such as the driver's age and gender; and where the car is most likely to be driven.
BODILY INJURY LIABILITY COVERAGE
Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.
BROKER
A broker is an intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients.
CAPTIVE AGENT
This is a person who represents only one insurance company and is often restricted by agreement from submitting business to any other company.
COLLISION COVERAGE
This is the portion of an auto insurance policy that covers the damage to the policyholder's car from a collision.
COMMERCIAL LINES
These are insurance products for businesses. These coverages include: boiler and machinery, business income, commercial auto, comprehensive general liability, directors and officers liability, fire and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and fidelity and workers' compensation.
COMPREHENSIVE COVERAGE
This is the portion of an auto insurance policy that covers damage to the policyholder's car not involving a collision with another car. In includes theft, as well as damage from fire, explosions, earthquakes, floods and riots.
DEDUCTIBLE
This is the amount of loss paid by the policyholder. It is either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.
DIRECT WRITERS
These are insurance companies that sell directly to the public using exclusive agents or their own employees..
DOMESTIC INSURANCE COMPANY
Term used by to refer to any company incorporated in that state.
EARNED PREMIUM
This is the portion of the premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.
EARTHQUAKE INSURANCE
This covers a building and its contents, and it typically includes a large deductible. A special policy exists because earthquakes are not covered by standard homeowners or most business policies.
FINANCIAL RESPONSIBILITY LAW
This is a state law requiring all automobile drivers to show proof that they can pay damages up to a minimum amount if involved in an auto accident. This law can be met by carrying a minimum amount of auto liability insurance. In California, the minimum liability requirements are: $15,000 for injury/death to one person; $30,000 for injury/death to more than one person; $5,000 for property damage.
FRAUD
Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents and brokers for financial gain.
GENERIC AUTO PARTS
These are auto crash parts produced by firms other than the car manufacturers. Insurers often consider these parts, when certified, at least the same quality as those made by the original equipment manufacturer (OEM). They are often less expensive than the identical part produced by the OEM.
GRADUATED DRIVER LICENSES
These are licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict nighttime driving. Young drivers receive a learner's permit, followed by a provisional license, before they can receive a standard driver's license. In California the graduated license law is a two-step, phased-in approach beginning when the driver is at least 15 ½ years old.
The first phase of the program is the instructional permit. With an instructional permit:
  • The driver may drive any vehicle other than a motorcycle or moped while accompanied by a licensed parent or guardian or a licensed California driver over age 25.
  • The driver must have the instructional permit for at least six months before applying for a provisional permit.
  • The driver must have successfully completed one of the following:
    • A course in automobile driver education and driver training in any secondary school in California;
    • A course in driver education and training program that is approved by the Department of Motor Vehicles and conducted by a licensed driving instructor. Instruction must include behind-the-wheel training and a minimum of 30 hours of classroom instruction;
    • Six hours of behind-the-wheel training in high school or at an approved driver instruction school and driver education instruction at any secondary school or from an approved professional instructor;
    • A student may not take driver training instruction without first successfully completing a driver education course.
  • The student must also complete 50 hours of supervised driving practice prior to receiving the provisional license. No less than 10 hours must be at night.
  • After successfully completing the above, the driver is allowed to take the DMV written and driving test for the provisional license. If the driver fails either of these segments, the driver must wait a minimum of one week before retaking the written test and two weeks before retaking the driving test.
The second phase of the program is the provisional license phase. During the 12 month provisional phase, the driver may not:
  • Drive between the hours of 11:00pm and 5:00am. Exceptions include medical emergencies, school-related activities for which alternative transportation is not provided and job requirements.
  • Drive passengers younger than 20 years old.
A driver could face fines and penalties if any of the restrictions are broken during the provisional licensing phase. Penalties include:
  • Community service for no less than eight hours and up to 16 hours for a first offense, and between 16 and 24 hours for any subsequent offense; and
  • A minimum fine of $35 for a first offense and $50 thereafter.
During the provisional phase, certain penalties will be levied if receiving moving (point) violations. These penalties include:
  • A 30-day period during which the restricted driver must be accompanied by a licensed driver 25 years or older.
  • A suspension from driving for six months and a one year probation if the driver receives 3 or more points during a 12 month period.
After completing 12 months of successful driving with no violations, the driver will graduate to a full-privilege license, provided they are at least 17 years old.
INDEPENDENT AGENT
This is an insurance agent who is self-employed and who represents several insurance companies.
INSURANCE
Insurance is a system that makes large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.
LIABILITY INSURANCE
Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person. (See also "Financial Responsibility Law.")
LIMITS
These are the maximum amount of insurance that can be paid for a covered loss.
NON-ADMITTED INSURER
These are insurers licensed in some states, but not others. States where an insurer is not licensed call that insurer non-admitted. They sell coverage that is unavailable from licensed insurers within the state.
PACKAGE POLICY
A single insurance policy that combines several coverages previously sold separately. For example, several companies offer personal automobile and homeowners package policies.
PERSONAL LINES
These are property/casualty insurance products designed for and bought by individuals, including homeowners and automobile policies.
POLICY
This is a written contract between an insurance company and policyholder stating details of coverage.
PREMIUM
This is the price of an insurance policy, typically charged annually or semi-annually.
PREMIUMS WRITTEN (WRITTEN PREMIUMS)
The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned.
PROPERTY/CASUALTY INSURANCE
Covers damage to or loss of policyholders' property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health.
PROPOSITION 103
This was a November, 1988, California ballot initiative that called for a statewide auto insurance rate rollback and for rates to be based more on driving records and less on geographical location. The initiative changed many aspects of the state's insurance system, including a change to an elected insurance commissioner and a change from a "file-and-use" rating system to a "prior approval" system
RATE
This is the cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance departments.
SALVAGE
Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars.
SUBROGATION
This is the legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.
TOTAL LOSS
The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.
UMBRELLA POLICY
This is coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
UNDERWRITING
This is the examining, accepting or rejecting of insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.
UNEARNED PREMIUM
This is the portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.
Low Cost DUI Insurance by Beissel Insurance Service, CA license # 0598409, 13732 Newport Avenue, Suite 6, Tustin, CA 92780, licensed to conduct business in California.