Car insurance terms - a glossary
Car insurance terms - a glossary
When it comes to car insurance, it’s vital to read your policy terms and conditions to know exactly what’s covered.
A to Z of car insurance
Terminology can often be baffling, and the last thing you want is to miss something important in your policy wording.
To make things easier, we’ve compiled an easy-to-scan glossary of the most frequently used car insurance terms.
ABI stands for the Association of British Insurers. The ABI provides advice to consumers, while working together with the Government and policymakers. Their aims are to promote clarity, high standards and best practice within the insurance industry. The ABI also makes up part of the panel that recommends insurance group ratings.
‘Act of God’
An event or accident that happens without human intervention. It usually relates to natural disasters, such as storms or floods.
Someone that the insurance provider recommends using to fix the damage to a car. Policyholders don’t have to use an approved repairer, but if they don’t, they might have to pay an additional charge. If you do use an approved repairer, you’ll typically get an extended guarantee (usually 3 years) on the repairs carried out.
If a car is repaired and is worth more than it was before the damage occurred, then the policyholder may be asked by their insurance provider to pay a bit more towards the cost of those repairs. This is called a betterment charge.
Car insurance excess
This is how much needs to be paid by the policyholder if they want to make a claim. It’s usually made up of two parts: compulsory and voluntary excess.
Car insurance policy
Your car insurance documentation detailing the terms and conditions of your contract. There are three types of car insurance policy: third party, third party fire and theft, and comprehensive.
Car market value
This is how much it would cost to replace the car named in an insurance policy with one of a similar age, condition and mileage, should it need to be written off.
Certificate of insurance
This is the legal proof that a driver is insured. It shows what car is covered, who is allowed to drive it and what it can be used for, such as social, domestic and pleasure, commuting or business use.
The formal application made to an insurance provider due to an event such as an accident, when the policyholder wants to recover the cost of damage covered by their policy.
Class of use
Class of use means what you intend to use your car for. There are three classes of use groups: Social, Domestic and Pleasure (SDP), Social, Domestic, Pleasure and Commuting (SDP+C), and Personal Business use (SDPC+Business use).
Comprehensive car insurance
Comprehensive car insurance is the highest level of cover available. It insures the policyholder’s car as well as any third parties involved in an accident.
The amount of money policyholders must pay in order to make a claim. The amount is set by the insurance provider and is non-negotiable.
DOC stands for ‘driving other cars’. Policyholders aren’t automatically entitled to drive someone else’s car, so it’s safer to find out whether DOC is included in a policy before using someone else’s car.
If a car insurance policy does include DOC, then it will only be on a third party basis, not the full level of cover the car is insured for.
This is an extra clause that will change the standard cover provided by the insurance policy.
A claim made when an accident is your fault and you are liable for damages. Even if the accident is not your fault but there’s no one to claim against – such as an animal jumping out into the road, or another driver who causes the accident then drives off – you are still liable and it also counts as a fault claim.
FCA stands for the Financial Conduct Authority, formerly known as the Financial Services Authority. The FCA regulates firms that provide financial services to consumers, such as car insurance providers.
Car insurance fronting is a type of fraud and is illegal. It often occurs when a younger driver names an older, more experienced, person as the main driver on their insurance policy to keep the premium down.
This ensures that a policyholder won’t lose out, so they’ll be in the same financial position as they were before their car was damaged.
Insurance Premium Tax
Insurance Premium Tax (IPT) is a tax on all insurance policies and is automatically included in the premium price.
Someone who investigates claims on behalf of an insurance provider to make sure the claim is legitimate, and the insurance provider isn’t paying out more than they should.
A named driver is an additional driver who has been added to a car insurance policy, for example a spouse or dependant.
No claims discount
A no claims discount (NCD), also known as a no claims bonus (NCB) is a discount applied to a premium when no claims have been made. The discount is calculated annually at renewal. The policy has to run for a full year for the policy holder to earn that year’s discount.
A non-fault claim is when your insurance provider can recover the total cost of a claim from the person whose fault it was.
The Ogden rate is a discount rate applied to the lump sum insurance providers pay out to people who have suffered extreme personal injury. The rate is meant to reflect the likely return on the money that person should receive if they invest the lump sum, and it can have a significant impact on the price of car insurance premiums.
Period of insurance
The dates that an insurance policy is valid for.
This is part of the insurance contract and sets out details of your policy. It shows the period of insurance, the car details and information about the policy excess.
The amount of money a policyholder will pay for their insurance policy. This is usually paid via direct debit either monthly or annually. Check out our car insurance calculator to find out which factors affect the cost of a car insurance premium.
The amount of money an insurance provider is willing to pay out if a claim is successful.
Statement of fact
A form that shows all the information provided by the policyholder to their insurance provider. A statement of fact forms part of the insurance contract.
Telematics car insurance
Also known as ‘black box insurance’, telematics car insurance involves an in-car device or downloadable app that monitors your driving. The information is relayed back to your insurance provider who may use it to work out your premium. It’s primarily designed for young drivers who may be able to lower the cost of their premium by demonstrating safe and capable driving.
Third party car insurance
Third party car insurance is the most basic level of cover and is the minimum car insurance required by law. It covers damages to the owner of the other vehicle and passengers in your car. It won’t cover injuries to yourself or damage to your car if the accident was your fault.
Third party fire and theft
Third party fire and theft insurance provides the same level of cover as third party, but it can also cover your vehicle if it is stolen or damaged by fire.
Underwriters create insurance policies and cover. They decide whether someone is a good risk and worth insuring. They also work out the cost of premiums for insurance providers.
Uninsured loss recovery
Uninsured loss recovery (ULR) protects the policyholder against the cost of uninsured losses from a third party if the third party was at fault, for example the recovery of the policy excess.
The amount of money the policyholder chooses to pay in the event of a claim. It’s usually agreed when the policy is first agreed. Having a higher voluntary excess could help bring down the cost of your premium (just make sure you can afford both the voluntary and compulsory excess in the event of a claim).