Key Insurance Terms Explained for Victims of Car Theft — What You Need to Know

Car insurance can be confusing, and the industry has its own jargon that can add to that confusion. However, in order to obtain the most suitable insurance at the best possible price, you really need to understand the terms stated on comparison sites and by the insurance companies themselves.

A failure to understand what’s being offered may lead to trouble if you need to make a claim. There follows a list and explanation of some of the most common terms used so you can better understand what is involved and have a greater chance of getting the insurance you really need.

Organisations and People Involved

• Insurer is the company that issues the policy and pays out for any claims.
• Underwriter is a person or company that is engaged by the insurer to assess the financial risks posed by a policyholder and to determine whether the policy should be taken on and for what cost.
• Policyholder is the person who takes out the insurance policy and is sometimes referred to as the proposer or insured. This person is generally the car owner and will be responsible for the payment of premiums and making any claims.
• Named driver is any person, in addition to the policyholder, who is covered by the policy to drive the car.
• Claimant is the person making a claim, generally the policyholder, in the event of damage or loss of a vehicle due to an accident or theft.

Insurance Documents

• • Certificate of Insurance is a valuable document that you may need to show to the police, if you have an accident or on re-taxing your vehicle. It proves you possess valid car insurance, provides information about drivers and needs to be complete and accurate.
  • Cover note provides temporary evidence of insurance coverage and may be issued until you receive your certificate of insurance and other documentation. A cover note is often issued when you are buying a new car to prove you have the cover but is not required as often now when dealers sometimes provide temporary seven-day cover and documents can be available instantly online.

• Insurance schedule lists the details given by the policyholder to the insurer and the cover provided.

• Renewal notice is sent by the insurer to the policyholder before the current policy ends, setting out the end date and the terms and cost of renewing the policy. At this point, it’s always advisable to look at alternatives rather than automatically renewing.

Types of Car Insurance

• Third party only is the cheapest and most basic type of car insurance, providing cover when an accident occurs that is the policyholder’s or a named driver’s fault. Payments are made only to the other party involved in the accident and nothing is due for any loss incurred by the policyholder.
• Third party fire and theft has the same cover as for third party only but also provides cover in the event of fire damage to the policyholder’s vehicle or its loss due to theft.
• Comprehensive covers everything as for third party fire and theft but additionally covers the policyholder’s vehicle and all its occupants in the event of an accident. It is generally the most expensive type of cover but, depending on the policy includes almost everything associated with the car.
• Telematics or ‘black box’ insurance (sometimes also known as usage-based or pay as you go) incorporates the use of an electronic device that measures mileage covered and overall driving habits. This aims to reward safe driving by discounting premiums and penalising bad driving by applying surcharges. It’s often popular with young or high-risk drivers in order to demonstrate that they can drive safely.

Coverage Options

Within comprehensive insurance policies, there can be various options that influence the cost of the policy. These include:

• Personal injury protection that provides medical and associated expenses to cover injuries to the policyholder, driver and passengers, irrespective of who caused the accident.
• Uninsured motorist coverage applies when another driver causes the accident but does not have any insurance or leaves the scene without being identified.
• Legal expenses provide money to cover the expenses necessary to hire a lawyer in connection with anything associated with the use of the motor vehicle.

Insurance Terms Used

• • Policy is a written contract between the insurer and the policyholder, which sets out all relevant details relating to the insurance cover.
  • Premium is the amount charged by the insurer to provide the cover to the policyholder. The amount will vary depending on the type and age of the vehicle, the policyholder’s and named drivers’ ages, driving experience and history, miles driven annually and the area where the vehicle is located. It is also influenced by security devices fitted, whether the vehicle is garaged and if driven at peak times. Payment is often made as one annual amount or may be monthly instalments with interest charged.
  • Cover determines what is provided between the start and end dates of the policy.
  • Excess specifies an amount the policyholder is to pay for each claim, with the insurer paying anything above that. Different excess amounts may apply to, for example, accident damage to the vehicle and windscreen replacement or repair. A compulsory excess amount is specified by the insurer and is designed to prevent a large number of small-value claims from being made. In addition, the policyholder can choose to pay a voluntary excess, which will reduce the amount of premium payable since the risk to the insurer is lessened.
  • Sum insured is the highest amount the insurer will be required to pay in the event of a claim.
  • Commencement date is the date when cover starts and is sometimes known as the effective date. Cover will cease on the scheduled end date and most policies run for twelve months. It’s important to have continuous cover to ensure you remain legal so a new policy needs to start on or before the date the previous one ends.
  • Conditions may be applied to a policy and set out requirements that have to be fulfilled for cover to be effective. For car insurance, this may typically specify that the car is not to be used for commercial purposes.
  • Cancellation applies if the policy is terminated before it is due to end. This should result in a refund for the policyholder although a cancellation fee may be deducted from this amount.
  • Declarations page of the policy sets out all relevant details, including what is covered, excess amounts, any conditions applied and when cover starts.
  • Lapse occurs when the cover provided by a policy ends but is not replaced by a new policy. You should never allow insurance cover to lapse because that will result in you driving illegally and you will have no protection in the event of an accident or the theft of your vehicle.
  • Claim is a request for payment, made by the policyholder, against losses suffered in the case of an accident or theft.
  • Loss is the amount of any claim and represents the financial cost suffered by the policyholder.

• Endorsements are additions to a standard policy that may be included at the start of a policy or a later date. They may extend or restrict cover, or clarify meaning and are considered part of the insurance contract. They may include the provision of breakdown cover, a replacement car and legal insurance.

• No claims discount (NCD) provides a reduction on insurance premiums for drivers with a good driving history. Each year that a policyholder makes no claims, the discount increases until it reaches a maximum (typically 9+ years). However, when a claim is made, the discount will be reduced by a few years and so, if several claims are made, the discount disappears entirely.A full NCD will reduce the amount of premium payable significantly so is important to keep costs low. It is possible to pay an additional premium for protected NCD where one or two claims may be allowed in a year without affecting the discount.

• Exclusions list circumstances where the insurer is not required to pay out.

• Immobiliser is a device that’s activated so the car can’t be driven once the ignition is turned off. Cars with these and other security devices fitted will tend to qualify for lower insurance premiums.

• Market value is the cost of replacing your car should it be written off as unrepairable. This value takes into account the make, model, age and condition of the car. It may differ from the agreed value set at the time of purchasing the policy.

Understanding what insurance terms mean gives you a better chance of taking out the most appropriate car insurance at the best price. You’ll no longer be confused by the jargon and so will be much better informed and able to understand what’s on offer.