Insurance can be complex and often uses specialized terms to explain key concepts. Knowing these terms can make it easier to understand your coverage and communicate with your insurer.
Review definitions every driver should know to better understand their coverage and make informed decisions.
Accident forgiveness is an optional insurance endorsement that can keep your premiums from rising after your first at-fault accident. If you qualify and add it to your policy, your driving record and rates may stay the same after that first accident. Not all insurance companies offer it, so check with your agent or broker.
Actual cash value is what your vehicle is worth today, after accounting for age, wear, and depreciation. It’s often used to decide how much you’ll be paid if your car is a total loss.
An automobile accident arises from the use or operation of an automobile.
After-market parts are replacement vehicle parts made by companies other than the original manufacturer. They can be used instead of Original Equipment Manufacturer (OEM) parts and are sometimes made by the same suppliers or other approved manufacturers. If they are Certified Auto Parts Association approved, they meet or exceed OEM standards and are considered safe and suitable replacements.
An insurance agent sells insurance for a specific insurance company. They can provide information about the insurance products and pricing for that specific company.
Betterment is when you may have to pay part of the repair cost because the repair makes your vehicle better than it was before the damage. Insurance only pays to restore your vehicle to its pre-accident condition, not to improve it.
E.g. If a rusty door is replaced with a new one, you may need to contribute because the new part increases the vehicle’s value.
Bodily injury coverage pays if someone is hurt or killed in an accident you caused.
An insurance broker sells insurance for many different insurance companies. They can provide information and quotes from multiple insurance companies.
An insurance company can cancel your insurance during the policy term, but they must provide you with a registered written notice with specific reasons. You can also cancel your policy at any time, but you must always have valid insurance if you drive. Be sure to ask if there is any penalty for cancelling your active policy before it is up for renewal.
An insurance claim is a formal request by a policyholder to their insurance agent or broker for compensation for a covered loss. Filing a claim does not necessarily mean you will receive a payment. The type of loss must be covered under the policy, and its terms must be met.
Commuting is the distance you regularly drive to and from work, school, or a public transit parking lot.
E.g. If your one-way trip is 10 km, your daily round-trip commute is 20 km.
A deductible is the amount you pay out-of-pocket when you make an insurance claim, as outlined in your policy. Your insurance covers the rest of the cost.
E.g. If your deductible is $500 and the damage is $10,000, you pay $500 and insurance pays $9,500.
Demerit points are added to a driver’s record in Alberta when they break traffic laws. They range from 2 points for minor offences, like speeding or improper turns, up to 7 points for serious offences, like impaired driving or leaving the scene of a collision. Insurance companies may consider these points, along with the type of conviction (minor, major, or criminal), when setting your insurance premium.
E.g. Speeding 16 to 29 km/h over the limit results in 3 demerit points on your license.
Depreciation is the decrease in value of something over time due to wear and tear, aging, or becoming outdated.
E.g. A new vehicle loses value as it gets older, depending on how many kilometres it has been driven and how well it has been maintained.
A First Notice of Loss is the first step in the insurance claims process. It’s when you contact your insurance company to report that you’ve had a loss or damage.
A grid step is a position on a scale that measures licensed experience and at-fault accident claims. Each step is associated with a percentage used in the grid rate calculation.
Liability insurance protects you if you’re legally responsible for injuring someone or damaging their property.
Misrepresentation is when you give false information or leave out important facts when dealing with an insurance company to get a benefit you’re not entitled to. If this happens, the insurer may deny your claim, cancel your policy, or make it void.
An occasional (or secondary) driver is someone listed on a car insurance policy who does not drive the vehicle as their main car. This can be a spouse, child, or other relative who only drives it sometimes.
Pleasure driving means you use your vehicle only for personal or leisure activities, not for commuting or business purposes.
A policy term outlines the length of time you are covered. It states the date and time your policy begins and ends.
A policyholder (or named insured) is the person who owns the insurance policy and is usually the registered owner of the vehicle covered by it.
An insurance premium is the amount your insurance policy will cost, generally paid monthly or annually.
Your premium is calculated by many factors, including but not limited to the following:
A proof of insurance card, also called a “Pink Slip,” is given to you by your insurance company after you buy coverage. It shows that you have basic, mandatory car insurance. Many insurers now also provide a digital version you can keep on your phone.
A proof of loss is a formal, sworn statement you give to your insurance company that explains the details of a loss or damage you’re claiming.
Property damage coverage pays for damage to someone else’s property.
After an accident, insurance companies will pay either the Actual Cash Value of the vehicle, or the cost to repair or replace it (with a similar kind and quality), depending on which one costs the least. You will have to pay your deductible if you have one, and the payment includes the vehicle’s original equipment, not personal items inside. After repairs or replacement, your vehicle should be restored to its condition before the damage.
Replacement cost is the vehicle’s actual cash value at the time of loss.
A registered owner is a person who owns a vehicle and is responsible for insuring it.
A reportable claim is an accident that must be reported to the police and your insurance company. In Alberta, you must report it if the total damage to both vehicles is over $2,000, if someone is injured, if property is damaged, or if one of the drivers doesn’t have auto insurance.
A short-rate cancellation is when you voluntarily cancel your insurance policy before its term ends. You may have to pay fees or penalties, which can reduce the amount of money refunded to you.
The Standard Owners Automobile Policy (SPF 1) is the main car insurance policy form. It explains what your coverage includes, as well as the rights and responsibilities of you (the insured) and your insurance company.
Telematics in auto insurance is technology that monitors your driving behaviour to provide an objective, real-time picture of your driving habits.
It is used in usage-based insurance (UBI), where a device or app in your vehicle records how you drive, such as speed and braking. This type of insurance may offer you savings at renewal for your safe driving.
Pay-as-you-go insurance is different because it only tracks how many kilometres you drive, not how you drive. A device in your vehicle measures the distance, and you can usually check your usage through a phone app.
Underwriting is the process insurance companies use to collect information and assess risk. They review this information using their guidelines to decide whether to offer you coverage and under what terms.
Used parts are replacement parts that have been previously used or refurbished. They may be used to repair your vehicle as long as they are the same kind and quality as the original parts and do not affect your vehicle’s safety or performance.
A Waiver of Depreciation is an optional insurance endorsement for new vehicles. If your vehicle is stolen or written-off in an accident, you will be reimbursed for the full replacement value instead of the depreciated value. It must usually be added when you first buy your insurance policy and availability depends on the insurance company.
A write-off happens when the cost to repair your vehicle is more than its value before the damage. Instead of repairing it, your insurance company pays you the vehicle’s Actual Cash Value minus your deductible, and they keep the damaged vehicle or its parts (called salvage).