Common Insurance Terms Explained

When shopping for auto insurance, it can be difficult to understand precisely what different policies offer because of the terminology used by many insurance companies. Below are some common insurance terms and explanations about what they mean, which will hopefully help you when shopping for auto insurance.

Replacement Parts

When replacing your car or truck’s equipment, recycled or new parts may be chosen. Usually, your insurance company will select from good recycled parts first that match the quality of the parts in your car. In the event that recycled equipment cannot be found for your car, after-market, i.e. new competitive auto repair parts, will be located. Competitive vehicle repair parts are usually produced by a company that is not the manufacturer of your car. These parts are carefully chosen so that they are as good as or better than your car’s manufacturer-made parts.

Total Loss

In the event of extensive damage or theft, it may not make sense to repair your vehicle. This is called a “total loss.” Your car might be a total loss if:

• By state standards, your car is deemed to be a total loss
• Fixing the car is not monetarily practical (i.e. The car is worth less than what it would cost to fix it)
• It would not be safe to repair the car

Actual Cash Value

The actual cash value of your car is defined as the cost of replacement minus the car’s depreciation. Depreciation is the decline in your car’s value that results from wear and tear and the passage of time.

Insurance Binder

This term is used when referring to an agreement stating that the insurance policy is active. The binder is often implemented to guard the policyholder (the person stated on the policy declaration) when a policy cannot be endorsed or issued right away.

Contact Us

Insurance terms are numerous and difficult to understand. Contact the independent Chicago insurance experts at Insure on the Spot by calling 773-202-5060 to have all of your insurance questions answered.