Need-to-Know Auto Insurance Terminology Explained
If you are looking for the perfect policy at the right price, learning the auto insurance basics is the best place to start. Here are the basic terms and coverage types. Pick your coverage wisely, and always make sure you are getting value for money.
Coverage – The defined scenario(s) by which the insurance provider will compensate you for losses. This also often includes a set maximum amount of money they are required to pay.
Deductible – The money you pay out of pocket before your coverage pays. Until you have paid this amount yourself, the insurer is not required to pay anything. If you have $5,000 of damage and your deductible is $500, the insurer pays $4,500.
Policy – The entire agreement between an insurer and the insured, including premiums, coverage, deductibles, and more.
Premium – The regular fee you pay to keep your policy active. If you do not pay this, you lose your insurance. Premiums are based on calculated risk.
Liability coverage – Compensates the other party for injuries, death, and property damage when you are responsible. This coverage also provides for your legal defense if you are sued. This is required by most states.
Collision coverage – Pays for damages to your vehicle that result from crashes and other collisions. It does not matter who was at fault for the collision. You are only compensated up to the coverage limit, which should be as high as the market value of the vehicle.
Comprehensive coverage – Pays for damages from most situations aside from driving incidents. Whether it be weather, nature disasters, wildlife, vandals, or hit-and-runs that cause the damage, most comprehensive packages will cover you up to the coverage limit, which should be the market value of your automobile.
Medical Payments coverage – If the driver or passenger of your insured vehicle is injured and requires medical treatment, you will be responsible for paying for it. Medical Payments mean you will be compensated for this, as well as for funeral costs if they should be unfortunately necessary.
Uninsured/Underinsured Motorist coverage – Since many drivers on the road do not have enough insurance to pay for your damages or even no insurance at all, you need to protect yourself out there. These coverages do this by making sure you are reimbursed for damages and injuries when the other vehicle is insufficiently covered.