Auto insurance is a must-have for every car owner. However, choosing the right policy can be overwhelming, especially if you are not familiar with the different terms used by insurers. In this article, we will be discussing the common auto insurance terms used to define different types of coverage.
Liability Coverage
Liability coverage protects you against legal claims resulting from injury or property damage caused by you or someone else driving your car. This coverage is mandatory in most states and is usually split into two categories:
Bodily injury liability: Covers medical expenses, pain, suffering, lost wages, and other damages you may be responsible for after an accident.
Property damage liability: Covers damages to other people’s property, such as their cars, buildings, fences, and other structures.
Collision Coverage
Collision coverage pays for damages to your car resulting from a collision with another vehicle or object. This type of coverage is optional, but it is recommended if you have a newer or more expensive car.
Comprehensive Coverage
Comprehensive coverage protects your car against damages not caused by a collision, such as theft, vandalism, fire, hail, or flooding. This coverage is also optional, but it can provide you with peace of mind knowing that your car is protected from various perils.
Uninsured/Underinsured Motorist Coverage
Uninsured/underinsured motorist coverage provides protection in case you are involved in an accident with a driver who has no insurance or insufficient coverage to pay for the damages. This type of coverage is also optional, but it can save you from a financial burden if you are hit by an uninsured or underinsured driver.
Medical Payments Coverage
Medical payments coverage pays for medical expenses for you and your passengers resulting from an accident, regardless of who is at fault. This coverage is optional, but it can be beneficial if you do not have health insurance or have limited coverage.
Personal Injury Protection (PIP) Coverage
Personal injury protection (PIP) coverage is similar to medical payments coverage, but it also covers lost wages and other related expenses resulting from an accident. This coverage is mandatory in some states and optional in others.
Gap Insurance
Gap insurance pays the difference between the actual cash value of your car and the amount you owe on your car loan or lease. This coverage is optional, but it can be useful if you have a new car and owe more than its actual value.
Deductible
A deductible is the amount you pay out of pocket before your insurance coverage kicks in. For example, if your deductible is $500 and you have $1,500 in damages, you will pay $500, and your insurance will cover the remaining $1,000. Choosing a higher deductible can lower your premium, but it also means you will pay more out of pocket in case of an accident.
Premium
A premium is the amount you pay for your auto insurance coverage. It can be paid monthly, quarterly, semi-annually, or annually. Your premium is determined by various factors, such as your age, driving record, location, and type of coverage.
Exclusions
Exclusions are specific situations or events that are not covered by your insurance policy. For example, some policies may exclude coverage for damages resulting from racing, driving under the influence, or intentional acts.
Endorsements
Endorsements are additional coverages that you can add to your policy for extra protection. For example, you can add roadside assistance, rental car reimbursement, or glass coverage.
Final Thoughts
Understanding auto insurance terms is crucial for choosing the right coverage for your needs and budget. Make sure to read your policy carefully and ask your insurer any questions you may have to avoid any surprises in case of an accident. Remember that each state has its own requirements and regulations, so make sure to check with your local DMV or insurance department for more information.