Understanding Car Insurance 101

We get it. When it comes to shopping for car insurance, there’s a whole lot to sift through. We’ve put together some of the most “need-to-know” auto-insurance terms below, and explained them so that they’re easier to understand. 

First, there are five primary types of car insurance coverage.

Liability Coverage

State laws usually require this as a minimum policy. It pays for any damage done to other people’s property in the event of an accident. However, keep in mind that any damage to your own car and personal injuries are not covered. 

Collision Coverage

If you collide with another object (car, tree, telephone pole, etc.) collision coverage pays for any resulting damage to your vehicle. Accidents happen, and sometimes we’re the ones at fault, so this type of coverage protects you in those cases.1

Comprehensive Coverage

Plenty of things can happen to your car that don’t fall under “car accidents.” Damage from hail, hitting a deer, a rock cracking your windshield – they can all cost a pretty penny unless you have comprehensive coverage.

Uninsured motorist protection

Yes, it’s legally required for drivers to have at-minimum liability coverage. But, unfortunately not everyone does. In the event that you’re involved in an accident with someone without car insurance (or with a policy that does not cover the total costs you’ve incurred), this add-on can prevent you from having to pay the remaining costs out of pocket.4

Personal injury protection (PIP)

This added coverage pays for the medical bills for you or anyone in your vehicle at the time of the accident. In addition, it can cover lost wages that result from injuries. Several “no-fault” states require this type of coverage, but in many areas it’s optional.

While liability coverage is the only car insurance almost always required by law, sometimes additional coverage is required based on where you live or if you’ve got an auto-loan. It can be tempting to go with the lowest coverage required, but costs from car accidents can add up really quickly – so be sure to carefully think about your options.

We outlined some additional terms that will give you a good base of understanding. 

Car Insurance Quote

This is an estimated price that you’ll pay for car insurance, and can help you compare companies before committing to a policy. This will be most accurate when you’ve actually filled out all the information an auto insurance company requires, because rates can vary significantly from person to person. 

Declaration Page

This is a helpful summary of your car insurance policy. It includes your personal information, covered drivers, plus coverage details and limits.2

Premium

This is the ongoing cost of your car insurance. Sometimes it is paid monthly, every six months, or just once a year. 

Auto Insurance Claim

This is when a car insurance company is contacted with a request to cover costs associated with car-related damage or injury. You can usually start this process by calling your car insurance company after an incident. 

Deductible

This is the dollar amount that you’ll pay before insurance assumes any cost. It applies to each individual incident, so if you get in three accidents in a year, you’ll have to pay the deductible three times.3

Limit

This is the maximum amount that your car insurance company will pay per accident. 

Now, we’ll be the first to admit, these probably aren’t ALL the terms you’ll see or hear when shopping for car insurance, but it’s a start. And if a quick google search can’t answer your question, it can be helpful to talk to your insurance provider (or potential insurance provider) to make sure you understand your policy. 

 

 

 

  1. https://www.iii.org/article/auto-insurance-basics-understanding-your-coverage
  2. https://www.nerdwallet.com/blog/insurance/key-terms-understanding-auto-insurance-quotes/
  3. https://www.insure.com/car-insurance/how-to-read-your-insurance-policy.html
  4. https://www.21st.com/insurance-newsletters/2012/01/5-types-of-car-insurance-coverage.htm
  5. https://www.nerdwallet.com/blog/insurance/car-insurance-basics/personal-injury-protection-nofault-states-insurance/
Category: Insurance 101
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