All the Auto Insurance Terms You Need to Know
If you own a car or are planning on buying one, don’t forget to factor in the cost of auto insurance. All states require you to have some form of auto insurance, but the auto insurance terms they use may be confusing. After all, what do they mean by 25/50/15 coverage?
Auto insurance definitions
Going without the right coverage can land you in legal and financial trouble, so it’s best to read up on the most common auto insurance definitions so you understand what kind of car insurance you need, what you’re buying and what type of coverage you’re getting.
Auto insurance terms: the basics
Premium: The cost of the policy, often quoted as an annual or six-month amount.
Deductible: The amount you must pay out of pocket before the insurer covers the rest. Some common deductible amounts are $500 or $1,000. If you’re in an accident with $10,000 in damage, you’ll need to pay the deductible of $500 or $1,000 before the insurance pays the remaining cost.
Coverage: What the car insurance will pay for. The car insurance term of coverage could refer to the type of protection, such as collision coverage, as well as the amount, such as liability coverage of $50,000.
Policy: The policy outlines the contract between you and the car insurance company, including the types of coverage you have, premium amount, deductible and any exclusions.
Liability: Part of a standard auto insurance policy and covers property damage, injuries and financial losses caused to others.
Collision: An insurance add-on that pays for damages to your vehicle from a car crash.
Comprehensive: An add-on that pays for damages that aren’t caused by a collision, such as natural disasters including wind, hail or flooding. Comprehensive also protects your vehicle against theft, fire or striking an animal.
Medical: The portion of your policy that addresses bodily injury and medical bills.
Personal liability/injury: Required by most states, it’s part of a standard insurance policy. It will pay for losses if you destroy or damage another individual’s personal property.
Additional insured: Adds other individuals to your car insurance policy so they’re also covered if they get in an accident while driving your vehicle.
Gap coverage: Often required for new or financed vehicles, it covers the difference in cost between the car’s value and how much you still owe on it if the car is totaled.
Uninsured motorist: Often part of a standard policy, it pays for your injuries and losses if the at-fault driver doesn’t have insurance to cover your damages.
Underinsured motorist: As with uninsured motorist coverage, it pays for your injuries and losses if the at-fault driver’s insurance coverage isn’t enough to cover damages.
State-required minimum: The minimum amount of car insurance your state requires. Most states require a minimum of liability insurance, although the amount varies. You’ll often see it as three numbers, such as 25/50/15. They represent the required liability insurance minimums (in thousands of dollars). The first number is for bodily injury per person. The second number refers to the bodily injury limit for all parties per accident and the last number refers to the property damage amount. The state minimum is often the cheapest car insurance you can buy,
Full auto insurance coverage: A policy that covers more than the state-required minimum of liability. Full auto insurance covers damages and injuries to others, as well as to you and your vehicle.
Medical payments coverage: Part of a standard policy to cover medical expenses of parties injured in an accident.
Limit: The maximum dollar amount your car insurance policy will pay for certain events, such as liability or medical.
Exclusion: Items your policy will not pay for. Some typical exclusions include the cost of wear and tear, damages caused from using your car for deliveries or replacing/repairing unapproved modifications to your car.
Auto insurance quote: The insurance premium price offered to you by a car insurer. You’re under no commitment to agree to the quote.
Auto insurance claim: A request to your car insurer to pay for a loss or damages.
Underwriting: The process in which the car insurer decides if they’re willing to approve you as a customer and take you on as a risk.
Effective date: The first day the coverage on your car insurance policy starts.
Declarations page: The summary page of your car insurance policy containing your name, address, insured vehicle(s), additional insured individuals, effective date of the policy, how long it’s in force, the types of coverages and amounts for each, as well as the amount of your premium.
Primary use: How the vehicle will be mainly used, such as for commuting, recreational weekend use or for business purposes. You can also purchase Insurance if you don’t own a car but drive frequently.
SR-22 insurance form: Also known as a certificate of financial responsibility, it’s a form your insurer files with the state on your behalf. It’s usually required if you’ve had a serious traffic offense such as driving with a suspended license, a DUI conviction or were in an accident while uninsured and need to reinstate your driving privileges.
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