Car Insurance Terms Explained

Understanding the terms used in your insurance policy will help ensure you buy the proper coverages.

Many terms used in the drafting of an insurance policy may be unfamiliar to you. Fully understanding the terminology used in your car insurance contract is the most reliable way to make sure you have the coverage you need and are not paying for unnecessary extras.

Significance

Without a firm grasp of the meanings of the terms used to explain various coverages and limitations, it is very possible you may find yourself without the proper coverage if you need to file a claim.

Liability Coverage Terms

Liability insurance is the basic insurance required by most states. It protects other drivers in the event of an accident. If you are found at fault, your liability insurance pays the expenses incurred by the other party. The two forms of liability insurance that are required by law are bodily injury and property damage. Bodily injury liability covers the expenses that result from injury or death of the other driver or any passengers.. Property damage liability covers damage to the other party's car, fence, house or other property that your vehicle damages in an accident.

Damage Terms

Comprehensive and collision are the two terms used most often when describing insurance coverage that protects your vehicle. While these two terms are often used in conjunction, they represent very different types of coverage. Collision provides payment for repairs or replacement of your vehicle up to its the actual value should it be damaged in an accident in which you are at fault. Comprehensive insurance provides the same type of protection but protects you from non-collision events such as certain natural disasters, vandalism or theft.

You may find that the insurance payout is less than you owe on the vehicle. Gap insurance pays the difference between the actual value of the vehicle and the amount you owe, preventing you from having out-of-pocket expenses should your vehicle be damaged beyond repair.

Other Terms

An important factor in determining rates for auto insurance is your deductible. The deductible is the amount you will have to pay out of pocket before the insurance kicks in.

A common acronym you will hear from your insurance agent is PIP. PIP stands for Personal Injury Protection. This type of insurance covers expenses incurred by you, your passengers and any pedestrians involved in an accident that you cause.

Warning

There may be other terms on your car insurance policy. Before you sign any contracts, be sure to ask your agent to explain anything that you do not understand.

References

• Washington State: Office of the Insurance Commissioner: Types of Auto Coverage
• Arizona Department of Insurance: Consumers Page