How to Understand Auto Insurance Coverage Terms

Before you buy automobile insurance coverage or renew your current policy understand what is covered and what is not in the policy you buy.

Difficulty: Moderate

Instructions

1. COMPREHENSIVE INSURANCE: Comprehensive covers loss from a collision but also from other incidents. It covers damage if your car is stolen, It covers flood, it covers hitting an animal like a deer, and so forth. Collision coverage covers the damage to your own vehicle and the vehicle or object you hit. It also pays for your vehicle if you are hit by someone else. It is the best coverage and is required by most lenders if you are still paying car payments.

2. COLLISION: Collision pays for damage to your car from an accident or hitting or being hit by another car or object. It may not cover flood or theft damage.

3. LIABILITY Coverage: The least expensive. If you are in an accident it will pay for the other vehicles damage if you are liable. It will cover law suit legal defense if another party sues from the accident. It is good if the value of your car is something you could cover as with an older vehicle you could replace yourself if you caused an accident. You may not be able to purchase liability only coverage if you still make payments on your car. lenders often want comprehensive until the title is paid off and there is no loan balance.

4. DEDUCTIBLE: This is the amount (on any of the above) that you would pay out of pocket before insurance takes over. The higher the deductible the less the insurance cost now but you pay that agreed amount before insurance pays the claim.

5. Uninsured or Under insured motorist: This can apply to any of the above types of insurance policies. It covers you for damage done by a motorist that has no insurance or not enough coverage to pay a claim. It may cover hit and run driver damage in some states. I recommend this. Lately many illegal immigrants drive in some areas without insurance. With the economy some drivers who are in financial difficulty may have expired insurance for non payment or a driver may have a revoked license and be driving when they are not legally allowed to so are uninsured.

Tips & Warnings

• Ask your agent to explain any terms in a policy you don't understand. Make sure you are covered in all areas you need it, but don't pay for too much insurance either. My rule is use insurance for amounts you could not cover yourself. If you could cover the loss easily don't over pay and get coverage beyond your needs.

[jull14]

on 7/12/2009 Excellent article and very helpful for many here at ehow. Thanks for sharing with us, keep up the good work. I really love your articles, they are very helpful and provide easy steps to follow.

[Scarlett9284]

on 2/4/2009 Great information on car insurance terms!

[classicalgeek]

on 1/19/2009 If your car is old, and you need only liability insurance, go ahead and get comprehensive without collision--find a company that offers it. My car caught on fire while I was driving it, and comprehensive paid a lot for it even though it was 19 years old; I had paid only $8 every six months for the comprehensive coverage so it was well worth it!

[dsarokin]

on 1/2/2009 Oy! Everytime I speak with an insurance agent, I have to learn these terms all over again. Thanks for the refresher.

[Gottaloveit]

on 12/31/2008 Great information - always wondered about the various terms. Thanks.