Top 10 Terms Used in Auto Insurance
By Laurel Brown
It is important for any driver to read their auto insurance policy in order to understand all of the key terms written in the fine print. However, many of those terms are unfamiliar to the average driver. Here are a few key words and phrases, common to most auto insurance policies that you should know to avoid confusion and get you on the road with ease.
1. Personal Injury Protection:
Personal injury protection provides coverage for medical treatment, for lost wages due to injury, and for additional expenses related to an auto accident. This coverage is valid no matter who is at fault for the accident. Not all insurance policies provide personal injury protection, and the coverage is not available in all states.
2. Collision Damage:
Collision damage covers any damage sustained by your car during an accident. This coverage applies when damage is caused by an impact with another vehicle such as impact with a stationary object, or when a car flips. Collision damage coverage often applies regardless of fault.
3. Comprehensive Damage:
Comprehensive damage coverage applies to all instances in which there is damage to your car caused by events other than auto accidents. This includes theft, fire, flooding, and vandalism. It is possible for both comprehensive damage and collision damage coverage to apply in a single claim.
4. Bodily Injury Liability:
If you are at fault in an auto accident, you may be held liable for any resulting injury or death sustained by the other vehicle’s occupants. Bodily injury liability coverage protects you from most financial and non-criminal legal damages.
5. Property Damage Liability:
Like bodily injury liability, property damage liability coverage applies when you are found to be at fault in an accident. In these cases, property damage liability pays for necessary repairs to the other party’s vehicle so that you are not personally responsible for any expenses.
6. Uninsured Motorist Coverage:
When you are not at fault for an auto accident, insurance companies expect the other driver’s insurance to cover much or all of the cost of your damages and medical expenses. If the other driver has no auto insurance or has limited insurance, you may need additional coverage to pay for your costs. Uninsured motorist bodily injury coverage pays for medical costs resulting from an accident, while uninsured motorist property damage coverage will pay for your repair costs, even if the at-fault driver lacks insurance altogether.
7. Premium:
The insurance premium is the cost to you, the driver, for your insurance policy. While insurers may quote the premium’s price per-month, most policyholders make a lump-sum payment semi-annually.
8. Underwriting:
Underwriting is the process by which an insurance company determines the appropriate rate for an insured driver. As a result of underwriting, drivers deemed to be of higher risk often must pay higher premiums for auto insurance. Underwriting may also reject altogether extremely high risk drivers from insurance coverage.
9. Deductible:
Most car insurance policies include a deductible. This represents the cost you are expected to pay out of pocket before the insurance company covers a claim. Deductibles vary greatly by policy, but the insurer will usually offer a lower deductible in exchange for higher premiums. Likewise, you can save money on premiums if you are willing to risk a high deductible.
10. Effective/Inception and Expiration Dates:
The effective or inception date is when your auto insurance policy officially takes effect. Prior to this date—your insurance—even if paid, is not valid. The coverage expiration date constitutes the end of your policy. Unless coverage is replaced or extended, you will not have insurance coverage after the expiration date.
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