Zoombak ™

Helpful Tips

Auto Insurance Language: Understanding What Your Policy Really Means

When you browse the Internet for potential auto insurance carriers, you can easily become confused by the difficult language, which is rarely explained in sufficient detail. The different types of coverage alone are enough to make a consumer's head spin, and that doesn't take into account the additional coverage that your insurance company wants you to purchase.

 

If you're in the market for auto insurance-or even if you just need to brush up on the language-here are some of the most common things you'll see on a policy and what they mean. Please remember, however, that the precise definitions for coverage can vary by state, so verify all information with your insurance company.

 

Liability Insurance

This is the minimum insurance required by most U.S. states in order to drive legally on the open road. If you carry only liability on your auto insurance policy, you will be covered only in accidents that result from your own carelessness.

 

The minimum in Texas, for example, is $20,000/$40,000, which means that the insurance company will pay out $20,000 per person involved in the accident, with a maximum of $40,000 total.

 

Property-Damage Coverage

Property-damage liability coverage refers to the protection provided by your insurance company should you cause damage to another vehicle or other property. For example, if you hit your neighbor's backyard fence, your property-damage coverage would cover those expenses. You will have to choose the limits on this policy; the more coverage you purchase, the more protected you are. If the damage you cause exceeds your coverage, you will have to cover the other costs out of pocket, which can be financially debilitating.

 

Bodily-Injury Coverage

Another form of liability auto insurance coverage, bodily-injury refers to people you injure rather than property you damage. If you hit someone on the street or in another car, your bodily-injury coverage will pay their (reasonable) medical expenses, lost wages and any pain and suffering they are granted by a court. This form of coverage does not protect your vehicle or any property you damage, and is usually required by the state in order to drive legally.

 

Comprehensive Insurance

Comprehensive auto insurance is not required by any state, but it is a good idea if you want to protect your vehicle. This type of insurance protects you and your car in the event of a non-accident related event, such as theft, vandalism or fire. When you purchase comprehensive auto insurance, you have to choose a limit, which is the amount of money your insurance carry will cover for any given claim.

Comprehensive auto insurance coverage usually includes a deductible, which is the amount of money you will have to pay out of pocket before insurance will pay. The lower the deductible, the higher your monthly premium. And although comprehensive coverage isn't required by law, it is usually required by the financing company when you lease or finance a car.

 

Collision Insurance

When you purchase collision insurance, you are protecting your vehicle investment should your car sustain damage as a result of an accident. The insurance company will pay to repair your car-less the deductible-or will reimburse you for the value of the vehicle should they decide to total it. This is usually only worth the expense with a new or expensive vehicle that you need to preserve. It is provided for all members of your family in whichever car they happen to be driving or riding in.

 

Uninsured Motorist Coverage

If you are hit by a driver that doesn't have insurance coverage, uninsured motorist will cover the damage to your vehicle minus the deductible. This is a good idea if you are worried about getting into an accident with an irresponsible driver. It is not meant as a substitute for collision insurance, and only goes into effect when the other driver lacks insurance.

 

Underinsured Motorist Coverage

This is similar to the insurance coverage explained above, but is not available in all states. Rather than providing coverage on an accident with an uninsured motorist, it covers the difference when the other driver lacks adequate insurance to cover the damage to your vehicle or person.

NOTE: Both uninsured motorist and underinsured motorist coverage can be purchased for bodily-injury or property-damage or both.

 

Personal Injury Protection Coverage

Yet another type of auto insurance coverage that you might want to purchase is Personal Injury Protection or PIP. This type of coverage is for the medical and funeral expenses incurred as a result of a car accident for both the insured driver and other household members, plus anyone else who happens to be in the vehicle at the time of the accident. This is especially important for drivers who participate in carpools or who frequently give rides to other people.

 

Gap Insurance

As you probably know, a car begins to depreciate as soon as it is driven off the car lot, which means that it loses significant value at a rapid rate. If you get into an accident in the first few months after you purchase a car, and the insurance company totals it, you could wind up owing your financing company more than what you are reimbursed. Gap insurance covers the discrepancy between what you owe on the car and what the insurance company is willing to pay out on your totaled vehicle.

 

Rental Car Reimbursement

In some auto insurance policies, you can sign up for rental car reimbursement, which means that your insurance company will pay for your rental car while your vehicle is being repaired from an accident. The terms for this type of coverage vary widely, so ask a representative of your insurance company for an explanation of benefits.


Related Links