The Top Ten Auto Insurance Terms That Everyone Should Know

There are dozens of obscure terms in the insurance lexicon. Most of them are of interest only to people that work in the industry but it’s vital for everyone with an auto insurance policy to understand these ten fundamental terms. If you don’t understand them, you can’t know whether you have enough coverage, whether you are getting a good deal, or whether you have the right policy for your needs.

Premium
AA payment made to an insurance company (typically monthly) obligating them to pay insurance claims according to the terms of your policy.

Deductible
A deductible is a sum of money that a policyholder pays out-of-pocket so that their insurance company will pay their claim. Most auto insurance policies have deductibles, but they vary widely in their amount. Often there is an inverse relationship between the amount of a deductible and the amount of a premium. Policies with high deductibles generally have a lower premium and policies with high premiums generally have a lower deductible.

Bodily Injury Liability
This type of coverage protects you if someone is injured or killed by your vehicle. Provided that the dollar value of your coverage is large enough, this can fund your legal defense and even pay for any legal judgments against you, if an injured party or their next of kin take legal action against you. This does not cover you or anyone in your vehicle; medical payment/ personal injury coverage does.

Collision Coverage
This pays for any damage to your vehicle resulting from a collision with another vehicle or object. For older vehicles, this coverage may not be worthwhile since it is usually limited to the cash value of the covered vehicle.

Physical Damage Coverage
Also known as comprehensive coverage or Other-Than-Collision (OTC), if your vehicle is damaged by something other than a collision, this will generally cover it.

Medical payment or personal injury coverage
These cover injuries to the driver and passengers in your vehicle. It may cover injuries to pedestrians as well, depending on the policy.

Property Damage Liability
Quite simply, if your vehicle damages someone else’s car or other property, this coverage will pay for the damages. Some insurance companies offer a version of this coverage that includes protection from legal claims filed as a result of damage to someone’s property.

No-Fault Insurance
Some states have adopted no fault insurance as a way to reduce lawsuits stemming from car accidents. In no-fault states, drivers are generally prevented from suing other drivers unless they are seriously hurt. In no fault states, if one gets in an accident involving another driver, your insurance claim is paid by your own insurance company, rather than the other driver’s insurance company.

Uninsured Motorist Coverage
This comes in two forms: Bodily Injury, which covers an insured driver and their passengers in the event that they are injured by an uninsured driver and Property which covers damage to your vehicle caused by an uninsured motorist.

Gap Insurance
When you drive a new car off the lot, it immediately loses a sizable percentage of its value. If it then gets totaled in a crash, you owe the dealership for a new car but the insurance company will pay you the “Blue Book” value for a used car. Gap insurance helps drivers avoid this problem by paying the difference between what a driver owes and what they are paid if the vehicle is totaled.