Car insurance terms can sound like a different language when you first hear them. They can be confusing, but it is extremely important that you have a basic understanding of what each term means so you know exactly what you’re getting. A misunderstanding of your coverage or deductible can be costly when an accident happens. Here is brief overview of the most commonly used insurance terms.
Auto Liability Coverage – This insurance covers the cost of any injuries or damage that you cause to people or property. In most states this type of insurance is required. There are a few different types of liability, and here are the most common:
Collision Coverage – This insurance covers the cost of any damage to your vehicle as the result of an accident. You can lower your premiums by dropping this coverage if you drive an older, low value vehicle.
Comprehensive Coverage – Covers damage to your vehicle that is caused by things other than collisions. Common examples would be flood, hail or fire. If you are driving an older vehicle it can pay to drop this coverage altogether.
Uninsured/Under Insured Motorist Coverage – In some states the rate of uninsured motorists is around 25% and climbing. This coverage can be a lifesaver if you are unlucky enough to be hit by an uninsured or under insured driver. This coverage makes up the cost difference if the driver does not have enough insurance or has no insurance at all.
Gap Insurance – Comprehensive and collision insurance will only pay out the market value of your vehicle. If you are driving a new car that is only a few months old, the market value may be less then what you owe on the vehicle. A new car will depreciate as soon as you drive it off the lot, so gap insurance can help make up the difference between what you owe and what the vehicle is worth.
Deductible – The deductible is simply the amount you must pay before your insurance kicks in. As an example, if you have a $500 deductible on your policy you must pay the first $500 of any claim. If the damage is valued at less than $500 you must pay the whole bill out of pocket. The higher your deductible, the lower your premiums.
Understanding insurance is easy if you know what the various industry terms mean. Now that you understand the language, shopping for your next policy should be a snap.