Automobile

Auto Insurance Definitions: Everything You Need to Know

Understanding important auto insurance definitions can make it easier to choose the right auto insurance policy for your needs. Review these terms to improve your knowledge of your car coverage.

Liability Insurance

If you cause an accident, a liability insurance policy pays medical bills and property damage costs for other individuals involved. Nearly every state requires motorists to carry a designated amount of both property damage and bodily injury liability coverage.

Specifically, bodily injury liability pays for pain and suffering, medical bills, medical transportation, and loss of income for other drivers and passengers. It does not cover your own medical expenses after an at-fault accident. Property damage liability coverage pays for damage to others’ cars, landscaping, real estate, and other property after an at-fault crash. It does not pay for damage to your vehicle in this situation.

Comprehensive Insurance

As noted by NerdWallet, comprehensive insurance coverage pays for non-collision damage to your vehicle. Examples include fallen trees, floods, severe weather, vandalism, and theft. Read your policy carefully so you know exactly what types of damage fall under your comprehensive coverage.

Medical Coverage

Even though you might already have health care coverage, you can add medical coverage to your auto insurance policy to cover the gaps in your plan. For example, medical coverage will pay for copayments, coinsurance, and deductibles when you need to access care for auto accident injuries. Two states, New Hampshire and Maine, require medical insurance coverage.

Personal Injury Protection (PIP)

Similar to medical coverage but with expanded protection, PIP insurance covers all expenses related to auto accident injuries. You can use this type of policy to cover child care costs, lost income, and funeral expenses. The Insurance Information Institute reports that thirteen states require drivers to have PIP coverage, including:

  • Utah
  • Texas
  • Pennsylvania
  • Oregon
  • North Dakota
  • New York
  • New Jersey
  • Minnesota
  • Michigan
  • Massachusetts
  • Kentucky
  • Kansas
  • Hawaii
  • Florida
  • Delaware

    You also need PIP insurance if you live in DC or Puerto Rico.

    Uninsured and Underinsured Motorist Coverage

    Money Under 30 reports that this type of coverage pays your bills if you get in an accident with someone who does have insurance or has only limited insurance. Uninsured and underinsured motorist policies usually include both collision and liability coverage.

    Gap Insurance

    If you total your car and you own more on your loan than the actual cash value paid out by the insurance company, gap insurance pays off your auto loan. Some insurance companies refer to this type of insurance as an umbrella rider.

    Actual Cash Value (ACV)

    Used by the insurance company to determine the claim amount, the actual cash value is the fair market value of a vehicle or asset at the time of the destruction, damage, theft. To determine the ACV, the insurance company will review the condition of your car’s interior and exterior, tires, and equipment. They will also check the sale price of similar models in your area.

    SR-22 Designation

    If you have a history of auto accidents and claims, your state can add SR-22 to your driving record. This is a high-risk designation that acts like a black mark on your driving record when you seek an insurance quote.

    You won’t have to get an SR-22 policy simply for a single accident or ticket. More often, this designation requires showing a pattern of unsafe driving, driving without legal insurance as required by your state, failing to pay child support as ordered by your state, having repeat offenses, or getting arrested for driving under the influence.

    To obtain auto insurance if you have an SR-22 on your record, you must ask an insurance provider for SR-22 coverage. The insurer must file a special form with the state to document that you have legal auto insurance. Without this form, you may have your driver’s license revoked. However, it can be difficult and costly to find an insurance policy with an SR-22 designation on your record.

    Deductible

    The amount you have to pay out of pocket if you file an auto insurance claim is called your deductible. You can access more affordable auto insurance premiums if you increase your deductible. For example, Money Under 30 reports that you could save 20 percent by raising your policy deductible from $500 to $1000 and 50 percent by raising it from $250 to $2500.

    Additional Definitions

    Other words auto insurance consumers should know include:

    • Adjuster – The person who works for the insurance company and investigates claims to determine the coverage amount for each claimant based on the terms of his or her policy.
    • At-fault accident – An accident partially or fully caused by your driving actions
    • Covered Incident – Any incident that qualifies for coverage under your auto insurance policy
    • Declarations Page – The section of your auto insurance policy that lists details about your coverage, including liability limits, insured drivers, your address, and the VIN number of your covered vehicles, according to Nationwide.
    • Endorsement – A change to your auto insurance policy in the form of a written addition or removal from your coverage.
    • Exclusions – Items that a typical auto insurance policy does not cover, such as intentional damage, damage resulting from drag racing, and normal wear-and-tear.
    • Insurance claim – The written documentation you must supply your auto insurance company if you have a claim. The adjuster will make sure your claim is valid and pay the indicated amount according to the terms of your policy.
    • Motor vehicle record (MVR) – A document from your state’s department of motor vehicles that lists your license status and history of accidents and violations, according to Insurance.com.
    • Policy limit – The maximum amount your policy will pay for a claim.
    • Premium – The amount you pay every policy period for auto coverage.
    • Quote – The stated rate you receive for coverage for a requested auto insurance policy

      You’re prepared to shop for car coverage after reviewing these important auto insurance definitions.

      Check this out if you need additional information, resources, or guidance on car insurance.

      Sources:

      https://www.iii.org/article/what-auto-insurance

      https://www.moneyunder30.com/car-insurance-definitions

      https://www.nerdwallet.com/article/insurance/auto-insurance-glossary

      https://www.insurance.com/auto-insurance/glossary.aspx

      https://www.caranddriver.com/car-insurance/

      https://www.caranddriver.com/research/a32883138/truecar-value-what-you-need-to-know/

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