Important Auto Insurance Terms Every Driver Needs To Know

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Important Auto Insurance Terms Every Driver Needs To Know

Auto Insurance can be a complicated topic. Take a look at this guide on Auto Insurance terms that every driver needs to know.

Important Auto Insurance Terms Every Driver Needs To Know

When reviewing your current policy or looking for new coverage, you will encounter plenty of strange insurance terms. Some are simple, while others can be confusing. However, if you don’t understand these words, you might not select the right policy for your needs. Here are some of the most important auto insurance terms that every driver should know.

Deductible

This word is on every insurance policy. A deductible is the amount of money you need to pay before the insurance company covers the claim. These amounts can vary depending on your specific policy. If you have a high deductible, your premiums will be low. A low deductible means a higher premium. Your low monthly bill can be convenient, but it could mean a high repair cost when you need to file a claim.

Premium

Now you know about the deductible, you need to understand the premium. This is the amount of money you will pay monthly, bi-yearly, or yearly. In many cases, the words premium and rate are used interchangeably. Some companies do offer discounts for those customers who prepay the premium or enroll in an auto-pay program.

Bodily Injury Liability

When you have bodily injury liability, you are protected from those accidents that injure or kill another individual. The insurance company covers all legal fees and judgments against you. In the case of lost wages and medical expenses, this coverage takes care of them. However, this liability coverage does not cover you or other passengers in the vehicle. If you want those expenses covered, then you need personal injury protection.

Comprehensive Coverage

Vehicles can be damaged in a variety of ways. With that, you want to have comprehensive coverage if an event or object damages your car. For example, damage from hitting an animal or falling tree branches are covered. In many cases, theft, storm damage, and natural disasters are included in this coverage policy. This coverage is known by several other names, such as Other Than Collision (OTC) coverage and physical damage coverage.

Collision Coverage

With collision coverage, your insurance policy pays out any monetary damage if your car hits an object or another vehicle. In most cases, these policies only cover the cash value of your car. For those older cars, you might want to skip this coverage. Along with that, some states do not require this coverage, but your lender might make it a requirement.

Property Damage Coverage

If your vehicle damages another individual’s property or car, you will want property damage coverage. This policy can protect your assets from lawsuits that are related to the accident. However, keep in mind that many insurance companies do not offer this type of coverage since it can be expensive. In almost all states, a driver must carry a certain amount of car insurance for their vehicle. You might see meager rates, but remember that those policies could mean high bills if you are involved in an accident.

No-Fault Insurance

One type of insurance is known as no-fault insurance. With this coverage, your medical bills are covered after an accident, and they will be paid whether you are responsible for the accident or not. Some states require no-fault insurance to stop those expensive lawsuits resulting from an accident. In these states, drivers cannot sue the other unless there is a serious injury or damage.

Medical Payments Coverage

Unfortunately, some accidents are severe, and they can result in life-changing injuries or death. Medical payments coverage pays for funeral costs or medical bills as a result of an accident. You and your vehicle’s passengers are protected. This type of coverage also protects you and your family members if they are hurt while riding a bike or walking down the street. You could be required to purchase a medical payment plan for those who live in a no-fault state.

Personal Injury Protection

If you are injured in an accident, you might want to consider personal injury protection. With this insurance, your medical expenses, lost wages, treatment costs, child care payments, and funeral bills are covered. Depending on your state, your passengers could be protected as well. Some policies will cover those pedestrian injuries. Like medical payments coverage, this type of insurance could be a requirement in a no-fault state.

Uninsured Motorist Coverage

While insurance is required by law in most states, some drivers fail to adhere to these requirements. In those cases, you might want to choose an uninsured motorist (UM) coverage policy. This plan will protect you from that uninsured driver. When you are involved in an accident with this type of driver, and you don’t have UM coverage, you have to pay those medical bills and repair costs out of your pocket. In many states, there is a minimum amount of uninsured motorist coverage that you must carry.

Underinsured Motorist Coverage

Another type of insurance is underinsured motorist coverage. This policy protects you if the other driver has liability coverage but not enough to cover your repair or medical bills. Some states do require this policy and uninsured motorist coverage to protect you and the vehicle.

Gap Insurance

If you have a leased or financed vehicle, it might be time to consider gap insurance. You might not understand the importance of gap insurance. When you drive your car off the lot, it starts to lose value. If that vehicle is totaled a short time later, you will still owe the full amount of your car, but you might only get the Blue Book value of your vehicle from the insurance company. This type of insurance can save you a substantial amount of money.