All the Car Insurance Terms You Need to Know When Insuring Your Car
You walked out of the dealership with a new car.
You found a great car for sale by the owner.
You just got a well-cared for used car.
Whether you've just purchased your first car, upgraded, or replaced a car on its last wheels, you'll need to be sure you have the insurance coverage you need.
Even if you've navigated purchasing auto insurance before, it's helpful to use this time to reassess your coverage needs and comparison shop for a good deal.
As you look at insurance policies, here are important terms that will help you understand your policy and the coverage you're buying.
Coverage terms
Even though it's tempting to compare policies based on the monthly premiums, it's important to consider the coverage offered when assessing a policy.
Liability coverage — Coverage for bodily injury and property damage you cause. This coverage helps with medical and repair costs for injury or damage you cause.
Collision coverage — Covers repairs for damage to your car in any collision, whether you're in an accident or back into a pole.
Comprehensive coverage — Covers repairs for damage to your car not resulting from a collision, including fire, theft, and vandalism.
Personal injury — covers medical payments, replaces some lost income if unable to work, and can even help cover funeral expenses.
Medical payments — covers medical payments for you and your passengers.
Uninsured or underinsured motorist coverage — If you're in an accident and the at-fault driver doesn't have or doesn't have enough liability coverage, this coverage can help you cover medical expenses and in some cases car wages.
Gap coverage — Covers the rest of your loan if your car is totalled.
Most states have requirements about the minimum amount of coverage you need to have. While there is some variation by state, you'll at least need liability coverage. The amounts of coverage for liability insurance vary by state.
Some states also require uninsured/underinsured motorist coverage, personal injury protection, survivors benefits coverage, or medical payments coverage. Learn more about what your state requires.
If you used a loan to buy your car, your lender will likely require you to purchase collision and comprehensive coverage in addition to liability coverage.
Money terms
As you look at coverage and cost, you'll need to look beyond the types of coverage included in your policy. (More on coverage types later.) Here are three terms and items to evaluate as you consider options.
Premium — The monthly cost of being a policyholder. Many insurers allow you to pay this fee monthly or in a lump sum every six months.
Deductible — The amount you pay out-of-pocket before the insurance company starts contributing for costs. You may have different deductibles for different coverages included in your policy
Coverage limit — The maximum the insurer will pay for damage. Coverage limits can be different for each type of coverage included in your policy.
Understanding your policy will make it easier to evaluate your options. Rather than choosing a policy based on price, you'll pay attention to the value offered through the coverage and coverage limits included. You'll ensure that you have the coverage you need at an affordable price point.
Policy terms
Beyond understanding the coverage and money terms, you'll want to understand a few other key terms that affect how your policy works.
Policyholder — Owns the policy. The policyholder also typically pays the premiums and is listed as the primary driver.
Claim — When you experience a covered incident and request your insurer to pay.
Primary driver — Drives the car the most.
Additional insured — Other people who drive the car but not as frequently as the primary driver.
Insurer terms
Aside from thoughtfully evaluating a policy, you'll also want to understand how your insurance provider stands in the industry and how the industry works.
Agent — Sells insurance policies. Some agents only represent one insurer. Independent agents represent multiple insurers.
Insurance provider — Is financially responsible for paying claims.
Insurance agency — Sells insurance policies. Can focus on policies from one insurance provider or multiple insurance providers.
Financial strength ratings — Indicates how financially stable an insurer is. Most competitive insurers have high financial strength ratings.
Department of Insurance — Regulates insurance products sold in each state and how they are underwritten.
Underwriting — How insurers assess the risk of offering insurance. Underwriting determines your rates.
Double-checking financial strength ratings will help you identify companies that are financially stable and likely to be able to make claims payments.
Insight on the customer experience is also valuable. You can look for formal complaints and read customer reviews to get a better sense of how an insurer treats its policyholders.
Learning more about the insurer and understanding how to evaluate your auto policy will give you peace of mind and help you be confident in the coverage you purchase.
Your new car or new-to-you car deserves protection. Becoming familiar with common terms, what to look for in coverage, and how to identify a trustworthy insurer will help you ensure you have the coverage you need.
Author Bio: Alice Stevens is the senior editor over insurance for BestCompany.com, a customer review platform. She’s passionate about conducting good research and understanding the details you need to know about insurance.