Car Insurance Terms Explained in Plain English

Understanding the terms of your auto insurance coverage is the key to choosing the insurance that is right for you.  However, car insurance companies do not always make understanding the terms of your policy easy. Keep reading if you need car insurance terms explained to you in plain English.

Auto Insurance Terms and Definitions:

At-fault:

The driver determined to have caused the accident is at-fault. Running a red light or rear-ending another driver typically make you the at-fault driver.

Collision coverage:

Damage that your car sustains as a result of an accident or collision is typically covered by your collision insurance.  Damage to the other car or property that does not belong to you, is not covered by this type of insurance.

Comprehensive coverage:

Damage that your car sustains that is not the result of a collision or accident is typically covered by this type of insurance.  This includes damage from falling objects, inclement weather, vandalism, fire and more. Theft of your vehicle is covered by comprehensive coverage as well.

>>MORE: What is car insurance?

Disability insurance:

Although not a form of car insurance, this insurance can cover you if you are disabled due to a car accident.  It comes in several forms such as short-term and long-term disability insurance. Furthermore, insurers offer Own Occupation and Any Occupation disability insurance.  Own Occupation disability insurance is recommended because your coverage kicks in if you can no longer work in your profession due to injuries you have sustained.

>>MORE: Is it illegal to drive without insurance?

Full Coverage Auto Insurance:

The definition of full coverage varies from insurance company to insurance company.  It generally includes a combination of collision insurance, comprehensive coverage, and liability insurance. You may want to consider adding other forms of insurance to this “full coverage” insurance to ensure your policy includes every type of coverage you need.

>>MORE: How to Buy Car Insurance: Online or Through an Agent?

Liability insurance:

Property damage and personal injuries that the other driver, their passengers, and pedestrians sustain in an accident in which you are at-fault fall into this category.  It is broken up into Bodily injury liability per person, Bodily injury liability per accident and Property damage liability per accident. It is typically written as 100/300/100 which is $100,000 maximum payout for an individual’s bodily injuries, $300,000 total maximum payout for bodily injury, and $100,000 maximum payout for property damage.

>>MORE: Who has the Cheapest Car Insurance?

MedPay:

This is short for Medical Payments Insurance.  This insurance covers your medical expenses that you incur resulting from a car accident in which you are at fault. It is much cheaper than health insurance. It can be used to pay the deductible or fees your health insurance company charges, or used directly to cover your medical expenses. Some states require this insurance.

Minimum Auto insurance Coverage:

This is the minimum auto insurance that you must obtain to legally drive in your state.  Insurance companies do not recommend you obtain only the minimum amount of insurance.

>>MORE: How to Compare Car Insurance Quotes from Different Companies?

No-fault State:

In these states, your own automobile insurance covers your damages and medical costs regardless of who is at fault.  These states typically require drivers to have PIP Coverage. You also cannot sue the other driver unless the injuries you have are severe and the medical bills exceed a given threshold which is state dependent. Here are the 12 no-fault states: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.

PIP Coverage – Personal Injury Protection:

This coverage covers medical expenses you incur from an accident regardless of fault.  Some states require drivers have this type of insurance. Some states allow drivers to have the option of obtaining this type of coverage.  Other states do not offer this type of coverage. In addition to medical expenses, PIP may cover lost wages and some living expenses.

Tort State (At-Fault):

This is the opposite of a no-fault state in which the at-fault driver’s (tortfeasor) liability insurance typically covers any damage and injury claims of the driver of the other car and his passengers. The majority of states in the US are tort states with the exclusion of the no-fault states listed above. Each insurance company’s liability insurance covers for the damage of the other party depending on the degree of fault of each party. In a tort state, individuals can also sue the other party if they do not agree with the payout and are seeking additional compensation.

Umbrella insurance:

Also known as excess liability insurance.  This insurance supplements other forms of insurance that you have so that you are fully covered if a serious accident were to occur.  It is typically sold in $1 million increments. Furthermore, it is rather inexpensive, adding only $300 to $600 a year to your car insurance premium.  It is highly recommended for high net worth individuals and families.

Uninsured Motorist Property Damage Insurance:

This coverage helps cover damages to your vehicle and property caused by an uninsured or underinsured driver.  The Insurance Research Council estimates that one out of every eight drivers do not have insurance. Furthermore, many drivers only carry the state minimum. Some states require drivers have this type of insurance. Uninsured Motorist Bodily Injury Insurance is also available.

>>MORE: The Pros and Cons of Buying Car Insurance from an Insurance Broker

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