When buying car insurance there is a lot of terminologies that are often used by insurance agents. Auto insurance can be confusing and overwhelming to understand. It is important to have a general understanding of common insurance terms before purchasing insurance. An understanding of terms can ensure that you have the right coverage to meet your specific needs.
Some important terms you should know before buying car insurance are:
1. Premium: The premium it the amount you pay for your auto insurance. Your premium is determined based on the amount of coverage that you want to have on your car. Most insurance companies will allow you to select how you want to pay your premium which is typically in monthly, semi-annual, or annual payment plans. Some companies will provide a discount if you pay your premium in one annual payment.
2. Deductible: If you are in a car accident you will need to file an insurance claim. A claim is a report telling the details and circumstances of the accident. A claim will list all the damages that were occurred by the cars involved, all medical damages occurred and any additional details.
Once you file a claim you will need to pay your deductible. Your deductible is determined when you buy your insurance policy. This is the amount you will need to pay towards repairs before your insurance begins to pay if you are in an accident. The deductible amount is subtracted from your insurance settlement for collision and comprehensive claims.
For example, if you are in a car accident and cause $4,000 in damages and your deductible is $500, you will need to pay $500 and will receive an insurance claim check for $3,500. When you buy auto insurance if you choose a higher deductible you will pay a lower insurance rate, but you will pay more if you ever file a claim. If you choose a lower deductible you will pay a higher insurance rate, but you will pay less if you file an insurance claim.
3. Collision coverage: Collision coverage helps pay for the costs associated with repairing or replacing a vehicle if you cause a crash. This coverage will also pay if you are involved in a one-car accident, for example, if you hit a mailbox, tree or another object other than another car. Collision coverage is usually required by the lender when you are buying or leasing a car.
4. Liability insurance: Liability insurance is the part of your auto insurance that helps cover the costs if you are found responsible for an accident. This type of insurance will cover the costs of the other driver’s property and bodily injuries. This part of your insurance will also pay for your legal defence costs if you are sued after an accident.
Your policy will include liability limits that often appear as shorthand numbers. For example, 80/250/50 means you have up to $80,000 bodily injury coverage for each injured person, up to $250,000 bodily injury coverage per crash and up to $50,000 property damage coverage per crash. It is important to understand the limits your policy includes because you will be responsible for paying any bills that exceed your limits if you are found at fault for an accident.
5. Declarations page: This is typically the first page of your car insurance policy. A declaration page is sometimes also referred to as “dec page”. When shopping for car insurance for individuals you should pay attention to details on the declaration page. The declarations page lists relevant policy information including your car’s model and VIN number, the address where the car is registered, drivers who will be using the car, your policy number, liability limits, and other coverage details.
6. Gap coverage: Gap insurance is sometimes also referred to as new auto coverage. This is optional coverage for your car. This coverage will help to pay off your car loan if your car is stolen or totalled and you owe more on the car than the amount it is worth at the time of the theft or accident. This option is something to consider if you are buying a new car since a new car often depreciates in value after you drive it off the dealership lot.
7. State required minimums: Most states have a minimum amount of insurance that is needed for a car. States require this so that if you are in an accident a person has some insurance coverage. State required minimums are usually much lower than is recommended by a licensed insurance agent. When getting insurance you should understand your state requirements and what will or won’t be covered if you are in an accident.
Understanding these common car insurance terms will help you when shopping around for an auto policy.