Understanding These Auto Insurance Terms Could Save You on Your Next Policy
Updated May 3, 2024 | Published August 8, 2023
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Categories:
- Auto Insurance
- For Drivers
- Insurance Basics
At WebFirst Insurance, we are all about transparency, and helping our customers. We want to make sure that you understand the insurance contract that you’re getting into, and we want to ensure that you can completely consent that the terms of your insurance policy are on your terms. Continue reading our blog to learn some auto insurance terms that could help you save money on your next policy.
Key Auto Insurance Terms
Additional Insured:
Typically, this means anyone in your household who is also a licensed driver, but is not the primary driver of the vehicle insured. They are also covered under the policy as a driver.
At fault accident:
An accident that you caused either partially or completely. After fault is determined in an accident, your liability insurance kicks in to pay for other people’s injuries, property damage bills, and legal costs, up to the amount set by the policy.
Auto insurance claim
A claim is a filed request for reimbursement from your car insurer to cover certain costs, such as vehicle repairs and injury treatment, among other things.
Car insurance quote:
An estimate of how much car insurance would cost for you, based on your car, driving record, and several other variables.
Collision coverage:
Pays to fix your vehicle if you crash into an object, such as a tree. Auto lenders typically require you to purchase this type of coverage.
Comprehensive coverage:
Pays to repair your car after hitting an animal, and also covers a specific list of non-collision issues – including car theft, falling objects and fire, among others. Auto lenders typically require you to purchase this type of coverage.
Covered incident:
An incident that your policy will pay for.
Deductible:
Predetermined amount your insurer subtracts from your settlement for collision and comprehensive claims. If your car repairs cost $5,000 and your deductible is $500, you’ll get a claim check for $4,500. The higher your deductible is, the lower your rate will be, and vice versa, because you’ll be paying more out-of-pocket for repairs, hospital bills, etc.
Effective date:
The exact day your auto policy begins. You’re not covered for incidents that occur before this date.
Gap coverage:
If your car is totaled or stolen, gap insurance pays the difference between its dollar value and your remaining auto loan balance, if the balance is the higher number. Auto lenders sometimes require this coverage to be purchased.
Liability insurance:
Pays for others’ injury treatment and property damage if you’re at fault in a car accident, as well as your legal defense costs if you’re sued.
Limit:
The maximum amount your policy will pay for a given accident. Each coverage type has its own limits, which can be customized to your needs.
Personal injury protection:
Similar to MedPay, PIP pays for your injury treatment and that of your passengers regardless of who caused the accident. It also pays for some costs that MedPay won’t, such as lost income and physical therapy.
Primary use:
How you commonly use your vehicle, such as for commuting, pleasure, or business. Your rate is partially dependent on the primary use of your vehicle.
Premium:
The cost of your auto insurance, which can be paid off either monthly, yearly, or per six-month period.
State required minimum:
The car insurance coverage and limits that states require their residents to carry. These limits are often very low and would be insufficient if you caused a large accident, meaning you wouldn’t be entirely covered. We recommend that you purchase above the state minimums to ensure that you’re covered, in the event of any type of accident or injury occurring.
Underwriting:
The insurance company’s process of evaluating how risky you are, based on factors such as your vehicle, location, accident history, credit, and age. An insurer uses its underwriting findings to calculate your rates.
Underinsured motorist coverage:
If you’re hit by a driver who lacks car insurance or has insufficient insurance, your coverage for uninsured/underinsured motorist bodily injury pays for treatment of your injuries and those of your passengers, while coverage for uninsured/underinsured motorist property damage pays to your car.
The Most Confusing Auto Insurance Terms You Should Learn
Accident forgiveness:
An additional coverage to your insurance policy where your rate won’t go up as a result of your first at-fault accident. You may qualify for this additional coverage if you have five years of accident-free driving.
Actual cash value:
The amount it costs to replace damaged or stolen property, minus depreciation. It reimburses you for the item’s value at the time of loss.
Binder:
A temporary agreement that a policy is in effect; this is used to protect the policyholder when it is not possible to issue or endorse the policy immediately.
Comparative negligence:
This states that when an accident occurs, each party’s negligence is compared to the other’s in order to assign blame. This allows for fairness when insurers determine the amounts that each party’s insurance company is responsible for paying out.
Declarations page:
This is a summary of your coverages, contained within your insurance policy.
Subrogation:
Also called payment recovery, this is when your insurance company requests reimbursement from the at-fault party after they’ve covered your claim.
Total loss:
When your vehicle cannot reasonably be repaired.
Umbrella insurance:
Provides extra liability coverage beyond existing limits of your other policies.
Want to learn more about auto insurance? Head to our product page.