Understanding These Auto Insurance Terms Could Save You on Your Next Policy
August 8, 2023
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 Terms for Understanding Auto Insurance
Additional Insured:
A household member of the policy owner, who is also covered by the policy as a driver – typically all licensed drivers in the home aside from the primary driver
At fault accident:
A crash that you cause, either partially or completely. After an at fault accident, your liability insurance pays out up to the chosen limits for other people’s injury and property damage bills, plus your legal defense costs if you’re sued.
Auto insurance claim
A request for payment from your car insurer to cover vehicle repairs, injury treatment or other costs.
Car insurance quote:
An estimate of how much a company will charge you for car insurance.
Collision coverage:
Pays to fix your vehicle if you cause a crash or have a one-car accident, such as hitting a tree. Typically required with an auto loan.
Comprehensive coverage:
Pays to repair your car after animal collisions, and also covers a specific list of non-collision issues – including car theft, falling objects and fire, among others. Typically required with an auto loan.
Covered incident:
Something 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.
Effective date:
The exact day your auto policy starts. You’re not covered for accidents that happen 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. Sometimes required with an auto loan.
Liability insurance:
Pays for others’ injury treatment and property damage if you cause a crash, 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.
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.
Premium:
The cost of your auto insurance, 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.
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 Car 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 insurers pay insurance claims accordingly.
Declarations page:
This is a summary of your coverage.
Subrogation:
Called payment recovery or “subro”, 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 coverage beyond existing limits of your other policies.
Want to learn more about auto insurance? Head to our product page.