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10 Bewildering Auto Insurance Terms You Need to Know

Liabilities, deductibles, and premiums—oh my! Overwhelmed by all the car insurance jargon out there? We’ve got you covered! Here are 10 common terms in the auto insurance world defined.

1. Coverage

Coverage refers to the type of insurance policy you have and how much it “covers” you. You may have comprehensive coverage, which covers against theft and damage caused by something other than a car accident, like fire, vandalism, hail, flooding, etc. Collision coverage, on the other hand, pays for damage to your car caused by an impact with another vehicle or object or a rollover (aka, a car accident).

2. Deductible

Your deductible is the amount of money you pay out-of-pocket for covered losses before your insurance company pays a claim. For example, if you are in an accident and have $1,500 in damages to your car, when you make a claim you may owe a $500 deductible, then your insurance company will pay the additional $1,000 of the cost of damage.

Another thing to know about deductibles is when you purchase your auto insurance policy, the general equation goes that if you opt for a higher deductible then your premium will be lower. Conversely, if you have a low deductible, your premium may be higher.

3. Premium

The monthly payment required for an insurance policy to remain active is your premium. Generally, if you get an auto-insurance policy with a low premium, then your deductible will be higher.

4. Rate

This is what a driver pays for auto insurance, which is based in part on past experience by your insurance company with drivers categorized by similar factors, such as your age, gender, marital status, driving record, and the make and model of your car. Many things can affect your insurance rates, some of which are out of your control.

5. Claim

This is the request you make to your insurance company to cover an incurred loss. Basically, when you are in an accident and incur damages, you file a claim with your insurance company in order to seek payment for those damages.

6. Liability

This is your legal obligation to reimburse others for damage or injury that you cause. If you cause an auto accident, you are liable (legally responsible) for the financial cost in damages to the other party. These costs can be because of bodily injuries or property damage, or financial losses caused to other people.

Most states require you to have liability insurance for your car so that if you or someone driving your car causes an accident, the injured party will receive appropriate compensation.

A type of liability insurance is property damage liability (PD), which covers you if you damage someone else’s property, including their vehicle, with your vehicle. Another type is bodily injury liability, which is usually mandated by state law, and covers costs associated with injuries and death that you or another driver causes while driving your car.

7. No-Fault Insurance

These policies allow you to recover financial losses from your own insurance company without having to prove that anyone was at fault for an accident.

One version of this kind of insurance is personal injury protection (PIP), which pays for your injury treatment and that of your passengers regardless of who caused the accident. Another similar version is medical payments coverage, which provides coverage, regardless of who is at fault, of medical expenses and funeral bills incurred by you and your passengers in the event of an accident.

8. Uninsured and Underinsured Motorist Coverage

This coverage is for injuries you and others suffer when you’re involved in an accident with an uninsured driver, or a driver without adequate insurance. You can get coverage for uninsured/underinsured motorist property damage (UMPD/UIMPD), which pays to repair your car. You can also get uninsured/underinsured motorist bodily injury (UMBI/UIMBI), which pays for treatment of your injuries and those of your passengers.

9. Gap insurance

This is insurance for your car that the difference between what your vehicle is worth and what you owe on it. If you lease or finance the car, you are responsible for the full amount you still owe on it, even if something happens to it. Your collision and comprehensive insurance only covers the actual market value of the car. This is an optional type of coverage.

10. Insurance Adjuster

Your insurance adjuster is the Individual employed by your insurance company to settle claims brought by policyholders or claimants. He or she evaluates each claim and then decides how much money is paid based on the coverage available in your policy contract.

Whether you’re purchasing a new auto insurance policy or want to switch to a different company that offers better rates, you’ve come to the right place. Get a free auto insurance quote online with Freeway Insurance by entering your zip code at the top of the page or by calling 800-777-5620. Compare auto insurance rates for multiple companies and choose the policy that fits your needs and budget.

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