Understanding Auto Insurance: Terms And Conditions Explained

Auto insurance terms and conditions can be confusing, but it's important to understand them to know what coverage your insurance company is offering and what coverage best meets your needs. A glossary of auto insurance terms can help you understand your policy, compare auto insurance rates, and make an informed decision about your protection. Understanding the basic auto insurance terms will help clarify what you are and aren't covered for in your policy.

Understanding the basic terms

Automobile Liability Insurance

This is a general term for protection against legal liability for bodily injury and/or property damage caused by a motor vehicle accident. In other words, it covers the cost of injuries to other people and damage to their property if you are at fault in an accident. This includes Bodily Injury (BI) Liability Insurance and Property Damage (PD) Liability Insurance.

Bodily Injury (BI) Liability Insurance

BI insurance covers the cost of injuries to other people when the insured vehicle's driver is legally at fault in an accident. This coverage is mandatory in some states.

Property Damage (PD) Liability Insurance

PD insurance covers the cost of damage to someone else's property, usually their car, but it can also include buildings, utility poles, fences, etc.

Comprehensive Coverage

This is optional coverage for damage to your car that does not involve a collision. It includes damage from events such as fire, theft, vandalism, animal damage, floods, earthquakes, falling objects, and more. The price of comprehensive insurance is influenced by the risk of loss and the car's value.

Collision Coverage

Also optional, collision coverage is for damage to your car resulting from a collision with another object, such as a wall, a pothole, or another vehicle. It only applies to your car and does not cover what your car collided with (that's what PD liability insurance is for).

Declarations Page

The declarations page, or "Dec Page," is usually the first page of your insurance policy. It includes important information such as your name, address, the insured property, its location, the policy period, the amount of coverage, premiums, and other specific details.

Deductible

The deductible is the amount you agree to pay out of pocket for losses up to a set amount. For example, if you have a $500 deductible and your car repairs cost $5,000, you will receive a claim check for $4,500. Choosing a higher deductible can lower your insurance rates, but your insurer will pay less if a claim is made.

Medical Payments Coverage (MedPay)

MedPay covers your own injury treatment and that of your passengers, regardless of who is at fault in the accident, up to your policy limit. It is usually optional and is sold in states with traditional tort insurance laws.

Personal Injury Protection (PIP)

PIP is similar to MedPay but also covers additional costs such as lost income and physical therapy. It is typically associated with no-fault auto insurance systems.

Uninsured/Underinsured Motorist Coverage

This coverage pays for injuries to you and your passengers when the at-fault driver in an accident is uninsured or underinsured, or in the case of a hit-and-run. It also has a second form, UMPD, which covers damage to your vehicle in such situations, although most people do not purchase this as they carry collision and comprehensive coverage.

These are some of the basic terms you may come across when dealing with auto insurance. Understanding these terms will help you make informed decisions about the coverage that best meets your needs and requirements.

Knowing what is covered

Bodily Injury Liability

This type of coverage applies to injuries that you, as the designated driver or policyholder, cause to someone else. It also extends to family members listed on the policy when driving someone else's car with their permission. It is important to have sufficient liability insurance, as you may be sued for a large sum of money if you are involved in a serious accident. It is generally recommended that policyholders purchase more than the state-mandated minimum liability insurance to protect their assets adequately.

Medical Payments or Personal Injury Protection (PIP)

This coverage pays for the treatment of injuries sustained by the driver and passengers in the policyholder's car. PIP can also cover lost wages, funeral costs, and the cost of replacing services normally performed by someone injured in an auto accident.

Property Damage Liability

Property damage liability covers any damage you or someone driving your car with your permission causes to someone else's property. This usually refers to damage to another vehicle, but it can also include damage to lamp posts, telephone poles, fences, buildings, or other structures.

Collision Coverage

Collision coverage pays for damage to your car resulting from a collision with another vehicle or object, such as a tree or telephone pole, or if your vehicle rolls over. It also covers damage caused by potholes. Collision coverage is typically sold with a separate deductible, and if you are at fault in an accident, your insurance company may try to recover the amount paid out from the other driver's insurance company.

Comprehensive Coverage

Comprehensive coverage reimburses you for loss or damage caused by something other than a collision with another vehicle or object. This includes events such as fire, falling objects, explosions, natural disasters, vandalism, theft, and animal collisions. Comprehensive insurance usually has a separate deductible, although some insurers may offer windshield repairs without a deductible.

Uninsured and Underinsured Motorist Coverage

This coverage reimburses you, your family members, or a designated driver if one of you is hit by an uninsured or underinsured driver. It also offers protection in the event of a hit-and-run or if, as a pedestrian, you are struck by an uninsured or underinsured motorist.

Knowing what is not covered

When it comes to auto insurance, it is important to know what is and isn't covered by your policy. While auto insurance provides financial protection in the event of an accident, there are certain situations and types of damage that are not typically covered.

Regular Repairs and General Maintenance

Basic maintenance, repairs, and general wear and tear on your vehicle are not covered by auto insurance. These expenses are considered the responsibility of the vehicle owner. Even extended warranties and car repair insurance don't typically cover basic maintenance or repairs.

Personal Belongings Stolen from Your Vehicle

Auto insurance covers your vehicle and any damage you cause while driving, but it does not cover personal belongings stolen from your car. If your personal belongings are stolen, you would need to file a claim through your renters or homeowners insurance policy.

Classic, Exotic, and Performance Cars

Standard auto insurance policies are not designed to cover classic, exotic, or performance cars, which are more expensive, more likely to be stolen, and require specialized repairs. These vehicles require tailored insurance policies to meet their specific needs.

Intentional Damage

If you intentionally damage your vehicle, it won't be covered by your insurance policy. This includes situations such as breaking a window because you locked yourself out of your car, as well as more extensive damage and fraud, like setting your car on fire.

Mechanical Breakdowns

Mechanical breakdowns are not typically covered by auto insurance. However, you can purchase additional coverage, such as car repair insurance or mechanical breakdown insurance, to protect against these issues.

Other People Driving Your Car

Whether your insurance covers other people driving your car can vary. Some insurance companies will only cover accidents if the driver lives with you or is a family member. Other companies may offer limited coverage for anyone driving your car with permission. It's important to check with your insurance representative to understand the specifics of your policy.

Situations Requiring Specific Insurance Policies or Add-ons

There are certain situations that may not be covered by your auto insurance unless you purchase additional coverage or add-ons. For example, if you use your car for commercial purposes, such as delivering pizzas or providing ride-sharing services, you may need supplemental insurance products. Custom parts and equipment in your vehicle may also require additional coverage.

Knowing how to compare insurance rates

Understand the Factors Affecting Your Rates:

Your auto insurance rates are determined by a combination of personal factors, including your age, gender, driving record, credit history, vehicle type, and location. Insurance companies weigh these attributes differently, resulting in varying quotes from different insurers. For example, a limited driving history or a poor credit score can lead to significantly higher rates. Additionally, state regulations and the risk level of your area, such as weather-related risks, can influence your premiums.

Decide on the Coverage You Need:

Most states mandate a minimum amount of liability coverage, and minimum-coverage policies tend to be the most affordable. However, consider your specific circumstances; if you have a newer or leased vehicle, your lender or lessor may require additional coverages, such as comprehensive and collision insurance. As your vehicle ages, you may also want to adjust your coverage levels accordingly.

Research and Compare Insurers:

Utilize online resources to research and compare multiple insurance companies. Examine their customer service, claims handling, overall reputation, and the discounts they offer. Look for insurers that provide the coverage you need at competitive rates. Remember to compare quotes for the same types and levels of coverage to ensure an accurate comparison.

Gather Necessary Information:

When requesting quotes, be prepared to provide basic information about yourself and any other drivers on the policy. This includes age, gender, marital status, driving history, vehicle details (make, model, Vehicle Identification Number, etc.), and current insurance status. You may also be asked about your vehicle's primary use and annual mileage.

Obtain and Compare Quotes:

Obtain quotes from multiple insurers to find the best rates and coverage for your needs. You can do this by visiting individual company websites or using insurance comparison sites like The Zebra, NerdWallet, or Compare.com. These sites allow you to input your information once and receive quotes from multiple insurers, making the process more efficient. Remember that getting quotes will not impact your credit score, as insurers only perform a soft pull on your credit.

Consider Available Discounts:

Insurers offer a range of discounts that can lower your premiums. Common discounts include those for safe driving records, bundling home and auto policies, paying your annual premium in full, and good student grades for student drivers. Research and inquire about available discounts to maximize your savings.

Evaluate Customer Service and Claims Handling:

While price is important, don't forget to consider the insurer's customer service and claims handling reputation. In the event of an accident or incident, you'll want an insurer that provides prompt and satisfactory service. Read reviews and assess their responsiveness and ease of filing claims.

Choose the Right Insurer for You:

After comparing rates, coverage, and other factors, select the insurer that best meets your needs and budget. Remember that the cheapest option may not always be the best, as you want to ensure adequate coverage and quality service.

By following these steps, you can confidently compare insurance rates and make an informed decision about your auto insurance.

Knowing how to file a claim

Step 1: Stay Calm and Prioritize Safety

If you're involved in a car accident, it's important to stay calm and prioritize your safety and that of others. Pull over to a safe location, if possible, and ensure that you and your passengers are unharmed. Don't stand on a busy road, and wait inside your vehicle for assistance if necessary.

Step 2: Call the Police and Gather Information

Contact the police, especially if there are injuries, significant damage, or a crime has been committed. A police report will provide valuable documentation for your insurance claim and help establish the facts of the incident. Exchange information with the other driver(s), including names, contact details, insurance information, vehicle details, and license plate numbers. Take photos of the accident scene from multiple angles, capturing vehicle damage and any relevant road conditions or contributing factors. If there are witnesses, get their contact information as well.

Step 3: Contact Your Insurance Company

Reach out to your insurance company as soon as possible, either through their mobile app, online, or by phone. Provide them with the details of the incident, including the location, date, and time of the accident, as well as the information you collected from the other parties involved. Your insurer will likely ask for a copy of the police report and photos of the damaged vehicles. They may also inquire about your policy coverage and deductibles.

Step 4: Understand Your Policy and Coverage

Review your auto insurance policy to know what is covered and what your deductibles are. This step is crucial in setting the right expectations for your claim. For example, understanding whether you have rental car reimbursement coverage or gap insurance can impact your claim process and the benefits you receive.

Step 5: Work with an Insurance Adjuster

Your insurance company will assign an insurance adjuster to investigate your claim. The adjuster will typically contact you within a few days of filing the claim. They will assess the damage to your vehicle, review any relevant reports and documentation, and address any personal injury claims. They may also interview witnesses and analyze police reports. The adjuster's role is to determine the extent of the insurance company's liability and the appropriate compensation.

Step 6: Repair or Replace Your Vehicle

Once your claim has been approved, you can choose a repair shop to handle the repairs to your vehicle. The insurance company will issue a payment to you or directly to the repair shop, usually minus your deductible. If your vehicle is deemed a total loss, the insurance company will compensate you or your lender for the actual cash value or replacement cost of the vehicle, depending on your policy.

Step 7: Stay Informed and Finalize Paperwork

Throughout the claims process, maintain open communication with your insurance company to stay updated on the progress of your claim. Once your vehicle has been repaired or replaced, finalize any remaining paperwork to close the claim.

Frequently asked questions