Does learning about car insurance feel like trying to understand a foreign language sometimes? It’s not just you. The insurance industry is filled with jargon, and to many people, all the lingo can make policies hard to decipher. Understanding your coverage is important, however, so we’ve put together a list of useful car insurance terms that you need to know.
There are a lot of useful car insurance terms to cover. Let’s start with some basic terminology.
- Deductible: This is the amount that you have to pay out of pocket when you file a claim. Not all types of coverage have a deductible, but collision and comprehensive coverages usually do.
- Excluded Driver: Sometimes, it may make sense to exclude a driver in your household from coverage, for example, if that person’s driving record would raise the cost of insurance for everyone, and it’s cheaper for them to buy a separate policy. If a person’s name is listed as an excluded driver on the policy, that person is not covered.
- Insureds: The insureds are the people who are covered by the policy. Typically, all drivers in a household should be listed as insured on the policy.
- Limit: This is the maximum benefit that the policy will pay. Limits can be expressed as per person or as per occurrence or accident.
- Policyholder: This is the person who owns and typically pays for the insurance policy.
- Premium: This is the cost to purchase insurance. The premium is often a monthly expense, but some premiums may cover six months or a year of coverage.
In the U.S., each state gets to establish its own laws on car insurance. Different states have different systems and requirements.
- At-Fault: In states that use an at-fault system of insurance, the driver who is determined to be responsible for the accident is also responsible for paying for costs associated with injuries and property damage.
- Mandatory: Mandatory coverage types are required under state law. According to the Hawaii Department of Commerce and Consumer Affairs (DCCA), mandatory coverages in Hawaii include personal injury protection, bodily injury liability and property damage liability.
- No-Fault: In states that use a no-fault system of insurance, your insurance pays for any injuries that you and your passengers suffer (up to the limit), regardless of whether you caused the accident. Hawaii is a no-fault state. However, the no-fault law only applies to injuries, not to property damage.
- Optional: Coverage types that are not required under state law are considered optional. The Hawaii DCCA says that optional coverages in Hawaii include collision, comprehensive, uninsured motorist and underinsured motorist. Note that lenders typically require collision and comprehensive insurance when financing a car.
Auto insurance can actually be broken down into multiple types of coverage.
- Comprehensive and Collision: These are actually two types of coverage, but they are often purchased together. Both comprehensive and collision insurance provide protection for the policyholder’s car. Collision insurance covers collisions with cars and other objects, as well as rollover crashes. Comprehensive insurance can cover many other types of damage, including animal encounters, weather-related damage, fire, theft and vandalism.
- Full Coverage: Although people often talk about having “full coverage,” this term doesn’t actually refer to a specific type of policy. It’s an informal term that usually describes coverage that includes liability, comprehensive and collision insurance.
- Liability: Liability insurance provides coverage for losses experienced by third parties, i.e., not you or your passengers. If you cause a crash and damage both your car and another person’s car, liability coverage would pay for the damage to the other person’s car, but it would not pay for the damage to your car. Liability coverage can be for property damage or bodily injury.
- Personal Injury Protection (PIP): This insurance type covers certain costs related to injuries that you and your passengers experience, regardless of who caused the crash. PIP is a common requirement in no-fault states like Hawaii.
- Uninsured Motorist (UM) and Underinsured Motorist (UIM) Coverage: Although state law typically requires insurance, some drivers fail to maintain insurance. If one of these drivers hits you, uninsured motorist coverage can help pay for costs. Another issue occurs when a driver has insurance, but the losses exceed the limits. If you are hit by a driver without sufficient limits, underinsured motorist coverage can help pay for the costs.
Do You Need More Helping Understanding Auto Insurance?
Even once you know these useful car insurance terms, you might need help securing the best coverage. An agent can help you review your coverage needs. Find an agent.