Whether you're a first-time car owner shopping for insurance or a seasoned driver reviewing your policy, it can save you both time and money to know some of the basic concepts associated with car insurance.
So, here's a rundown of some of the terms you might come across in your research:
Your premium is the amount you pay periodically to your insurer for your policy. Depending on your insurer and your policy, premiums may be paid annually, quarterly or monthly.
These are the specific types of protection you purchase as part of your policy; some examples include liability coverage, comprehensive coverage, and collision coverage. There are many different types of auto insurance coverage; this video provides a brief explanation of many of the common types. While some coverages are optional, others may be required by your state or the institution that holds your auto loan or lease. You'll likely need to check these requirements before you make any decisions on what coverages to buy.
The most common type of coverage—required by every state, up to varying limits—is liability coverage. This type of coverage helps to protect you in case you cause an auto accident. There are two types of liability coverage—bodily injury, which helps pay for expenses related to any injuries other people have as a result of an accident you cause, and property damage, which helps cover the repair or replacement of any property damaged in an accident you cause.
The limit is the maximum amount, set in your policy, that your insurer will pay for covered damages under a specific type of coverage. For example, let's say you have an auto insurance policy with a property damage liability coverage limit of $10,000. You cause an accident that causes $11,000 in damage to the other person's car. If the loss is covered, your insurer will pay up to $10,000 for the damages, and you'll be responsible for the final $1,000.
While most types of coverage have only one limit, the bodily injury liability insurance portion of your auto insurance policy typically has two limits that apply: per person and per accident. So, for example, if your per person limit is $25,000 and your per-accident limit is $50,000 (typically written as 25,000/50,000), then that means your insurer will pay up to $25,000 for medical expenses for each person involved in a covered accident you cause, up to a per-accident limit of $50,000. So, if you caused an accident in which two people were injured, and the medical expenses for one cost $15,000 and the other cost $20,000, then the expenses would be covered by your insurer.
In addition to your premium and the limits in your policy, there's another amount to pay attention to: the deductible. Certain types of coverage, such as comprehensive and collision, also have a deductible amount specified in your policy. The deductible is an amount of money you must pay out of pocket in the event of a claim, which is then deducted from the amount your insurance company pays for the covered loss. For example, let's say the comprehensive coverage in your policy covers against vandalism, and a vandal causes $3,000 in damage to your car. If your deductible is $1,000, then you must pay that amount, and your insurer would pay the other $2,000 to repair the damage.
So, as you continue in your search for auto insurance, or as you read through your policy, make sure you understand the insurance-specific information. Want more information about auto insurance? Visit the Tools and Resources section for more articles.
Published: September 2013