Shopping for auto insurance can be a bit confusing. Many people just don’t understand insurance terms and lingo, so to help you sort it all out I’ve created this quick list of auto insurance faqs.
Let’s take a look at the key terms on a standard insurance policy and explain what they mean in simple English. It’s important for you to understand your car insurance policy so you can save money by eliminating coverage you don’t need, while making sure you are still adequately insured.
Liability coverage pays others for damages from an accident in which you are at fault. There are two types of liability coverage. Bodily injury liability coverage pays for claims by people who are injured or die as a result of an accident that you cause. Property damage liability coverage pays for damage that is caused to others’ property as the result of an accident that you cause.
To illustrate, say you cause an accident and the driver of the other car suffers a concussion and his car needs $5,000 in repairs. Bodily injury coverage will pay for his medical bills while property damage coverage pays for the repairs to his car.
Uninsured motorist coverage pays you for damages from an accident caused by an uninsured motorist. Underinsured motorist coverage pays you for damages if you are in an accident caused by a driver who has insurance, but not enough to pay for all of the damages.
Collision coverage pays for damage to your car resulting from an accident with another vehicle or object. Comprehensive coverage pays for damage to your car caused by something other than a collision, such as theft, fire, flooding, vandalism, or a broken windshield. Most insurance companies also consider damage caused by hitting an animal, such as a deer, to be covered by comprehensive.
Your deductible is the amount you are responsible for paying for damage to your car. You should set it at a level that you would be able to pay in the event of an accident. Once you pay the deductible (usually anywhere from $250-$1000) the insurance kicks in and pays the rest. The higher you set your deductible, the lower your premium will be.
Personal injury protection covers your medical bills for any injuries that you or your passengers suffer as the result of an accident. It does not matter who is found at fault for the accident.
Some insurance carriers also offer additional coverage options that you may find useful. Examples include replacement of wages, towing and labor costs, rental car expenses, funeral expenses, and death benefits.
Now that you’ve read these common auto insurance faqs, you should have a better understanding of your options as you shop around for the best price. I recommend getting at 3 different quotes to make sure you’re getting the best price you can.