Every industry has its own lingo, and car insurance is definitely not an exception. If you think you don’t need to be familiar with car insurance terms, think again. Having a basic understanding of key terminology can protect you and even help you save money,
Man Phung, owner of Brightway Insurance agencies in Indiana and Texas, says it’s wise to educate yourself about car insurance terms.
“Car insurance requirements vary from state to state,” Phung says, “and having the minimum coverage required by law doesn’t mean that’s all you need.”
15 Car Insurance Terms Every Driver Should Know
- Bodily injury liability
- Collision coverage
- Comprehensive coverage
- Credit-based insurance score
- Gap insurance
- Glass coverage
- Medical payments/personal injury protection (PIP)
- Property damage liability
- Rental car coverage
- Uninsured/underinsured motorist coverage
According to the Insurance Information Institute, here are 15 car insurance terms every driver — including you — should know.
1. Bodily injury liability
Usually required under state law, bodily injury liability is the portion of an car insurance policy that covers your liability for others. It covers costs for injuries or deaths that you (or another driver) cause while driving your car. Bodily injury is important to have because the financial cost of hurting others could be huge.
A car insurance claim is a process of getting reimbursed for covered incidents, such as a car crash. A claim is a formal request that you submit to an insurer. For an approved claim, you receive payment, less any applicable deductible (keep reading for more on this term).
3. Collision coverage
Collision coverage reimburses you for damage to your car due to a collision with another vehicle or other object. This optional insurance covers you even if the accident is your fault.
Although collision coverage won’t reimburse you for mechanical failure or normal wear-and-tear on your car, it will cover damage from a pothole or a rollover.
4. Comprehensive coverage
Comprehensive car coverage pays for damages caused by something other than a collision, such as fire, vandalism, theft, hail or flooding. It’s optional coverage and comes with a deductible.
5. Credit-based insurance score
This car insurance term may be one that you’ve never heard of. It’s a rating that insurance companies use, which is based on your credit history.
Your credit-based insurance score is one factor that’s used to determine your car insurance rate. Credit history is thought to predict how likely you are to file an insurance claim. The better your credit, the less likely you are to file an car insurance claim.
A car insurance deductible is an amount you must pay for certain types of claims. (Liability coverage does not come with a deductible.)
Let’s say you have a $500 deductible for collision. If a wreck causes $2,000 worth of damage to your car, you must pay $500 and your insurance covers the remaining $1,500.
7. Gap insurance
Gap insurance is an important car insurance term to understand. It covers the difference between what a vehicle is worth and what you owe for it.
The moment you drive a new car off the dealer’s lot, the value starts to fall. Your collision and comprehensive car insurance cover only the actual market value of the car.
You can purchase gap insurance from a car dealer or insurance company. If you lease a vehicle, gap coverage is typically included in your payments.
8. Glass coverage
Glass coverage is for windshield damage and includes side windows, rear windows, and glass sunroofs. In some cases, insurers offer no-deductible glass coverage.
Liability is your legal obligation to reimburse others for damage or injury that you cause. Almost every state requires you to carry liability insurance. It makes sure that if you or someone driving your car causes a crash, the victims will be appropriately compensated.
10. Medical payments or personal injury protection (PIP)
Medical payments or personal injury protection reimburses medical expenses due to injuries that you or your passengers suffer when you or someone driving your car causes an accident.
Your car insurance premium is the cost of your policy. You can make annual, semiannual or monthly premium payments.
12. Property damage liability
Property damage liability reimburses others for damage that you or another driver operating your car are responsible for. It pays for damage to another vehicle or property, such as a fence, building or utility pole.
13. Rental car coverage
Rental car coverage is optional protection and pays for a rental car while your vehicle is repaired after a covered accident. It isn’t automatically included in a standard car insurance policy.
If you have a “totaled” vehicle, the estimated cost to repair it exceeds the vehicle’s value. If you have a totaled car and have comprehensive, collision, or both, your insurer pays the full market value of your car less your deductible.
15. Uninsured or underinsured motorist coverage
Uninsured motorist coverage reimburses you a driver without car insurance causes a wreck. And it protects you if you get into an accident with a hit-and-run driver.
In the case of a serious crash, underinsured motorist coverage makes up the difference between your losses and the coverage limits of the at-fault driver’s policy.