What are the Basic Car Insurance Terms?
Do you know the basic car insurance terms? Understanding them will help you choose the right car insurance coverage.
When it comes time to talk about your car insurance or renew your premium, you’ll feel more confident about getting the best coverage at the best value for you.
Here are key terms you should know:
Premium: The amount you pay for your car insurance policy, usually billed monthly, semi-annually, or annually. It can vary based on factors like your driving history, age, vehicle type, and coverage options.
Did you know? You can save money if you pay your car insurance premium annually.
Deductible: The amount you must pay out of pocket before your insurance covers a claim. A higher deductible usually lowers your premium, but you'll pay more in the event of a claim. Choose a deductible amount that you can afford.
Liability Insurance: Covers damages or injuries you cause to others in an accident. It includes:
- Bodily Injury liability: Pays for medical expenses and lost wages for people injured in an accident you cause.
- Property damage liability: Pays for damage you cause to someone else’s property (e.g., their car or a fence).
Collision coverage: It’s optional car insurance coverage. It covers the repair or replacement of your vehicle if it's damaged in a collision with another car or object (like a tree or guardrail), regardless of fault.
Comprehensive coverage: Covers non-collision-related damage to your vehicle, such as theft, vandalism, natural disasters, or hitting an animal. This type of coverage is optional but may be required by your lender if you have a car loan.
Did you know? Comprehensive coverage can cover you if a tree falls on your car.
Coverage - all perils: Optional coverage that covers all causes of loss except those explicitly mentioned as exclusions in your car insurance policy. All perils car insurance coverage also covers loss or damage in the event your car is stolen or if it’s damaged by an additional driver or someone in your household.
Actual cash value: The current market value of your car before it was damaged.
Additional driver: Anyone that's allowed to drive your car (other than you), including family members and friends. You can include these people on your policy.
Accident Forgiveness: Sometimes referred to as 'Claim Forgiveness', it's a product offered where we agree not to adjust your insurance premium after your first accident if you’re considered at-fault or partially at-fault.
Write-Off: Also known as a total loss, the repair cost of your car is valued higher than the actual car itself prior to the incident that caused damage or loss, after subtracting the salvage value. In this case, you'll typically be offered a settlement based on your policy coverage.
Replacement cost: The cost to replace your vehicle with a new one of similar make and model, without considering depreciation. Some insurance policies offer this coverage, often for a higher premium.
Policy limits: The maximum amount your insurance will pay for a covered claim. There are limits for different types of coverage (e.g., $50,000 for bodily injury per person, $100,000 per accident).
Endorsement: An add-on or modification to your insurance policy that changes its coverage. For example, you might add coverage for custom parts or equipment in your car.
Underwriting: How an insurance company evaluates your risk profile, including factors like driving history, vehicle type, and location, to determine your premium and coverage options.
Car insurance doesn’t need to be complicated.
Final thoughts
Understanding these basic terms will help you navigate your car insurance policy and make informed decisions about your coverage.
Western Financial Group is an award-winning insurance brokerage. Our car insurance experts will get you protected and in the driver’s seat to help you save.
