Are you excited about car insurance? You read your insurance policy from front to back as soon as it was delivered, correct? Most people never bother reading their auto insurance policies. Most people will glance over the summary of coverage, place the proof in the glove box and forget it.
It’s okay if you never have to make a claim. The last thing you need is to discover that your insurance policy lacks a crucial piece of coverage. It can be difficult to understand the information in your policy. You’ll be able to better understand your policy if you master these 10 key concepts.
1. Body Injury (BI)
If you cause bodily injury or death to someone by accident, you are covered. The BI liability covers medical costs and defense expenses, along with any settlements made or wages lost by the injured person.
2. Collision
The collision coverage will pay for the repairs of your vehicle if you have a collision. This could be with another car or an object. This coverage is optional, but your lender may require it in the event that you are financing or leasing your vehicle. Your coverage is determined by the value of your vehicle. If your vehicle is older and paid in full, collision insurance might not be worth it.
3. Comprehensive
Comprehensive coverage covers any damage that your car may suffer, but is not covered under collision insurance. Your car will be covered in the event of hail damage, a collision with a deer or if a group of teens take your vehicle for a ride.
4. Tax Deductible
The deductible is how much you will have to pay before the insurance kicks in. Only collision and comprehensive policies have a deductible (basically if you car gets damaged or is stolen). You can control the cost of collision and comprehensive coverage by increasing your deductible.
5. Depreciation
The estimated value loss for your car is called depreciation. In the first year, a car can lose up to 25% of its original value. This is what insurers use to determine the payout amount if there’s no GAP insurance.
6. GAP
The GAP insurance is an optional policy that pays the difference between the amount you owe on your car loan or lease and the amount the insurer is willing to pay after depreciation.
7. Medical Payment
The terms medical payment and personal injury protection are interchangeable. They can cover you, your passengers, or pedestrians, depending on your policy. It can either be optional or compulsory; in many states, it is required.
8. No-fault
Some states do not have a no-fault law. This system has the idea that most accidents are not covered by insurance. The companies can lower their claims costs due to the reduction of lawsuits. Under a system of no fault, the insurer that covers you pays for your claim regardless of who is at fault.
9. Damage to property
Damages to private property, such as damage caused by your car or truck. Although it is mandatory in many states, minimum requirements are often very low and do not cover all damage.
10. Uninsured/underinsured
If you are in an accident and the at-fault party does not have liability insurance, you will be protected by uninsured motorist protection. The underinsured driver coverage kicks in if you are in a car accident and the at-fault party’s liability insurance limits don’t cover your damages or medical costs. You are also protected by uninsured motorist coverage if you or your passenger is injured in a hit and run accident.
Understanding insurance is easier when you understand the vocabulary. Understanding these 10 terms is just the start, and can allow you to make better choices when it comes to choosing the right coverage. Call your agent if you want to review your coverage or have questions regarding your policy.
