Common Insurance Terms Every Driver Should Know

Insurance terms might seem like rocket science because you can't read through the fine print. Unfortunately, you might pay more than you needed yet, experience delayed claims, and face potential legal repercussions.

But that is no longer you. Because after reading this blog post, you will be completely surprised at how simple insurance terms are. Know these common insurance terms to save yourself stress, cut back on out-of-pocket money, and avoid legal implications from insurance policy ignorance.

Premiums

A premium is the amount you pay monthly, quarterly, or yearly to keep your insurance coverage active. It's like subscribing to Netflix. You select what subscription works best for you so you don't miss out. 

But there's a catch: Premiums are highly influenced by vehicle condition, type, deductibles, location, and other factors.

Deductible

The deductible is the amount you pay out of pocket (agreed upon) before your insurer covers the remaining cost. Example: After collision damage, if the shop gives you an estimate of $2,000, your deductible is $500. At the same time, your insurance company pays the remaining $1,500. 

Claims

An insurance claim is a legal request submitted to the insurance company by the driver for insurance coverage. This formal request contains an incident report, a vehicle damage estimate, repair approval, and payment. 

Collision Coverage

Collision coverage pays for your vehicle's damage after a collision—regardless of who is at fault.

Liability Coverage

Liability coverage covers the property damages and injuries caused to others by you during an accident.

Comprehensive coverage

Comprehensive coverage, also known as "non-collision coverage," covers damages to your car that aren't from a collision. These damages include fire damage, animal crossings (deer), objects falling, theft, etc.

Uninsured/Underinsured Motorist Coverage

In situations where you need more guarantee on your vehicle, even though your vehicle got damaged from a hit-and-run, uninsured/underinsured insurance coverage gives you something to fall back on, just in case the at-fault party is uninsured (UI) or their coverage is insufficient (underinsured motorist coverage).

Bodily Injury and Property Damage

These are two separate things in the context of insurance. Bodily injury is the harm, in various forms, that someone sustains in an accident. On the other hand, property damage is the harm done to the property (e.g., a car, motorcycle, etc.) involved in the accident. By law, bodily injury and property damage are liabilities to be compensated for. 

Policy Limit

The policy limit is the maximum amount an insurance company will pay for losses as agreed upon in the insurance policy.

Exclusion

Exclusions are what are not covered in your insurance policy - this is why you've got to read through the fine print. Car insurance exclusions include wear and tear, unauthorized drivers, ridesharing, and intentional acts of damage.

Endorsement

Car insurance endorsements are additional insurance coverage agreements. They can be included at any time to cover necessary items that weren't covered before, such as towing (in case your vehicle breaks down on the road), OEM parts, and rental reimbursement.

No-Fault Insurance

No-fault insurance coverage is a liability agreement that pays for your losses, injuries, and other damages after an accident, regardless of who's at fault. Understand personal injury protection (PIP) - a wonderful way of fast-tracking the claim process.

Depreciation

Humans age. Cars depreciate. The more wear and tear a car has, and the older it is, the more it affects the insurance claim and payout for that vehicle. One solution most vehicle owners subscribe to is to purchase a zero-depreciation.  

Grace Period

A grace period in the context of an insurance policy is a period of time (often 15 to 30 days) during which premiums are accepted with extra fees for late payments or cancellation. This means there's no harm to the payer, and the insurance policy remains active. 

Renewal

In the case of auto insurance, renewal is maintaining, extending, and continuing an already purchased insurance coverage before it expires. Most insurers will send you a renewal notice 30–45 days before your policy expires.

Final Thoughts

Insurance policy terms might look daunting at first, but understanding them before making your next insurance-related decisions gets you on the right track to avoiding predictable losses.

P.S. Do you have any questions related to insurance policy terms? Let's have it. Always excited to help out.

FAQs

What is the difference between a premium and a deductible?

Premiums are monthly, quarterly, or yearly payments to keep insurance coverage active. On the other hand, deductibles are out-of-pocket costs a driver agrees to pay to complement coverage during a claim.

How does liability coverage protect me as a driver?

Liability coverage protects drivers, especially when they're the at-fault party, and the FastTrack claim process. 

What does collision coverage include?

Collision coverage includes property damage, hitting objects, hit-and-run damage, and collision with another vehicle. 

When should I consider comprehensive coverage?

Consider comprehensive damage coverage for the unforeseen, such as theft, fire, deer crossing, and vandalism (fallen objects). 

What happens if I'm involved in an accident with an uninsured driver?

If you're involved in an accident with an uninsured driver and the driver is at fault, the insurance claim process can be quite rough and muddy, but having uninsured/underinsured coverage helps you resolve the situation seamlessly. Uninsured/underinsured coverage is your immunity.

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