Auto Insurance Basics

What is Auto Insurance?

Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Auto insurance can provide property, liability and medical coverage. Some coverages are mandatory in certain states. If you're financing a car, your lender may also have requirements for comprehensive and collision coverage deductibles.

Basic Auto Insurance Coverages


Bodily Injury Liability

This coverage is required by most states. It provides coverage for any injuries you cause to someone else.

Property Damage Liability

This is another coverage type that is required by most states. It covers any damage you cause to someone's property.

Collision Coverage

Collision is usually an optional coverage that covers any damage to your car that is the result of a collision. If you have financed your vehicle your lender may require this coverage.

Comprehensive Coverage

This coverage will protect you in case of any damage to your car that didn't involve a collision. This includes theft, fire, and vandalism. If you have financed your vehicle your lender may require this coverage.

Uninsured Motorist Coverage

This coverage gives you protection if you are injured in a collision with a driver who has either uninsured or underinsured.

Rental Reimbursement Coverage

This optional coverage covers the cost of rental car while your vehicle is being repaired under coverage afforded by the policy.

Towing

This covers reasonable and necessary towing and labor cost subject to policy terms

Auto Insurance Terms

Actual Cash Value

An amount equivalent to the fair market value of the stolen or damaged property immediately preceding the loss. For real property, this amount can be based on a determination of the fair market value of the property before and after the loss. For vehicles, this amount can be determined by local area private party sales and dealer quotations for comparable vehicles.

Anti-theft Device

A device that deters auto theft. Autos equipped with these devices may entitle you to a discount on your insurance premiums.

At-fault

The party who is legally liable for the damages in an accident.

Automobile Insurance

Coverage on the risks associated with driving or owning an automobile. It can include collision, liability, comprehensive, medical, and uninsured motorist coverages.

Bodily Injury

Any physical injury to a person. The purpose of liability insurance is to cover bodily injury to a third party resulting from the negligent or unintentional acts of an insured.

Cancellation

The termination of insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge.

Claim

Notice to an insurer that under the terms of a policy, a loss maybe covered.

Claim Adjuster

A person responsible for investigating and settling a claim

Claimant

The first or third party. That is any person who asserts right of recovery.

Collision (coverage)

Reimburses you for damage to YOUR automobile sustained in a collision with another car or with any other object, movable or fixed, (for example, you accidentally backed into another object while pulling out from a parking stall and causing damage to the bumper and fender of your covered automobile).

Collision Deductive Waiver

This coverage waves your collision deductible if you are hit by an negligent uninsured motorist.

Comprehensive (coverage)

Provides coverage for any direct and accidental loss of, or damage to, YOUR covered automobile and its normal

Declarations

The part of your policy that includes your name and address; the property that is being insured, its location and description; the policy period; the amount of insurance coverage and the applicable premiums.

Deductible

The amount of the loss which the insured is responsible to pay before benefits from the insurance company are payable. You may choose a higher deductible to lower your premium. equipment, to include but not limited to fire, theft or malicious mischief.

Endorsement

Amendment to the policy used to add or delete coverage. Also referred to as a "rider."

Exclusion

Certain causes and conditions, listed in the policy, which are not covered.

Expiration Date

The date on which the policy ends.

Insured

The policyholder - the person(s) protected in case of a loss or claim.

Insurer

The insurance company.

Liability (coverage)

This coverage will pay for BODILY INJURY and//or PROPERTY DAMAGE to the OTHER party for which you become legally responsible of an automobile accident.

Limit

Maximum amount a policy will pay either overall or under a particular coverage.

Material Misrepresentation

The policyholder/applicant makes a false statement of any material (important) fact on his/her application. For instance, the policyholder provides false information regarding the location where the vehicle is garaged.

Medical Payments

Will pay reasonable expenses incurred for necessary medical and /or funeral services because of bodily injury caused by accident and sustained by YOU OR ANY OTHER PERSON WHILE OCCUPYING A COVERED AUTOMOBILE.

Misquote

An incorrect estimate of the insurance premium.

Policy

The written contract of insurance.

Policy Limit

The maximum amount a policy will pay, either overall or under a particular coverage.

Premium

The amount of money an insurance company charges for insurance coverage.

Property Damage

Damage to another person's property. The purpose of liability insurance is to cover property damage to a third party resulting from the negligent or intentional acts of an insured.

Quote

An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.

Reinstatement

The restoring of a lapsed policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.

Surcharge

An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.

Underwriting

The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.

Uninsured Motorist Bodily Injury

Will pay you and your passengers for BODILY INJURY cause by a negligent uninsured motorist, a hit-and-run driver, or by a driver whose insurer is insolvent.

Uninsured Motorist Property Damage

Will pay for damages to your automobile, set up to a limit, when caused by a negligent uninsured motorist.