Though the type of insurance you purchase and how much coverage you need is typically determined by state insurance requirements, it is still beneficial to know exactly what you’re purchasing and why.
Some of the terms used in insurance coverage contracts can be truly mystifying. So to prevent you from signing any papers without really understanding what you’re paying for, here are the definitions of some commonly misunderstood auto insurance policy terms:
- Comprehensive. In auto insurance, “comprehensive” refers to coverage limited to your vehicle. Comprehensive coverage doesn’t cover damage to another car or other property, and it doesn’t cover any personal injury. Comprehensive coverage pays to repair or replace your vehicle if it is stolen, vandalized, or damaged by the elements or by animals.
- Bodily injury liability insurance. This coverage protects an innocent third party if you cause an accident, and most states require it. This coverage doesn’t pay for your own personal injuries or injuries to your passengers if you are the one at fault for an accident. Your injuries can be covered by optional medical payments insurance or your own health insurance. Your passengers’ injuries would be covered by their own separate health insurance.
- Property damage liability insurance. This coverage pays for damage to another vehicle or property caused by your car, and it is also required by most states. It only pays for damages done to someone else’s property that you were at fault for. To protect your own car, you need collision coverage.
- Underinsured/Uninsured Coverage. This coverage protects you if an uninsured or undersigned driver injures you. This coverage pays for your own personal injuries in the event that the at-fault driver either has no insurance or is inadequately insured. Substantial portions of drivers on the road are uninsured or have inadequate insurance. This coverage helps to protect you when injured by such drivers.
- Medical Payment Coverage. This covers medical expenses that directly arise out of a motor vehicle collision. You should ask your agent about the cost and benefits of such insurance.
- Deductibles. This is the amount you will have to pay out of pocket for each car insurance claim before your insurance company pays the claim. A wide range of deductibles, from $0 to $1,000, are available for your auto insurance. The higher a deductible is, the lower your premium. An insurance agent can recommend a deductible payment based on your personal circumstances. Your decision on your insurance deductible should be based on your personal finances and your ability to pay the deductible if necessary.
If you are reading over your auto insurance policy terms and are having a hard time understanding it all, make sure to ask your insurance company representative to clarify.
If you are in an accident and are injured (or your vehicle is totaled) having good car insurance is vital. Please feel free to call us any time if you’ve been in an accident caused by someone else and you have questions about your rights.