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Understanding auto insurance terminology

Understanding auto insurance terminology

Most people avoid so much as glancing at their auto insurance policy statements simply because the terminology employed by the auto insurance industry is so confusing, and who has the time to sit down and decipher it.

But simply trusting that all is well with the driver’s auto insurance can be a mistake that could cost the driver significant amounts of money. That’s why understanding auto insurance is not only important, it could also lead to monthly savings.

Understanding Auto Insurance: Areas of Coverage

Auto insurance is broken down into three overarching areas of coverage:

  • Protection for the driver’s liability to others (liability coverage) when in an auto accident
  • Protection for the driver’s property and passengers when in an auto accident
  • Protection for the driver’s vehicle when in an auto accident, act of God, theft, or other circumstances

Understanding Auto Insurance: Liability Coverage

Liability simply means the driver’s legal obligation to pay for damages when at fault in an auto accident. Types of liability coverage include

Bodily injury: pays medical expenses for the other driver’s injuries
Property damage liability: pays expenses for the other driver’s car repair costs

Most states require liability coverage at a minimum, which covers the driver’s legal responsibility to pay for medical expenses and damage done to other vehicles when at fault in an auto accident.

Understanding Auto Insurance: Property and Passenger Coverage

Property and passenger coverage protects not simply the car and driver, but passengers as well in the event of an auto accident. Types of property and passenger coverage include

  • Personal injury protection: pays medical, disability, or lost income expenses for driver and/or passengers regardless of fault
  • Uninsured/underinsured motorist bodily injury: pays medical expenses for driver and/or passengers if injured by another driver with insufficient auto insurance or none at all
  • Uninsured/underinsured motorist property damage: pays for damage to driver’s vehicle if another driver with insufficient auto insurance or none at all is at fault
  • Medical payments: pays for medical expenses for driver and/or passengers regardless of fault

Understanding Auto Insurance: Vehicle Coverage

Vehicle coverage protects the vehicle itself in the event of fire, theft, broken windshields, damage from an auto accident, and damage from acts of God. Types of vehicle coverage include

  • Collision: covers the cost to repair vehicle in the case of an auto accident regardless of fault (e.g., body work)
  • Comprehensive: covers damage due to theft, fire, vandalism, hail, and acts of God
  • Towing and labor: covers cost of towing if the vehicle is stranded
  • Rental reimbursement: covers cost of rental car in the case that the driver’s vehicle is being repaired

For many drivers, auto insurance can be confusing, even intimidating. But taking the time to understand the underlying areas of auto insurance such as liability coverage, property and passenger coverage, and vehicle coverage can potentially save drivers money on their auto insurance rates.

Easy Ways to Save Money on Auto Insurance

In today’s hurried world, many people gloss over their auto insurance policy without taking the time to fully understand what they’re paying for. With all the coverages, deductibles, and payment limits, it can quickly become confusing and time-consuming to try to figure it all out.

However, drivers who neglect to understand the coverages on their auto insurance and discover exactly what they are paying for may be vastly overspending on their monthly auto insurance premiums.

All it takes is a brief call to the auto insurance company or pointing the web browser to the driver’s auto insurance website to start saving money on auto insurance immediately.

Auto Insurance Money-Saving Ideas: Buying a New Car

When shopping for a car, consider the following:

  • new cars less than 3 years old may receive a discount
  • buy a car with low theft loss statistics
  • buy a car with safety features such as airbags, anti-theft measures, or anti-lock brakes
  • cover the new car under the same auto insurance policy (auto insurance loyalty discount)

Auto Insurance Money-Saving Ideas: Making Changes to Auto Insurance Policy

Changes to the driver’s auto insurance policy basically entails tweaking deductibles and lowering payment limits:

  • raise deductible on comprehensive coverage if the driver lives in an area with less crime, fewer natural disasters, fewer animal run-ins, or less likelihood for windshield chipping
  • reduce payment limits on personal injury protection (PIP) coverage if car is used only occasionally and for short errands on side streets, and driver is covered under personal health insurance
  • reduce payment limits on liability coverage (e.g., lower property damage liability from $100,000 to $50,000)
  • eliminate rental reimbursement and towing coverage if the driver is already covered for roadside assistance with a new car extended warranty
  • eliminate medical payments coverage if already covered under personal health insurance and personal injury protection (and don’t live in one of the states that mandate PIP)
  • eliminate or reduce payment limits on rental reimbursement
  • decline collision coverage for a car older than 10 years
  • decline towing and labor coverage
  • raise deductible on collision coverage (e.g., $500 to $1000)
  • lower payment limits for uninsured/underinsured motorist bodily injury coverage

Auto Insurance Money-Saving Ideas: Smart Driver Behavior

After reviewing the auto insurance policy, the driver should consider the following smart driving tips to reduce his or her auto insurance and receive discounts:

  • be a defensive, proactive driver
  • avoid distractions such as in-car use of a mobile phone
  • drive fewer miles (low mileage discount)
  • maintain a good payment history
  • place multiple vehicles on the same policy (multiple car discount)
  • take a defensive driving course (certain states only)

Auto Insurance Money-Saving Ideas: The Bottom Line

For many drivers, auto insurance can be confusing and time-consuming to decipher. But taking the time to tweak such areas as coverages and deductibles in addition to changing driving habits and choosing a safe car can save drivers a significant amount of money on their auto insurance premiums.