If you live in the U.S., there’s a 48 in 50 chance that your state requires you to have car insurance (New Hampshire and Virginia are the lone hold outs, for those wondering). Of course, knowing that you need car insurance is only the first step. Navigating providers, comparing affordable car insurance quotes, and choosing specific coverage comes next.
Understanding car insurance can be tough when you’re unfamiliar with the terminology, because the real value of insurance is in the details. That’s what makes understanding the lingo so important to getting a great deal. To help familiarize you with the basics of car insurance, we’ve put together a list of some of the terms you’ll need to know:
Car Insurance Premium
The premium is the fee you pay to the insurance company to keep your coverage active. A number of factors determine your premium. Your age, sex, years of driving experience, the type of car you own, and where you live (urban areas tend to have higher premiums than rural ones) are all taken into consideration. Car insurance premiums tend to be listed as 6-month coverage. Usually, you can make payments monthly, quarterly, or all up-front (which can come with a nice discount). With Elephant, we give you the chance to have a 12 month policy, meaning you could lock in your low rate for the year!
If you pay for your health insurance, chances are you already have an idea of what a deductible is. It represents the amount of money you’ll need to pay out of pocket in the event of damages to or loss of your car. When your full deductible is paid, your insurance company reimburses the rest of the cost. Typically, the lower your deductible is, the higher your premium will be. An insuranceQuotes study found that Americans increasing their deductibles from $500 to $1,000 can save an average of 9 percent on their car insurance premiums.
Here’s a term that means just what is says: the person (or persons) directly covered under your car insurance policy. Many families choose to make the primary drivers include every driving-age member of the household. This ensures that no matter who’s driving at the time of an accident, any damages to the person or the vehicle are protected.
If you live with a spouse, roommate, or child who drives your car infrequently, you may want to add this individual to your policy as an occasional driver. You should also be aware that this designation is often left up to your insurer. Your provider can decide whether the person drives enough to warrant occasional driver status. Miles driven and time spent behind the wheel are common criteria for determining whether motorists are occasional drivers.
Another relatively straightforward definition, “at-fault” simply describes the party responsible for any kind of accident. In most cases, either the driver found to be at-fault or his insurance provider pays for the majority of damages. Keep in mind, however, that some states — including Florida, Pennsylvania, and Massachusetts — are no-fault states. For a complete list, see here.
Uninsured/underinsured motorist coverage
We’ve paired these two terms because of their similarity. These coverages come into play when you’re involved in an accident where the other driver is at-fault. Underinsured motorist coverage steps in to help cover damages to your property or medical expenses when the at-fault driver’s insurance limits cap out before your bills are paid. So, for example, let’s say you’re in an accident and the at-fault driver’s insurance is only good to cover damages of up to $25,000, but the damages to your car were $35,000. Underinsured will help you to cover the difference.
Uninsured motorist coverage, on the other hand, is exactly what it sounds like. It helps cover the cost of damages when the at-fault driver doesn’t have any insurance at all. It is split out into Uninsured Motorist Property Damage (UMPD) and Underinsured Motorist Bodily Injury (UIMBI). These are both pretty straightforward. Sometimes in an accident, depending on how severe, there are damages not only to your car or property, but also bodily injuries to you or your passengers.
You might be thinking “But how likely is this situation, really? Doesn’t everyone have car insurance?”, but way more people are uninsured than you might think. According to a 2014 study, 12.6 percent of the population doesn’t have car insurance, and there are multiple states with over 20% of their population uninsured.
Limits may apply to both kinds of coverage, so be sure to talk to an expert from your insurance provider when adding these coverages to your policy.
When you’re at fault in an accident that resulted in property damage or injuries to another person, liability coverage helps you cover the cost. Most states require at least some level of liability coverage and for good reason. It can keep you from financial ruin by paying for another party’s recovery costs, medical expenses, and potentially even your legal defense if you’re sued.
Personal injury protection (PIP)
If you have personal injury protection coverage, your car insurance provider pays (within predetermined limits) for the medical and funeral expenses of the insured driver, driver’s passengers, or any pedestrians involved in an accident. Not every state makes PIP coverage available, but in those states that do, you may hear it referred to as “no-fault” coverage.
Collision coverage is exactly what it sounds like. It pays to fix or replace your vehicle when it’s been damaged by colliding with something else — like a car in an accident or by hitting a stationary object. Collision coverage is valuable because it protects your car from damages caused by another vehicle (including hit-and-run collisions) or uninsured drivers. In some states, it may even be in effect when driving a rental car.
You might be thinking “Well isn’t this basically what it means to have car insurance — to cover me in an accident?” While it’s an understandable assumption, many are surprised to learn that collision coverage is actually optional in most states and is a coverage you have to opt in to. If you’re an Elephant customer, log in to check if you have collision coverage or speak to an agent if you don’t.
Comprehensive coverage, on the other hand, is required; you can think of it as collision’s other half. It protects you from damages to your car from just about “everything” else — hail, wind, fire, flood, theft, vandalism, etc. It’s important to understand that comprehensive coverage doesn’t mean total coverage. In other words, you can’t just buy comprehensive coverage and forget about every other type of policy or coverage (like some of the others mentioned on this page).