June 27th, 2012
Car insurance lingo can be daunting. Some companies can use long, confusing words for policies that are fairly simple in order to make them sound more important to obtain. Here at CoverHound we don't believe in trying to confuse you or trick you or drown you with big words. So we decided to help you out a bit instead, by giving you a comprehensive list of car insurance terms.
Below is our list of the most commonly used terms in the industry, with easy-to-understand definitions that will help guide you through your car insurance shopping journey. We have also linked some of our articles on certain topics to expand your knowledge even more.
Accident Forgiveness Coverage - “Forgives” drivers for their first accident, in terms of car insurance premiums. Hence, after your first accident, your rates will not go up. However, some carriers only forgive accidents that are not your fault.
At-Fault - An accident in which you are legally responsible for damages.
Auto Repair Insurance - Different from other insurance types because it doesn’t require that your car is damaged in a collision, natural disaster, or vandalism. It covers mechanical failures and any wear and tear on your car. It can also be broken into sub-categories. Two categories, for example, include standard repair and breakdown coverage.
Bodily Injury Coverage - Covers you for damages you cause in an accident that is deemed your fault to other people involved. For example, it pays for other people’s medical bills if you injure them in an accident. You may still be sued for more money if the medical bills exceed the maximum your insurance company will cover.
Continuous Coverage - Means that your insurance coverage has been in effect continuously without any break or lapse for any reason. Usually you must have proof of this when moving to a different insurance company or your rates may be higher.
Deductible - The portion you are responsible for paying before the insurance will kick in. For example, if there is $2,500 of damage to your vehicle and you have a $500 deductible, you will pay the first $500 and the insurance company will pay the remaining $2,000.
Gap Coverage - This can protect you against losses that can arise when the amount of compensation received from a total loss does not fully cover the amount you owe on the vehicle's financing or lease agreement. This situation arises when the balance owed on a car loan is greater than the book value of the vehicle.
Good Student Discount - Not all carriers offer this discount and the ones that do have different requirements. Some want a GPA of 3.0, others want higher. Also, some carriers want transcripts or proof of “good grades.” Discount rates vary as well.
Group Discounts - You can save on car insurance simply by being part of an association. Such organizations include military, alumni associations, credit unions, and the peace corps association. If you are part of any kind of association you should check to see if they qualify you for a group discount.
Liability Only - This is when you only have Bodily Injury and Physical Damage Liability coverage on your policy. Collision, Comprehensive and other coverages are not included.
Limits of Liability - Caps on the dollar amounts of coverage that you are entitled to receive under the policy.
Med Pay - Will pay for reasonable expenses incurred for necessary medical services due to bodily injury caused by an accident. Covers you and anyone in your vehicle. Also, protects you if injured as a pedestrian.
No-Fault - Insurance agnostic of who is to blame for an accident. Your policy will pay for both you and individuals with you, regardless of who was at-fault of the accident.
Non-owner Insurance - This provides liability protection in at-fault accidents for drivers who are not the owners of the vehicle they are driving. Good if you frequently borrow your friends/roommates/partners car.
Pay-As-You-Go Insurance - Aka usage-based or mileage-based or pay-as-you-drive insurance. This is coverage with costs based on how much you drive and your premiums are based on mileage per month.
Personal Injury Protection - Pays for reasonable medical expenses as well as a percentage of lost wages (if not specifically excluded) and is subject to a set limit. Will cover named insured, relatives and other persons occupying the vehicle at the time of an accident. Will also cover damages if injured as a pedestrian. It is a first party benefit and will not pay for those injured in another car; also referred to as “not fault” coverage since the benefits are rewarded regardless of fault.
Property Liability Coverage - This pays for the damage that you cause to other people’s vehicle or property in an at-fault accident. Property may include home or business. There is a maximum your car insurance company will cover, which means you could still be sued for more money.
Rental Car Insurance - Some carriers automatically extend your coverage to any rental car. Ask your insurance company whether you’re insured or not before buying insurance at the rental company.
Rental Car Reimbursement - Provides coverage for rental car costs to temporarily replace your vehicle due to a covered loss. May only purchase this coverage if collision coverage is also purchased. There is usually a daily limit and total max. (i.e. $30 a day, $900 max).
Specialty Insurance - This includes policies for unique items such as RV’s, boats, motorcycles, jewelry, travel, weddings, and more.
Total Loss - If the cost to repair the vehicle plus rental reimbursement expenses exceeds the cost of buying the vehicle at its pre-accident value, it is declared a “total loss”.
Towing / Roadside Assistance - This is exactly what it sounds like. If your car breaks down or otherwise leaves you stranded on the road, you will have someone to call. Services for roadside may include battery jump-start, flat tire assistance, and lockout assistance.
Umbrella Insurance - This is additional liability insurance that protects you in the event that you are sued for a large amount of money. Auto and home insurance have limits, so if you want protection against a lawsuit, umbrella coverage is the way to go.
Underwriting - This is the process used by insurance carriers to decide how much coverage you can obtain and how much you'll pay. It's based on your evaluated riskiness and exposure. It pretty much comes down to how risky you are to insure and at what denomination the carrier is willing to insure you.
Uninsured/Underinsured Motorist Coverage - This coverage protects you and your passengers if injured by a driver with no liability insurance or by an underinsured driver who is held legally responsible for your injuries. Would also cover damages incurred if injured in a hit-and-run accident.
Uninsured/Underinsured Motorist Property Damage - Protects your vehicle if damage is caused by a driver with no liability insurance or is underinsured. Damages in a hit-and-run accident would also be covered.
Unstacked vs. Stacked - Adds coverage limits for multiple vehicles together to produce a higher limit. For example, if you have two cars insured for $10,000 per person and $20,000 per accident, your stacked coverage will total $20,000 per person and $40,000 per accident. Unstacked would total $10,000 per person and $20,000 per accident.
At CoverHound, we know that your time and money is precious. That’s why we’ve made finding insurance quotes easy. Check us out today to learn more about ways to save.