Every competent car insurance agent should explain auto insurance lingo to you to help you make coverage choices that are best suited to your insurance needs. You should also familiarize yourself with these terms.
How Insurers Define and Explain Auto Insurance Lingo
General Industry Terms
- Actual Cash Value - This is the current market value of your vehicle at the time of an accident or loss. It is the cost of replacing the vehicle, minus any depreciation.
- Binder - This is a temporary contract for car insurance coverage, which is issued even before the premium has been paid and the actual insurance policy is written. It is valid for a specified period of time and remains in effect until the policy is issued.
- Declarations - This is the page in your policy that specifies essential information such as the insured driver or drivers, the vehicle that is covered, the dollar amount of coverage offered, the coverage period as well as the specific dates and location of coverage.
- Garaging Location - This is the location where you park ("garage") your car most of the time. This is typically your primary residence, and is indicated on your policy by the zip code.
- Premium - This is the amount of money that you pay the insurance company to pay for your insurance protection. It refers to both the total cost of the policy as well as the monthly or quarterly installments that you make to pay for it.
- Vehicle Identification Number - Every single vehicle is uniquely identified by a combination of 17 numbers and letters called a Vehicle Identification Number (VIN). The VIN identifies the car's make, model and year of manufacture.
Insurance Coverage Terms
- Bodily Injury Liability Coverage (BI) - If you are at fault in an accident, Bodily Injury coverage will pay for any death or injury that may result from the incident. It will also cover the legal costs of defending you in the event that you are sued.
- Collision Coverage - If your vehicle is damaged by colliding with another object or overturning, Collision Coverage will pay for the cost of replacing or repairing your vehicle. This coverage applies whether or not you are at-fault in the accident.
- Comprehensive Coverage - If your vehicle is damaged by an incident other than an accident, Comprehensive Coverage will pay for the cost of replacing or repairing it. Such an incident would include fire, vandalism, flood, wind and falling objects. It will also cover your vehicle if it is stolen.
- Deductible - This is the dollar amount that you will pay out-of-pocket towards the cost of repairing or replacing your vehicle as a result of a Collision or Comprehensive claim.
- Medical Payments or Personal Injury Protection (PIP) Coverage - If you or your passengers are injured in an accident, this coverage will cover the cost of the medical and funeral expenses. This coverage applies regardless of who is at fault in the accident. Depending on the state in which you live, you may have either Medical Payments or Personal Injury Protection (PIP) Coverage - or both.
- Property Damage Liability Coverage (PD) - If you are legally liable in an accident, Property Damage coverage pays for the cost of repairing or replacing the other party's vehicle and property. It will also cover the legal costs of defending you in the event that you are sued.
- Rental Reimbursement Coverage - If you have a claim covered by Collision or Comprehensive coverage, Rental Reimbursement will fully or partially cover the cost of a rental vehicle for up to 30 days, while your vehicle is being repaired or replaced.
- Roadside Assistance Coverage - This coverage covers the cost of roadside services such as flat tire change, towing, battery jump-start and locksmith service.
- Uninsured/Underinsured Motorist Coverage (UM/UIM) - If you are involved in an accident in which the other driver is at fault, but does not have any insurance or has insufficient insurance, this coverage will apply. Uninsured/Underinsured Motorist Bodily Injury will cover injury or funeral expenses, while Uninsured/Underinsured Motorist Property Damage will cover damage to your vehicle.
Get The Explanations You Need
Before you buy or renew your next car insurance policy, learning the meaning of the different insurance terms will help you make a more informed decision. Keep in mind that it is a fundamental responsibility of your insurance agent to explain auto insurance lingo to you, as well as any other pertinent information that affects your choice of coverage.