AUTO INSURANCE ARTICLE

Back to Auto Insurance Basics: Definition of Terms

By: regalado

One of the best ways to reduce your car insurance cost is to understand the industry and be familiar with the terms. If you are new to buying car insurance, or you may be a long-time insurance buyer who never really tried to understand what’s written on your policy. This guide will help you understand the terms commonly used in the car insurance trade.

Deductibles. This is the amount of money you will need to shell out in case of a claim. The lower your deductible is, the more likely that you will pay higher auto insurance premiums. Therefore, try making your deductible a bit higher to get auto insurance discounts. However, be prepared to pay that amount when you have made a claim.

Liability Coverage. This is the part of your car insurance coverage that pays for property damages and bodily injuries incurred by a third party during an accident. For example, if you crashed into your neighbor's car, liability coverage will pay for his or her repair bills and medical expenses. Liability insurance is required in most states.

Collision Coverage. This coverage pays for damages to your own vehicle in case of an accident or a crash, regardless of who is at fault. Remember that when you file for claims, collision coverage will require you to pay a deductible. To cut down on your car insurance costs, you might want to consider dropping this type of coverage especially if you are driving quite an old car.

Comprehensive Coverage. What happens if your car catches fire or gets stolen or vandalized? Comprehensive coverage will pay for that. This type of coverage will pay for repair costs or car replacement as long as the damages was not caused by an accident. This also includes coverage for damages to your car that was caused by natural disasters such as flood, hail or typhoon.

PIP or Personal Injury Protection. This covers for you and your passenger’s medical expenses, lost wages and other damages or injury to pedestrians regardless if the car accident was your fault or not. Some states require personal injury protection, but for those living in a state where PIP is not required, getting this may hugely increase your car insurance premiums. Therefore, if you happen to have health insurance, it may be worth dropping personal injury protection from your car insurance policy.

Accident Forgiveness. It is inevitable that your car insurance premiums will rise if you are involved in an accident, more so if you are at fault. Some auto insurance companies offer accident forgiveness to their loyal customers, which means that they won't increase your premium after your next at-fault accident.

Insurance Score. Car insurance companies consider different factors when determining your car insurance rates, including your insurance score. Your insurance score will not be available to you at all. However, you can get an idea of your insurance score by looking at the factors that may affect your insurance score. This includes your payment history or credit history and your bankruptcy record. Insurance score determines your financial capacity to pay for your monthly premiums.