OK, let's be honest for a moment. How many of us
fully understand our car insurance policy? For instance, can you
explain the difference between your comprehensive clause and your
collision coverage? If not, you are certainly not alone. Most of us
just sign on the dotted line and trust our agent to understand the
mumbo-jumbo of car insurance speak.
By taking a moment to learn five basic definitions, you can feel more
confident when talking with your agent. It's likely that more
confidence will prompt you to ask more questions, and with that added
knowledge comes added negotiating power, better coverage, and lower
rates. So let's start translating a few car insurance terms.
1. Liability - Bodily Injury and Property Damage (BI/PD)
This coverage provides protection if you are at-fault in an
accident that causes injury to people or damage to property. Property
damage includes physical damage to other vehicles as well as other
property, such as a building, sign, etc. Most states require a minimum
limit of BI/PD coverage. Higher limits are usually available and always
recommended - it's wise to consider the worst case scenario. If you are
in an at-fault accident and total a very expensive car, yet have low
liability limits on your insurance, you'll be responsible to pay
out-of-pocket for the damage.
2. Collision Coverage
This coverage pays for damage to your car caused by an at-fault
collision. This could be a collision with another vehicle or other
property, such as a building or sign. This coverage includes a
deductible and may be required by a lender for a financed vehicle. This
insurance also applies to hit and runs and uninsured motorist coverage
but keep in mind you'll have to pay your deductible to repair your car
in either case.
3. Comprehensive -
Also referred to as Other-Than-Collision or OTC ... this coverage
pays for damage to your car for reasons other than a collision. This
includes theft, fire, vandalism, windstorm, etc. This coverage includes
a deductible. Collision coverage and Other-Than-Collision coverage are
collectively known as Physical Damage coverage. Comprehensive
coverage may be required by the bank that finances your vehicle.
4. Uninsured Motorist Coverage (UM)
In a perfect world, everyone would have high limits of auto
insurance and this coverage would be unnecessary. Unfortunately, this
is not the case. UM coverage kicks in if you are in an accident with an
uninsured driver. Limits are similar to limits of liability and some
states require at least a minimum limit of UM.
5. Medical Payments Coverage
This coverage pays reasonable medical expenses incurred by you or a
passenger(s) in an accident. The limit is per person and is usually a
dollar amount (e.g. $5,000). Different states have different specifics
on this coverage so talk to an insurance agent in your area.
Following an accident, these five coverages work together to get
you back to where you were before the accident. Some of the five may be
mandatory, depending on where you live. Others, while not required,
should be carefully considered since their contribution to your claim
may be essential.
OK, now that you have a firm understanding of the basics, you're ready
to go forth and buy car insurance!
About The Author
Barb Dearing is a writer specializing in
topics that help consumers save money. She recommends the following
website for free car insurance quotes.