FAQ About Auto Insurance Terms

How well-versed are you in auto insurance lingo? Even though you don't need a deep level of expertise, anyone who has or needs a policy should know the basics. Take a look at the answers to some top insurance terminology questions car owners have.

What Are the Differences Between Deductibles and Premiums?

Both of these insurance terms refer to money you'll need to pay. But that's where the similarities end. A deductible is the out-of-pocket expense the policy owner pays before the insurance kicks in. As the name implies, the insurance company deducts this dollar amount from the overall payment. After you satisfy your deductible, the insurance company will pay the rest or up to the policy's limit.

Unlike health insurance deductibles, auto insurance deductibles are per incident payments. If you have a $500 auto policy deductible, you'll pay $500 per accident/incident. This means you could pay multiple deductibles in one year.

While the deductible is the price you'll pay after an accident or incident, the premium is the upfront cost for the insurance policy. A higher deductible may lower your premium price - and vice versa. Instead of a per-incident expense, you'll pay the premium at regular intervals throughout the benefit year. This could be a one-time, biannual, or monthly payment.

Are All Liability Coverages the Same?

You may see the term liability in your new or soon-to-be new insurance policy. This insurance word is used in a few different ways (within the context of a policy). Bodily injury liability is exactly what the name implies. This liability option covers bodily (physical) injuries that the policyholder may cause another driver, pedestrian, or anyone else involved in an accident.

Along with bodily injury liability, your policy may also include property damage liability. Again, the name defines this type of coverage. A policy with property damage liability coverage will pay for some of the costs related to property the policyholder damages in an accident or other motor vehicle-related incident.

What Is Uninsured Motorist Coverage?

This insurance option covers costs related to accidents that involve an uninsured motorist. Even though auto insurance is a requirement in most states, some drivers ignore this law or don't understand it. If you're involved in an accident and the other driver doesn't have their own coverage (and is at fault), this type of coverage will pay for all or some of your costs.

Some policies also include underinsured motorist coverage. Some drivers may have insurance - but not enough to reimburse you or your insurance company. Like uninsured motorist coverage, this option pays costs the other driver can't.

What Are No-Fault and Personal Injury Protection Coverages?

These two insurance terms are used interchangeably. You may need personal injury protection (also known as PIP) coverage, depending on your state's insurance laws. Your insurance provider can help you understand if your state requires this type of coverage.

No-fault, or PIP, coverage pays for the policy holder's or passengers' medical-related costs or lost wages. The primary reason some states require this insurance is to speed up payment times and reduce the likelihood policyholders or drivers will have to pay for their own accident-related medical expenses. Instead of a court battle for medical payments, no-fault coverage pays the injured party - regardless of which driver was at fault for the incident.

The insurance company will pay for the medical and related expenses. But this doesn't mean the injured person can't also sue for pain and suffering (depending on the state's laws).