Everyone who drives has auto insurance. It’s required in almost every state, so we buy it and pay the bill every month. Most of us don’t think twice about our car insurance, though. That is, until we need it.
If you get in an accident or someone breaks into your car, do you know if your car insurance has you covered? Do you get a headache just looking at your auto insurance policy? Knowing the definitions of frequently used auto insurance terms will give you the keys to getting the right coverage.
Here are some of the most common insurance terms to make sure you and your wallet are protected.
Types of auto insurance coverage
Bodily injury liability
A type of coverage that legally protects the insured in accidents deemed at fault causing bodily injury to another driver or pedestrian. Losses covered include medical expenses, loss of income, pain and suffering, and legal fees (if a lawsuit occurs).
Collision coverage pays costs toward repairs or replacement if your vehicle was damaged by another vehicle or object. A deductible payment is required to avoid paying total repairs out-of-pocket.
For any vehicle repairs or replacement caused by accidents other than a collision, comprehensive coverage will kick in and pay toward these costs. For example, vehicle damage that results from fire, theft, extreme weather, flood, or contact with an animal.
A type of coverage that protects the (at-fault) insured against paying out-of-pocket in the event of damaging someone else’s property or being responsible for bodily injury to another party.
Personal injury protection (PIP)
Coverage provided by the insurer for all medical expenses, lost wages and other expenses up to your limits regardless of the party at fault. PIP insurance coverage may be optional or required depending on what state you live in. Currently 12 states require some level of PIP - Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.
Uninsured motorist (UM)
This type of coverage protects the insured driver (and passenger) involved in an accident with another party that has no liability insurance.
Underinsured motorist (UIM)
A type of coverage that protects the insured driver (and passenger) involved in an accident with another party that has inadequate coverage. UIM also covers you in the event of a hit-and-run driver.
Optional insurance coverage that pays for the “gap” between what your insurer will pay out if the vehicle is deemed a total loss and the loan or lease balance that remains pending.
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Other auto insurance definitions
Actual cash value (ACV)
A vehicle's fair market value at the time of it being deemed a total loss, stolen or destroyed. Following the loss, your insurance company will calculate the replacement cost minus depreciation (tires, body, interior, additional equipment).
The amount of money paid out-of-pocket by the policyholder after making an insurance claim in order to receive proper coverage for losses.
An attached agreement to the current insurance policy in order to add or deduct coverage terms. The endorsement will take priority and void original terms.
The period in which a contract or agreement becomes invalid or expired (due to non-renewal or an unpaid premium). During a lapse period, a driver has no coverage in case of an accident and will have to pay out-of-pocket for any damages incurred.
Increases your uninsured and underinsured motorist (UM/UIM) coverage by combining all coverage limits for each vehicle insured on the policy.
Each vehicle's coverage pertains to that specific driver/vehicle and cannot be transferred or combined with another insured to pay for post-accident expenses.