People use a lot of strange words when talking or writing about car insurance.

That’s OK if you work in the industry. If you don’t, though, those terms and phrases can be annoying and confusing.

Even worse, failing to understand these common terms can keep you from getting the right auto insurance coverage or your best rate.

To put it another way, if you don’t understand these words and terms, you probably won’t know if you have the right policy for your needs, or if you have enough coverage. And you likely won’t know if you’re paying the lowest premium possible for that type or amount of car insurance.

In this article, we’ll share definitions of common auto insurance terms while answering these and other questions:

What is a deductible?

A car insurance deductible is the amount of money you pay out of your own pocket before your insurance provider covers the rest of a claim. How much you pay depends on the policy and the company. Usually, though, car insurance deductibles are between $0 and $1,500.

Keep in mind that car insurance deductibles and premiums are related. Choosing a high deductible for your car insurance policy means it will have a low premium. And choosing a low deductible means a high premium.

In other words, a high deductible can help you save money on auto insurance every month. You’ll have a big bill to pay, though, if you file a claim.

What is a premium?

A car insurance premium is the amount of money you pay to an insurer so it provides coverage and pays any claims you might make.

If you see or hear someone mention the word rate with regard to car insurance, they’re basically talking about a premium. Many use the terms premium and rate interchangeably.

Most people pay car insurance premiums yearly, every six months or monthly. Also, some insurance companies offer discounts to people who prepay their premiums.

Do you think you’re paying too much for auto insurance? Compare quotes from multiple companies to get your best rate or premium.

What is bodily injury liability?

Bodily injury liability car insurance coverage protects you if you cause an accident that injures or kills someone. It does this by funding your legal defense and covering judgments against you if you’re sued. It also pays for the lost wages or medical expenses of anyone you injure in a crash.

Bodily injury liability car insurance doesn’t cover you or anyone else in your car, by the way. For that, you need medical payments or personal injury protection coverage. Keep reading to learn more about both of these coverage types.

What is collision coverage?

The collision coverage portion of your auto insurance policy kicks in and pays out if you damage your car by hitting another vehicle or object.

Collision payouts tend to be limited to the cash value of a car, so you may want to ignore this kind of coverage if your vehicle is older.

Also, state law doesn’t require you to carry collision coverage, but lenders often do.

What is comprehensive coverage?

Comprehensive coverage protects you if something other than a collision damages your car. Some of the situations it covers:

  • Broken windows.
  • Damage that results from a falling object.
  • Damage that results from hitting an animal.
  • Natural disasters like tornadoes, hurricanes and earthquakes.
  • Storm damage.
  • Theft.

Comprehensive coverage is also known as physical damage coverage or Other-Than-Collision (OTC) coverage, so keep an eye out for those terms while shopping for this type of car insurance.

What is property damage coverage?

Property damage auto insurance coverage pays out if your car damages another person’s vehicle or property. It can also protect you from lawsuits related to damaging someone else’s vehicle or property. Don’t be shocked if your insurer doesn’t sell this legal coverage, though. Not all companies offer it.

Every state except New Hampshire requires drivers to carry a certain amount of property damage car insurance coverage. Some of the state-minimum requirements for this kind of coverage are scarily low because they were set decades ago, however, so keep that in mind when buying a policy.

What is no-fault insurance?

No-fault insurance covers your medical bills after a car accident, whether you caused the crash or not.

Some states have adopted no-fault car insurance systems over the years to put a dent in the costly lawsuits that stem from accidents. In these states, drivers often can’t sue each other unless they’re seriously hurt.

What is medical payments coverage?

Medical payments car insurance coverage pays some of your medical bills and funeral costs if you’re hurt or killed in an accident. It does the same for any passengers in your vehicle during the accident.

Medical payments coverage also often covers you, family members and others listed on your policy if a vehicle hits you while you’re walking or riding a bike.

You may need to buy medical payments coverage if you live in a no-fault state. In other states, it’s either optional or not available at all.

What is personal injury protection?

Personal injury protection also protects you if you’re injured in an accident. In general, personal injury protection, or PIP, covers your:

  • Medical expenses.
  • On-going treatment costs.
  • Loss of wages.
  • Child care expenses.
  • Funeral expenses.

Depending on where you live, PIP might also protect members of your family or other passengers who are injured in an accident. It may cover pedestrian injuries, too.

As with medical payments coverage, some no-fault states require drivers to have personal injury protection.

What is uninsured motorist coverage?

Uninsured motorist coverage is a type of car insurance that protects you if another driver hits you and doesn’t have any liability coverage.

That’s important because if you’re in an accident with an uninsured driver and you don’t have uninsured motorist or UM coverage, you will probably have to pay your repair and medical bills out of your own pocket.

Some states require drivers to buy at least a minimum amount of uninsured motorist coverage.

What is underinsured motorist coverage?

Underinsured motorist coverage protects you if another driver hits you and has some liability coverage, but not enough of it to cover your medical or repair bills.

Depending on which state you call home, you might need to buy at least some underinsured motorist or UIM coverage. You may even need to buy both UM and UIM.

What is gap insurance?

Gap insurance covers the difference between what you owe on a financed or leased vehicle and what your insurer will pay you if someone steals or totals it.

Why might you want or need gap insurance? As soon as you drive a new vehicle off the lot, it loses a good chunk of its value. Now imagine a crash totaling your car shortly after you bring it home. In this situation, you owe your lender or leasing company the full price of the car, but your insurance company will only pay you its used Blue Book value. Gap insurance protects you from having to pay the difference, which can be substantial.

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