Posted by Kristin Collins \\
Apr 13, 2011
For those who do not work in the auto insurance arena, it can be overwhelming to attempt to make heads or tails of the industry terms and policy jargon and what it all means. However, it isn’t that the terminology is overly complicated: it is just that people who are not involved in the business professionally might benefit from a primer on auto insurance terms in order to better understand insurance policies and quotes.
Liability Insurance
In the event of an accident, you may be held as legally accountable, or “liable,” for any property damages (PD) or bodily injuries (BI) that occur to the other party; these damages can be charged to your basic liability insurance. Liability insurance coverage is designed to protect the insured if any lawsuits are filed against them, and is not intended to provide reparations to the insured, but to the injured and not at-fault parties. If you only have liability insurance and are judged as at-fault, liability insurance will not pay for your medical or repair expenses.
Collision Coverage
Collision is an optional add-on to most policies and covers damage that occurs when a car collides with another object due to your fault. Examples include rollovers, striking structures such as a stone wall, or hitting a pothole in the road that causes severe damage to the vehicle. Policies vary among providers, so read the fine print regarding what is covered under the collision rider. Any property damaged to others as a result of an accident is not covered under the collision rider but under the PD (property damage) insurance instead, and deductibles usually apply.
Comprehensive Coverage
A comprehensive rider is another option for damages or theft when no driver fault is involved. Examples include falling limbs, hail, fire, certain acts of God (earthquake or flood), vandalism, glass breakage, hitting an animal, or theft. The cost for this insurance coverage is gauged on certain factors, including the value of the vehicle at the time of the damage, as well as the risk factor for the likelihood of the car being stolen. A deductible generally does apply in the event of an incident. Depending on the provider, animal impact may fall under collision coverage instead.
Medical Payments Coverage
Medical payments coverage is used to pay medical bills and/or burial costs for you and the passengers in your vehicle at the time of the accident, regardless of who was at fault, subject to the policy limits. In no fault states, medical payment coverage (Med Pay) is generally optional. This insurance sometimes also covers insured pedestrian parties who are injured in an accident. Laws vary among states regarding Med Pay requirements, and an agent will be able to provide guidance on what the requirements are within the state where the insured resides.
Uninsured / Underinsured Motorists Coverage
Many times accidents are caused by drivers who have no insurance or insufficient coverage. UM/UIM covers the medical expenses of the insured and other passengers injured in an accident caused by the at-fault party. Reimbursements are, of course, subject to the policy coverage limits. Considering that about 1 in 3 drivers carry auto insurance (regardless of the laws), this can be valuable coverage when it is needed. Property damage falls under a separate coverage rider and is referred to as UMPD (underinsured/uninsured property damage).
Insurance is one of those expenses that people reluctantly pay for because it seems they are getting nothing immediately tangible in return for the monthly money spent. However, all it takes is one single accident or event to appreciate the coverage which is in place in a time of need. Insurance lingo doesn’t have to be a foreign language, as long as you stay abreast of terms such as those listed here. Drive safely!
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