However, many people are unfamiliar with the wide range of options and special terminology involved in insuring a car. This can cause people to leave costly holes in their insurance coverage.
To help make sense of it all, here are 10 terms you should know when insuring a car:
- Premium – The amount you pay for the insurance, either each month or every six months.
- Deductible – The amount you have to pay for yourself in the event of an accident. The insurance company only pays for damages above the deductible (and up to your coverage limits).
- Property damage liability – This covers damage that you cause to someone else’s property (usually their car) in an accident, assuming you are at fault.
- Bodily injury liability – This covers the medical costs of the other driver and passengers if they are injured in an accident you cause.
- Collision – If you hit another car and the collision is your fault, collision insurance pays for the damage to your own vehicle.
- Comprehensive – Comprehensive insurance covers the repair or replacement of your car when no other vehicle is involved. Examples would include someone stealing your car, flood damage or a tree falling on your vehicle.
- Medical payments – Medical payments (or “med pay”) insurance is an option that pays the medical expenses of you and your passengers, regardless of who is at fault.
- Personal injury protection – Personal injury protection (or “PIP”) is similar to medical payments insurance, but also covers expenses such as funerals or in-home care. You typically would not get both med pay and PIP when insuring a car; just one or the other.
- Uninsured or underinsured motorist – This covers your expenses if you are hit by a driver without liability insurance, or with low coverage limits.
- Gap – Gap insurance is used in leasing to cover any gap between the book value and the actual value of the car.
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