5 Key Terms to Know When Shopping for Car Insurance

Top Five Keywords Everyone Shopping for Car Insurance Should Know

  • Deductible
  • Comprehensive Coverage
  • Liability Coverage
  • Uninsured Motorist Coverage
  • Effective Date

When shopping for vehicle insurance, it is important to become familiar with some of the basic keywords surrounding the car insurance industry. The reason why is that the sales techniques employed by large corporations often lack transparency. This makes it easy to sign an unfavorable contract and face liability problems down the road.

Deductible

The first and most important term is “deductible.” It is the same term used by every other industry that has to deal with insurance claims. A deductible is the amount of money that the driver will have to pay out-of-pocket before their insurance covers the rest. For instance, if one’s vehicle needs to undergo a $3,000 repair and their deductible is $3,000, the insurance will cover absolutely nothing. This is why policies with lower or no deductibles come at a much higher monthly cost. So, when looking for insurance coverage, understanding that there is a direct trade-off between the deductible amount and monthly premiums will be crucial.

Comprehensive Coverage

Many drivers remain unaware of the fact that their insurance will seldom cover accidents related to animals, falling objects, natural disasters, and similar. This is because these incidents fall under the non-driving kind and have nothing to do with someone’s insurance policy. Fortunately, people can obtain comprehensive coverage that will include all of the aforementioned damages and more. Doing so is very important for those residing in known flood zones or high-crime areas where vehicle theft could be an issue. For starters, however, simply knowing what this term entails will let one properly gauge if the offered quote is fair.

Liability Coverage

The liability coverage is what insurance companies go by when deciding how much money they are going to spend on someone’s lawyers and others’ injuries. They are listed in a form of three numbers separated by two forward slashes. If the policy shows a 100/200/50, per se, that means the following:

  • The insurance will cover $100,000 for bodily injuries of each person hurt by the driver;
  • They will pay a total of $200,000 for all injured parties;
  • They will pay $50,000 for the property that someone damaged in an accident.

Most states carry a 25/50/25 minimum limit that must be met in order for any insurance policy to be legally accepted.

Uninsured Motorist Coverage

It is not uncommon to be in an accident with an uninsured driver. According to the Insurance Information Institute, one in every eight drivers did not have a valid insurance policy in 2017. Well, being hit by one of those drivers could become a financial nightmare as they will have no coverage to fall back on when it comes to an individual’s bodily or property damages. While going through the court is certainly a valid option, it is a time-consuming one that will be quite expensive when lawyer fees are accounted for. Enter “Uninsured Motorist Coverage” that will pay for costs up to the maximum amount under the policy.

Effective Date

Finally, a very simple term that most drivers overlook when shopping for insurance is “effective date.” It obviously represents the date when the policy will become effective. What many individuals fail to realize is that the effective date will not always match their payment or purchase date. If an individual buys their insurance today, that does not mean that an accident from today would immediately be covered. Instead, there is a high likelihood that the first effective date will be tomorrow or whenever it was scheduled for in the original paperwork.

Related Resource: 10 Best Cheap Car Insurance Companies

Some other relevant keywords include underwriting, premium, limit, and additional insured drivers. Many of these, however, are quite self-explanatory and require minimum research. Also, they will all be discussed as one learns the previously mentioned five terms crucial to any insurance-shopping venture.