Getting a driver's license can open up a new world for many people. It can offer unmatched freedom through discovery and exploration, expanding employment opportunities, or simply driving with your friends. The possibilities are limitless, as long as you've got your license, a road-worthy vehicle, a full tank of gas (or an electric charge), and one other requirement - auto insurance.
Auto insurance coverage is a form of protection for you, your vehicle, and sometimes others with whom you share an accident. Drivers pay premiums that cover vehicle damage, property damage, and medical bills. It can also provide protection if you're sued over an auto accident.
Auto insurance comes in different types of policies, and the verbiage the insurance industry uses can be confusing, obtuse, and annoying. It's extremely important to know what type of auto insurance policy you need and what the insurance company is and isn't covering. To help, we've gathered terms likely to be encountered in auto insurance policies and stripped away the confusion.
When Fenders Get Bendered and Bumpers Get Bumpered
Auto insurance is a responsibility all drivers are intended to bear. In simple terms, it protects drivers from others and themselves. While auto insurance policies are mandatory for all drivers, there is significant variation between requirements in each state. Make sure to check the car insurance laws in both the state you're licensed in and any others you drive in.
There are different types of coverage, and the insurance terms used can confuse more than they clarify.
- Liability Auto Insurance: All drivers must have liability insurance, no matter what state they live in. While the thresholds and amount paid will depend on the jurisdiction, liability insurance is generally used by the at-fault driver to pay expenses incurred by the other driver(s) in the event of an accident, including medical expenses, property damage, and bodily injury liability. If you're sued by another driver following an accident, your liability coverage and your insurance company usually cover any settlements reached.
- Comprehensive Auto Insurance: Accidents aren't the only bad thing that can happen to a car. It can be stolen, have a tree fall on it, get battered by hail, suffer vandalism, or be submerged during a flood or other natural disasters. Comprehensive is optional coverage involving a premium paid to protect your vehicle from instances where another driver isn't at fault and, in most instances, when an accident isn't involved.
- Collision Insurance: If you accidentally put your car in reverse instead of forward and backed into a brick wall, collision coverage can help pay for repairs to your vehicle in single auto mishaps. Most policies will have a deductible, which is an agreed-upon amount the policyholder must pay before the insurance company gets involved. The higher the deductible, the lower the insurance premium.
- Personal Injury Protection (PIP): Some states require PIP, also known as MedPay, which pays for your own medical bills after an accident so there's not a delay in payment if the insurance companies spend time and effort determining who was at fault. This is more common in no-fault insurance states. It may include lost wages, medical payments coverage, costs from out of pocket, and more.
- Subrogation: Subrogation allows the insurance company to pursue recovery from the at-fault party to offset the costs paid out in the claim. If you're injured in an accident that's determined to be the other driver's fault and your medical bills were covered by your PIP, your insurance company can use subrogation to get the other driver or their insurance company to be reimbursed.
- Contributory vs. Comparative Negligence: When it comes to fault in an auto accident, most states use a comparative negligence system. There are different types of comparative negligence, but in general, a percentage of fault is assigned to both drivers. That's the maximum they can collect for their damages. If you're 30% at fault in an accident, you can collect 70% of your damages. Contributory negligence is much less flexible - if you're even 1% at fault, you can't collect any damages from the other driver.
- Uninsured Motorist Coverage/Underinsured Motorist Coverage: Every driver is supposed to have adequate liability insurance. Alas, that's not always the case. If a driver is hit by a motorist who is either uninsured or underinsured, this can cover the damages. Some states require it, and others have funds set up to help those who suffer this bit of bad luck.
It's All Fun and Games Until the Car Gets Totaled
Car insurance policy terms can be intimidating, but understanding what your car insurance covers and how it protects you can make a big difference. Never having an accident is a great way to avoid dealing with post-crash headaches involving insurance companies, but the odds aren't in your favor.
Knowing what the car insurance coverage terms mean can help you be prepared for an auto accident in case it happens. The type of insurance you have in place will determine how you're protected and give you more options. Being able to parse the language of the policy means less confusion and uncertainty when it counts. Speak with an auto insurance agent to get an insurance quote and consider talking to an auto accident attorney if your crash was serious.
Related Resources
- 10 Things You Should Keep in Your Car (FindLaw's Law and Daily Life)
- Car Accident Liability (FindLaw's Car Accident Law)
- Car Insurance Claims: Helpful Tips (FindLaw's Accidents and Injuries Legal Guide)
