How to Understand Auto Insurance Terms

Your coverage limitations depend on the terms of your insurance policy.

Your coverage limitations depend on the terms of your insurance policy.

Automobile insurance companies seem to have a language of their own. Even though legislation can require individuals who own cars to obtain certain types of insurance coverage, average drivers can feel overwhelmed by the unfamiliar language and terms sprinkled throughout pages and pages of policy documents. Understanding your automobile insurance terms and limitations can help you avoid costly mistakes in the event of an accident or a claim.

State Regulations

Contact your state insurance department. These state government offices oversee and regulate the insurance companies in your state. They also provide insurance information to the public. Ask what insurance requirements you must meet to comply with your state’s automobile insurance regulations. These requirements vary, depending on the state in which you reside. Ask your state insurance department to send you informational brochures on required coverage amounts and minimum limits, or print out the documents from their website. While many states require you to obtain minimum amounts of insurance coverage, others may require financial proof that you can personally pay for damages due to automobile accidents.

Liability Requirements

Review your state automobile insurance requirements. Look for liability requirements. These are the minimum amounts of insurance coverage you must obtain to comply with the law within your state. Liability insurance helps protect your assets if you are involved in an accident where it is determined that you are legally responsible for bodily injuries or property damages. No fault insurance or uninsured motorist coverage can help you recoup losses if an uninsured driver causes an accident that harms you or damages your vehicle.

Policy Terms

Read over your copy of your insurance policy. Look over the definitions section of your policy to determine the meaning of certain words. Highlight any terms you may not understand, especially abbreviations in your policy. Your insurance policy may refer to your liability coverage limitation as a series of numbers with slashes. For instance, 25/50/25 can indicate that your liability coverage will pay up to $25,000 for each person injured in an accident you cause, or up to $50,000 for more than one person’s injuries, and pay up to $25,000 for property damages.

Policy Review

Schedule an appointment with your insurance agent to go over your policy and have him explain any terms you don’t understand. In addition to any state required liability coverage amounts, discuss the availability of other common types of automobile insurance, including collision coverage that helps to pay for damages to your vehicle that may occur during driving, and comprehensive coverage that can help pay for vehicle damages from hail, theft, vandalism or fire. If your insurance agent won’t meet with you to review your policy, take your business to another company that takes the time to explain your policy to you.

About the Author

Piper Li, a professional freelance writer, began writing in 1989. Her articles appear online at Biz Mojo, Walden University and various other websites. She is the co-editor for "Kansas Women: Focus on Health." With a bachelor's degree in journalism from Mesa State, Li enjoys writing about health, horticulture and business management.

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