“Understanding Car Insurance: Key Terms Explained”

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Understanding Car Insurance: Essential Terms You Need to Know

Car insurance is a legal requirement in nearly every state. However, the specific types of coverage you need can vary depending on where you live. It’s crucial to understand the different types of coverage available to ensure your policy meets your needs, especially in the event of a serious accident.

At O1ne Mortgage, we aim to provide you with the best mortgage services. For any mortgage needs, call us at 213-732-3074. Below are 18 essential car insurance terms to help you make an informed decision when shopping for a policy.

1. Collision Coverage

Collision coverage pays for damage to your vehicle after an at-fault accident with another car or a stationary object, such as a fence or lamppost. It also covers damage caused by potholes or vehicle rollovers.

2. Comprehensive Coverage

Comprehensive coverage pays for damage caused by incidents other than a crash, such as falling objects, severe weather, theft, and vandalism.

3. Credit-Based Insurance Score

Credit-based insurance scores help insurers predict the likelihood of a policyholder filing a claim. These scores are calculated using information from consumer credit reports, although some states limit their use in determining premiums.

4. Deductible

A deductible is the amount you must pay before the insurance company covers your claim. Higher deductibles usually result in lower premiums and vice versa.

5. Depreciated Value

The depreciated value of a car is its current market value. If your vehicle is declared a total loss, the insurer will reimburse you for its value at the time of the loss.

6. Excluded Driver

An excluded driver is someone in your household that you ask the insurance company not to insure. If they drive your car, the insurance company likely won’t cover any damage they cause.

7. Full Coverage

Full coverage typically refers to a combination of liability, collision, and comprehensive coverage. Lenders often require drivers with an auto loan or lease to maintain full coverage.

8. Grace Period

A grace period is a window of time after your payment is due during which the insurer keeps your policy active even though you haven’t made your payment.

9. Guaranteed Asset Protection (Gap Insurance)

Gap insurance covers the difference between the depreciated value of your vehicle and the balance on your auto loan or lease if your car is totaled soon after purchase.

10. Liability Coverage

Liability coverage helps protect other drivers by covering injuries and damage you cause to other people and their property when you’re at fault.

11. Medical Payments Coverage

Medical payments coverage helps pay for medical bills for you and your passengers after an accident, regardless of who is at fault.

12. Non-Renewal

Non-renewal occurs when your insurance company decides not to renew your coverage at the end of the policy term for various reasons.

13. Personal Injury Protection (PIP)

PIP helps cover medical bills, lost wages, funeral costs, and services you can’t perform while recovering, such as child care or house cleaning.

14. Policy Limit

Your policy limit is the maximum amount the insurance company will pay for a covered loss.

15. Premium

Your premium is the amount you pay the insurance company for coverage. Paying premiums in one lump sum may be cheaper overall.

16. State-Minimum Insurance

State-minimum insurance is the least amount of coverage you must purchase to drive legally in your state. It may not provide adequate protection in a serious accident.

17. Total Loss

If your vehicle sustains damage that exceeds its actual cash value, the insurance company will declare it a total loss and reimburse you for its fair market value at the time of the loss.

18. Uninsured/Underinsured Motorist Coverage

This coverage protects you if an uninsured or underinsured driver hits you, covering your injuries and vehicle damage.

The Bottom Line

Understanding these car insurance terms can help you find a policy that meets your needs. The best policy should combine affordability and adequate protection. Since your credit-based insurance score may affect your premium, it’s a good idea to check your credit report and score before purchasing a policy.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you find the best solutions for your financial needs.

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