Car Insurance 101: Key Terms Every Driver Should Know

Whether you're a first-time driver or you've been on the road for years, understanding car insurance terms can feel like a foreign language. But don’t worry, we’ve got you covered! Let’s break down the key terms you’ll come across when shopping for car insurance.

1. Premium

Think of your premium as your membership fee to keep your car insurance active. It’s the amount you pay (monthly, quarterly, or annually) to stay covered. Premiums vary based on things like your age, driving record, and even your car’s make and model.

2. Deductible

This is the amount you’re responsible for paying out of pocket for a covered claim. A higher deductible usually means a lower premium, but make sure you can afford the deductible if something happens!

3. Liability Coverage

Liability coverage is the most basic type of insurance and is required in most states. It covers damages and injuries to others if you’re at fault in an accident. However, it won’t cover your own car or injuries.

4. Comprehensive Coverage

This one’s for the unexpected stuff—think falling trees, theft, or even hitting a deer. Comprehensive coverage protects your car from damage caused by things other than a collision, like natural disasters, vandalism, or a rogue shopping cart in the parking lot.

5. Collision Coverage

Collision coverage pays for repairs to YOUR car if you hit another vehicle, a pole, or even something like a fence. It’s especially important for new or high-value cars, but it’s optional if you don’t mind paying for damages yourself.

6. Uninsured/Underinsured Motorist Coverage

What happens if you get into an accident with someone who doesn’t have enough (or any) insurance? Uninsured/Underinsured Motorist Coverage steps in to cover your medical bills and damages, so you’re not left footing the bill.

7. Personal Injury Protection/ Med Pay

This covers medical expenses for you and your passengers, regardless of who’s at fault in an accident. It may also cover lost wages if you’re unable to work due to injuries.

8. Gap Insurance

This one’s for the drivers who have financed or leased their car. If your car is totaled, gap insurance covers the difference between what you owe on the loan and the car’s actual cash value (what it’s worth now, not what you paid for it).

9. Actual Cash Value (ACV)

ACV is the current market value of your car at the time of a claim, factoring in depreciation. If your car is totaled, your insurance company will pay this amount minus your deductible.

10. Policy Limit

The policy limit is the maximum amount your insurance company will pay for a covered claim. If damages exceed your policy limit, you’re responsible for covering the rest. Higher limits offer more protection but come with higher premiums.

Understanding these key car insurance terms can make a huge difference when choosing the right coverage for your needs.

Still have questions? We're here to help—reach out to Buena Vida Insurance anytime!