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Auto Insurance Vocabulary Terms

Auto insurance is a necessity for virtually every driver across the country. As motorists and policy holders, we tend to recognize the need for coverage. Most everywhere, state laws mandate such protection for every driver. But beyond the law, drivers also need to realize what they are getting for their auto insurance dollar. In many cases policy holders do not ever really take the time to look at their policies and try to understand the terms and definitions contained therein.

It is important to be covered as a driver and to have adequate insurance to protect you if anything should arise forcing you to open a claim. But it is equally important to have a good grasp for your policy and to understand what it is really providing for you. A suitable first step is to take a look at some of the common policy terms and vocabulary items to get a better grasp on that policy you pay so dearly to possess.

Auto Insurance is a Must

Automobile insurance is a must for all drivers out on the road today. But although most of us recognize that importance, relatively few have a strong understanding of their policies. Some think it is better to leave this kind of thing to the experts, trusting in their agents to tell them what they need to know when they need to know it. But an informed consumer is an empowered consumer. Take a look at some basic terms and definitions, and get a better sense of your own car insurance policy. You might even find out something about things your plan doesn't cover. This information is important so that you are never surprised when you go to file a claim.

You should never get into a policy without being confident that you know what you are buying and what kind of protection you're paying for, as well as what's being left out of your plan. Here are some basic terns that nonetheless trip up a lot of people when it comes to their car policies.

Some Basic Auto Insurance Terminology

"Excess provision" is not the same as a deductible, even though some policy holders mistakenly think the two terms are synonymous with one another. It is quite simply the minimum monetary amount any claim must be. Any smaller claim is not allowed. One of the reasons excess provisions exist is to hold down the cost of our policies by reducing administrative costs borne by our insurers.

A "claim" is a policy holder's request for repayment on a loss covered by their insurance package. Making a claim means you're asking the insurer to make good on their promise to cover you in these specified circumstances. After the claim is approved the insurer makes a payout to the claimant. This payout is called a "benefit."

We mentioned deductibles a bit earlier. A "deductible" is the portion of a loss covered by the policyholder in a claim event. Deductibles are agreed to at policy inception according to the general terms of the policy. Obviously, higher deductibles will make a plan cheaper to purchase, because the consumer is essentially self insuring to a larger extent. But this decision must be made with caution, because those gains can be given right back in the event of major claims (or minor ones that must be paid out of pocket entirely).

Additional Insurance Vocabulary Items

If you do make a change to the default deductible level on a policy, or if you adjust your coverage in any other way, such as adding special coverage like towing or roadside assistance, these changes are known as "endorsements" to the policy. Endorsements are also known as riders. These terms exist across the industry and are common in insurance policies of all different types. The maximum value of your policy in terms of the highest amount of money the insurer will pay out for your losses is known as the "limits" of the policy. Policy limits are another area in which you could go with a standard default plan or customize your coverage as a motorist.

"Actual cash value" is a term related to the value of the vehicle being insured. It refers to the insurance company's assessment of the car's fair market value at the time of the covered loss. Actual cash value determines limits for payouts on claims for collision policies, for example. Collision insurance is typically limited to the cash value of the car. Any losses that exceed this limit usually result in the car being totaled rather than repaired.

These are just a few examples of some of the auto insurance terms that come up in a typical policy. It is up to you as a consumer to make sure you understand all of these terms.


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