Nowadays it is a legal requirement in almost every state to carry some sort of proof of car insurance when you own or operate a vehicle. While the laws of how much coverage you need vary from state-to-state, you will need to at least meet the state minimum requirements no matter where you are living. Navigating the world of insurance can be quite confusing due to the unfamiliar and sometimes confusing terminology that is used. The terminology may feel foreign at some points, which is why it pays off to familiarize yourself with at least the most basic insurance terms so that you can get the right coverage for you.

The Basics:

Let’s start with the basic terms for auto insurance. These are a few terms that are just highly important to get a grasp on before you purchase insurance.

Premium – This is the fee that you pay to your insurance company so that you have the right to be covered by them. Typically, with auto insurance you can choose to make these payments monthly, quarterly, or twice a year.

Deductible – A deductible refers to the amount that you will have to pay out of your own pocket is damage does occur. You usually are given the option of several different deductibles to choose from. However, the higher the deductible, the lower your premium.

Primary Driver – This is the person (or persons) who are covered to drive the vehicle under the insurance policy you purchase. This is usually all the people in the household who have a driver’s license.

Policy Period or Term – This refers to the time period that your policy stays in effect.

Fault and Limits:

One of the big reasons you have auto insurance is for protection against huge costs that you will have to pay on your own during an accident if you don’t have insurance. The amount that your insurance company pays is determined by who is at fault and your liability limits.

At Fault – This one is pretty self-explanatory. This just describes the person who is at fault for the accident. Typically, this person pays for the majority of damages.

Liability Limits – Although you may be covered by car insurance, your policy isn’t just a big, blank check. There are limits to it. Each policy sets a limit on the amount of money it will pay for damages and injuries.

Types of Auto Insurance Coverage:

Not all car insurance policies are created equal. Most care insurance companies provide at least three levels of coverage. Here are the most common.

Liability Insurance – This type of coverage covers property damage and injuries to another party that resulted from the accident if it was your fault. This is required in every state in some form or another.

Collision Coverage – This coverage is for damages due to a collision or overturning your vehicle. Depending on your policy, this coverage may be in effect even if you are driving a rental or another person’s vehicle

Comprehensive Coverage – Also known as “full coverage,” this covers your vehicle from damages that occur not just from collisions, but also from outside elements.

There are tons of different terms that come along with insurance, and it may be difficult to learn them all. It’s important to understand the basics, but if you don’t understand something, you need to ask your insurance agent.