Ever go to buy auto insurance and just stare at your choices.  Ever play around with your insurance options to lower your rates and have no idea what coverage you are opting out of or what you’ll end up owing if you ever do get into an automobile accident?   Ever have an auto insurance salesman magically find a way to lower your insurance rate over the phone and not question how or why or what they’ve taken out? You’re not alone, many new and even experienced drivers zone out and glaze over when their insurance rep goes over what everything means on their policy.   Its important to know your coverage and what it means so you don’t leave yourself in a position with not enough insurance to cover what you need.  Insurance salesmen don’t necessarily care if you get into an accident, they’ll fiddle with the numbers to find one you’re happy with, at the risk of creating holes or deficits in your coverage.  Here’s a quick cliff notes guide to understanding what the heck they are talking about to make sure you’re not leaving yourself open to vulnerability.  

Premium - This is the main fee you pay to be covered by an insurance company.  Premiums are typically set in 6-month terms.  Payment is either monthly, quarterly, or all at once. Most insurance companies offer a discount for paying your total in advance.  They will vary from car to car type, the age and value of the car based on year/make/model and mileage, they vary on your driving record, age, where you live, and can even vary on your credit score, along with other factors.  

Deductible - This is the fee you pay when you get into an accident.  Its your out-of-pocket cost.  You’ll have to pay this before the insurance company repairs your car.  Typically its set anywhere between $250-500 to $750-1000 or higher.  The lower your deductible, the higher your premium.  But that doesn’t mean better.  The difference isn’t too severe in your monthly cost from one deductible to the next so don’t just set a higher deductible to save $30 each month, and pray that you never get into an accident, unless of course shelling out $1000 is no big deal for you if an accident was to occur.  

Named Insured/Primary Driver - This is you.  Potentially it includes your spouse, or children or anyone else in the household driving your vehicle.  Its every person the insurance policy covers.  

At Fault - This means you caused the accident.  You’re the one who was speeding, texting, or not paying attention to the road which caused an accident.  You will be paying the majority of the damages to the vehicles. 

Liability Limits - Although you may be covered by car insurance, your policy doesn’t include a blank check. Each policy sets a limit on the amount of money it will pay for damages and injuries. These can vary from policy to policy (and from company to company). Most basic liability coverage is 25/50/25, which means that your insurance company will pay up to $25,000 per injured person, $50,000 per incident, and $25,000 for damaged property. Of course, you can raise your limits, which will also raise your premiums.  Don’t skimp on this, this is the base of your protection during an accident.  Better safe than sorry.  If you do set your Liability on the low side, you’d better make sure you avoid rear-ending that Bentley.  

Liability Insurance – Liability coverage is automobile insurance that covers property damage and injuries to another party that are result of an accident that was your fault. Essentially, this is required in every state in one form or another. While most states specifically require you to obtain liability insurance, other states require drivers to show “proof of financial responsibility,” effectively making liability insurance required everywhere in the U.S.

Collision Coverage – With collision coverage, your vehicle is covered 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 car or another person’s vehicle.  This is one area of coverage people who outright own their cars sometimes tend to not opt for.  Collision is not required because hey, if you damage your own car, and don’t want it fixed, its up to you - but its exactly that.  You’d better be ok with whatever car your driving not to be worth fixing after an accident because its all coming out of your pocket.  

Uninsured/Underinsured Motorist Property Damage Coverage (UMPD) – UMPD will cover your vehicle if your car is damaged due to the fault of an uninsured or underinsured driver. This is often used in place of collision insurance. 

Comprehensive Coverage – Also known as “full coverage,” comprehensive insurance covers your vehicle from damages that occur not just from collisions, but from outside elements as well. This could include damage from events such as hail, wind, flood, fire, vandalism, and theft.  However read the fine print.  Especially in incidents where your car may go on fire, you’re going to have to prove to your insurance company that you’re not the one who did it.  Guilty until proven innocent.  And then they tend to only cover what is damaged by the fire, and not whatever mechanical malfunction actually started the fire.   Know your coverage and talk to your rep about all scenarios.  

Personal Injury Protection (PIP) – If you carry PIP coverage, your car insurance company will pay for the costs of medical and funeral expenses (within specified limits) of the insured driver, passengers in the driver’s car, or pedestrians struck by the insured.  Unless you’ve got some stellar medical benefits and coverage, make sure you get enough of this. Many car accidents come with serious injuries and you want to be prepared.  

Uninsured Motorist Coverage (UM) – If another driver is at fault for an accident that results in injuries or death and that POS does not have auto insurance, your uninsured motorist coverage can help you pay for those expenses. Covered persons include you, your passengers and relatives living with you. As an added bonus, the person without insurance is going to jail. 

Underinsured Motorist Coverage (UIM) – This type of coverage is basically the same as UM, however it applies when the other driver who is at fault does not have enough insurance to cover the bills. UIM is also subject to the limits that you choose.  This is a good one because lets be honest - most people on the road have the least amount of coverage they need.  If you’re driving your Rolls Royce or your Lamborghini down the street on a nice summer day, most average policies are not going to be able to cover the cost of the damage your car will endure.  

Depreciation – This means that the value of your car becomes less over time due to use. Your premiums should also decrease as the age of your car increases which is good, however, it means you’ll get less insurance money for your 2005 mint condition BMW M3, because depreciation is assumed.  Even though the car has been modded out and runs better than it ever did the day you bought it. You’ll get a check that won’t even cover a third of the cost you paid for your car new.  A little unfair but it goes with the territory.  

Continuously Insured – Like the term states, this means that your vehicle has been insured continuously without any break or lapse in coverage.  Lapses in coverage are a really bad thing and will negatively impact your policy.  Don’t do it.  

Rider – Nothing to do with your car’s passengers, this is a written agreement attached to the basic policy that could either increase or decrease the amount of benefits that would typically be covered under the policy.

Roadside Assistance –   This is like Onstar or AAA.  This is usually an addition to your auto insurance policy that provides benefits such as towing, jump-starts, locksmith, rental coverage, and other services in the event that you need them.  This is a good idea if you are insuring an older, unreliable vehicle.  

Surcharge – This is complete BS.  I mean, its… no wait, I was right… its complete and total BS.  Probably the most messed up vocabulary term on your entire policy.  A surcharge is an increase in premium charged by the insurance company which is typically due to at fault accidents or traffic violations.  Which, sort of defeats the whole point of insurance right?  You pay a monthly fee so they can cover you IF you get into an accident, and if you do, they charge you even more to keep your car covered so its like you are paying for your “accident” twice.  Not only that, you’ll be paying for at least the next 3-8 years depending on how far your auto insurance company goes back on your DL record to look for accidents, speeding tickets or violations.  We don’t get money back for NOT using our insurance, and not getting into an accident… yet we get charged more just to use it.  Surcharges vary, and some agencies have what they call “accident forgiveness” which means they don’t jack up your insurance rates just because you get into an accident or have been in one in the past.  Best way to avoid this, pay attention at all times and follow the law.