Teen Guide to Car Insurance Terms
As a teen driver, you're new to the worlds of driving and of purchasing car insurance.
Fortunately, many teens' parents add them to their car insurance policies, so you have a jump on things starting out; however, it's important you understand car insurance terms so you'll be fully educated once it's time to purchase your own auto insurance coverage.
While many drivers hear the term “full coverage" and ask their car insurance companies for it when getting quotes, there is no such coverage.
When the term “full coverage" is used, it is generally used to describe a policy that affords good protection through different types of coverage, usually including at least:
- Liability insurance.
- Comprehensive coverage.
- Collision coverages.
- Any additional requested coverages.
Liability Insurance Coverage
Liability insurance coverage on your car insurance policy protects you in the event of a car accident with another driver; however, it covers the other driver's damages—not yours.
Most states require some form of liability insurance and set their own minimum requirements. Generally, liability insurance consists of bodily injury and property damage coverage:
- Bodily injury coverage: Pays for the other driver's injuries.
- Property damage coverage: Pays for the other driver's property damage (usually damage to their car).
Because liability insurance covers only damages to the other driver, many drivers opt to add additional types of coverage to their policies, as outlined below.
When you have collision coverage, your vehicle is protected in the event you crash into another vehicle or object, or sometimes when the vehicle rolls over.
Collision coverage is extremely beneficial if you're involved in an accident that you caused, as you'll be responsible for these costs. (Remember, the other driver's liability coverage only pays if he was at fault).
Most often, collision coverage is required only when you don't own your vehicle outright yet (i.e., you're on a loan or lease); however, given its importance, some drivers opt to purchase it regardless of its requirement.
Comprehensive coverage pays for damages sustained from events such as:
- Falling objects.
- Natural disasters.
- Animal collisions, such as hitting or being hit by deer, cows, moose, birds, or bears.
Essentially, you need to remember that this coverage pays for events that are not collision-related (with the exception of collisions with animals).
Depending on your car insurance policy, comprehensive coverage might cover glass repair and replacement unrelated to the above scenarios.
Similar to collision coverage, comprehensive coverage generally is required only when a financial institution or leasing company still owns your vehicle.
Personal Injury Protection
Personal injury protection (PIP Insurance)—also referred to as “no-fault insurance"—helps pay for YOUR expenses after an accident, regardless of who was at fault. PIP is designed to cut back on traffic accident lawsuits and the amount of time it takes to pay for personal injury claims.
Most commonly, personal injury protection covers:
- Medical expenses
- NOTE: It can often work in conjunction with your health insurance.
- Lost wages due to missing work.
- Funeral costs.
NOTE: PIP Insurance is only available in “no-fault states." Check your state's insurance requirements to find out if you're required to purchase personal injury protection.
Uninsured/Underinsured Motorist Coverage
These two types of coverage are designed to protect you in the event you're involved in an accident with someone who doesn't have enough—or any—car insurance.
As their names suggest, underinsured motorist coverage protects you when a driver doesn't have sufficient coverage uninsured motorist coverage protects you when a driver doesn't have ANY coverage.
Like some other types of auto insurance, uninsured and underinsured coverage isn't available in all states. Check with your auto insurance agent.
Simply put, “15/30/10" refers to the minimum legal requirements for liability insurance. These numbers are an example (limits change by state) and are provided to show how these limits are written.
The numbers represent the limits (in thousands) for bodily injury per person and per accident, as well as property damage per accident.
This means that a driver who has a liability policy with limits of 15/30/10 would have the following:
- $15,000 of coverage for bodily injury, per person.
- $30,000 of coverage for bodily injury, per accident (when more than one person is injured).
- $10,000 of coverage for total property damage, per accident.
Your insurance policy is a document that explains the terms and conditions of your insurance contract with your provider.
Most commonly, policies include or explain factors such as:
- Specific coverage.
Insurance policies are not easy reads. Make sure your insurance provider goes over your policy with you. Ask any questions you have and make sure you're comfortable with the answers before signing the dotted line.
An insurance binder is an temporary contract of insurance valid until the provider either issues a formal policy or rejects your application. An insurance binder doesn't always include every aspect of the insurance policy.
Some states accept insurance binders as temporary proofs of insurance, but its best to check with your insurance company or motor vehicle agency before relying on a binder.
Usually, the declarations page is the first page of your car insurance package. Your declarations page should include:
- The insured's name.
- The specific coverages.
- The coverage time period.
- The primary coverage limits.
Your policy exclusions outline coverage limits and eliminations. An exclusion is basically any situation or driver that is not covered by your policy.
For example, say you lived with a roommate who had a very poor driving record. Because it might raise your rates significantly, you might choose to exclude her from your policy; however, this would mean she would never be covered to drive your car.
An auto insurance claim is the formal request you make to your insurance provider for payment based on your specific insurance policy. Typically, some review of the accident or incident and an investigation by the claims adjuster will occur before you receive compensation.
Generally, insurance claims involve bodily injury and/or property damage claims.
When you file a third-party insurance claim, you're filing with the other driver's insurance provider.
You'll file a third-party claim when the other driver is at fault.
Your insurance premium is the regular payment you make to your insurer to keep your car insurance active. Some drivers pay premiums on a monthly basis; others choose to pay larger amounts more infrequently, such as every 3 or 6 months.
Your car insurance deductible is the amount of money you pay out of your own pocket before your car insurance will damages on your claim.
For example, if your deductible is $1,000 and the total damages come to $5,000:
- You'll pay $1,000.
- Your insurance company will cover the remaining $4,000.
Insurance Agents and Brokers
Auto insurance agents and brokers work with insurance providers to help you find the best coverage for you at the most affordable price.
Usually, agents work with a specific insurance provider, while brokers work with multiple providers. Brokers work on behalf of customers, not insurance companies, and may charge you a broker fee in addition to the cost of your policy.
Your driving record—or motor vehicle record (MVR)—is a record of your driving history. It can include everything from traffic violations to your current driver license status.
Often, car insurance companies use driving records when determining car insurance rates, so you might consider reviewing your record before getting car insurance quotes.
As the name suggests, rating factors are the factors car insurance providers take into consideration when determining your car insurance rates.
Factors include, but aren't limited to:
- Your state's car insurance regulations.
- The provider's specific policies.
- Your driving record, including:
- Traffic tickets and other violations.
- Driver license status.
- Driving record points.
- Age and gender.
- Marital status.
- Your vehicle.
- Any previous car insurance claims.
- Any previous gaps in coverage.
Car insurance companies take several factors (see above) into consideration when determining how high a risk a person is to insure. Simply put, the higher the risk, the higher the insurance premium.
You might be considered a high-risk driver if you:
- Are a new driver.
- Have ever been convicted of traffic violations or accidents, including those involving driving under the influence (DUI/DWI).
- Drive a “high-risk" vehicle such as an exotic or sports car.
Each auto insurance company has its own standards for labeling high-risk drivers. Be sure to speak with your provider about such standards and, if you're considered a high-risk driver, consider shopping around with other companies to get the most affordable coverage for you.
Good Student Discounts
Good student discounts are excellent ways for teen drivers to save money on car insurance. Generally, car insurance companies offer good student discounts to students who maintain a good grade point average (usually B-average or above).
Not all car insurance providers offer good student discounts, so be sure to ask your agent or broker about this money-saving tip when getting quotes.