Do most auto insurance terms go right over your head? You’re not alone! Many Americans say that understanding auto insurance terminology is difficult for them, which is why we’ve put together a glossary of some of the most common auto insurance terminology.
Actual cash value (ACV): the actual cash value of your vehicle is the value of your property minus depreciation. This is different than the replacement cost because the replacement cost does not include depreciation.
Collision coverage: This is an optional (unless you lease or finance) your vehicle that helps cover the cost of repairing or replacing your vehicle if you’re in an accident with another vehicle or object, or if you’re involved in a single vehicle accident like a rollover.
Comprehensive coverage: This is an optional (unless you lease or finance) your vehicle that’s meant to cover you from just about everything other than a collision. That includes water damage, fire damage, theft, vandalism, and windshield damage.
Deductible: This is what the policyholder must pay before their coverage kicks in when they make a claim.
GAP insurance: With GAP insurance, you’ll have coverage for the difference between the ACV of your vehicle and how much you still owe on the loan.
Liability insurance: Every state requires that drivers carry a certain amount of liability insurance. Liability insurance is in place to cover the OTHER driver’s injuries or damages if you’re at fault for an accident.
Medical payments and personal injury protection (PIP): With this coverage, drivers have insurance for things like their medical bills, funeral expenses, and lost wages if they’re injured in an auto accident.
Premium: This is what the policyholder pays each month in exchange for their insurance coverage.
Uninsured/underinsured motorist (UM/UIM) coverage: If you’re in an accident with an underinsured or uninsured driver, this type of coverage will help cover the cost of repairing or replacing your vehicle and other property, as well as for your medical bills.