Understanding Car Insurance Terms and Jargon

Part of what makes car insurance so difficult to shop for is the fact that we don't understand the lingo (or jargon). When we read about car insurance, it's hard to figure out exactly what the terms mean. Because of this, it's difficult to understand what would be covered with all the plans you're looking at.

This article was written to help you understand common car insurance terms so that you can be a more informed consumer. Please see my other article on types of coverage to see more terms and jargon you'll need to know if you're in the market for auto insurance.

Actual cash value - property's replacement cost less the amount of depreciation since original purchase date. In relation to car insurance, this is also known as blue book value, based on the standards set forth by Kelley Blue Book.

Benefit - the money your car insurance provider pays to you or your beneficiary after a filed claim is approved.

Bodily injury liability - the coverage in your car insurance policy that pays for medical expenses of a part injured in situations where you are deemed at fault.

Claim - your request for reimbursement after a loss potentially covered by your car insurance.

Deductible - the amount of money you have to pay out-of-pocket before your insurance kicks in and pays the rest of the costs on a claim. Raising your deductible when purchasing auto insurance can lower the cost of your policy, but that also means that in the event that a claim is filed, you'll be responsible for paying more of the costs before the insurance company will pay the claim.

Economic benefits - out of pocket expenses such as medical expenses, rehabilitation expenses, lost wages, and essential services.

Financial Responsibility Law - the law that requires motorists (drivers) in most states to have proof of insurance before they operate a vehicle.

Limits - the maximum amount your car insurance provider will pay for losses. Most states have a mandatory minimum limit on certain types of coverage.

Medical payments - also known as personal injury protection (PIP) coverage. Pays for "reasonable and necessary" medical treatment of injuries sustained by the driver and passengers of the car of the car insurance policy holder.

Moving violation - an action in which you were determined to be responsible for breaking laws that led to a ticket. Speeding tickets and other types of tickets are considered moving violations.

No-Fault Auto Insurance - 12 states and Puerto Rico are considered "no-fault" states. These laws were put in place to discourage lawsuits by allowing policy holders to recover financial losses from their own insurance company without having to prove that someone is at fault in an accident. However, if injuries or pain and suffering damages go above a certain threshold, lawsuits may still be filed.

Non-economic benefits - intangible benefits such as pain and suffering, inconvenience, emotional stress, impairment of quality of life, etc.

Property damage liability - pays for damages that the policy holder does to another party's property.

Tort - this is a legal term referring to a situation where one party is deemed legally responsible for damaging or injuring another person or their property.

These are only some of the terms that car insurance companies may use to explain the law and/or their policies regarding car insurance benefits or policies. If you have any questions about terms that your insurance provider uses, please ask before entering a binding legal contract.