Car Insurance 101: 10 Terms you Need to Know

Buying a vehicle is both an investment. So, taking up car insurance is one factor that comes to play in this important decision.

Being behind the wheel offers a lot in terms of flexibility to decide where you want to go and schedule your time. But it doesn’t end there. You’re responsible for your safety and that of others.

When taking car insurance for the first time, you may encounter some technical jargon along the way. In this discussion, we explore car insurance 101 and 10 terms you need to know.

Let’s jump straight in!

  • Policy Limit

A policy limit is the maximum amount of money your insurance will settle, for any plan, after a successful claim. Upon hitting the allowable limit, you’ll pay out of your pocket for extra expenses.

When buying a car insurance policy, it’s important to understand how the policy or coverage limit works and whether it’ll be sufficient to protect you in case of an accident. Typically, your provider will disclose the amount payable per claim and the coverage for each.

Most states require car owners to set a certain amount of car insurance coverage. You can find these statutes on your state’s insurance commissioner’s website. Therefore, the insurance policy limit must be above the legal limits.

For instance, New York State sets up to $50,000 for the death of a person and $25,000 for bodily injury.

  • Fault Claims

After an accident, the insurer pays the claim to compensate you for the loss. However, a fault claim occurs when the money paid doesn’t cover all the costs or losses incurred.

A fault is a legal liability and an essential issue in personal injury claims regarding who was responsible for the accident.

Sometimes, faults are challenging to prove, and no-fault states have statutes regarding personal injury protection(PIP) insurance. Such coverages settle the victim’s medical expenses regardless of whose fault it was. It saves time since you don’t have to file a claim.

In states that have no-fault auto insurance, you have to file a claim to get some form of compensation.

  • Adjuster

An adjuster is a common terminology in auto insurance is a person who evaluates your car insurance claim before deciding whether the insurance needs to cover the loss.

These individuals take up your claim and investigate the extent of the loss and the amount payable. Adjusters conduct interviews, inspect the accident site, peruse through the police reports and take witness statements.

From time to time, an adjuster may consult with specialists such as physicians and engineers in the course of determining a claim. Subsequently, they prepare comprehensive reports and submit them to the insurance company.

  • Covered Loss

Typically, car insurance companies will pay the insured for any loss or damage to the vehicle after an accident. It includes replacements of accessories and spare parts.

The insurance may be paid in cash or in part. If the cost of repairing is more than buying a new car, the insurer may opt for the latter.

  • Deductible

In auto insurance, a deductible is cash payable by the insured after a comprehensive cover. It’s more like a co-pay and it’s an out-of-pocket cash payment.

Normally, the insurer will specify this in the contract and quote a certain percentage of the deductible amount. For instance, if the auto accident costs you $5,000 to repair your vehicle, you may pay a deductible of $1,000 or 20% of the repair cost.

  • Car Insurance Premium

An auto insurance premium is more like an insurance bill payable monthly, quarterly, half-yearly, or yearly. It’s the amount of money you must pay for your insurance to stay valid. Typically, you’ll agree on this figure when signing up for coverage.

A car insurance premium depends on many factors, such as:

  • The cost of the vehicle
  • Driving history
  • Discounts,
  • Deductible amount
  • Car type
  • Credit history
  • Number of persons on the policy
  • Policy Tenure

Policy tenure is the period the insurance plan will run. In the US, most car insurance policies last between six months and one year.

Generally, there’s an automatic renewal at the end of the auto policy tenure. For most insurers, you can enjoy a discount by paying annual premiums instead of monthly. Before you get a quote, it is essential to choose your desired repayment term.

  • Certificate of Satisfaction

As the name suggests, a certificate of satisfaction is a document signed by the insured to certify that they are content with repairs on their motor vehicle. Once you submit this document, the service provider closes the claim.

  • Emergency Road Service Coverage

The Emergency Road Service coverage includes the cost of towing your car to a repair shop. It covers vehicles that won’t start, especially unroadworthy types. In addition, junks are likely to break down on the highway or any other road, hence the need for towing to the nearest auto repair shop.

  • Medical Claim Examiner

A medical claim examiner (MCE) is an expert who generates reports on various applications and claims. In so doing, the MCE ensures the payments are made in accordance with the policy terms, and the injured person gets full compensation.

The MCE may consult with other medical professionals and review the medical reports to examine a health claim. Also, the MCE also evaluates all the bills, lost employment income, and replacement services. They quantify the injuries on you, passengers, or third parties due to the accident.

The scope of the evaluation depends on your state as well as the coverage.


Most vehicles registered in the US must be covered by liability insurance to cover damage or loss covered to others. When seeking a car insurance policy for your car, it’s important to understand the requirements for your state since these may differ from state to state.

Besides, it’s crucial to get acquainted with the terms in your policy document. Your insurer should provide all answers to any concerns you may have.

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