If you look through your car insurance policy, you'll likely notice a lot of industry jargon that may seem confusing. Working with your group's licensed insurance broker can help clear up any confusion over some of the terminology, but every driver should understand the ins and outs of their own car insurance policy to make sure they have the right coverage.
Whether you're trying to understand your current policy better or want to change up your coverage, here's a breakdown of some common car insurance terms and what they mean:
Accident benefits coverage
Accident benefits coverage reimburses you for a variety of expenses after you've been injured in a car accident — regardless of who is found at-fault. These expenses may include medical bills or income replacement if you're unable to work while you recover.
Also known as "first claim forgiveness," accident forgiveness is a unique product offered by certain car insurance companies. Accident forgiveness is a promise from your insurance provider that your premium won't increase because of your first at-fault or partially at-fault accident. Always get in touch with your licensed insurance broker for the full details on this specific product from your insurance provider.
Actual cash value
If your car insurance policy is set up to reimburse you for the actual cash value of your vehicle instead of the replacement cost, you'll be paid an amount equal to how much your car would be worth today in the event of a loss. But how is the actual cash value calculated? Your insurance company uses an independent company to complete market research on comparable vehicles and takes into consideration the age, kilometres on the car, make, model, fuel type, and wear and tear to determine the actual cash value.
In comparison, if your car insurance policy will reimburse you for the replacement cost, the amount you'll be paid is either your original purchase price, the manufacturer's suggested retail price, or the replacement cost, depending on which is lower. It's important to note that this calculation is only used if you've purchased a depreciation waiver endorsement, and policy terms and conditions can vary.
This is another driver who is listed in your car insurance policy but isn't the primary driver of your vehicle. This could include a friend, spouse, child, or extended family member who may occasionally drive your car.
All perils coverage
All perils coverage is an optional physical damage coverage that covers direct and accidental damages to your car caused by any peril (such as theft or collision) unless loss or damage is specifically excluded under your car insurance policy.
After the claims process has begun for a car accident, your insurance provider collects all the necessary details to understand who is at fault. Based on the information you and any other drivers provide, your insurance provider will determine your level of fault on a range from 0% to 100%. If you're found at fault or partially at fault, this will be listed on your insurance record and may lead to an increase in your insurance premium — unless it's your first at-fault collision and you have first-time accident forgiveness coverage.
Collision coverage reimburses you for the cost to repair your car if it's damaged in a collision with another object, including another vehicle. The amount you receive is based on the cost to repair the damage, minus your deductible. Collision coverage is optional if you own your vehicle outright and may be required for vehicles that are leased or financed, depending on your leasing or financing agreement.
Comprehensive coverage protects your vehicle against other perils not included in collision coverage. It typically reimburses you for damage to your vehicle that isn't caused by a collision, including theft or attempted theft and vandalism, windstorms, hail, fire, earthquakes, falling objects, and other natural disasters or accidents that are beyond your control.
A depreciation waiver covers the lowest of either your vehicle's purchase price, the manufacturer's suggested retail price (MSRP), or the cost of the same vehicle if your car is stolen or damaged beyond repair. If you decide to include a depreciation waiver on your car insurance policy, you'll likely have a higher premium, but it protects you from depreciation if you vehicle is a total loss. A depreciation waiver is typically only available for brand new vehicles.
Someone who has been classified as a high-risk driver may need to shop for high-risk insurance coverage. There are many reasons why someone may be considered high risk, such as:
- They have several minor traffic violations (e.g., failing to stop at a stop sign, making an improper lane change, speeding at less than 49 km/h over the speed limit)
- They have one major traffic violation (e.g., distracted driving, failing to report an accident, failing to stop for a school bus)
- They had a previous insurance policy cancelled by their insurer
- They have several at-fault accidents on their record
No-fault insurance means that no matter who is at fault in a car accident, each driver goes to their own car insurance provider to claim damage to their vehicle, medical bills, and lost wages because of the accident. This helps speed up and simplify the claims process, so your claim can be resolved faster, and you'll receive your payout sooner.
The primary driver listed on a car insurance policy is the person who drives the car most often.
Specified perils coverage
Specified perils coverage means your car insurance policy only covers certain types of damage or loss caused by the perils explicitly outlined in your policy. Specified perils include:
This differs from all perils coverage because it only covers the specific perils listed in the policy, while all perils coverage covers all perils except those listed as exclusions.
Third-party liability is a mandatory component of a car insurance policy that provides coverage for the injury or death of another individual or damage to other's property, along with any necessary legal fees and costs to defend the driver or owner.
The terms "write off" and "total loss" are used interchangeably in the insurance industry, and both mean the cost to repair your car exceeds the total loss threshold (which is the dollar amount or percentage of value at which your insurance company will declare your car a total loss) or your vehicle is damaged beyond repair. If your vehicle is a total loss, your insurance provider will choose to pay you the value of the vehicle instead of repairing it. Depending on the terms of your car insurance policy, you'll be paid either the actual cash value or the replacement cost for your car. Find out what happens if your car is a total loss.
With so many terms and options for car insurance coverage, it's easy to feel overwhelmed. Luckily, you don't have to navigate the insurance world alone. If you're shopping for car insurance, check out this comprehensive guide to shopping for car insurance to get started!
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