Don't Buy Car Insurance Without Knowing These Key Terms

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Lisa Steuer McArdle
Updated on Jun 27, 2022 · 3 min read
If you own a vehicle, you (hopefully) understand that you should buy
car insurance
. Not only does a car insurance policy cover you when you're involved in a
car accident
or other incident involving your vehicle, but you could face serious consequences if you're found driving without
Many drivers don't fully understand how their car insurance policy works, or the details of their particular coverage. You don't want to find yourself unprepared if you need to put in a claim. That’s why it helps to familiarize yourself with a few key concepts before you buy car insurance, since these factors can affect premium rates.
Take the time now to learn these basic car insurance terms, whether you're shopping for new insurance or just want to better understand your current policy.
When it’s time to buy car insurance, understanding a few key concepts can help.


In an article detailing the most important car insurance concepts,
The Ascent
explains that the most important terms to know are
, covered event, and policy limit.
A deductible is the amount the insurance policyholder must pay before the insurance company starts covering costs. Different types of coverage, like collision coverage or comprehensive coverage, may carry different deductibles within the same policy.
Deductibles can be tricky because of their relationship to policy premium costs. Generally, some policies will have higher monthly premiums but lower deductibles, while other policies will have the opposite.
A high deductible can make a policy seem more attractive, since the premium may be lower, but drivers need to remember that if an incident does occur they'll need to cover that higher cost.

Covered event

A covered event is any loss covered by a particular car insurance policy. Covered events can include accidents, animal collisions, car theft, or hail damage.
Not every car insurance policy covers every type of event, and each policy can have its own detailed restrictions on circumstances that affect coverage. For example, a car being used for a commercial purpose may not be covered by standard policies.
Drivers should familiarize themselves with their policy and its specific covered events to avoid an unpleasant surprise after an accident.

Policy limit

A policy limit is the highest amount your insurance company will pay for a claim. Many policies have a limit per person, in the case of bodily injury claims, and an overall limit per accident.
Car insurance policies with high limits will generally have higher premiums. As with deductibles, you'll need to balance the cost of monthly premiums with the risk you're willing to take on in case of an accident.
Understanding these basic car insurance concepts will help you choose the right insurance policy for your needs before you buy car insurance. They will also come in handy when dealing with the claims process after an accident or other incident. You don't want to discover after the fact that you have a sky-high deductible or a policy limit that's not sufficient.
Looking for car insurance?
can help you find the right coverage at a great price.

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