Car Insurance Terms, Part One: The Basics

woman driving in her car and smiling

The average U.S. driver spends 55 minutes per day behind the wheel of an automobile. With that kind of exposure, there’s a good chance you’ll need to utilize your auto insurance coverage at some point. However, waiting until you have a claim is not the best time to learn what common car insurance terms mean. By understanding your car insurance policy now, you can avoid coverage concerns when a claim arises. 

Start with these car insurance terms:

Declarations (Declarations Page)

This is the page of your policy that gives your basic identifying information. Examples of this information include the name and address of the insurance provider, to and from dates of coverage, basic coverages included in the policy, deductible amount, premium, and any lien or leaseholders. Your insurance identification cards provide the most basic information about your policy, but your declarations page goes a little more in-depth. 

Insurance Identification Card

Most insurance companies provide a paper, wallet-sized proof of coverage. This card shows the very basics of your policy to provide to law enforcement in the event of a traffic stop or accident. It is also very common for an electronic version of the identification card to be provided through a mobile app for even greater convenience. After all, the paper version has to be replaced with an updated version with each policy renewal. 

Insured/Insurer

The insured is the person coverage being provided for—generally, the owner of the auto. The insurer is the insurance company providing the coverage for your car. 

Lienholder/Leaseholder

The lienholder is the financial institution, or individual, who holds the title to your vehicle. They hold it until you pay the lien in full. The leaseholder serves the same role for a leased vehicle. Both of these parties hold a financial interest in your vehicle, so your policy will list them. 

Policy Period

This is the time period your auto is currently insured — usually semiannually, although some auto policy periods are for a year. Most auto policies renew automatically, provided you continue to pay the premium. 

Premium

The semi-annual or annual amount you pay for your auto insurance is the insurance premium. This premium can usually be divided into payments that are convenient for you, such as monthly, quarterly, or semi-annual payments. 

Deductible

The amount the insured is responsible for at the time of claim is called the deductible. When a claim is less than the deductible amount, the insurance will not make payment. If the claim is more than the deductible, the amount of the deductible is deducted from the total claim amount before the check is written. The deductible is never given to the insurance company by the insured. 

State-Required Minimums

Most states require a certain amount of auto insurance for drivers to maintain a vehicle tag and drive public roads legally. State-required minimums refer to the basic amount of coverage required by law in your state. It is important to note that abiding by state-required minimums for your insurance coverage does not relieve you of the legal obligation to pay for damages that exceed that coverage. So discuss your individual risk with your agent. Securing appropriate coverage in excess of the state-required minimums ensures compliance with state laws and prevents out-of-pocket costs in larger claims. 

Vargas & Vargas understands there is a lot more to choosing the right coverage than knowing car insurance terms. That’s why we are a premier local independent insurance agency. We work for you, not the insurance company. We are here to answer all of your questions and customize your coverage to your specific needs at the right price. Give us a call to discuss your coverage today.