When it comes to personal automobile insurance, understanding key coverage terms can make all the difference when selecting a policy or filing a claim. Below are important automobile insurance terms with which every consumer should be familiar.
Comprehensive or Other Than Collision coverage protects your vehicle from anything other than physical collisions. This includes theft, vandalism, fire, weather damage, fallen objects, and glass breakage. Comprehensive or Other Than Collision also covers hitting an animal (which is a physical collision but is included in this coverage). It is optional when owning a vehicle but often required when leasing or financing. This type of coverage tends to be less beneficial when your vehicle’s market value is low or when the cost of your premiums is equal to or exceeds the potential payout of the claim.
Collision coverage pays for damage to your vehicle when in a collision, no matter who is at fault. It can also cover rollovers or damages from hit and run accidents (where the person who damaged your car is unknown). Like Comprehensive or Other Than Collision coverage, Collision is optional when owning a vehicle but is often required when leasing or financing a vehicle.
NOTE ABOUT DEDUCTIBLES: Both Comprehensive and Other Than Collision coverages are subject to a deductible which is the consumer’s responsibility when there is a claim.
Full Glass coverage is an optional add-on that waives or reduces your deductible for any glass damage, including windshields, windows, or any other glass components of the vehicle. The main benefit of this coverage is a more straightforward claims process, as you will have a lower or no deductible when there is a claim.
Underinsured and Uninsured Motorist coverage provides protection for bodily injuries to you or a passenger in your vehicle if you are involved in an accident caused by a driver who has insufficient or no insurance coverage. An underinsured motorist is a driver who causes an accident but has insufficient insurance coverage to fully compensate those injured. The coverage helps pay for medical expenses, lost wages, and other damages resulting from injuries sustained in the accident.
GAP (Guaranteed Asset Protection) coverage provides protection for the difference between the actual cash value of a vehicle and the outstanding loan or lease balance if the vehicle is declared a total loss in an accident. It only covers the financial gap and is not a replacement for other physical damage coverages (i.e., Comprehensive or Other Than Collision and Collision) available with the standard personal automobile insurance policy. GAP does NOT cover any damages to other vehicles, injuries to the driver or passengers, or repairs if the car is damaged but not considered a total loss.
Actual Cash Value (ACV) Car Loss Settlement applies in the event of an accident and your car is determined to be a total loss. ACV is the amount the insurance company will pay for vehicle based on its current value today—not the initial purchase price of the car or the amount it costs to replace it. To determine your car’s ACV, the insurance company will evaluate its condition and then look for comparable transactions of your car’s year, make, and model using an average of these sales to determine its current value. Car depreciation can range from 15–35% in the first year and can slow down to 10–15% per year in the years following. Luxury vehicles tend to depreciate faster, while trucks and hybrids tend to retain value at a better rate.
Understanding these key insurance terms can help you choose the right coverage for your needs and avoid surprises down the road. If you have questions about your current personal automobile policy or want a coverage review, American Heritage Insurance Group is here to help.