Common auto insurance terms explained

Auto insurance is like any other product—the better you understand it, the easier it is to find the option that's best for you.

Once you know how terms like "underinsured motorist," "comprehensive," "excess medical payments," and so on translate into real-world situations, you can answer important questions: What's covered? When is it covered? And, most importantly, what do you need?

To demystify the world of auto insurance terminology, we turned to 11-time President’s Elite Sales Agent Christopher Moons. Fifteen years with AAA have given him deeper insight into what each term means in practice, how they relate to one another, and what those definitions mean for someone trying to pick the right policy.¹

1. Collision vs. comprehensive

Collision and comprehensive coverage both cover physical damage to your car. If it needs repairs for a reason that's covered by your insurance, you pay for them yourself until you hit your deductible, and then your insurer pays the rest, up to the total value of the car. (This is where the phrase "totaled" comes from.) Where the two plans differ is the types of losses they cover. 

• Collision: This coverage kicks in if your car collides with another object. That's any object, not just other cars: "If a shopping cart were to blow into your car, that would be a collision," Christopher says, "therefore the collision deductible would apply." Collision insurance applies whether or not you are at fault for the damage, and it only covers your vehicle; damage you do to other drivers' vehicles is covered by property damage liability.
  
• Comprehensive: Christopher says the easiest way to think about comprehensive coverage is that it covers thing that don't arise from a collision claim. That's a lot: "fire, theft, vandalism, someone keyed the car or a rock hit the windshield, a tree fell on it, a flood, or a sandstorm ruins the paint."

2. Bodily injury coverage vs. property damage coverage

These are both types of liability coverage—if you injure another person or their property (that is, you're liable for the damage), your insurance will pay for it, up to a pre-determined limit, after which you must pay the rest.

• Bodily injury: This covers medical care and other costs for people you injure in a crash. It also protects you against potential claims or lawsuits, up to the amount of coverage you've selected. 

• Property damage: Anything you damage that isn't a human being will be repaired or replaced with this coverage. The most notable covered item is other drivers' cars, but it also covers a wide variety of other things, Christopher says: "It could be a bicycle you hit, it could be a vehicle you hit, you can hit a fire hydrant and the water damages a house on the street. You could hit a telephone pole and inside the telephone pole is AT&T's Wi-Fi wiring, and you're responsible for fixing that."
  

When considering how much liability coverage to buy, Christopher says it's important to keep in mind that you could be on the hook for anything that costs more than your coverage limit. If you've only got $25,000 of coverage for property damage, for example, and hit a car that costs $70,000, you could be paying the $45,000 difference out of pocket.

3. Medical payments vs. excess medical payments

Medical payments coverage pays for medical expenses if you or your passengers are injured in a collision, no matter who's at fault. Christopher says it's best seen as a supplement to your primary health insurance, as the coverage limits are usually low, such as $2,000 or $5,000. Rather than paying for all your potential care after an accident, he says, it's a way to offset a high deductible or the cost of co-insurance in your primary health plan. (If you have a low- or no-deductible health plan that doesn't charge co-insurance, on the other hand, medical coverage on an auto policy may not be useful.)

Christopher highlights another benefit: If you're injured in a crash, medical coverage pays out immediately, without waiting for any determination about who was at fault: "If you have an ambulance take you to the hospital and it's $100, we cut a check that day." That's as opposed to the other driver's bodily injury coverage, which may eventually pay for your medical care after a determination of fault has been made—which can take months and may end up in court. Even more impressively, he says, the coverage covers you as a passenger in other cars and as a pedestrian if you're hit by a car. (If you do recover damages from the other driver or their insurance, you may have to reimburse your insurer for the original payment.)

Excess medical payments coverage is a similar, cheaper alternative that differs in one important way: If you receive care outside of your primary health plan, such as from an out-of-network emergency room, it doesn't pay out until you've spent $2,000 out of pocket. (If your care is in-network, it works just like standard medical payments coverage.) For example, if an out-of-network ambulance takes you to the hospital and it costs $100, standard medical payments coverage will pay for it, but excess medical payments coverage won't. Another example: On a $3,000 out-of-network bill, medical payments coverage at the $5,000 limit would pay the entire bill, whereas excess medical payments coverage at the same limit would only pay for $1,000.

4. Uninsured/underinsured motorist

If another driver is at fault for injuring you or your passengers, their bodily injury coverage is supposed to pay for your medical care. But what if they don't have insurance, or they only have the legal minimum coverage and you need more than that can pay you? Uninsured/underinsured motorist coverage is designed to stand in place of their missing or inadequate bodily injury coverage, ensuring that your costs are paid for.

While the name of this coverage suggests that it's a general policy covering both injury and vehicle damage, Christopher points out that it's only for injury. Vehicle damage caused by uninsured motorists is covered separately, as explained in the next section.

5. Uninsured damage waiver vs. uninsured collision

There are two coverages that protect your car if an uninsured driver damages it. One is for people who have collision coverage on their policy, and one is for people who don't.

• Uninsured damage waiver: This coverage is available to those who have collision coverage on their auto policy. If an uninsured motorist damages your car, this coverage pays your collision deductible, and then your car is repaired or replaced under your collision coverage at no cost to you.

• Uninsured collision: This coverage is for those who decide not to have collision coverage. If an uninsured driver hits you, it pays for repairs or replacement up to a set amount. It's an affordable option for drivers of older cars for whom collision coverage isn't economical, but who don't want to replace their car completely out of their own pocket if someone without liability insurance hits it, Christopher says. It's sometimes referred to as uninsured motorist property damage.

According to Christopher, a common point of confusion with uninsured collision coverages is that they are mutually exclusive; you can have one or the other, or neither, but not both. For example, drivers who have collision coverage will see that their policy summary says "uninsured collision not wanted" and worry that they're not covered, not realizing that the uninsured damage waiver is all they need.

6. 'Full coverage'

Unlike the terms above, the phrase "full coverage" has no specific definition. Some agents say having "full coverage" is having both collision and comprehensive coverages. Others use it to refer to policies that include collision, comprehensive, liability, medical, and uninsured motorist coverages. Since there's no agreement on what it includes, having "full coverage" doesn't necessarily mean you have every coverage available—or, more importantly, every coverage you might need. 

Christopher says this phrase can also be misleading because it doesn't account for coverage limits. "A lot of people think they're fully covered and they don't pay attention to what those limits are. They're fully covered ... up to the limits of the policy."

Simply having lots of different coverages doesn't necessarily mean you're well-protected—you need the right coverage limits, too. Having the minimum legal amount of property damage liability on a "full coverage" policy, for example, may leave you paying tens of thousands out of pocket if you hit someone's new car.