8 Car Insurance Terms Every Driver Should Know

Car insurance can feel like a confusing subject that many drivers don’t fully understand. However, taking the time to learn some key insurance terms can empower you to make more informed decisions about your policy and coverage. By familiarizing yourself with these terms, you'll gain a better grasp of how your insurance works, helping you to ensure you're adequately protected while saving money when possible. Let’s break down eight essential car insurance terms every driver should know.

Coverage

Car insurance coverage refers to the types of protection your policy provides in the event of an accident or other incidents. Coverage requirements can vary by province, as each has its own set of laws and regulations. However, third-party liability coverage is mandatory across all provinces and territories, though the minimum required amount can differ. For example, Ontario mandates a minimum of $200,000 in third-party liability, while in British Columbia, it is $500,000. This coverage protects you if you are found at fault in an accident and cause injury or damage to someone else or their property. In addition to third-party liability, there are other mandatory coverages that vary by province, such as accident benefits, direct compensation - property damage (DCPD), and uninsured motorist coverage. 
There are also optional coverages that can provide additional protection. This includes collision coverage, which covers damage to your own vehicle in an accident, and comprehensive coverage, protecting against non-collision damage such as theft or weather-related incidents. These options help tailor your policy for more personalized protection.

Claim

A claim is the process through which a policyholder requests compensation from their insurance company after an accident or damage to their vehicle. If you are involved in an incident, such as a collision, theft, or weather-related damage, you file a claim with your insurer to cover the costs of repairs, medical expenses, or other damages, depending on your coverage.
Here’s a breakdown of the typical claims process:

1. Contact Your Insurer: Report the incident as soon as possible.
2. Provide Details: Be prepared to give all the necessary information, including police reports, witness statements, and photographs of the damage.
3. Assessment: Your insurer will assess the damage, potentially sending an adjuster to inspect your vehicle.
4. Resolution: After the assessment, the insurer will determine the amount they’ll pay based on your coverage and deductible.

Understanding how to properly file a claim ensures you’ll be able to receive the compensation you’re entitled to when needed.

Deductible

Your insurance deductible is the amount you’ll need to pay out of pocket before your coverage kicks in after a claim. For example, if you have a $500 deductible and your car sustains $2,000 worth of damage in an accident, you would pay the first $500, and your insurance would cover the remaining $1,500.

• Higher Deductibles: If you choose a higher deductible, your premium may be lower, but you’ll pay more in the event of a claim.
• Lower Deductibles: A lower deductible means you'll pay less out of pocket in the event of a claim, but your premiums will typically be higher.

Choosing the right deductible depends on your financial situation and comfort with risk.

Endorsement

An insurance endorsement (also known as a rider or add-on) is a change or modification made to your policy. Endorsements allow you to customize your coverage to suit your needs better and can provide protection for risks not included in your standard policy. Some popular endorsements include:

• Roadside Assistance: Coverage for emergency services like towing and battery jumps if you are stranded on the side of the road. Roadside assistance is particularly useful for drivers who travel long distances or want added peace of mind, knowing help is just a phone call away. Having this coverage can save you from unexpected out-of-pocket expenses and the hassle of finding emergency services on your own.
• Replacement Cost Endorsement: An optional add-on to your auto insurance policy that ensures your vehicle is repaired or replaced without factoring in depreciation. This means if your car is damaged or written off in a covered incident, you’ll be reimbursed for the cost of replacing it with a new or similar model rather than its depreciated value. This endorsement is especially beneficial for newer vehicles, as their value tends to drop significantly within the first few years. 
• Glass Coverage: This covers the repair or replacement of your vehicle’s windshields, windows, and other glass components if they’re damaged due to a covered event  (i.e. accidents or vandalism). Without this coverage, you may have to pay out of pocket for repairs, which can be costly, especially for larger or more complex glass panels. Glass coverage ensures your visibility and vehicle safety are restored quickly and without financial stress.

Exclusions

Exclusions are situations or damages that your insurance policy does not cover. For example, most policies do not cover wear and tear (e.g., regular maintenance issues like brake replacement), intentional damage, or driving while under the influence of alcohol or drugs. It's essential to review your policy’s exclusions carefully, as certain high-risk activities or conditions may not be covered. Understanding exclusions helps you avoid surprises when it’s time to file a claim.

In Force

When your car insurance policy is “in force,” it means your coverage is active and valid. This term is essential when confirming your insurance status, especially if you’re involved in an accident or need to prove you’re insured. Ensuring that your policy is always in force is crucial, particularly before driving, to avoid penalties, fines, and even license suspension. Gaps in coverage can be costly, as driving without insurance is illegal in Canada and can leave you financially vulnerable in the event of an accident. Additionally, lapses in coverage may lead to higher premiums when you try to secure a new policy, as insurers might view you as a higher risk.

Premium

Your insurance premium is the amount you pay for your car insurance policy, typically on a monthly, semi-annual, or annual basis. Several factors can affect how much you’ll pay, including:

• Driving History: Drivers with a clean record may pay less than those with past accidents or violations.
• Age and Experience: Younger and less experienced drivers generally pay higher premiums due to a higher risk of accidents.
• Vehicle Type: Expensive or high-performance vehicles often come with higher premiums, as they are more costly to repair or replace.
• Location: Where you live can influence premiums. Areas with higher rates of accidents or theft may result in higher premiums.

Fortunately, there are many discounts available that can help lower your premium. Insurers may offer discounts for bundling multiple policies, installing anti-theft devices, maintaining a clean driving record, or completing driver education courses. Other savings may apply for low-mileage drivers or for installing winter tires on your car. Shopping around and asking a BIG broker about available discounts can make a significant difference in the cost of your coverage.

Underwriting

Underwriting is the process through which an insurance company evaluates the risks of insuring a driver and determines the appropriate premium. During underwriting, insurers will look at various factors like your driving record, the type of vehicle you drive, and your claims history to assess the level of risk you pose.
This process plays a critical role in determining both the cost of your premium and whether your application for insurance is approved. It ensures that providers can offer fair pricing while maintaining financial stability, helping them provide coverage to all policyholders efficiently.

Get Expert Guidance from a BIG Broker

These eight terms are just a glimpse into the wide world of car insurance. While understanding these concepts can help you feel more confident about your policy and coverage decisions, there’s no need to navigate it alone. A BIG broker can answer any questions you have, explain your options in detail, and help you find the best policy for your needs and budget. Ready to take the next step? Request a car insurance quote from BIG today!