Premium
Your premium is the amount you pay your insurance company for coverage. Usually it’s monthly or yearly. Think of it like a subscription: you pay, they promise protection if something happens.
Higher risk = higher premium
Safer driver = lower premium
More coverage = higher premium
Higher deductible = lower premium
In short, your premium is the price of peace of mind.
Deductible
The deductible is what you pay out-of-pocket before insurance kicks in. If your deductible is $500 and you have $2,000 in damages, you pay $500 and insurance pays $1,500.
A higher deductible lowers your monthly premium, but you need to be able to pay that amount if something happens. Low deductible = less stress when a crash happens, but higher monthly cost.
Liability Coverage
Liability covers other people — their injuries and property damage — if you cause an accident. It doesn’t pay for your car.
Bodily injury liability = medical bills for others
Property damage liability = repairs for other people’s stuff
Minimum requirements vary by state, but remember: minimum only keeps you legal, not fully protected.
Collision Coverage
Collision coverage pays for damage to your car from an accident, no matter who’s at fault.
Has a deductible
Optional in most states, but important for new or valuable cars
Example: You hit a pole in the parking lot. Collision pays for your car, minus your deductible. Liability doesn’t touch your car.
Comprehensive Coverage
Comprehensive coverage handles non-crash events — theft, vandalism, hail, fire, floods, hitting an animal, falling objects.
Also has a deductible
Optional but recommended for most drivers
Protects your car from things outside your control
Example: A tree branch falls on your car during a storm. Comprehensive pays for repairs, minus deductible.
Personal Injury Protection (PIP)
PIP, also called medical payments coverage, pays for medical bills for you and passengers after an accident — sometimes even lost wages.
Required in some states (Florida, Michigan, New York)
Covers medical costs regardless of who caused the accident
Supplements health insurance
Uninsured / Underinsured Motorist Coverage (UM/UIM)
Not everyone drives insured. UM/UIM coverage protects you if someone without enough insurance hits you.
Covers injuries and sometimes property damage
Especially important in states with high numbers of uninsured drivers
Helps you avoid paying huge bills out of pocket
Deductible vs Coverage Limits
Two things confuse people: deductible and coverage limit.
Deductible = what you pay before insurance kicks in
Coverage limit = the max amount insurance will pay
Example: Your coverage limit is $50,000 for liability. If you cause $100,000 in damages, insurance pays $50,000, you pay $50,000. Deductibles apply to collision and comprehensive, not liability.
Optional Add-Ons
Many insurers offer extras. A few common ones:
Rental Reimbursement — pays for a rental car while yours is in the shop after a covered accident.
Gap Coverage — covers the difference between what your car is worth and what you still owe on a loan or lease.
Roadside Assistance — towing, battery jump, lockout help.
Custom Parts Coverage — for aftermarket upgrades.
Optional coverages aren’t required by law, but they can be lifesavers in certain situations.
Exclusions
Insurance policies often have exclusions — situations or damages that aren’t covered.
Intentional damage
Racing or reckless driving
Using your car for commercial purposes (without business coverage)
Always check your policy to know what’s excluded — it can save you from nasty surprises later.
Claim
A claim is when you formally ask your insurance company to pay for a loss or damage.
Filing a claim can sometimes raise your premium, especially if you’re at fault or have multiple claims.
Not every small incident needs a claim — sometimes paying out-of-pocket is smarter.
Premium Discounts
Insurance companies offer discounts, but drivers often don’t ask:
Good driver discount
Multi-policy or bundling discount
Safety features on your car (airbags, anti-theft)
Low mileage
Good student discount
Even a few small discounts can add up to hundreds saved per year.
Bottom Line
Insurance doesn’t have to be confusing. Premium, deductible, liability, collision, comprehensive, PIP, UM/UIM — once you understand what each one does, you’re in control.
Here’s a simple takeaway:
Liability = protects others from your mistakes
Collision = protects your car in a crash
Comprehensive = protects your car from everything else
Deductible = what you pay first
Coverage limit = maximum insurance pays
Optional add-ons = extra protection for peace of mind
Take a few minutes to read your policy, check your limits, and understand what’s included. Knowing the terms means fewer surprises, less stress, and smarter decisions on the road.