License, Insurance, and Registration Please

Getting & Staying Insured: Lesson 2

Insurance 101: Definitions

  • Insurance premium: The amount you pay for an insurance policy.
    • The amount depends on a lot of things, including your age, how long you have had your drivers license, whether you have had tickets, the kind of car you drive, and others.
    • If you seem like one of those people less likely to drive safely or more likely to have an accident, your insurance will cost more.
  • Deductible: A car insurance deductible is the amount of money you personally have to pay toward fixing damage to a car before your insurance pays for anything. You choose the deductible amount when you decide on the details of the policy you buy.
  • Example 1: you’re in an accident that causes $3,000 worth of damage to someone’s car and your deductible is $500. You pay $500 toward repairs (the amount of deductible you chose). The insurance company will pay the rest, but only up to the maximum amount of insurance you chose.
    • If the damage amount is huge and you don’t have a high maximum payout amount, you have to pay all the leftovers after insurance pays its share.
  • Example 2: Damage to the other car is $2000 and you chose a deductible of $2000. The insurance company will pay nothing. You must pay the whole $2000.
  • Think before you choose a deductible and a maximum payout amount. Don’t be cheaper than you must.


Liability Insurance

  • Liability insurance: Helps pay for damage and injuries you are liable for (responsible for) when the damage was your fault. Tennessee law says you must have this insurance if you want to drive. The law is the same almost everywhere.
  • If you want to drive, you must have liability insurance.
  • If you cause an accident, liability insurance will help you pay for damage you cause to another person’s property – like her car, her fence, her house (this is known as property damage liability), or it will pay for medical bills when another person’s injuries are your fault – like hospital and therapy bills (called ‘bodily injury’).
  • There are different maximum limits a policy will pay for the two kinds of damage.
  • There are different minimum amounts of insurance Tennessee requires you to buy if you want to drive.
  • The more coverage you buy (meaning the more the insurance company might pay out), the higher your insurance premium (what you pay for the insurance) will be.


More Definitions

  • Property damage liability limit: This is the most the insurance company would pay for damage you do to another person’s property (like their car you crashed into, a fence you flattened, a building you hit, the swimming pool you drove into).
    • The most the insurance company will pay will top out at the limit you set when you bought the policy.
    • If you buy $25,000 worth of coverage but you cause $40,000 worth of damage, the insurance will pay up to $25,000 and you must find a way to pay the other $15,000.
  • Bodily injury liability limit per person injured. This is the most the insurance company will pay for each person injured in an accident that was your fault, but only up to the limit you decided on when you bought your insurance policy.
  • Bodily injury liability limit per accident. This is the most your insurance will pay for all medical bills you cause in an accident. Do your best to buy enough of this insurance so that it will be enough to pay medical expenses for more than one person injured.


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