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Seven Auto Insurance Terms Simplified

Auto Insurance Terms

Your auto insurance is a contract and like other contracts is can be confusing to read. It gets more complicated when you consider some of the other confusing auto insurance terms or jargon.

Frankly, while some of the terms may seem “lawyerly” or even like reading a foreign language, it does not have to be.

In the end, you just want to break through the jargon and know that you have coverage. We get it, and we are here to provide a little help. As you navigate the treacherous insurance landscape, you may need do know what these seven (7) confusing auto insurance terms mean.

Salvage Title: What is a “Salvage Title”?

Oh boy, this one has jargon baked into the cake. First you need to know what a “total loss” is and how an adjuster comes up with this declaration. A total loss is when the repair of a vehicle exceeds an economic threshold (often 70% – 75%) of the vehicle’s value.  These vehicles are typically not repaired, and the insured is paid a cash settlement to purchase a replacement vehicle.

From time-to-time, dealers or salvage yards can repair these vehicles at reduced costs, and they will place them back in the market for sale.  These types of vehicles carry a “salvage” designation on the title, so the consumer knows the vehicle has suffered a large loss.

Not all vehicles with a salvage title are unsafe to drive but some are. A salvage title allows the consumer to know the vehicle did suffer damage that may have made the vehicle less safe, but also that the vehicle isn’t valued similarly to a clean titled vehicle of the same, year, make and model.

If you intend to purchase a salvage title vehicle, it is important to have the vehicle scrutinized by a mechanic who has extensive body repair experience. Moreover, you should go into the purchase knowing the decreased value and only offer a price in line with salvaged vehicles of similar make, quality, and year.

Full Coverage: Is there such a thing as full coverage?

Insurance agents and adjusters here this all the time, “I have full coverage.” While the idea of being fully covered is extremely comforting, there is no such thing as full coverage.

You may here your dealer or lender say, “full coverage,” but this is just a euphemism meaning the purchase of all available parts or sections of the auto insurance policy. Typically, the user of the term means you have a policy that includes liability, comprehensive, collision, and all the optional coverages (eg. roadside assistance).

Having all sections of the auto insurance policy is great, and you should have the proper protection for your vehicle, but it does not cover EVERYTHING. 😊

Lapsed Coverage: is this a bad thing?

When you have lapsed coverage, this means you were without coverage for some period of time. There are some completely legit reasons to drop coverage. Maybe you sold your car or decided to bike to work.

There are also the less legit reasons. Maybe you simply made a mistake. Whoops! You are just human right. But if you are letting your coverage lapse to save a few dollars, this is always a big mistake.

Regardless of the reason you may have suffered a lapse in coverage, be aware that a lapse — even the legit ones — may affect your rates in the future.

Uninsured/Underinsured Motorist Coverage

It seems patently unfair that you should have to purchase insurance to cover those who aren’t responsible enough to at least purchase the state minimum coverage. But thus is life. Unfortunately, in some cases those with no insurance just say, “Sorry!” and you’re on the hook for your own losses — even if you weren’t at fault. Uninsured or underinsured motorist coverage means that your insurance company will provide the insurance protection that the uninsured party didn’t purchase. This coverage is frequently required protection.

Medical Payments Coverage

This is a rarely purchase insurance coverage. Medical Payments Coverage helps with the medical expenses of covered drivers and passengers after an accident, no matter who’s at fault.

While it’s not fun to think about, but if there are victims in an accident, bills can build up quickly. Medical payments coverage can even provide protection if you’re struck by a car while walking or you’re injured as a passenger in someone else’s car.

What is indemnification?

This is a fancy word and used all the time by insurance professionals. Don’t worry, this is a good word. Basically, this word means you will be compensated for damages. Indemnity is the security or protection against loss or other financial burden, it is the basic job of your auto insurance policy.

Do you need gap insurance?

If you lease of finance a vehicle, gap insurance is a good idea. In fact, you lender may require it. This form of insurance protection is designed to cover the “gap” between the market value and loan or lease balance outstanding at the time of a covered accident.

If you are considering purchasing this form of coverage, you should also be prepared to purchase collision and comprehensive coverage as they are frequently required before you can purchase gap insurance.


There are many coverages and terms that just aren’t part of the common lexicon, and they can create some confusion when buying auto insurance. If you’re not sure what coverage to purchase, or the meaning of a term used in your policy, you should consult an insurance agent. Sure, you can do some research online, but the expert counsel of a professional can get you to the answer quickly.

If you want to get online insurance quote to see what coverages are available, that’s always a goo place to start.

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