Talking about car insurance can be complicated. Simply deciphering all the terminology used is beyond the ability of many of us. Auto insurers use a combination of legal language and auto industry jargon that can be overwhelming at first glance. In fact, if you review your documents, you might even see terms like primary owner and third party owner, which makes you wonder if your coverage is yours even though you pay the insurance premiums.
Understanding Insurance Terminology
When we are looking for a new insurer, to modify our existing coverage or to save money, researching what our insurance documents say is the first step. But it’s usually not so easy for those who don’t have a legal background or work experience in the insurance industry. Insurers use a lot of jargon to make sure their documents are bulletproof if you, another customer or a third party takes legal action against them.
Some insurers go to great lengths to translate their documents for those unfamiliar with the terminology. Others cannot. But even among those who try to explain the language, there is so much to translate. And in some cases, the definitions may vary slightly depending on the website you’re browsing, where you live, what you drive, and the type of coverage you’re looking for.
Whatever your coverage, it’s good to start with the basics. Among them is the difference between a primary owner and a third-party owner.
Primary Owners vs. Third-Party Owners
In an auto insurance context, a primary owner is someone who owns the insured car and is the owner of its auto insurance, according to Access Insurance. If a policy covers a married couple and their teenage children and their respective vehicles, the spouse listed on the policy as the policyholder is the primary owner.
You would not be wrong to assume that in this case the other spouse and the teenage children are third party owners of the policy in question. This is indeed the case. A third party owner is a person covered by a policy owner’s insurance who may file claims under certain circumstances and be entitled to protection under the terms of the policy.
Third party owners are also commonly referred to as “additional insureds”. Adding someone to your insurance policy can be costly, especially if they are a teenager, have or have had a spotty driving history, or both. However, it is usually cheaper to add your minor parent to your policy than if they have to cover the costs themselves. Plus, making sure they have the right coverage is less expensive in the long run than paying the costs of an accident if they’re underinsured.
Why understanding coverage is important
Understanding the different insurance terms is key to understanding your car insurance coverage and options. Since auto insurance is necessary to operate a vehicle you own in all 50 states, you need to know a little more about what coverage means as the primary owner of a policy or as a covered person in as a third party owner. And as the primary owner, you’ll want to know about the different types of coverage available and the minimums that may be required.
Two of the most important, though often confused, are collision coverage and comprehensive coverage. Collision insurance protects you in the event of damage to your car if you cause an accident or are involved in an accident. Comprehensive coverage covers most other types of damage not involving collisions. This policy will protect you in the event of vehicle damage caused by theft, fire, weather and other common occurrences.
Civil liability covers property damage and medical expenses resulting from a car accident you cause. State laws require you to carry liability insurance with certain minimums to ensure victims and hospitals don’t stay with the bag if you hit someone.
Typically, car owners will have all three, although the need and amount of collision and comprehensive coverage will vary depending on whether you own the car, how much you drive, and how much the car is worth. For example, if you are financing a car, you will usually need to purchase collision insurance. But once you own an old car, you might want to dump it if the likely payment for most damages will be less than the value of the car.
Regardless of the type of insurance you purchase or the insurer you choose, understanding these terms can help you ensure that you have the right type of coverage and that you save the most money on your premiums.
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