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An A to Z Guide to Auto Insurance

By the Mercury Team

Auto Insurance: What You Should Know

If you drive a car chances are you carry some level of auto insurance. If you don’t, then you better get it quick, because it’s the law in most states. But how do you choose the right company and coverage? You should start by doing a little homework so you know what you’re buying when you begin shopping.

Auto insurance can be pretty complicated and it can be difficult to understand if you don’t know the basics, so we’ve tried to highlight a few things you should consider when searching for auto insurance.

Jump to a Section

A: Actual Cash Value | Appraisal
B: Bodily Injury Liability
C: Carrier | Collision Coverage | Comprehensive Coverage
D: Deductible | Discounts
E: Endorsement | Electronic Proof of Insurance
F: Filing a Claim
L: Liability Coverage | Leased Vehicle | Limit | Loss
M: Medical Payment Coverage | Motor Vehicle Report (MVR)
P: Premium | Property Damage Liability
R: Rental Reimbursement | Roadside Assistance | Replacement Cost
S: State Laws
T: Tort (PIP) Insurance | Total Loss
U: Uninsured/Underinsured Motorist Bodily Injury | Uninsured Property Damage/CDW

A - Actual Cash Value (ACV)

Actual cash value is the amount your vehicle is worth at the time of a loss, factoring in depreciation. If your car is totaled or stolen, your insurance provider will reimburse you based on its current market value, not what you originally paid. For example, if you purchased your car for $25,000 five years ago, its ACV today might be much lower due to wear, mileage, and age.

A - Appraisal

An appraisal is an evaluation used to determine your vehicle’s value after it’s been damaged in an accident or declared a total loss. Insurance companies typically send an in-house adjuster or independent third party to inspect the car and decide how much they should pay for repairs or a payout.

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B - Bodily Injury Liability (BI)

Bodily injury liability coverage pays for injuries to other people, within the policy limits you selected, of course. This may include drivers and passengers in another vehicle, pedestrians and, in some cases, passengers in your vehicle, when the insured vehicle’s driver is legally at fault. It does not cover injuries you may have personally sustained in the accident. Bodily injury is often used to pay for medical bills, lost wages, and pain and suffering.

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C - Carrier

A carrier is another name for your insurance company. They’re responsible for managing your coverage, collecting your premium payments, and handling claims if you ever need to use your insurance. Mercury, for example, is an insurance carrier.

C - Collision Coverage

Collision insurance pays for damage to your vehicle if it collides with another vehicle or object (e.g., potholes, speed bumps, poles, etc.), regardless of fault. It could also provide you with a settlement that could allow you to replace the vehicle in the event of a total loss. Typically, you must first pay a deductible (see below for definition), usually ranging from $100-$1,000.

C - Comprehensive Coverage

Comprehensive coverage pays for damage to your vehicle that occurs in a non-collision situation, including damage from wind, flooding, fire, hail, vandalism, or theft. As with collision coverage, you must generally pay a deductible before your insurance company offers financial assistance towards repair or replacement costs.

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D - Deductible

The amount you must pay out-of-pocket for damages before your insurance policy will pay an insurance claim is your deductible. Here’s an example of how car insurance deductibles work: If you have a $100 deductible and your car sustains $1,000 worth of damage, you must pay $100 before your insurer pays the remaining $900. Deductibles are most often found in amounts of $100, $250, $500, and $1,000, but may vary from state to state or by carrier. Also note that the amount of your deductible is inversely related to the amount of your insurance premium. Plainly stated, the more money you’re willing to pay out-of-pocket towards your repairs, the lower your insurance premium will be and vice versa.

D - Discounts

A discount is a percentage savings on your premium, based on specific criteria. Most carriers talk about discounts on auto insurance that can help you save money, but do they? Sometimes yes…sometimes no. Just because you get a discount doesn’t necessarily mean you’ll be saving money. Look at the total cost, not the discount. You may notice that some companies start with really high rates and then pile on the discounts to make it seem like you’re saving money. When you compare final rates, however, you may notice the company that didn’t have big discounts is a lot cheaper. Some of the more popular discounts include the following: Good driver, good student, multi-car, and bundling, which is when you insure both your auto and home together. Mercury offers up to a 15% discount when you insure both.

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E - Endorsement

An endorsement is a change or addition to your auto insurance policy that adjusts your coverage. It can be used to add extra protection—like roadside assistance or rental reimbursement—or to update details, such as adding a new driver or vehicle.

E - Electronic Proof of Insurance

Electronic proof of insurance allows you to display your insurance card to the officer on your smartphone. Before relying on this, , check if your state has adopted this law and, as a backup, be sure to always keep a hard copy in the car. Mercury offers customers the ability to save a digital copy of their I.D. cards when they establish an electronic account on the company’s website.

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F - Filing a Claim

When filing a claim, try to gather as much information as possible at the scene. Notify the police immediately and file a police report. Collect contact information from everyone involved, including witnesses. Document and photograph the damage and the scene, and contact your insurance company immediately. You can use your phone to take pictures of the other party’s driver license and insurance I.D. card. These items will contain most of the information you will need to file a claim, but don’t forget to also get a phone number.

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L - Liability Coverage

This is not an option in most states. The law says you must have liability coverage, but what is it? Simply put, if the insured vehicle is involved in a covered, at-fault accident, liability insurance is what pays for the property damage (vehicles and property like lampposts and fire hydrants) and bodily injury damages (medical expenses, pain and suffering and lost wages) for the other people involved. Most states require that you carry some level of liability insurance. However, there are a handful of states where you can drive without a motor vehicle liability insurance policy,if you can prove you’re financially able to pay the liability costs in the event of a collision. All insurance policies have exclusions and conditions, so make sure to review your policy carefully with your agent so you know what’s covered and what isn’t.

L - Leased Vehicle

A leased vehicle is a car you’re renting from a dealership or leasing company for a set period—usually two to three years—instead of buying it outright. Since you don’t technically own the car, most lease agreements require you to carry higher levels of car insurance coverage, like comprehensive and collision. This helps protect the leasing company’s investment in case the vehicle gets damaged or totaled.

L - Limit

A limit is the maximum amount your insurance company will pay for a covered claim. Each of the different types of car insurance—like liability, medical payments, or property damage—has its own limit. For example, if your bodily injury liability limit is $50,000, your insurer will pay up to that amount for someone else’s injuries if you’re at fault in an accident. Anything above that, you may have to pay out of pocket.

L - Loss

A loss is any event your insurance policy covers that results in damage or harm, like a car accident, theft, vandalism, or natural disaster. When you file a claim, you’re asking your insurance company to help pay for a loss. Depending on the type of car insurance you have, your policy might cover damage to your car, injuries to others, or both. Not every situation qualifies as a covered loss, so review your policy or talk to your agent to understand what’s included.

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M - Medical Payment Coverage

If you’re injured in an auto accident, this coverage will pay your reasonable and necessary medical expenses, regardless of who is at fault for the accident (up to your policy’s limits).

M - Motor vehicle report (MVR)

A motor vehicle report (MVR) is a record of your driving history, usually maintained by your state’s Department of Motor Vehicles (DMV). It includes details like traffic violations, accidents, license suspensions, and points on your license. Insurance companies use your MVR to help determine your risk level and, ultimately, your premium.

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P - Premium

The price you pay for your insurance policy. It’s typically charged monthly, semi-annually or annually. Some insurance companies will offer insurance discounts if you pay your premium all at once instead of in monthly installments or if you have your payments automatically deducted from your bank account.

P - Property Damage Liability (PD)

Covers you if your car damages someone else’s property. It mainly applies to damage caused to another person’s vehicle, but can also apply to fences, shrubbery, trees, light poles, houses, and other property. This does not cover damage to your own vehicle.

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R - Rental Reimbursement

Rental reimbursement is an optional auto insurance benefit. If your car is damaged and the cost to repair it is more than your deductible, this coverage pays for a rental car, usually with per-day or per-accident limits. This benefit is only available if you selected this coverage and the accident is a covered loss.

R - Roadside Assistance

Roadside assistance is often available as an additional coverage option from your insurance company. For example, Mercury offers this coverage at a cost of less than a quarter a day. It covers a variety of services, up to the policy limit, including towing, reimbursement for expenses if you’ve locked your keys in your car, need a flat tire changed, etc. Be sure to talk to your agent about adding this coverage if you need it.

R - Replacement cost (RC)

Replacement cost is the amount it would take to replace your car with a similar new one at today’s prices—without subtracting for depreciation. It’s different from actual cash value (ACV), which factors in your car’s age and wear. If your vehicle is totaled or stolen, and you have replacement cost coverage, your insurance may pay enough for you to get a comparable new car, rather than just what your old one was worth.

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S - State Laws

Every state has different requirements regarding insurance, including the minimum amount of insurance coverage you need to carry. You can learn more about your individual state’s insurance requirements by visiting the insurance commissioner’s website.

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T - Tort (PIP) Insurance

The Tort system, which operates in 38 states, makes the driver who causes an accident responsible for paying for damage to the victim’s property and medical bills, pain and suffering, and lost wages. The other 12 states use some form of no-fault insurance coverage. Kentucky, New Jersey, and Pennsylvania allow residents to choose between limited-tort and full-tort insurance when seeking insurance policies. If you’re the victim of an accident in one of those states and you opted for limited tort coverage, this means that you give up the right to seek damages for pain and suffering, whereas full tort coverage allows you to seek compensation for whatever you think you’re owed.

T - Total Loss

A total loss happens when the cost to repair your vehicle after an accident is more than what the car is worth. In other words, your insurance company decides it’s not worth fixing. When this happens, they’ll typically pay you the vehicle’s actual cash value (ACV), minus your deductible. If you have a loan or lease, that payout usually goes to your lender first.

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U - Uninsured/Underinsured Motorist Bodily Injury Coverage

Uninsured motorist bodily injury coverage pays for injuries to you and other people in your vehicle, within the policy limits you selected, when the loss is caused by an uninsured driver. Underinsured motorist bodily injury coverage may apply if the person who caused the accident doesn’t have enough liability insurance to fully compensate you and your passengers for injury claims.*

U - Uninsured Motorist Property Damage Coverage/Collision Deductible Waiver

Uninsured motorist property damage coverage will compensate you, up to the policy limit, for damages to your vehicle caused by an identified uninsured motorist. Collision Deductible Waiver will pay your deductible if your covered vehicle is damaged by an identified uninsured motorist.*

* In some states these coverages may be combined into one coverage. Please check with your local insurance agent to learn about different options.

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Understanding car insurance basics is the first step toward making smart, confident decisions about your coverage. An If you’re shopping around for cheap car insurance, remember that price is just one piece of the puzzle. The best policy is one that offers the right balance of affordability, coverage, and service.

That’s why Mercury Insurance makes it easy to get the coverage you need at a price that fits your budget.

Contact us today for a fast, free quote!

Mercury Team

The Mercury Marketing Team is made up of professionals in the fields of Content Creation, Public Relations, Social Media and Journalism. The team works together to deliver professionally written and researched content to provide information for consumers.

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