Auto insurance policies are confusing and boring documents filled with legal jargon that can be an absolute nightmare to read. Your policy is a legal contract binding the insurance company to perform specific actions under certain circumstances for an agreed upon price. Insurers want the contract to be as specific as possible, which is why policies are so detailed and written in legalese.
Resist the temptation to gloss over your insurance, because understanding your insurance policy can help avoid costly coverage gaps or frustration with your insurer after an accident. As the saying goes: an ounce of prevention is worth a pound of cure.
Review the Declaration Page
The declaration page is arguably the most important page of your policy, but it shouldn’t be the only page you read. “The declaration page ‘declares’ what coverages you have elected to have on your policy and which you have declined,” explains Carole Walker with the Rocky Mountain Insurance Information Association. “It also includes details about coverage levels, deductions, named drivers and the price you are paying for each coverage.” The declaration page should be the first page and clearly labeled as “your policy declarations” or “declarations page.”
With many car insurance companies, you don’t have to wait for a paper copy to arrive; you can log in and view your policy online. Information included on the declaration page includes:
- Personal Information: Your policy number and personal information, such as your address
- Insured Drivers: Names of all the drivers insured under this policy
- Insured Vehicles: The vehicles insured by this policy, including the VIN numbers
- Schedule of Coverages: A listing of the coverages, limits, deductibles and the premium for each coverage. This should be broken down by vehicle if you have multiple vehicles on your policy. If a coverage is not listed in this section, you don’t have it.
- Policy Period: The dates the policy is in effect
- Discounts: Any discounts that have been applied to the policy
- Surcharges: If you’ve received a speeding ticket, or made a recent claim there will be a surcharge on your premium.
While it is termed a declaration “page,” it may be double-sided or multiple pages, so be sure to read it in its entirety.
Review After Changes and Renewals
When you make changes to your policy, such as adding or removing a car or driver, you should be sent a new declarations page that shows the alterations to your policy. If you don’t receive a new one within a week after the change, call your insurance company:
- Confirm the policy changes were made
- Request that your carrier send you a new declarations page showing the changes
“It’s imperative that this page be reviewed at each renewal to ensure everything is accurate and the basic details have not changed,” warns Paul Dreher with Lawley Insurance in Buffalo, New York.
Choosing the proper coverages and levels is one of the most important parts of car insurance. Without the proper coverage, you may be responsible for damages. “It’s very important to have enough liability insurance, because if you’re involved in a serious accident, you may be sued,” advises Loretta Worters, Vice President of Communications with the Insurance Information Institute.
Here is a rundown of the various coverages and recommended levels:
- Liability: This coverage pays medical bills, legal settlements, and repairs that are the result of injuries or damage that you or a designated driver cause to someone else’s person or property. It will also protect you when driving someone else’s car with his or her permission. This coverage is required in almost all states, but required liability coverage levels vary by state. Liability insurance is broken down into three amounts: Per person limit for bodily injury, per incident limit for bodily injury and property damage limit. The recommended amounts are $100,000, $300,000 and $100,000. The limits are generally written as 100/300/100.
- Collision: This coverage pays for any damage to your car resulting from a collision with another car or object, regardless of whether you are at fault. Deductibles generally range from $250 up to $1,000. Typically, the higher deductible means a lower premium.
- Comprehensive: This insurance will pay for damage to your vehicle that is caused by theft or something other than a collision. Covered perils include fire, falling objects, explosions, earthquake, windstorms, hail, flood, vandalism, riot, or contact with animals such as deer. It also covers damaged windshields and other glass damage. Like collision coverage, you can choose your deductible amount. Your options normally range from $100-$1,000.
- Medical Payments or Personal Injury Protection (PIP): This will pay for the medical treatment of the policyholder and any passengers in the vehicle that were injured during an auto accident, regardless of fault. PIP may cover lost wages and funeral costs. Requirements for this coverage vary by state.
- Uninsured and Underinsured Motorist Coverage: This will pay for damages if you, a family member or a designated driver are hit by a driver who is uninsured or underinsured. Requirements for this coverage vary by state. In states where the coverage must be offered but can be rejected, your declarations page should note “insured rejects” if you have waived the coverage.
Policy Terms Can Be Confusing
Because insurance policies are written in legal language, they can be confusing. All policies have a “Definitions” section that defines specific words used in the policy. “The ‘Definitions’ section is extremely important as the terms contained there will define who is insured, what is insured, and when it is insured. You will need to refer back to the definition page often,” advises Kristofer Kirchen, with Advanced Insurance Managers.
Defined words will be bolded in the policy. Here are a few key terms:
- Family Member: Take note of what is considered a family member or insured driver. “Ideally this should read ‘an or any insured’ which is a broad definition, not “the insured” which is a much more narrow definition,” warns Amy Bach with United Policyholders.
If your policy only notes “the insured” or “named insured” under the coverages section, you have a restrictive policy that does not extend coverages to those who are not specifically listed on the policy. This means your vehicle isn’t protected if a relative borrows your car and gets into an accident.
- Covered Autos: Some policies may not cover damage to “substitute vehicles,” which would include a loaner or rental car.
- Actual Cash Value (ACV): Collision and comprehensive policies usually pay out the actual cash value, which means that the insurance company will determine the market value of the car at the time of loss. If the car is newer, this amount may be less than you owe on the vehicle, as new cars depreciate quickly. Gap insurance could prevent a large discrepancy in the amount you owe compared to the amount you receive.
- After-market Parts: These are parts made by a company other than the auto manufacturer. You can add an original equipment manufacturer (OEM) endorsement to your policy so only OEM parts are used to repair your vehicle – but you’ll pay more for this option. For example, if your classic car was damaged in an accident, the allotment for OEM parts would be used in the repairs.
Keep an eye out for words and phrases such as “does not apply to,” “except,” “all,” and “however.” These words can proceed or follow coverage explanations and drastically change the meaning. If you discover words you don’t understand, check the definitions page or contact your insurer or agent for clarification.
Read the Insuring Agreement
Car insurance policies will have an insuring agreement for each coverage type: liability, uninsured/underinsured, medical/PIP and collision and comprehensive. “The insuring agreement is the actual binding contract that governs whether or not coverage is afforded in the event of a loss,” explains Kirchen. It defines what is covered and how it is covered. Here are a couple of tips from Kirchen about reading your policy:
- If the policy refers to another section when describing coverage, read the referred to section immediately to ensure there are no exclusions.
- Pay particular attention to the exclusions in each section and the exclusions that apply to the policy as a whole. Exclusions can have a major impact on a claim.
Items listed on your policy as an “exclusion” are NOT covered. Common exclusions include the following examples, with a note of what section of the policy they are considered:
- Intentional damage to others, bodily injury or property damage (liability)
- Property damage to your own property (liability)
- Damages caused by your vehicle being used for livery purposes (liability)
- Damages caused by using your vehicle for business purposes (liability)
- Intentional damage to your own vehicle (collision and comprehensive)
- Damage done to your vehicle by war, bio-chemical attack, nuclear exposure (collision and comprehensive)
- Personal items that are not permanently installed in your insured vehicle (collision and comprehensive)
- Any vehicle used for competing in any pre-arranged or organized racing or speed contest (liability, plus collision and comprehensive)
If you have a restrictive policy, there may be more exclusions, such as not allowing permissive drivers or extending coverage to rental vehicles.
If you have any questions regarding your current policy or wish to make any changes, call and speak to one of our American Heritage Insurance Group agents. We can make sure you have the coverages you need.
Article By: Mark Vallett