Auto Insurance And Contracts: Understanding The Fine Print

Auto insurance is a contract between the policyholder and the insurance company. The policyholder agrees to pay the premium and the insurance company agrees to pay losses as defined in the policy. The contract outlines the coverages and exclusions of the policy. Auto insurance provides property, liability, and medical coverage. Most states require drivers to have auto liability insurance before they can legally drive a car.

What is covered by auto insurance?

Auto insurance is a contract between the policyholder and the insurance company. The policyholder agrees to pay the premium, and the insurance company agrees to pay for losses as defined in the policy. Auto insurance provides property, liability, and medical coverage.

Property coverage

Property coverage pays for damage to, or theft of, the car. This includes damage caused by potholes, floods, vandalism, and riots, or contact with animals.

Liability coverage

Liability coverage pays for the policyholder's legal responsibility to others for bodily injury or property damage. Most states require drivers to have auto liability insurance before they can legally drive a car. Liability insurance pays the other driver's medical, car repair, and other costs when the policyholder is at fault in an auto accident.

Medical coverage

Medical coverage pays for the cost of treating injuries, rehabilitation, and sometimes lost wages and funeral expenses. This includes medical payments, lost wages, and the cost of replacing services normally performed by someone injured in an auto accident.

Additional coverage

In addition to the three main types of coverage, auto insurance can also include:

• Collision coverage: Reimburses for loss due to collision with another car or object, such as a tree or guardrail.
• Uninsured and underinsured motorist coverage: Reimburses the policyholder if they are hit by an uninsured or underinsured driver, or in the case of a hit-and-run.
• Comprehensive coverage: Provides protection against theft and damage caused by incidents other than a collision, such as fire, flood, vandalism, or falling objects.

What is not covered by auto insurance?

Auto insurance is a contract between the policyholder and the insurance company. The policyholder agrees to pay the premium, and the insurance company agrees to pay for losses as defined in the policy. Auto insurance provides property, liability, and medical coverage. However, there are several things that auto insurance does not cover.

Firstly, auto insurance does not cover regular repairs or general maintenance. Basic maintenance, repairs, and general wear and tear on a vehicle are considered the responsibility of the owner. This includes oil changes, replacing parts due to wear and tear, and mechanical breakdowns. Even extended warranties and car repair insurance don't cover basic maintenance or repairs.

Secondly, auto insurance typically does not cover personal belongings stolen from your car. While auto insurance covers damage to your vehicle and any damage you cause while driving, it does not include the replacement of personal items inside. If personal belongings are stolen from a vehicle, that claim would need to be filed under renters or homeowners insurance.

Thirdly, auto insurance may not cover classic, exotic, or performance cars. These types of vehicles often require specialized insurance policies due to their higher value, increased risk of theft, and need for specialized repairs. The increased costs and unique needs associated with these cars mean they typically can't be covered under a standard policy.

Additionally, auto insurance has limits on liability coverage. Policyholders should be mindful that their insurance may not cover all damage caused in an accident. It is recommended to purchase higher levels of coverage to protect against financial risk in the event of a serious accident.

Finally, auto insurance does not cover intentional damage to the vehicle, including DUI-related incidents in some cases. This includes instances where the policyholder purposely damages their car, such as breaking a window when locked out or setting the car on fire for insurance money.

What happens if you don't have auto insurance?

Auto insurance is a contract between the policyholder and the insurance company. The policyholder agrees to pay the premium and the insurance company agrees to pay for losses as defined in the policy. While the specific laws vary, basic personal auto insurance is mandated by most US states.

If you don't have auto insurance, you may face legal consequences, such as fines, a suspended or revoked license, vehicle registration suspension or revocation, vehicle impoundment, and even jail time. The specific consequences depend on the state in which you live and range from fines of $100 to $1,500 and a suspended license for up to a year. In Michigan, for example, driving without insurance could result in up to a year in jail.

If you cause an accident while uninsured, you will be responsible for all the costs associated with the collision, including car repair bills, medical expenses, and property damage. The average cost for a bodily injury claim in 2017 was $20,453, and you could be sued if you don't have the cash to pay up.

Even if you are not at fault in an accident, not having insurance may affect your ability to receive compensation for your injuries. Several states have "No Pay, No Play" laws, which restrict the types of compensation an uninsured driver can receive. In some states, such as New Jersey, an uninsured driver cannot recover anything at all, while in others, like California, they cannot recover "non-economic" damages like compensation for pain and suffering.

What happens if you break the contract?

Auto insurance is a contract between the policyholder and the insurance company. The policyholder agrees to pay the premium, and the insurance company agrees to pay for losses as defined in the policy. Basic personal auto insurance is mandated by most US states, and laws vary.

If either party fails to meet their contractual obligations, this could result in a claim for a "breach of contract" or other applicable actions which may, through a legal course of action, be determined to be a civil wrong. Breach occurs when a party to a contract fails to fulfil its obligation(s) as described in the contract or communicates an intent to fail the obligation or otherwise appears not to be able to perform its obligation under the contract.

If you break your auto insurance contract, the consequences will depend on the type of breach:

Material Breach

This is the most severe type of breach and occurs when the key elements of the contract have been broken by a party. For example, if you take your car to a mechanic to get a new radiator, but they only put in new coolant and change the oil, charging you for the price of a new radiator, they have materially breached the contract.

Minor Breach

A minor breach is a small failure to perform some agreed-upon term in a contract. For example, if a mechanic stipulates that upon a full service, any oil or dust on your car will be rinsed off with water, but fails to do so, this would be a minor breach.

Anticipatory Breach

An anticipatory breach occurs when it is anticipated or suspected that one party will not fulfil their contractual obligations. For instance, if you hire a bathroom remodeller to renovate the bathrooms in your office by a specific date but they disappear, and you learn they've gone into liquidation, they have committed an anticipatory breach.

Substantial Performance

If a contract is almost, but not quite, performed, a breach may still be present. For example, if a painter comes to repaint your whole house but misses a small spot on the ceiling, you may be able to recover some small compensation for their failure to fully paint your house.

What to Do if You Break Your Auto Insurance Contract

If you break your auto insurance contract, there are a few steps you can take:

• Try to contact the other party: Your first step should be to try and resolve the issue or breach outside of court.
• Send a formal warning letter: If you're having trouble getting in contact with the other party or reaching an agreement, send a formal warning letter. The type of letter will depend on the type of breach.
• Get in touch with a lawyer: If you can't resolve the issue, speak to a lawyer about what legal remedies may be available to you.

What happens if you want to change your auto insurance?

Auto insurance is a contract between the policyholder and the insurance company. The policyholder agrees to pay the premium, and the insurance company agrees to pay for losses as defined in the policy. This contract can be changed at any time, but it is important to be aware of any related fees and to have a new policy in place before cancelling the old one.

Changing an existing policy

To change an existing policy, such as adjusting coverage limits or adding another driver, call your insurer's customer service number or speak with your local agent. Minor adjustments like adding or removing vehicles or drivers can often be made directly through your insurer's website or mobile app. Policy changes will usually take effect immediately, but you may be required to pay for any increase in your premium upfront.

Switching insurance companies

You can also switch insurance companies at any time. Many insurers will allow you to cancel your existing policy for free, but some charge a fee. Check with your current insurance company to find out if you would be subject to any such charges.

When to change your auto insurance

As your life changes, so may your auto insurance needs. It is important to review your insurance policy regularly to ensure it still meets your coverage needs. Reasons to change your auto insurance include:

• Getting married
• Your car getting older
• Moving
• A teenager in your household getting their driver's license
• Retiring
• Wanting to lower your premium
• Being unhappy with your current insurer

How to switch insurance companies

• Gather the relevant documents: This includes your current policy details, your driver's license, and the vehicle identification number (VIN) of all cars you want to insure.
• Shop around: Compare policies before jumping ship to a new auto insurance company. While price is an important factor, make sure you know the coverage details of your policy (i.e. deductibles, types of coverage, and coverage limits).
• Select and enrol in a new policy: Once you identify suitable coverage and are happy with the rate, enrol in your new policy. Before you terminate your original policy, ensure the new policy is active to avoid a lapse in coverage, which could impact your rate. Also, get a copy of your new insurance card.
• Let your lender know: If you've financed or are leasing your current vehicle, you'll need to notify the lender or lessor.
• Cancel your old insurance policy: After verifying your new policy is active, you can cancel your current policy. Depending on when you cancel, you might be entitled to a refund for the coverage that went unused.

Frequently asked questions