Understanding Auto Insurance Coverage: A Beginner's Guide

Auto insurance policies are filled with legal jargon that can make them confusing to understand. However, understanding your insurance policy can help you avoid costly coverage gaps and frustration with your insurer after an accident. Your auto insurance policy is typically divided into two main sections: the declarations page and the policy form. The declarations page summarises your coverages, limits of liability, premiums and deductibles, while the policy form goes into more detail about conditions, exclusions, and the overall agreement between you and the insurance company. It's important to review your policy periodically to ensure accuracy and understand key terms in the definitions section. Knowing what your policy covers and what it excludes will help you identify any gaps in your insurance and determine if you need additional coverage.

Understanding the declarations page

The declarations page, or "dec page", is the first page or few pages of your auto insurance policy. It provides a summary of your policy, including the people and property covered, and the coverage, limits, and deductibles you've purchased. It's a useful document to refer to if you have any questions about the specific terms of your policy.

Here's a breakdown of what you can expect to find on the declarations page:

• Policy number: This is a unique number assigned to your policy, which you'll need when filing a claim or contacting customer support.
• Policy effective date: The date your policy becomes effective and your coverage begins.
• Agent information: Contact information for your insurance agent, if you have one.
• Policyholder details: Your name, address, and phone number.
• Covered drivers: A list of any drivers officially covered under the policy and any drivers that are excluded.
• Vehicle details: The year, make, model, vehicle identification number (VIN), and average mileage of the covered vehicle(s).
• Coverage details: Types of coverage included in the policy, coverage limits, deductibles, premiums, and policy add-ons such as accident forgiveness.
• Policy period: The expiration date for your coverage, typically six or 12 months from the start date.
• Loss payee: Any party with a vested interest in the vehicle, such as the lender if you lease or finance it.
• Discounts: Some insurers list the discounts applied to your policy.

Your insurance company will typically send you the declarations page via email, fax, or regular mail as soon as you buy your policy. Many insurers also allow you to access it online or through their mobile app.

It's important to review your declarations page carefully to ensure all the information is accurate. While it is not typically used as proof of insurance, it can be useful to have on hand for quick reference and to understand your coverage.

Understanding the insuring agreement

An insuring agreement is a legal contract between an insurance company and an insured party. This contract allows the risk of a significant financial loss or burden to be transferred from the insured to the insurer. In exchange, the insured agrees to pay a small, guaranteed payment called a premium.

An insuring agreement is usually contained in a coverage form from which a policy is constructed. It is part of the insurance policy in which the insurer promises to make a payment to or on behalf of the insured. Insuring agreements typically outline a broad scope of coverage, which is then narrowed by exclusions and definitions.

The insuring agreement is the part of the policy where the insurance company makes express promises to indemnify the insured party. It is the portion of the insurance policy that defines the agreement in general terms and points to other supporting documents to spell out how coverage is granted, limited, or excluded.

The insuring agreement is one of the two main sections of an auto insurance policy. The other is the declarations page, which is usually positioned at the beginning of an auto insurance policy.

Understanding the conditions of the policy

The conditions outlined in the auto insurance policy are the rules, obligations, or provisions you agree to follow in exchange for coverage when you file a claim. This could include a timeframe for filing a claim and the terms used to consider the termination of the car insurance policy, such as a failure to make payments on time.

Some common conditions include the documentation required when filing a claim, as well as the amount of time you have to file a claim after an accident. It is your responsibility to file a claim in a timely manner. If you miss that window, your claim will be denied.

This section also contains information about the terms for cancelling your policy, for both you and the insurance company. While you can cancel your policy at any time, an insurer has to give advance notice and can only cancel your policy for certain reasons.

For example, if your car has been vandalised, you may be required to file a police report. Other conditions are state or federally mandated to help protect the consumer.

Understanding policy exclusions

Insurance exclusions are provisions in a policy that waive coverage for certain types of risks or events. In other words, they are instances where your insurance company will not provide coverage. Exclusions are typically listed in your auto insurance policy and may vary depending on your coverage level. However, some exclusions are never covered, regardless of your insurance provider or coverage level.

Common Auto Insurance Exclusions

• Damage to your vehicle due to normal wear and tear: Mechanical failures and routine maintenance are not covered by auto insurance policies.
• Theft of personal belongings inside your vehicle: Comprehensive coverage usually pays for theft or vandalism of the vehicle, but it does not cover personal belongings inside the vehicle that are lost or stolen.
• Use of a personal vehicle for business: Most personal auto insurance policies do not cover incidents that occur when the vehicle is being used for business purposes, even if it is just a short errand for your company.
• Geographic restrictions: If you live near an international border, your policy may not cover you when driving in a different country.
• Intentional misuse or risky behaviours: If you damage your vehicle or someone else's, or injure yourself or others due to risky behaviours such as drag racing, excessive speeding, or off-roading, your claim can be denied.
• Specific catastrophic events: Auto insurance policies typically list specific events beyond the policyholder's control that are not covered, such as war, terrorism, nuclear events, sinkholes, hurricanes, floods, and other natural disasters.
• Unapproved vehicle modifications: If you customise your vehicle, you must inform your insurance company. Modifications are not covered under a typical policy, and they may increase your insurance premiums or even lead to dropped coverage.
• Police seizure or lawful repossession: Losses or damages resulting from your car being confiscated or repossessed by the government are not covered by insurance.
• Death, injury, or damage sustained in nuclear accidents, war, or other catastrophic events: These are not covered by auto insurance policies.
• Damage caused by driving under the influence of drugs or alcohol: If the driver was under the influence of substances, a claim for damage will not be covered.
• Damage caused by a driver without a valid license: Damages caused by a driver without a valid driving license are not covered under a motor insurance policy.
• Damage to tyres/tubes: Damages to tyres and tubes are generally not covered unless they were incurred due to an accident.

Understanding Exclusions

While exclusions may seem straightforward, it's important to carefully read and understand the specifics of your policy. Exclusions may vary by company, and there could be additional exclusions not listed here. Don't wait until you need to make a claim to discover something isn't covered!

Understanding the types of coverage

Declarations Page

This is typically the first page of your policy documents and serves as a summary of your coverage. Here, you'll find essential information such as your policy number, personal details, insured drivers, insured vehicles, policy period, coverages, monetary limits, deductible, and premium. It's important to review this page periodically to ensure accuracy and address any gaps in your insurance.

Bodily Injury Liability

This type of coverage is required in almost every state and pertains to injuries and death caused by you or another driver operating your car. It covers the costs associated with medical expenses, legal settlements, and repairs for the injured party. The recommended coverage amounts are $100,000 per person and $300,000 per occurrence, often expressed as "100/300."

Property Damage Liability

Property Damage Liability is also mandated by state law in most cases. This coverage reimburses others for damage caused by you or another driver operating your car to their vehicle or other property, such as buildings, fences, or utility poles.

Collision Coverage

Collision coverage is optional and reimburses you for damage to your car resulting from a collision with another vehicle or object, regardless of fault. It covers incidents like hitting a tree, a guardrail, or another car. While not legally required, your bank may require it if you have an auto loan. You can usually choose a deductible amount for this type of coverage.

Comprehensive Coverage

Comprehensive coverage is also optional and protects your car from damage caused by incidents other than collisions. This includes fire, flood, vandalism, hail, falling objects, and encounters with wildlife. Like collision coverage, comprehensive coverage is often required by banks if you have an auto loan, and you can choose your deductible amount.

Uninsured/Underinsured Motorist Coverage

This coverage protects you if you, a family member, or a designated driver are hit by a driver who is uninsured or doesn't have adequate insurance. It covers medical and other expenses resulting from the accident and can be mandatory or optional, depending on your state.

Medical Payments Coverage

Also known as Personal Injury Protection (PIP), this coverage pays for the medical treatment of the policyholder and passengers in the event of an auto accident, regardless of fault. It may also cover lost wages and funeral costs. The requirements for this type of coverage vary by state.

Glass Coverage

Windshield damage is common, and glass coverage includes not only the windshield but also side windows, rear windows, and glass sunroofs. Some policies include no-deductible glass coverage, while others offer it as a supplemental option.

Endorsements or Riders

Endorsements or riders are additional coverages you can add to your policy to suit your specific needs. For example, if you have a modified vehicle or want coverage for rental cars or roadside assistance, you can include these in your policy. However, keep in mind that adding endorsements will likely increase your premium.

Frequently asked questions