Understanding Your Auto Insurance Policy

Auto insurance policies are filled with legal jargon that can make them confusing to understand. This is because a policy is a legal contract that binds the insurance company to perform specific actions under certain circumstances for an agreed-upon premium. Insurers want the contract to be as specific as possible, so policies are detailed and written in legalese. To read and understand your auto insurance policy, start with the declarations page, which defines your coverage, insured drivers, vehicles, and more.

Understanding the declarations page

The declarations page, also known as the "dec page", is the first page or few pages of your auto insurance policy. It provides a summary of your policy, including details on the coverage, limits, and deductibles. It also includes information on the people and property covered under the policy. Here's a detailed breakdown of what you'll find on the declarations page:

Policy Number

This is a unique number assigned to your car insurance policy. You'll need this number when filing a claim, contacting customer support, or making changes to your policy.

Policy Effective Date and Term

The declarations page will show the date your policy becomes effective and coverage begins, as well as the expiration date. The policy term is typically six or twelve months, and you should renew it before it ends to avoid any lapse in coverage.

Agent Information

If you purchased your policy through an agent, their contact information will be listed on the declarations page.

Policyholder Details

The declarations page will include the name, address, and phone number of the policyholder, which is usually the primary named insured.

Covered Drivers

This section lists all the drivers officially covered under the policy, including the policyholder and any additional drivers. It's important to note that you can specifically exclude certain individuals from coverage.

Vehicle Details

All vehicles covered by your policy will be listed, along with their year, make, model, vehicle identification number (VIN), and average mileage.

Coverage Details

The declarations page outlines the types of coverage included in your policy, such as liability, collision, comprehensive, uninsured motorist, personal injury protection, etc. It also specifies the coverage limits, deductibles, and premiums for each type of coverage. You'll see the breakdown of costs for each coverage type and vehicle, along with any applicable discounts.

Policy Period

The declarations page will show the start and end dates of your policy coverage, typically lasting six or twelve months.

Loss Payee

If you lease or finance your vehicle, the lender or financial institution will be listed as a loss payee, as they have a vested interest in the vehicle.

Discounts

Some insurers may list the discounts applied to your policy, such as good driver discounts, student discounts, safety feature discounts, etc.

The declarations page is a crucial part of your auto insurance policy as it provides a concise summary of your coverage. It serves as a quick reference guide, helping you understand your policy limits, deductibles, and the range of coverages. It is also useful when filing a claim or providing proof of insurance.

Policy form and insuring agreement

The policy form and insuring agreement are integral parts of an auto insurance policy. The policy form, also known as the information page or declarations page, is usually the first page of the policy. It contains essential information about the policy, such as the named insured, policyholder contact information, policy period, covered autos, and liability limits. The declarations page also identifies the premium, rating information, and endorsements included in the policy.

The insuring agreement is a summary of the insurance company's major promises and commitments. It outlines what is covered by the policy and the insurer's obligations in the event of a covered loss. There are two types of insuring agreements: named-perils coverage and all-risk coverage. Named-perils coverage only includes the perils specifically listed in the policy, while all-risk coverage covers all losses except those explicitly excluded.

The policy form also includes details on endorsements, exclusions, conditions, riders, and covenants. Endorsements refer to any optional additions to the policy, such as roadside assistance or rental car reimbursement. Exclusions are situations or circumstances that are not covered by the policy, such as intentional damage or normal wear and tear. Conditions are rules, obligations, or provisions that the policyholder must adhere to for coverage to be provided. Riders refer to any additional coverages that can be added to the policy, and covenants are the terms and conditions of the insurance policy.

The policy form and insuring agreement work together to outline the specifics of the auto insurance policy, including what is covered, what is not covered, and the obligations of both the insured and the insurer. It is important for policyholders to carefully review these sections to fully understand their coverage and ensure it meets their needs.

Policy exclusions

The exclusions section of your auto insurance policy outlines any situations or circumstances that are not covered by your policy. This is an important feature of your policy, as it allows you to understand what your policy covers and what it does not, helping you identify any additional coverage you may need to purchase.

Common Exclusions

While the exclusions in your policy may vary depending on your insurance provider and your location, there are several common exclusions that are typically found in auto insurance policies. These include:

• Intentional Damage: Any intentional damage caused to your own car or to someone else's property, or any intentional bodily harm caused to others, is usually excluded from coverage.
• Illegal Activity: Accidents caused while performing illegal activity are typically excluded from coverage.
• Normal Wear and Tear: Regular wear and tear on your vehicle is generally not covered by insurance policies.
• Personal Property: Damage to personal property that is not permanently attached to the vehicle is often excluded.
• Catastrophic Events: Damage caused by natural disasters, wars, nuclear accidents or attacks, and other catastrophic events is typically excluded.
• Unapproved Vehicle Modifications: If you modify your vehicle without informing your insurance company, any damage related to these modifications may not be covered.
• Delivery or Ridesharing: Using your vehicle for delivery or ridesharing services without specific coverage in place is often excluded from personal auto insurance policies.
• Specific Drivers: You can choose to exclude specific drivers from your policy, such as household members with a poor driving record. Any accidents involving an excluded driver will not be covered.
• Driving Outside the US: Most insurance policies sold by American insurance companies are only valid within the United States.
• Government Action or Confiscation: If your vehicle is confiscated or seized by the government, any resulting losses or damages are typically not covered.

Understanding Exclusions

It is important to carefully review the exclusions section of your auto insurance policy to identify any gaps in your coverage. While reading through this section, keep in mind that certain exclusions may be negotiable or customizable with your insurance provider. Additionally, you may be able to purchase additional coverage for specific situations that are typically excluded.

Policy endorsements

• Rental reimbursement insurance
• Towing and labour expense coverage
• Full glass coverage options, such as no deductible
• Mechanical breakdown coverage
• Deductible waiver options
• Accident forgiveness
• New car replacement insurance
• Classic or collector car coverage endorsement
• Coverage for driving in Mexico

Some less common endorsements include:

• Original-parts insurance
• Better car replacement
• Teachers' car insurance
• Reimbursement for in-home care costs while recovering from an accident

If you're adding multiple endorsements to your policy, ask your insurance company about an endorsement package, which may be more cost-effective than adding them individually.

When shopping for car insurance, it's important to compare the coverage options and endorsements offered by different insurers. Endorsements may come at an extra cost, be included in a package, decrease your premium, or have no effect on your premium. They can play a crucial role in getting the best value for your coverage needs.

Policy considerations

Insuring Agreement

This is the heart of your auto insurance policy, outlining the contractual agreement between you and the insurance company. It states that the insurer will provide coverage as outlined in the policy in exchange for your premium payments. This section details what is covered and what is not, so it's important to read it carefully.

Conditions

The conditions section of your auto insurance policy outlines the rules, obligations, and provisions that you agree to follow in order to receive coverage when filing a claim. These conditions may include time frames for filing a claim, requirements for documentation, and terms related to termination or cancellation of the policy.

Cost

The level of coverage you receive is typically proportional to the amount you pay for your policy. In general, higher premiums equate to more comprehensive coverage. The average cost of a minimum coverage policy in the US is $741, while full coverage, including collision and comprehensive insurance, averages $2,545. Increasing your liability limits will also likely result in higher costs.

Exclusions

Understanding what your policy excludes is just as important as knowing what it covers. Common exclusions include intentional damage, property damage to your own property, using your vehicle for business or livery purposes, war or bio-chemical attacks, personal items not permanently installed in the vehicle, and pre-arranged racing or speed contests.

Endorsements or Riders

This section allows you to add specific coverages that may be necessary for your situation. For example, if you have a modified vehicle or need rental car coverage, roadside assistance, or transportation cost coverage, you can include these endorsements in your policy. Keep in mind that adding endorsements will likely increase the cost of your premiums.

Understanding Liability Limits

Knowing your liability limits is crucial, especially if you are at fault in an accident. If the injuries or property damage you cause exceed your liability limits, you may be held personally responsible for the additional costs. Liability limits are usually presented in a split limits form, with separate limits for bodily injury per person, bodily injury per accident, and property damage.

Frequently asked questions