Knowing how to read and understand your auto insurance policy can help you determine if you are insured properly. To do this, it helps to first understand what the elements of a car insurance policy are and how they relate to your required or preferred level of financial protection. In all states except for New Hampshire, vehicle owners are required by law to carry a certain amount of insurance coverage to register and drive a car. Although car insurance is required, have the coverages, limits, features and exclusions been explained to you before? If not, you may find that you are paying for coverage you may not need, or going without the valuable coverage protection you thought you had.
How to read and understand your auto insurance policy
A car insurance policy is more than just the coverages listed on your ID card. The ID card proves you have current coverage in place, but lacks critical details. The key information on what is covered or excluded in your auto insurance policy is found on the declarations page and the policy form, also known as a policy jacket.
The declarations page of your auto insurance policy shows the basic information related to you, your household drivers, the car insured, the insurance company providing the coverage and the details on what is and is not included in your policy. The policy jacket offers an in-depth view of the specific coverages, limits, exclusions and conditions included in your car insurance.
What are the parts of a car insurance policy?
There are multiple components of a car insurance policy, including the various coverage types you have selected for your insurance plan. In a standard auto insurance policy, coverages commonly include liability, uninsured and underinsured motorist (UM/UIM) and medical payments or personal injury protection (PIP). While liability is required in almost all states, minimum limits vary by state, and PIP and UM/UIM may or may not be required.
Optional coverages commonly include comprehensive, collision, roadside assistance, rental car reimbursement and full glass coverage, among others. If you lease or finance your car, you may be required by the lender to carry comprehensive and collision specifically to satisfy the loan requirements. These coverages provide physical damage coverage for your vehicle so it can be fixed if it is damaged in a covered incident.
A car insurance policy is made up of coverages, limits, deductibles, personal information, vehicle information and driver information. The insurance company insuring your car will be listed, including your unique policy number provided by the company and your policy period, which is typically six months, but can also be a yearly policy in some cases. It is important to understand the coverage in your auto insurance policy to know if you are covered properly and know what to expect if you have to file a claim.
|Coverage||Who requires it||What it covers|
|Liability||Required in all states except New Hampshire||Provides financial protection to pay for the other party’s bodily injury and property damage when you cause an accident|
|Collision||Optional but may be required by a lender||Pays to repair or total your car if damaged in a covered claim|
|Comprehensive||Optional but may be required by a lender||Considered other-than-collision coverage, this pays for broken glass, theft of the car, vandalism, hitting an animal and weather-related losses|
|Medical payments coverage||May be required by state||Provides coverage for medical and hospital expenses if you or your passengers are injured in an accident|
What is a car insurance declaration page?
A car insurance declaration page is often the first page of the policy, which contains basic personal information, coverage limits and deductibles, vehicle information and lien holder information if applicable. The declaration page provides the relevant information needed to determine what your auto policy covers, including:
- Policy number: The unique number assigned to your car insurance policy that you can use to file a claim and make changes.
- Policyholder address The address of the primary location of the driver and where the car is kept when not in use.
- Named insured: The primary person or people insured on the policy, which should match the title of the vehicle.
- Premium: The total amount you pay during the term of the policy, usually six months or a year.
Car insurance policy exclusions
Exclusions listed in your car insurance policy are what perils are not covered. Car insurance policy exclusions can include:
- Performing delivery or rideshare without having specific coverage in place
- Catastrophic events, like nuclear attacks or acts of war
- Taking part in prearranged racing events
- Intentionally causing bodily harm or property damage to others
- Intentional damage to your own car
- Normal wear and tear
- Mechanical failure
- An accident caused while performing illegal activity
- Police seizure
- Personal property not permanently attached to the vehicle
An exclusion could also be for a specific driver, often called a named-driver exclusion. This could be someone in the household who has a bad driving record or has another reason to not be covered under the policy. If that excluded person drives the car, there is no coverage if they are involved in an accident, even if they are not at fault.
Key policy considerations
These key policy considerations should be kept in mind while reviewing your auto insurance policy. An insurance policy is a binding contract between you and the insurance company whereby you making on-time payments and adhering to the set guidelines obligates the insurance company to pay for covered losses. Although you can cancel your auto insurance at any time, the insurance company must notify you prior to cancellation and has limits on when and how they can cancel your car insurance policy. The following are a few aspects you should be mindful of when reading your auto insurance policy:
- Insuring agreement: The agreement made between you and the insurance company that they will provide coverage in exchange for your premium payment. The specifics on what is and is not covered is also included.
- Conditions: The conditions outlined in the auto insurance policy are rules, obligations or provisions you agree to adhere to in order for coverage to be provided when you file a claim. This could be a time frame to file a claim by or the terms used to consider termination of the car insurance policy by the insurance company, like a failure to make payments in a timely manner.
- Limits: The limits outlined in the policy are the maximum per person or per claim amount the insurance company is obligated to pay. For example, a bodily injury liability limit of 100/300 means at most, the insurance company will pay up to $100,000 per person and $300,000 per accident for bodily injury you cause in a covered accident.
- Cost: The cost, or premium, is the amount you agree to pay to the insurance company in exchange for the policy limits and coverages provided in the insurance policy. Failure to pay this amount in total by the end of the policy term may result in the auto policy being terminated.
Frequently asked questions
How do I find the best car insurance company?
To find the best car insurance company, you may have to shop around to gather several quotes from different companies. Compare the same coverages to determine which company offers the best rates for the coverages you want or need. Costs, coverages, limits and exclusions vary by state and insurance company. Your driving record, the make and model of the car you drive and your claims history also make a difference in how much you pay for car insurance.
Do I need to change my car insurance policy?
It is recommended to review your car insurance policy each renewal period to determine if you need to change anything. If you get a different car or need to make coverage changes, you can do so at any point in time while the policy is in force, even if it has not been renewed. Most insurance companies offer a free review upon request to help you verify coverage and limit needs in your insurance policy.