How to read a car insurance policy.
Car insurance is a requirement to drive in every single one of the 50 states but how many of us actually understand what we are paying for? A high number of complaints and issues involving insurance claims can be avoided simply by understanding what is covered and what is excluded from your current policy. As simple as this sounds, most people that actually attempt to read and understand their current policy are left with more questions than before they started.
Even the most basic insurance policies can contain between 20-30 pages of insurance terms, conditions, exclusions, and jargon that most people just never read. The goal of this guide is to help you familiarize yourself and gain a quick understanding of the basic parts of an auto insurance policy.
How to Read a Declarations Page
The first section of your insurance policy to be familiar with and reference is the declarations page (commonly called a DEC page). This page is a summary of who is covered, what is covered, and how much it is covered for. I have included an example of a standard declarations, highlighted the major sections in yellow, and added an explanation for each of the sections listed . Because all policy documents will vary, please note that these sections on your policy may or may not be titled the same way depending on the policy language, however, the information listed on most declarations pages will almost always be the same.
Applicant Information – This section lists the basic information of the primary driver. It will usually include, but is not limited to, the basic contact information of the insured and the garaging address of the vehicle.
Producer Information – Your current insurance agent or broker’s information will be displayed here. It will usually include, but is not limited to, their basic contact information and office address.
General Information – The policy term, effective dates/times, and carrier plan will be listed here.
Driver(s) and/or Resident(s) of Household Information – All drivers and resident members of a household and their basic information will be listed in this section. This section may also state if the driver is either included or excluded from the policy.
Accident Information – Both at-fault and not-at-fault accidents in the past 3-5 years will be listed in this section. This section is sometimes combined in the “violation information” section.
Violation Information – Any tickets, accidents, violations, suspensions, and/or DUI’s will be listed in this section. The length of time this information will be available varies from state to state. This section may also be combined with any accident information.
Vehicle Information – The year, make, model, VIN #, vehicle usage, and mileage information of all vehicles being insured are listed in this section.
Lien Holder / Lessor Information – If you are financing or leasing your vehicle, the bank or financial institution providing you your loan should be listed on your policy’s declarations page. When your bank asks for proof of insurance this is the section they are looking for.
Custom & Special Add-On Equipment – If you are purchasing additional insurance coverage for special equipment or other non-factory modifications, your policy will list the guidelines here.
Premium Discounts/Surcharges Information – In this section, you can find items that may affect the total premium/price of your policy. Examples of items that can be listed here include: Good driver discounts, good student discounts, or salvaged vehicle surcharges.
Policy Coverage/Deductible Information – A complete outline of your coverage information and the price you are paying will always be listed on the declarations page. This is the section where you can typically find your limits of liability and comprehensive/collision deductibles if applicable. Here is a more in-depth explanation of coverage.
Policy Premium Information – There is usually a section that breaks down and outlines the exact premium you will pay for each individual form of coverage ($x amount for Liability, $x amount for uninsured motorist, ect.)
Premium Information – A complete list of premium information, taxes, and applicable fees must be disclosed on some part of every policy (usually on the declarations page). Information such as down payment, bill plan, and monthly payment can also be found in this section.
How to Read, Understand, and Sign Policy Documents
Most insurance policies have documents, called endorsements, which outline and modify the terms and conditions that you must agree and abide to for coverage to be in-force. These policy forms can vary dramatically from one policy to the next so it is important to understand the limitations of your policy. Also, keep in mind that your auto insurance policy can contain any number, or none, of the forms below.
The majority of these documents will be presented to you when you purchase a policy and are signing the paperwork. If you are one of the many that just signs documents without really reading them or you only glance at paperwork quickly, now is the time to look back and understand what it is you actually agreed to. Here is a list of some of the most common policy documents you will have to sign:
A Review of Uninsured Motorist – This form shows the current uninsured motorist coverage being provided. In some states, uninsured motorist is a mandatory form of coverage just like liability insurance. In other states, it may only be mandatory for the agent or broker to disclose to you that uninsured motorist coverage exists. In either case, most policies will require you to acknowledge that you have been offered uninsured motorist.
Electronic Funds Transfer Authorization – This is standard automatic payment form. Any time you sign up for automatic payments you must provide a signature authorizing the automatic drafts from your bank account or credit card. It is also important to understand how automatic or recurring payments works and when your billing due date is.
Coverage Exclusions – Some policies will limit the number of occurrences they cover by adding more restrictions to the policy. You should always check for an exclusions page to know what is explicitly not covered by your policy. The most common exclusions you will see is the exclusion of coverage occurring from any type of “street racing”.
Commercial, Business, and Professional Exclusion – Most personal auto policies will not provide coverage for vehicles used for business purposes. This includes pizza delivery, taxi cab, and other livery vehicles. If you are using your vehicle for any of these purposes, you must purchase a commercial or business/artisan policy to receive the proper coverage.
Named Driver Exclusion – This form lists drivers that will not be covered by the policy, under any circumstances. Most car insurance policies require that everyone residing in the same household as the insured must be disclosed. The most common people excluded from a policy are other residents of the house hold whom do not drive the car.
Discount Disclosure – Some polices will include a page that lists all available discounts that they offer. Just note that the inclusion of this does not necessarily mean that you are receiving these discounts or that you are eligible it simply states that the discounts exist.
Proof of Insurance – This is kept inside the vehicle and is provided as proof of liability insurance. In the even of an accident or if requested by an officer of the law, this card must be shown. Proof of insurance for vehicle registration is usually done automatically and filed electronically by the insurance company.
How to Put It All Together
Because insurance policies will vary from provider to provider it is best to understand the individual parts and see which ones your policy contains. Knowing how to read an auto insurance policy is not something that everyone has to know. However, understanding what you current insurance policy covers can help ensure that you are not taken advantage of in the event of a claim. The best time to review your policy is when you first purchase it or at before each renewal. For additional questions regarding your auto insurance policy, feel free to call us 310.299.5555
