Auto insurance is a legal requirement and a practical necessity in most areas. But if you want to make sure your policy is sufficiently covering all your needs, it’s important to be able to read your policy document effectively. Auto insurance can be complicated, so what are the best strategies for fully reading and understanding auto insurance coverage?
Getting Started: Types of Car Insurance
Do you know if you have uninsured motorist coverage in Florida? Or whether you’re covered for medical and hospital expenses if you and your passengers are injured in an accident?
We refer to auto insurance by a broad, umbrella term, but realistically, there are many different types of car insurance. Your policy may include many different types of coverage, or only one. These are some of the most common:
- Liability. Liability insurance is required in most states. It offers coverage for bodily injury and property damage liability. If you cause an accident, this means your insurance will pay for any injuries and damages that result from that accident, up to a certain limit. This limit varies from state to state.
- Medical payments. Some states also require medical payment coverage. This type of coverage is for medical and hospital expenses related to injuries that you and your passengers experienced in an accident.
- Personal injury protection (PIP). This type of coverage is only required in no-fault states; it’s very similar to medical payments coverage, with one of the key differences being that it covers lost wages and certain household expenses.
- Uninsured/underinsured motorist. Some states require uninsured or underinsured motorist coverage. As the name suggests, this covers your own medical expenses, and sometimes damage done to your property, in the event of an accident caused by someone without sufficient insurance. This can cover totally uninsured motorists as well as unidentifiable motorists, as is the case with hit and run accidents.
- Collision. Collision coverage is designed to cover damages to your vehicle if the damage results from a collision with an object, like another vehicle or a pothole. This is generally optional, but some lenders require it.
- Comprehensive. Comprehensive insurance is also optional, covering a variety of things other than collision – which is why it’s sometimes referred to as “other than collision coverage.” In many cases, this will pay for things like cracked windshields, vandalism, fire damage, and damage due to harsh weather.
Important Sections
Your auto insurance policy will likely be massive, but it’s much easier to understand when it’s broken down into individual sections:
- Declarations. First, there’s the declarations page. This will likely be the first page of your policy, and it’s going to summarize all your forms of coverage, the limits of your liability, your premiums, and your deductibles. If you’re only looking for a high-level view of your insurance policy, this page should have everything you need.
- The insurance agreement. In the pages that follow will be the insurance agreement, which is typically a long, dense document that outlines the exact agreement between you and your insurance company. Legal jargon is difficult to understand (even for lawyers at times!) but if you take your time with each sentence and look up whatever you don’t know, you should be able to make sense of it.
- Key definitions. Most insurance companies offer a page or two of definitions, making sure that you and all other policyholders understand exactly what they mean by “premium,” “deductible,” and other insurance terms. If there are any words you don’t know, look for them here.
- Coverage sections. Depending on the complexity of your policy, there may be individual sections for different types of coverage; for example, there may be separate sections for your liability insurance and your uninsured motorist coverage.
- Exclusions. Pay especially close attention to the exclusions section. Here, your insurance company will list situations and circumstances that are not covered by your policy. If you try to make a claim in these circumstances and situations, your claim will likely be denied.
- Endorsements. Some people add optional endorsements to their policy. If you do, this is where you’ll find them.
- Cancellation terms. In this section, the document will explain the circumstances under which the policy can be canceled. Keep in mind that this is mutual; both you and your insurance company have options for canceling the policy. Typically, your insurance company will only cancel the policy if you stop making payments or if you commit some other egregious action.
- Contact information. Finally, there will be a section containing full contact information. You’ll likely have multiple ways that you can reach out to your insurance company if you have any questions or concerns about your policy. There will also be instructions for how to report an accident. If you’ve read the entire policy and you still have some questions, consider reaching out to an insurance representative for further clarification.
Insurance policy documents can be complex and confusing, especially if you’re not used to reading them. But with a bit of preparation, they become much more transparent.
