Understanding the Basic Functions of Auto Insurance Policies

Not everyone has time to be an auto insurance expert; however, it is important to at least understand the major parts of your auto insurance policy. It saves you money, and helps you protect yourself better. Remember to keep yourself adequately covered, while having the bare minimums required by each state may keep you in compliance with state laws, they may not be enough to protect your assets if you have a major incident. Insurance experts recommend that you review your insurance policy often and thoroughly.

Each Auto Insurance Section/Policy

• Declarations: This part of your policy is unique to you as it contains the personal facts for drivers in your household including name and address, make and model of your vehicle(s), vehicle identification number(s), policy number and policy duration. It also contains the basic type of coverage you purchased and your policy limits and deductibles.
• Coverage Parts/Insuring Agreement: This section outlines the coverage options and coverage limits that you purchased, such as liability, medical, collision and comprehensive. This section outlines what your insurance company promises to provide in return for your payment, based on the coverages and coverage limits you selected.
• Exclusions: This section details what is not covered by highlighting your policy’s limitations. Combined with the section above, this ensures that you know exactly what will be covered when you make a claim. It also shows you some possible deficiencies that you might want to correct down the line.

• Conditions: This is where the legal responsibilities of both the insured and the insurer are listed, including premium payment obligations, steps to filing a claim, and procedures for resolving disagreements.

Reading the “Fine Print”

This section defines terms and outlines the rights of the policyholder and the insurance company. This section is often referred to as the “fine print.”

• Collision Coverage: This covers loss to your own auto insurance caused by its collision with another vehicle or object. If you cause an accident, collision coverage may pay to repair your vehicle, and is normally the most expensive part of an auto insurance policy. You must choose a deductible, which is the amount you, the insured, must pay before the insurance company pays the remainder of each covered loss. The higher the deductible, the lower the premium costs. However, keep in mind that this is the amount you must pay if your vehicle is damaged, so deciding on your deductible, which directly affects your premium, can be a bit of a balancing act.
• Comprehensive Coverage: This covers damage to your vehicle caused by an event other than a collision or overturn. Examples include fire, theft, vandalism, and falling objects. This also comes with a deductible you select, which is how much you will pay before the insurance company pays the remainder.
• Liability: This is the portion of the insurance contract which pays and renders service on behalf of an insured for a covered loss arising out of the insured’s responsibility to others imposed by law or assumed by contract. In simpler terms, if you are at fault in an accident, liability insurance can pay to cover injuries and property damage costs caused to others in the accident. Bodily injury coverage pays for things like medical costs and lost salary to others; while property damage pays for repairs to other people’s property you damaged in the accident, other than your own car. Liability coverage — which is the state mandated part of your policy, is the basic building block of any auto policy, and minimum liability limits vary from state to state.
• Medical Payments: This pays you and your passengers for medical and funeral expenses incurred in an auto accident, regardless of fault. It may also cover injuries sustained by you while you’re operating someone else’s car, in addition to injuries you or your family members incur when you are pedestrians.

• Personal Injury Protection: This is the name usually given to no-fault benefits in states that have enacted mandatory or optional no-fault auto insurance laws. Personal Injury Protection (PIP) usually includes benefits for medical expenses, loss of income from work, essential services, accidental death, funeral expenses, and survivor benefits.
• No-Fault Insurance: Many states have enacted auto accident compensation laws permitting auto accident victims to collect directly from their own insurance companies for medical and hospital expenses regardless of who was at fault in the accident. Although there are many legal variations of no-fault insurance, most states still allow people to sue the negligent party if the amount of damages exceeds a certain state-determined threshold.
• Uninsured Motorists Bodily Injury: Uninsured Motorists Bodily Injury (UMBI) covers you for all sums, up to your policy limits, if an accident occurs with an uninsured/underinsured or hit-and-run motorist who is determined to be legally at fault.
• Uninsured Motorists Property Damage: Uninsured Motorist Property Damage (UMPD) Liability coverage pays for property damages caused by uninsured drivers.

Remember to keep yourself adequately covered, while having the bare minimums required by each state may keep you in compliance with state laws, they may not be enough to protect your assets if you have a major incident. It is extremely important to review and refresh your mind of your insurance policy often and thoroughly.