Perhaps one of the more intimidating shopping experiences consumers have is buying auto insurance. Some of the jargon and terminology may be difficult to understand and the problems are sometimes exacerbated by inexperienced or impatient insurance brokers. However, shouldn’t be such a headache by learning about what an auto insurance policy looks like before sitting down to buy one.
At its core, an auto insurance policy is made up of the legalese always found in contracts and the coverage a driver purchased. First the legal stuff:
- A Declaration Page – This is the part of the policy that describes the vehicle covered shows specific vehicle information such as the vehicle’s ID, the family members covered by the policy, the policy holder’s home address, the policy ID number and when it expires. It will also specify coverage type and expiration date.
- The Policy’s Insuring Agreement – This portion of the auto insurance policy summarizes what your auto insurance company covers you against. Also, lets you know what your insurance coverage limits are and what options you have such as comprehensive, collision or medical coverage.
- Exclusions – Whatever isn’t covered in your insuring agreement section with your auto insurance company is specified in this section of your auto insurance policy. For example, a vehicle’s mechanical breakdown is a typical example of auto insurance policy exclusion.
- Conditions – These are the parts of the agreement that put limits on what the auto insurance company will cover and outlines responsibilities. For example, it may outline proof necessary to file a claim or give step-by-step instructions on reporting an accident.
- Definitions (A.K.A. Fine print, a.k.a. small print, a.k.a. small type) – This is the part of the policy that defines specific terms listed in the agreement and is essential to read to understand the policy.
The parts listed above could be considered the foundation of an auto insurance policy and are ever present. Pivoting to coverage though there are numerous combinations and possibilities a driver can choose from. Here are the basic coverage parts of an insurance policy to help drivers have a better idea of what an insurance policy looks like:
- Liability Insurance – This insurance is pretty much mandatory across the Nation and forms the basis of an insurance policy’s core coverage. Liability offers protection to drivers from insurance claims for property damage or injuries in case of an accident. While coverage limits vary between the states, all of them have a semblance of mandatory minimum.
For example, Texas mandates drivers carry a minimum policy of 30/60/25 which breaks down like this:
- $30K of liability insurance per injured person.
- $60K combined liability insurance for all persons affected by the accident.
- $25K to cover property damage.
The coverage limits in California are 15/30/5. And while everyone’s financial situation may ultimately determine what coverage a driver chooses, it is typically recommended to carry higher limits like 100/300/50.
- Collision Insurance – This is sometimes optional coverage and depends on whether or not the vehicle is financed and covers drivers in a wreck by covering their own vehicle if it is damaged. Because it’s cash-value coverage, meaning it only covers what your vehicle is worth, it is generally dropped by drivers with older cars because the less value a car holds the less the need to carry this coverage.
- Comprehensive Insurance – Not state-mandated coverage but may be required if the vehicle was financed. This type of coverage pays out when a vehicle is stolen, vandalized or destroyed in a tornado for example. Always optional and depends on how much a vehicle is worth. New cars should always carry it while “vintage” cars could go without it if they would be easily replaced.
Other typical coverage options include the following:
- Personal Injury Protection – Financial losses attributed to a loss of work, medical bills, funeral costs are typically covered through this option which covers a driver if they caused the accident or not; may also cover passengers.
- Uninsured Motorist Coverage – Protects drivers when they have a traffic accident with someone without car insurance or if they are hit and the other driver leaves the scene of the accident.
- Medical Payments Coverage – Covers drivers and passengers for any medical expenses incurred and does not matter who caused the accident. Also covers funeral expenses in case of death. May also cover drivers if they were driving a borrowed car.
So while the terms and lingo of an insurance policy may look intimidating at first, it becomes second nature once a driver takes some time to read up on what they need and user-friendly sites such as AutoInsuranceMonitor gives consumers tons of information to answer all their auto insurance questions as well as provide links for some of the biggest names in the business such as Progressive, AAA and GEICO.