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Understanding Your Personal Automobile Policy

Let's be honest: Reading an auto insurance policy is no fun. After all, an insurance policy is really a legal contract. It contains a lot of dry, technical, legal language as well as jargon specific to the auto insurance industry--not exactly Saturday-afternoon leisure reading. Nonetheless, it's probably a good idea to sit down and thoroughly read your policy. Don't wait until you have a car accident--by then, it may be too late.

Declarations Page: where it's all spelled out

Like other insurance contracts, your policy begins with a Declarations Page. This page lists the information that is unique to your policy. It indicates the policy number and provides important information, including the policy term, coverage limits, and information about the insured. If you bought the policy for your car, you are probably the named insured. If so, the Declarations Page will contain your full name and may also contain the names of other drivers in your household, if they're covered under your policy. Also included is your complete legal address, which may differ from the address where the covered auto is principally kept. The address where the car is kept helps determine your premium, but it is your legal address to which all correspondence about the policy will be sent.

If you took out a loan to purchase your car and there is still an outstanding balance, the lender will be listed on the Declarations Page. Since your lender has a financial interest in your car, it is entitled to receive payment under your auto policy if the car is damaged, destroyed, or stolen. Consequently, information about your lender must be listed on the Declarations Page.

The Declarations Page also contains a description of the vehicle(s) covered under the policy. This description includes, for each vehicle, the year, make, model, vehicle identification number, and address where garaged. In addition, the Declarations Page indicates how each vehicle is used (e.g., driving back and forth to school or work, just around town, or sometimes for business purposes). An estimate of annual mileage may also be indicated on the Declarations Page. Your premium will be partly based on this information about your car and how it's used.

If you elected to purchase one or more endorsements to expand and/or restrict the coverage under your policy, these endorsements will be identified on the Declarations Page by name, form number, and date. The endorsements must be listed on the page in order for your insurer to provide that particular coverage. Finally, the Declarations Page shows the annual policy premium--the amount that you're paying your insurer for the insurance coverage. The total premium is a figure that results from adding up the separate premiums charged for each specific type of coverage with the limits that you've selected.

Call your insurance professional if you have any questions about this section of your policy or any other section. He or she can clarify policy provisions and coverage, and explain any terms that you don't understand.

Another good reason to read your policy: the insuring agreement

The general agreement section of your auto policy establishes that in return for your payment of premium, the insurance company ("we") agrees to provide coverage to you as later explained in detail. It is a broad preface to the contract. The definitions section explains words and phrases used throughout the policy (e.g., "your covered auto").

The Insurance Services Office's Personal Auto Policy Form

You may find the Insurance Services Office's Personal Auto Policy Form attached to the Declarations Page of your auto policy. This form has six main parts labeled A through F. The first four parts spell out in detail the main types of coverage provided under the policy. The fifth part tells what you must do after an accident or loss. The sixth part clarifies overall terms and rights that you and the company have in specific situations, including policy cancellation. Parts A through D are "coverage" parts, and parts E and F are "conditions."

  • Part A--liability coverage: This provides protection for claims brought against an insured when the use of an insured vehicle caused bodily injury or property damage to someone else.
  • Part B--medical payments coverage: This provides coverage for various medical expenses incurred by the insured and others as a result of an accident, regardless of negligence or liability on the part of the insured.
  • Part C--uninsured motorists coverage: This provides coverage for losses that the insured and others sustain when injured through the negligence of an uninsured or unidentified hit-and-run motorist.
  • Part D--coverage for damage to your auto: This provides coverage for losses that the insured suffers as a result of damage to his or her covered vehicle and/or its contents. This coverage consists of two parts: collision and other than collision (also known as comprehensive). Other-than-collision losses include such things as fire damage, damage caused by animals in the road, and theft.
  • Part E--duties after an accident or loss: This imposes various requirements on the insured if an accident or other loss occurs. If you do not comply with the duties spelled out in this section, you may forfeit your contractual rights under the policy.
  • Part F--general provisions: This specifies certain conditions that apply to the entire policy or insuring arrangement. These include provisions for fraud, bankruptcy of the insured, and cancellation of the policy, among other things.

If you've chosen any optional coverage offered by your insurer, your policy may also make reference to one or all of the following:

  • Underinsured motorist coverage--mandatory in some states
  • Extended transportation expenses coverage that pays higher limits than the basic limits for a rental vehicle to substitute for an insured vehicle that is out of commission
  • Emergency roadside assistance coverage (towing)