Understanding your Auto Insurance Policy

Even if you do have a pretty good handle on the details of your automobile coverage, trying to make sense of the actual policy document can be a different ballgame altogether.

This page:

  • Lists the sections you'll see in your personal auto policy

  • Briefly explains what each section contains

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The contents of your insurance policy

Your automobile insurance policy is a binding legal contract.
But don't let that keep you from reading it, because it's actually very important to do so.

Your personal auto policy, or "PAP", will have five distinct parts (scroll down or click to see the definitions):

  • declarations
  • insuring agreement
  • definitions
  • conditions
  • exclusions

In most personal auto policy documents, some of these parts will be combined. But they'll all be there. Here's what each section means to you, the insured:

Declarations

This section will likely be the first thing in your auto insurance policy, and it's almost always its own section. Unlike the rest of your policy, it will have been prepared especially for you.

The declarations lists all relevant information about your persaonal auto policy. This includes:

  • the year, make,and model of your car
  • its VIN (vehicle identification number)
  • the name of the insured (you or you and your spouse)
  • the dates the policy is effective
  • the policy's coverage types and limits
  • the policy's cost (your premium)


Sometimes other information is included (like whether you use the vehicle for business or for pleasure). And if your car is financed, the lender who holds the lien on the vehicle will be listed here as the "loss payee". (If the car is "totalled", they'll need to be reimbursed.)

Insuring Agreement

This section is the centerpiece of the personal auto policy. It outlines exactly what the insurance company promises to provide in return for the payment of your premium.

The type and extent of each coverage you've purchased will be described in detail here. This section will also outline exactly who is covered under each provision. It's a long and complicated section, but it's probably the most important part of your auto insurance policy.

Definitions

Want to guess what this section's all about? Yep. All annoying insurance jargon will be clarified here.

Sometimes this section is simply written into the insuring agreement. But in either case, you can be sure that every relevant term will be narrowly defined, so as to cut down on the possibility of a misunderstanding between the you and the insurance company.

Exclusions

This is an important section, because it lets you know what, when and who won't be covered by your policy. The insurance policy exclusions section is really just a list of all possible circumstances that would free the insurer from the responsibility of paying a claim.

An example: most auto insurance contain an exclusion that exempts the insurer from having to pay in the case of intentionally caused damage or injury. (We hope that never happens!) Make sure you understand the exclusions, because you don't want to be caught relying on some kind of coverage that you don't actually have.

Conditions

This will become a very important section should you ever be involved in an accident. It lists your duties and responsibilities as the insured in the event of a claim situation.

This part of an auto insurance policy usually includes guidelines for contacting the insurance company, obtaining a police report, and filing a claim. Information on auto insurance policy cancellation will be outlined here, too.


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Next: Want help designing the perfect policy for you? Check out our guide to choosing your car insurance and make sure you've got the coverage you need (at the right price)!

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