Understanding Your Car Insurance Policy

To many people, car insurance can be very confusing. This confusion can lead to having too much coverage or not enough. And while you don't have to become a car insurance expert to get adequate coverage, you should take a moment to familiarize yourself with your car insurance policy.

What is Car Insurance?

Car insurance protects against financial loss in the event of a car accident, theft, or other unforeseen occurrence. It is a contract between your insurer--you agree to pay a premium and your insurer agrees to provide car insurance coverage. Most policies last from six months to a year. Your insurer will notify you before the renewal period.

Car Insurance Coverage Options

A basic car insurance policy may include several forms of coverage. Each form of coverage is priced separately, and not every form of coverage is included in a standard policy:

Collision - this coverage pays for damage resulting from a collision with another vehicle or object (or damage caused by rollover).

Comprehensive - this optional coverage protects you in the event of theft, vandalism or non-collision damage (including fire, earthquake, flood, etc.)

Bodily Injury Liability - a mandatory coverage that financially protects you from injuries you or covered driver cause to someone else.

Property Damage Liability - a mandatory coverage that financially protects you for damage you or a covered driver cause to someone else's property (such as another vehicle, telephone pole, fence, structure, etc.).

Uninsured/Underinsured Motorist Coverage - this optional coverage will pay for injuries sustained by you, a member of your family, or a designated driver in the event an accident occurs with an uninsured or underinsured driver (or hit-and-run driver).

Waiver of Collision Deductible - this coverage is available in certain states and only if you have Uninsured Motorist Coverage. The Waiver of Collision Deductible coverage will pay your Collision deductible if the damage to your vehicle is caused by an uninsured motorist.

Medical Payments - optional in most states. If you have an accident, it helps pay for medical, dental and funeral expenses for you or your passengers, regardless of who is at fault. In those states with no-fault coverage, Personal Injury Protection (called "PIP") covers the basic expenses incurred by the insured or his family in an automobile accident without regard to fault.

What's a Deductible?

A deductible is the amount of money you are required to pay before your car insurance will take effect. For example, if your car insurance deductible is $250 and you're involved in an accident, in which you were legally determined to be "at fault," you will be personally responsible for the first $250 of any repairs made to your vehicle. Generally, the higher your deductible, the lower your car insurance premium.

Car Insurance Policy Declarations

This part of your policy is unique to you; it contains the personal facts for drivers in your household such as 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.

Here's a tip: Make sure your information is accurate; a claim may be denied if you provide inaccurate information to your insurer.

Car Insurance Policy Coverage Parts/Insuring Agreement

This section outlines the coverage options and coverage limits, 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.

Car Insurance Policy Exclusions

Exclusions detail 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.

Car Insurance Policy 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.

Car Insurance Policy Definitions

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."