So you've bought an auto insurance policy. How do you read this thing?

It's not always a straightforward read. Okay, it's actually quite boring and confusing, full of legalese and jargon. This makes some degree of sense, however, since insurers are legally required to cover the bills when accidents happen. They want to be as specific as possible to avoid paying more than they've agreed to pay. Here are some basics on understanding your insurance policy. If you know what to look for and where to find it, your policy becomes a lot easier to understand.

We can break every auto and home insurance policy into three parts. There is the Declarations Page, the Insuring Agreement, and the Conditions of the Policy. First, the Declarations Page. Here they'll have your name as the insured, plus anyone else you want to include as covered on your policy. You'll also find basic information like the policy period during which you're covered, and the amount of premium you'll pay. Make sure all this info was recorded correctly when you receive the policy. You'll also see descriptions of the insurance coverage provided, and the maximum dollar amounts of those kinds of coverages. Those in the know call this the "dec" page. 

Next is the Insuring Agreement. This is the meat and potatoes part of the policy. It details what the insurer will do in exchange for the premium you're paying. The insuring agreement will also say who is covered: everyone named on the dec page, as well as residents who also live in the insured driver(s)' household and those using the car with permission of the insured. Here is where things can get detailed and techincal, because everything is spelled out specifically in an attempt to avoid misunderstanding. If the policy refers to another section when describing coverage, make sure you skip over to that section and know what's in it. It's important to become familiar with the exclusions in your policy, and make sure nothing is excluded that you want to cover. Those exclusions can have a big impact when a claim needs paying. Here's a list of common exclusions. It's very important that you're familiar with your coverage and what coverage you've bought before you need the money! 

Lastly, you'll need to know the Conditions of Your Policy. More "fine print" can be found here. This section describes your responsibilities when you have a claim, such as the deadline you have to report an accident or incident, and what information and documentation you'll need to provide. Here you'll find details on how to cancel your policy for both you and your insurer. You should know that you're free to cancel any time, and if you have prepaid your premiums, you'll receive a refund. Your insurance company cannot cancel your policy at any time, and may only do so  under certain conditions with advance notice given to you. 

Here are a couple things to consider when it's time to renew your policy, or if you are a first time buyer:

Your personal assets will change over time, and your insurance policy should keep pace with those changes. Protecting your assets with insurance is critical. To make sure you are fully protected, consider if you've acquired any new assets since you bought your policy, such as purchasing a house or receiving an inheritance. Determine whether your current insurance coverage is enough to protect you and your family/heirs from the effects of a major accident. Also, if you hit an expensive car and you're at fault, will your property damage liability cover those costs? If you aren't clear with these answers and need some advice, talk to your insurance agent. 

More on insurance coverage: 

How your insurance policy limits affect your claim payout

A guide to common insurance policy acronyms

How to know if you've got enough car insurance

 

 

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