Understanding Your Car Insurance Policy (Complete Guide)
When looking over your car insurance policy, make sure to review (1) your coverage types and levels, (2) your rates and deductible, and (3) the terms you must adhere to.
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UPDATED: Oct 3, 2020
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- Not all car insurance policies will look the same; they vary highly based on what provider you’re doing business with.
- If you don’t confirm and verify all information listed on your policy, you could be denied claims in the future.
- There are different requirements for each state in the United States, so your policy should be tailored to not only your personal information, but your state’s requirements as well.
So you’ve finally chosen the right car insurance company that fits your needs and you get your insurance policy. If you’re taking a look at that policy for the first time, it might seem a little confusing. That’s what we’re here for.
It’s important you understand what your policy actually says, so we’ve put together this guide to help you navigate all of this information.
Still looking to compare insurance coverage options? Don’t worry, we’ve got you covered there too. Use our FREE online tool to start comparing today, all you need is your ZIP code.
Understanding Car Insurance for Dummies
We’ll start off with some basic car insurance terms and information that you’ll want to know before getting into the details.
Once we’ve covered the basics, you’ll find it a lot easier to understand your policy.
Car Insurance Terms You Need to Know
There are so many different car insurance terms floating around these days that it can be extremely confusing. We’ve gone through to break down some of the most commonly used terms for your convenience:
|Common Car Insurance Term||Definition|
|Liability Coverage||The catch-all coverage that pays for damages incurred by other drivers if you're in an accident. It breaks down into two categories: bodily injury liability and property damage liability.|
|Bodily Injury Liability||The type of liability coverage that pays for any bodily injuries to another party (or death(s)) that occur as a result of an accident.|
|Property Damage Liability||The type of liability coverage that pays for any property damage that occurs as a result of an accident.|
|Medical Payments||Also known as MedPay, this is a type of additional liability coverage that will pay for your own medical costs incurred as a result of an accident.|
|Personal Injury Protection||Also known as PIP, this is a type of additional liability coverage that pays for the costs of any medical bills/funeral expenses incurred as a result of an accident, regardless of who was at fault. Unlike MedPay coverage, however, this type of additional liability coverage is mandatory in some states.|
|Uninsured/Underinsured Motorist Coverage||This is a type of additional liability coverage that will pay for expenses incurred if you are involved in an accident caused by another driver who has either less than the minimum required liability coverage, or who has no coverage at all.|
|Collision Coverage||This is a type of car insurance that helps to pay for any repairs to your car if it is damaged in an accident. It's very useful coverage if you ever find yourself the victim of a hit-and-run accident.|
|Comprehensive Coverage||This type of coverage will pay for damage to your vehicle that is not caused by an accident, such as damage from a natural disaster or vandalism.|
|Roadside Assistance||This type of coverage ensures you'll get some assistance out on the road if you need it, like emergency towing, help with your battery, changing a flat tire, and lockout assistance.|
|Gap Insurance||This type of coverage is designed to help cover the difference between the actual value of your vehicle after an accident and the amount you owe on your vehicle. This is a valuable coverage type for new vehicles.|
|No-Fault Insurance||This type of coverage typically only applies to states that fall under the no-fault system. It's meant to help prevent any delays in medical payments for injuries you might get as a result of an accident.|
|Declarations Page||Essentially, this is the information page of your insurance policy. It should be the first page(s) that details information about your policy, such as the names of those insured under the policy, your address, how long the policy period is for, your policy limits, and other key information.|
|Insuring Agreement||This is the portion of your insurance policy in which your insurance provider promises to make any payment to (or for) you should you need coverage. It's the legally binding part of the policy on your insurer's part.|
|Exclusions||This is a provision (or addendum) on your insurance policy that basically states which things are not covered by your policy (such as hazards, perils, circumstances, or property). Think of this part as the fine print for your agreement with your insurance provider.|
|Conditions||This is the section of your insurance policy that states any requirements or rules (for both you and your provider) that must be followed for matters such as loss reporting and settlement, property valuation, other insurance, and cancellation and non-renewal.|
|Insurance Premium||This is the amount of money an insurer charges you in order to provide the coverage described in the policy.|
|Insurance Deductible||This is an amount your insurance provider will deduct from the loss before paying up to its policy limits. Basically, it's the amount you need to pay for any costs from an accident before your provider will pay for their part.|
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If you want further information and explanation on some of these terms, make sure to check out some of our other helpful guides.
Mandatory Car Insurance Coverage
Most states across the nation require something known as minimum liability coverage. This is a minimum amount of liability coverage that you must have in order to legally drive in that state.
Not all states in the nation require drivers to have car insurance, but a large majority do, so make sure you know about the insurance laws where you live.
If you want to find out what your state’s requirements are, check out our in-depth comprehensive guides for each state.
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Understanding Your Car Insurance Policy
Now that we’ve covered some of the basics that you need to know, we’ll move on to learning more about your car insurance policy.
In this section, we’ll discuss the key pieces of information you will need to pay the most attention to while reviewing your insurance documents.
Sample Car Insurance Policy
Take a look at our sample car insurance policy to see what kind of information you’ll likely find, which we’ll explain in the sections below.
So what exactly is a Declaration page, and why is it so important for you to know?
Well, as we stated in a previous section, a Declaration page is typically the front page of your insurance policy that contains all of the important information about your policy.
What kind of information does it contain?
The declaration page of your policy typically contains some (if not all) of the following:
- The name of the person(s) being insured (this information may also appear in a separate section, like in our sample policy above, under Household Drivers)
- Mailing address
- Physical address
- The policy period
- The policy number
- Covered vehicle make, model, and VIN
- Coverage for each listed vehicle
- Lender names and addresses
- Listed driver(s) and date(s) of birth
- Driver assignments
- Violation types
- Chargeable accidents
- Applicable discounts
So you can see why this page is so important, right? It’s essentially a general summary of all of the pertinent facts about your insurance policy.
While it may seem tempting to just glance over this and sign on the dotted line, it is essential that you read over all of the details on this page.
Let’s say you accept your insurance policy without looking carefully at it, and fast forward a few months later and you’re in an accident.
You go to file a claim with your insurance provider, but you failed to make sure that your name and address were correct. They would then likely deny it because the information you file your claim with doesn’t match what they have on your policy.
So if you take anything away from this section, it is to make sure that you read every detail on your Declaration page. It could save you from a major headache in the future.
Your auto insurance policy number is how the car insurance provider identifies individual policyholders and keeps track of all of the information related to their policies.
It is chosen by the company itself, so there is no way to know how many digits will be in your specific policy number without seeing your actual policy documents. Every auto insurance company is responsible for issuing its own set of policy numbers according to its own policies and records. There is no universal system for determining the digits and what they mean in an auto insurance policy number.
So if you need to find out what your specific car insurance policy number is, you should check on your proof of insurance card or pull out your auto insurance policy. It will always be listed on the declarations page of your car insurance policy.
This section outlines what vehicles will be covered under your insurance policy.
If you’re insuring just one vehicle, all of that vehicle’s identifying details will be listed. If you’re insuring multiple vehicles, the policy will list all of the details for each individual vehicle.
What kind of details are shown?
Well, typically, the following vehicle information might show up in this section:
- Make/Model of the vehicle(s)
- Vehicle(s) Identification Number (VIN)
- Overview of the specific coverage for each vehicle
- Premium or deductible for each vehicle
- Policy limit for each vehicle
These items may vary depending on what insurer you’re doing business with, but these are some of the typical items you’ll find in this section.
This section is very important. Why?
The total premium tells you exactly what you’re agreeing to pay for your insurance coverage.
It will either be the total you have to pay for just your one vehicle or if you’re insuring multiple vehicles, it will be the total amount you’ll pay for your premium for all vehicles listed.
For example, let’s say you’re buying insurance for just one vehicle for $500. Your total premium will be shown as $500.
Now let’s say you decide to insure three vehicles for your family. The premium for the first car is $300, the premium for the second car is $200, and the premium for the third car is $400.
Your total premium in this situation would be $900.
If you qualify for any discounts with your insurance provider, you’ll find those listed as well. You can see some of the most common car insurance discounts, as well as how much you can save, in the table below:
|Affiliation or "affinity"||25%||Affiliations|
|Good or safe driver||20%||Driving history|
|Senior||15 - 35%||Demographic|
|Good student||15 - 25%||Demographic|
|Customer loyalty||15 - 25%||Customer loyalty|
|Military||15% on base, 90% for deployed||Affiliations|
|Multi-car||10 - 25%||Customer loyalty|
|Defensive driving course||10%||Driver training|
|Early signing/renewal||10%||Customer loyalty
|Driver training||8 - 10%||Driver training|
|Anti-theft||5 - 20%||Equipment-related|
|Bundled||5 - 10%||Customer loyalty|
|Paid-in-full||5 - 10%||Payment|
|Homeowner||5 - 15%||Demographic|
|Emergency road assistance||5%||Affiliations|
|Safety; passive restraint and airbag||5%||Equipment-related|
|Usage or low-mileage||2%||Driving history|
|Auto-pay||$45 - $50 / year||Payment|
|Low income or occupation||Varies||Demographic|
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There also may be certain times when insurance companies will issue refunds. This can occur when an event significantly reduces the amount of traffic on the road, such as when the coronavirus pandemic reduced the overall traffic and therefore accidents on the road.
You’ll also find all of the coverage options you have selected for your insurance policy, as well as the limits for these coverage types.
Here’s a basic rundown of what kind of coverage you will find, according to the National Association of Insurance Commissioners (NAIC):
- Liability Coverage:
- Bodily Injury Coverage
- Property Damage Coverage
- Additional Liability Coverage:
- Medical Payments (MedPay)
- Personal Injury Protection (PIP)
- Uninsured/Underinsured Motorist Coverage
- Vehicle Coverage:
- Collision Coverage
- Comprehensive Coverage
Keep in mind that if you’re insuring more than one vehicle, the coverage types will be listed by vehicle.
If you’d like to see a more in-depth description of each coverage type, take a look at our earlier section on basic car insurance terms.
You can also check out the video below for more information on the types of coverage.
Deductibles and Premiums
Depending on your specific provider’s documentation, the deducible and premium you’ll be paying for your vehicle may be found within another section, or it could be in a section all its own. There’s a big big difference between your deductible and your premium.
We won’t go too far in-depth, as we have already previously defined each in the section on basic car insurance terms, so just to refresh your memory:
Your premium is the amount you pay to insure your vehicle.
Your deductible is the amount you will pay out of pocket for any damage to your vehicle after an accident.
The important thing to note about these two is that, depending on what kind of insurance coverage you have chosen, you may not have a deductible. But you will always have a premium to pay.
Need a little more explanation on the difference between these two? Watch the video below.
The policy terms section is the catch-all repository for all the important specifics about your policy. What exactly does that mean?
This section will outline the information about your policy itself. All of the items up until this point have been about your coverage, or your premiums/deductibles, etc. This part of the document is solely about your agreement with your insurance provider.
In this section you will see some of the following items:
- Policy Period – How long your policy will cover you for
- Expiration Date – When your policy will expire
- Effective Date – When your policy will begin covering you
- Lienholder Information – If you do not fully own your vehicle (i.e., you’re still paying for your vehicle or you’re leasing), this will be the information for your lienholder.
- Example: Let’s say you bought a new Porsche recently, but you’re making payments on it to the Porsche dealership. Information about that Porsche dealership would be listed here.
Keep in mind that all of this information may not be in the same place. It depends on how your insurer sets up their Declaration page.
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What isn’t covered under my car insurance policy?
Knowing what is and what is not covered under a car insurance policy can save your time money and frustration down the road.
A car insurance policy covers a variety of different eventualities that may occur in the operation of your vehicle. However, it does not cover everything. There are exceptions to all types of insurance protection.
Car Insurance Policies will Not Cover Deliberate Acts and Fraud
One thing that is never covered by car insurance is a deliberate act. If you intend to damage your vehicle for any reason, your car insurance provider should and will reject any claims that arise from it.
Car insurance is not a way to afford another vehicle if you discover that you no longer want the one you have. It is simply a form of security to protect you in the case of an accident.
Fraud is a huge problem in the car insurance industry. Many people attempt to “pull one over” on their insurer and often justify it as a David and Goliath situation.
They believe that such actions are victim-less crimes and insurers can easily afford it.
However, insurance rates are constantly rising because of such incidents. Insurers also take more time to pay claims in many situations because they need to investigate each one to ensure that no fraud is involved.
Fraud can involve a variety of different things. Some of the more serious cases involve crime rings that stage accidents and even have doctors and other professionals involved.
However, fraud can also be a single client lying or omitting information that could impact his premiums. If your insurer finds out that you have not been completely honest with him, you can expect to have claims not paid or your policy may even be canceled.
Car Insurance Policies will Not Cover Normal Repairs or Personal Property
Car insurance does not cover mechanical repairs that are caused by regular wear and tear. If your vehicle needs to be repaired but the problem resulted from regular use, your visit to the mechanic will not be covered.
Even if you have comprehensive insurance coverage, personal property that is stolen from your vehicle will not be covered. Even though comprehensive coverage provides for theft, it is only for theft of the vehicle itself or for things attached to the vehicle, such as stereos.
If you have left a collection of CDs or other items in the car and they are stolen, you will need to make a claim under your home insurance.
Another consideration with car insurance policies is the limit of coverage. This means that even if your policy pays a claim for loss, it will not pay more than the policy limit. Therefore in serious accidents, you may come up short on coverage with your car insurance policy.
If your vehicle is financed, you will need to carry collision and comprehensive coverage to protect it. However, if the vehicle is a total loss, the insurer will payout based on the blue book value of it, not the amount you have outstanding on the note. Therefore, it is important to invest in gap insurance to make sure that your insurer will cover your total loss and you will not be stuck paying off a car you no longer have.
Apart from these general guidelines, there may be some individual differences in what a car insurance policy from one insurer to another covers.
This is because the definition of full coverage varies slightly between companies, with some companies giving more extensive coverage than others. In order to make sure you know what is and what is not covered under your car insurance policy, you should talk with your insurance agent.
Renewing your Car Insurance Policy
If you decide that you like your existing car insurance policy, you will need to renew it.
Why not check out our guide covering exactly how to do that?
Car Insurance Policy FAQs
You are nearly at the end of our guide, but we want to cover a few more things before you leave. Take a look at our answers to frequently asked questions below.
Does my car insurance declaration page count as proof of insurance?
Your page doesn’t count as an official proof of insurance. Instead, you will need an insurance card. An insurance card is issued to the driver, usually within two weeks of purchase or transfer.
The company usually sends two cards to the driver for convenience. They also send proof of car insurance to the bank and the Department of Motor Vehicles. Some states may allow drivers to register their cars by paying an uninsured motorist fee or offering proof of financial ability to pay.
Insurance companies are required to report all uninsured motorists, new policies, and changes to existing policies. Most states require that the driver shows proof of car insurance if stopped by the police. Several other states only ask for a driver’s license and registration.
Do I have to pay for my car insurance policy every month?
Not if you don’t want to. The two most common ways of paying for car insurance are monthly and entire premium upfront.
Monthly payments plans, like the ones described by the Consumer Affairs and Business Regulation in Massachusetts, are most affordable for drivers because their total premium is divided by the total months in the policy.
For example, if your total policy cost for six months is $500, $500 would be divided by your insurance company, and you would be charged $83.33 per month, assuming the insurance company didn’t assess fees for the monthly payment plan.
If you choose to pay your entire premium upfront, you would be charged a single payment at the beginning of your policy. In the above example, it would mean paying the full $500. Though, some insurance companies offer discounts for drivers that pay their entire premiums in a single payment.
If neither payment option works for your family budget, you can use a comparison tool to quickly review multiple insurance policies to find one that offers better coverage at a lower rate.
Do I have to pay for my car insurance policy upfront?
When you buy auto insurance, you’re billed for the coverage that you select before the coverage is actually afforded. Since you pay in advance for your liability and sometimes physical damage coverage, you have peace of mind in knowing that any future claims that you file during that period will be covered.
Unfortunately, things aren’t so cut and dry when it comes to paying for a policy at the time of inception. Consumers have the right to compare auto insurance rate quotes for free. Since they don’t have to pay to look at the rates from insurer to insurer, it’s a very competitive marketplace.
When that consumer goes from quoting coverage to applying for it, it’s time for the tender. Companies will ask all serious applicants to provide their initial payment upfront when they submit their application. How much the company asks for depends upon your rates, the state, and the company’s policy as it pertains to down payments.
Down payments aren’t always required. If they are, the state will dictate how much a company can require that someone pays. Here are some factors that can affect whether or not a down payment will be requested:
- The carrier that you’re buying from
- Whether or not you’re a high-risk driver
- If the company typically does business in the high-risk market
- If you’re doing business with a brokerage
- Your credit record if you’re in a state where insurers can run credit
- If you want to pay the policy in full
- State requirements
If you can’t afford to pay in full or quarterly, you should have a monthly payment available to start your policy.
What is a car insurance policyholder versus a listed driver on the declaration page?
The policyholder for a car insurance policy is the owner of the car insurance policy. This comes with certain legal rights and responsibilities for the policyholder. The policyholder is the person who is responsible for paying the premium for the insurance policy.
This is different from a listed driver on the policy, who is a person that has the right to drive the cars insured by the policy but would not be able to make any actual changes to the policy or file his own claim through the policy.
Here are some of the circumstances where it makes sense to “list” a driver:
- Frequent driving of the car
- Good credit score to lower the premium
- Teen driver who would have difficulty getting coverage
One of the major reasons that a person is listed as a driver on an insurance policy and is not the policyholder is that this person may be frequently driving cars insured by the policy.
How long do I need to keep my car insurance policy?
You need to keep records of your car insurance policy while the policy is in force. Once the policy expires or you have changed companies, you don’t need to keep a copy of it anymore.
If there are any claims or potential claims against the policy, you will need to hang onto the paperwork until they have been resolved.
If you change car insurance companies, then there is no need to hold onto that old policy information. It may be less confusing to dispose of the previous policy anyway. You don’t want to be referring to one that is no longer in force if you are trying to determine what type of coverage you have if you need to make a claim against the policy.
Can I change my car insurance in the middle of my policy?
You’re required by law to carry auto insurance, but since the insurance marketplace is a competitive one, you’re not required to buy your coverage from a specific carrier.
As long as the coverage is purchased from a company with an active license to do business in the state, the driver is complying with the law. This makes it possible to shop around and find the most affordable rates without being at risk of being fined.
If you’re not happy with your premiums, it’s time to consider switching carriers. Don’t be put off by the fact that you have several months left in your term. However, some insurance companies are free to charge their policyholders a cancellation fee for terminating their coverage before the end of a term.
The state will prohibit exorbitant fees but tend to allow them so that the insurer is able to recoup for administrative costs. Charging a fee also helps the insurance company collect a portion of the unearned premiums that they already factored into the financial projections.
Now that you’ve made it to the end of this comprehensive guide, we hope you have a better understanding of your car insurance policy.
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