How to Read Your Car Insurance Policy Like a Pro
The moment has come - you are finally an adult. And nothing prepares you for adulthood quite like obtaining your own car insurance policy. You did your homework and compared several carriers. You chose your coverage options and picked out your limits. Now it’s time to read through your car insurance policy and make sense of what you just committed to.
If you aren’t familiar with insurance terms such as “liability” or “comprehensive,” then reading your policy may sound like a foreign language. Fortunately, it’s easy to familiarize yourself with the terms and the types of coverage you’ve selected with a little brush-up.
Why is it important to understand all this insurance mumbo-jumbo when you could be spending your time watching Bridgerton on Netflix instead? If you’re involved in an accident, you’ll be glad you know what to reference in your policy. And when the time comes, you won’t have the added stress of learning this as you go while dealing with the fallout from an accident or damage.
And don’t forget, your car insurance is a legally binding contract. Anytime you sign a contract, you should understand what your obligation is.
The declarations page
Your car insurance policy is made up of two components: your declarations page and your policy form.
Your declaration page is what you often hear your agent refer to as the “dec page.” This is the first page of your policy. Right away you will notice the most important information is located on this page. Starting with basic information, your dec page includes:
- Personal information such as name of the insured, including the policyholder and family members included in the policy
- Policy number: Your unique account number you will use whenever you communicate with your insurance carrier.
- Policy period: This is the effective date of your policy, assuming you maintain your premiums.
- The NAIC Code: This is a code assigned to each insurance carrier from the National Association of Insurance Commissioners (NAIC). It is a regulatory oversight group that establishes best practices for insurance carriers and you can refer to this number if you ever need to file a formal complaint against your insurer.
- The insurance agent and license number, address, and telephone number
- The vehicles covered, along with the VIN and state your vehicles are registered in.
Information about your rate and discounts
Your dec page not only lists your vehicles, but there are several items related to how your premiums are calculated. Look for the following information:
- Your premium rate: How much you are charged annually. You should note, your dec page is not a bill or statement. It is simply declaring how your coverage is determined.
- Discounts applied: Any discounts you were offered, such as bundling, good grades, multi-car, or new care are listed.
- Driver rating information: This is typically information related to your years of driving experience, age, gender, and marital status. These are all factors used to determine your premium, so double-check the information is accurate. Surcharges, such as a speeding ticket or at-fault accidents are also listed.
It’s critical to make sure all information is correct at this point, as basic as it may seem. The next parts of the declaration page contain the heart of your policy.
Understanding coverages, limits, and premiums on the declarations page
The coverages you select and your policy limits directly affect your premiums, so it’s super important to understand this portion. Your declarations page includes specific information about your selected coverages, limits, and the amount you pay based on each of these sections.
Your coverage and limits (the maximum amount the insurance companies payout) are listed on your dec page. You should get familiar with what these terms mean since most policies do not provide you the definition, it’s simply a list.
You may not have all of the coverages listed below, but here are the ones included if purchased:
Liability protection: This is the amount paid out to cover the other party if you are in an at-fault accident. This includes:
- Bodily injury: This pays the medical expenses of those injured from your at-fault accident
- Property damage: This pays the expenses from damage to the other party if you are in an accident ruled your fault.
- Liability limits: The amount your policy pays out per person and per accident paid out is listed next to the liability coverages on your policy.
- Medical payments: This is the amount paid towards medical expenses and funeral costs related to an accident. This coverage is for anyone who is in the vehicle at the time and is not based on which driver is determined to be at-fault.
- Personal injury protection (PIP): This coverage is not available in all states but some states do require it. It is protection that covers you and your passenger’s medical expenses if involved in an accident.
- Uninsured/Underinsured motorist coverage: This pays for damages or medical expenses if you are involved in an accident that is not ruled your fault and if the driver does not have adequate or any insurance coverage.
- Comprehensive: This covers expenses if your car is damaged from perils, other than another vehicle. Common perils include hail and storm damage, falling objects, civil unrest, vandalism, or hitting an animal with your vehicle.
- Collision: This covers your expenses for your car when you incur damage from an accident.
If you add comprehensive and/or collision coverage to your policy, your deductible amount (the amount you pay out of pocket) is listed next to this information.
Each coverage listed also has the cost, or premium rate, per selection. It should also show which vehicle it applies to, which is especially important if you own more than one vehicle and have different options selected for each.
Endorsements and riders
This other section includes specific information about other optional coverages you select and which vehicle (if more than one) it applies to. Examples of this include your roadside assistance (towing, lockout, fuel delivery service, etc.), rental car reimbursement, gap insurance, and other specialty selections.
Your endorsements add extra costs to your premiums, so this is another section worth paying attention to if you need to understand what’s affecting your costs.
Loss Payee information
This information is necessary if you lease or finance your vehicle. The name of the lessor/lender will be listed for each car you do not outright own. In the event your car is totaled, this information is used for the insurance company to verify where the total payout is sent.
The next section of your car insurance policy is the policy form. This is the section most likely to put you to sleep. However, like your dec page, the information contained in here is vitally important. This is where the insurance terms of your policy are defined and the coverages are spelled out. Your insurance carrier outlines what is and is not included in your specific coverages.
This is the section where you want to carefully review the exclusions in your policy. And if you have questions about what is and is not covered, it’s a perfect time to consult your insurance agent for additional clarity.
The insuring agreement is also part of this section. This is the contractual agreement your carrier makes with you and what it will provide in exchange for on-time payment of your premiums.
When to review your auto insurance policy
Again, we know you’re not exactly dying to review your policy every chance you get. However, there are certain times you should. This prevents any surprises when you do actually need to refer to your policy or when you need to make changes.
In general, after your initial review, it’s a wise idea to review your car insurance policy and insurance coverage once per year. As you can tell from reading the dec page, there are numerous personal factors that affect your premiums — all of which could change throughout the year. If you don’t review your policy on a regular basis, your premiums could be based on outdated information.
You should review/update your policy if you:
- Get married (you should review/update your life insurance policy as well)
- Move or change addresses
- Change your vehicle or make modifications to it with special equipment
- Change your commute or miles driven
- If you have a change to where your vehicle is garaged
- Add a licensed driver from a member of your household
- If you need to remove a licensed driver from your policy
- You buy or sell a vehicle
If you make any of these changes, or others, and need to update your policy, then make sure to review it and it reflects what you have agreed to.
important: Some of these changes mean it is a good time to reexamine your health insurance, life insurance, and home insurance, as well.
This is a good time to take a look at other insurance carriers, as well. If you are reviewing your policy and making changes, you might as well obtain quotes from other carriers to ensure you are getting the best price.
Aggregate sites like Gabi are free to use and allow you to enter your information to receive numerous quotes from big-name insurance carriers in one place. You can read a full review on my experience using Gabi here.
The bottom line
Though not always a top priority, reviewing your auto insurance policy regularly is smart personal finance. And now that you know how to read your policy like a pro, it won’t take too much of your time and you’ll actually understand what you’re reading. Trust us, you will be thankful you took this extra step when you truly need to know to understand what you pay for on a regular basis.