| While everyone that drives in
this country has to have some form of auto insurance by law, many
do not understand the basics of their policies. While we don't all
have to be auto insurance experts, it is important to at least comprehend
the major bricks that build our auto insurance policies.
There are five parts of a typical auto insurance contract (the
titles of these sections may differ slightly from insurer to insurer,
but they all address basically the same points):
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. Tip: Make sure your information is
accurate; your claim may be denied if you provide inaccurate information
to your insurer.
Coverage Parts/Insuring Agreement. This section
outlines the coverage options and coverage limits that you purchased,
such as liability, medical, collision and comprehensive. This section
basically outlines what your insurance company promises to provide
in return for your payment, based on the coverages and coverage
limits you selected.
Exclusions. This section simply details 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.
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.
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."
Now, let's define some general coverages. For more definitions,
please refer to the various auto insurance glossaries listed in
our auto learning center.
Collision Coverage. This covers loss to your own auto caused by
its collision with another vehicle or object. If you cause an accident,
collision coverage will pay to repair your vehicle, and is normally
the most expensive part of an auto insurance policy. You must choose
a deductible, which is the amount you, the insured, must pay before
the insurance company pays the remainder of each covered loss. The
higher the deductible, the lower the premium costs. However, keep
in mind that this is the amount you must pay (generally to the repair
shop) if your vehicle is damaged, so deciding on your deductible,
which directly affects your premium, can be a bit of a balancing
act.
Comprehensive Coverage. This covers damage to
your vehicle caused by an event other than a collision or overturn.
Examples include fire, theft, vandalism, and falling objects. This
also comes with a deductible you select, which is how much you will
pay before the insurance company pays the remainder.
Liability. The official definition of liability
from the InsWeb glossary is: "That portion of the insurance
contract which pays and renders service on behalf of an insured
for a covered loss arising out of the insured's responsibility to
others imposed by law or assumed by contract." In simpler terms,
if you are at fault in an accident, liability insurance will pay
to cover injuries and property damage costs caused to others in
the accident (including your legal defense costs, if applicable).
Bodily injury coverage pays for things like medical costs and lost
salary to others; while property damage pays for repairs to other
people's property you damaged in the accident (other than your own
car). Liability coverage (which is the state mandated part of your
policy) is the basic building block of any auto policy, and minimum
liability limits vary from state to state.
Below are some common extra coverage items that are available
to you:
Medical Payments
This pays you and your passengers for medical and funeral expenses
incurred in an auto accident, regardless of fault. It will also
cover injuries sustained by you while you're operating someone else's
car (with their permission), in addition to injuries you or your
family members incur when you are pedestrians.
Personal Injury Protection
This is the name usually given to no-fault benefits in states
that have enacted mandatory or optional no-fault auto insurance
laws. Personal Injury Protection (PIP) usually includes benefits
for medical expenses, loss of income from work, essential services,
accidental death, funeral expenses, and survivor benefits.
No-Fault Insurance
Many states have enacted auto accident compensation laws permitting
auto accident victims to collect directly from their own insurance
companies for medical and hospital expenses regardless of who was
at fault in the accident. Although there are many legal variations
of no-fault insurance, most states still allow people to sue the
negligent party if the amount of damages exceeds a certain state-determined
threshold.
Uninsured/Underinsured Motorists Coverage:
Uninsured Motorists Bodily Injury
Uninsured Motorists Bodily Injury (UMBI) covers you for all sums
(up to your policy limits) if an accident occurs with an uninsured
or hit-and-run motorist who is determined to be legally at fault.
Underinsured Motorists Bodily Injury
Underinsured Motorist Bodily Injury covers you for all sums (up
to your policy limits) if an accident occurs with a motorist who
is underinsured (i.e., they carry bodily injury limits less than
your UMBI limits and less than the amount of the injuries).
Uninsured Motorists Property Damage
Uninsured Motorist Property Damage (UMPD) Liability coverage pays
for property damages caused by uninsured drivers.
There are also other extra items, such as rental reimbursement
and towing and labor charges in case of a breakdown. As mentioned
above, please visit the InsWeb Auto Insurance Glossary for further
definitions.
Remember to keep yourself adequately covered; while having the
bare minimums required by each state may keep you in compliance
with state laws, they may not be enough to protect your assets if
you have a major incident. Insurance experts recommend that you
review your insurance policy often and thoroughly.
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