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How to Read and Understand Your Auto Insurance Policy

happy african american woman looking at car insurance policy

In the event of an accident, your auto insurance policy can make all the difference. Unfortunately, most drivers don’t know how to read their policy, much less understanding it.

And if you don’t fully grasp your policy, you may encounter some nasty surprises in terms of coverage. Alternately, you may be paying way too much money for coverage you don’t really need.

Want to review and actually comprehend your auto insurance policy? Keep reading to discover our complete guide!

Understanding the Declaration

It’s important to read your insurance policy in its entirety. But you need to pay special attention to the declaration page.

This is likely the first page of your policy and should clearly be labeled as “policy declarations” or “declarations page.” This page will offer important information about your coverage, cost, deductions, and the names of those on your policy.

While the exact information may vary, most declaration pages will have your personal info, the names of drivers on your policy, the vehicles insured, and the coverage schedule (which includes coverage info as well as info about deductions and premiums). The declaration will also have information about your policy period, discounts, and surcharges (depending on your driving record or recent insurance claims).

Have You Made Any Changes to Your Insurance?

When should you review your insurance policy? There is no “wrong” time to review key information. However, it is absolutely critical to review your insurance policy after you make any changes to it (for example, after making changes to prepare for your teenage driver hitting the road).

After you make a change, you should get a notification from your insurance carrier. If you have not received such a notification after a week, then call them to confirm the changes have been made.

And if the carrier does not automatically provide it, be sure to ask them for a new declarations page. This lets you verify the accuracy of the latest information and that the requested changes have been made.

Various Levels of Coverage

Whether you have made changes to your auto insurance policy or are merely reviewing information, it’s important to understand the different coverage levels and what they mean for you. This is arguably the most critical information when you are deciding to increase or decrease your amount of coverage.

Liability coverage is required in most states, though the exact level of liability coverage you must have varies from state to state. Generally speaking, liability helps to cover costs related to medical bills, vehicle repairs, and legal settlements.

Liability is also broken into three subcategories, each with its own level of coverage. They include an amount for bodily injury, another for incident limit related to bodily injury, and one more for property damage.

Collision insurance is relatively self-explanatory. This helps to pay for damage to your car as a result of a collision with another vehicle. And collision insurance provides coverage whether you were at fault in an accident or not.

Comprehensive insurance goes above and beyond other levels. It helps to protect your vehicle against theft, rioting, and vandalism, as well as certain natural disasters (such as floods, hail, fire, earthquake, or damage caused by contact with animals).

Personal Injury Protection (often abbreviated as PIP) pays for the medical treatment costs of the insured driver and any passengers in the vehicle. This carries out regardless of who was at fault and can help go toward funeral costs and even lost wages.

Finally, uninsured and underinsured motorist coverage pays for damages if you are hit by a driver who has no insurance or insufficient insurance to pay for damages. This can provide great peace of mind if you are worried about being stuck with major bills after someone hits your car.

Reviewing Policy Terms

happy couple in desk with laptop looking at auto insurance policy

When you’re reviewing your policy, you may notice certain words are printed in bold. These are policy terms. Unfortunately, many don’t understand what these terms mean in the context of their insurance.

For example, you may see references to “family member” or “the insured.” While “family member” is pretty easy to understand, the phrasing of “the insured” (sometimes written out as “named insured”) is an indicator that coverage will only apply to the person (or persons) named. But if it is written out as “and/or any insured,” the policy can cover those not explicitly named.

Making sure everyone is covered is very important if you have a family. In fact, that is why family car insurance exists!

Your policy will detail “covered autos,” which simply refers to the vehicles that are covered by the policy. But you need to see if your policy says anything about “substitute vehicles.” This determines whether your insurance policy can help cover a rental or another kind of temporary vehicle.

The policy will also refer to “actual cash value.” This term is usually used for collision and comprehensive policies and specifies the carrier’s payment limits. In this case, whatever the market value of your car is at the time. Because the value of newer cars depreciates very quickly, some drivers opt for gap insurance to help soften the potential financial blow when a new vehicle is damaged or totaled.

And you may see the term “aftermarket parts” in your policy. This means that the insurance carrier may use non-original equipment manufacturer (OEM) parts to help repair your vehicle. But if the use of OEM parts is important to you, you can add a special endorsement to your policy.

Beyond these terms, we recommend you pay close attention to sweeping words such as “all” and specific words such as “except” and “however.” The devil is always in the details, and these terms help define what your carrier will (and will not) cover.

Understanding Exclusions

Speaking of understanding the details, you must explore any items in your policy listed as “exclusions.” In the case of your policy, “exclusions” refer to things not covered by your insurance.

For the most part, exclusions define certain behaviors that are beyond the scope of your coverage. This can include things like you causing deliberate damage to a vehicle or even using the vehicle for business purposes (such as a part-time ridesharing business).

Long story short? If you’re worried about what your insurance cannot and will not cover, pay very close attention to the list of exclusions.

Your Next Move

Now that you know how to read and understand your auto insurance policy, USAgencies can help you find the best rates for your needs and budget. We can help you save on Alabama car insurance!

We make it easy to get insurance rate quotes at the press of a button. Start a quote today to see how much money we can save you! You can get a free Alabama car insurance quote online, over the phone, or at one of our offices near you.