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How To Read An Automobile Insurance Policy

I’m a pretty good husband (well at least that’s what my wife Emily tells me)! As a good husband, I approach any and all undertakings as a partnership. I like to share; that’s what the “good husbands” do, right? Most times, the answer to this is yes…unless it involves insurance.

Recently, our automobile insurance policy was up for renewal, and since I am the “insurance guy” in our home, it’s been my job to handle this bi-annual ritual. While opening the envelope from our provider, it occurred to me that in our nearly 15 years of marriage, Emily has never had the pleasure and joy of reviewing an insurance renewal statement and declaration page. Since I like to share, I made the offer.

I was surprised and pleased when Emily took the envelope with a smile and started flipping through the pages. After about 10 seconds, the smile disappeared, her brow furrowed and she said, “Oh my! I didn’t realize there were so many pages…where do I start?”
Harnessing my best Julie Andrews impression, I sang back to her, “Let’s start at the very beginning…” If you’ve ever wondered how to interpret an automotive insurance policy, here are four tips to get you started.

1. Start at the beginning and review your Declaration Page (aka. the “Dec page”).

The Dec page lists all of the information about your policy such as the name of your insurance company, the named insured, the policy period, the insured items (year, make, model and VIN of your car), scheduled coverages, endorsements, garaging address, rating info, and (if you are financing/leasing your car) lien holder information.

For new insurance customers and renewal customers alike, I suggest reviewing the dec page to confirm the accuracy of the information. Renewal dec pages are sent out well in advance of the policy effective date; take advantage of this and give it “the old once over” to make certain your personal, vehicle, and lien holder information is accurate. It’s quite easy to mistake the “1” in the VIN as an “I” or to simply “fat finger” details. The worst time to find out something is incorrect is AFTER an accident.

2. There are so many coverages! What are they and what should I look for?

Below lists insurance coverages and what they protect. As a general rule of thumb, I suggest having coverage greater than state minimums. In the event of an accident, you don’t want to be without enough coverage. Further, if you think you might want additional liability coverage through an Umbrella policy or if you have a lien or lease your car, higher coverages are often required.

  • Bodily Injury (BI) covers you (or a designated driver) if you injure or kill someone else in a vehicle you are operating. Given the exorbitant costs associated with bodily injury claims, I suggest a minimum of $100/$300 ($100,000 per person/$300,000 per accident).
  • Medical Payments (Med Pay) or Personal Injury Protection (PIP) covers your medical payments, lost wages and may also cover funeral and rehab expenses. I suggest evaluating your personal health insurance coverage limits to determine how much additional coverage you may need.
  • Property Damage (PD) covers you for damages you cause to someone else’s property (car, tree, house, garage, etc.). When you consider most accidents are vehicle to vehicle and the average cost of a new car is now nearly $35,000, I suggest selecting at least $35k for PD.
  • Uninsured and Underinsured Motorist Coverage pays for your damages by an uninsured driver and hit-and-runs. This kicks in when an “at-fault driver” doesn’t have enough insurance to pay for your total loss. I suggest having this coverage equal to your BI coverage.
  • Comprehensive coverage (or comp) pays for vehicle theft or other “non-collisions” claims (i.e. deer, falling trees, flood, riots, cracked windshields, etc.). Collision coverage pays for damage to your car if you run into something (a car, a tree, even a pothole) or if your car rolls over.
    • Regardless of fault, comp and collision coverages are sold with a deductible that you are responsible to pay. If you are in a not at-fault accident, your insurance company may try to subrogate the cost of your deductible against the other insurance company. If successful, you should get your deductible refunded.
    • As a general rule of thumb, the lower the deductible, the higher your insurance premium. Make sure you have funds available to cover deductibles. I suggest checking with your insurance company to see if they offer a vanishing/disappearing deductible product so you can pay less in premium, and eventually see the benefit of a lower deductible.
    • If you have a lien or a lease, many banks have been known to cap the maximum comp. and collision deductibles (i.e. $500 or less).
    • If you have an older, inexpensive car (say, a vehicle worth <$5,000) it might not make sense to carry the additional comp and collision coverages. I suggest discussing this with your agent.

3. Read exclusions and conditions carefully.

Exclusions lists what are not covered by your policy. For example, if you live in an area prone to hail and don’t have comp coverage, you should not expect payment for hail damage. Other common stipulated exclusions are related to vehicle use (i.e. you won’t be covered if you’re injured recreating scenes from The Fast and The Furious), customization (i.e. custom paint/souped up cars), catastrophes (nuclear holocaust, earthquake) and livery business (i.e. Uber, Lyft, or operating a taxi service). The conditions section typically addresses the responsibilities of you and the insurance company relating to cancellation, changes, premiums, subrogation, etc. Read the list of exclusions very carefully as it might help you determine what additional coverages you may need and review the conditions to understand each party’s responsibilities.

4. Talk to your insurance advisor.

I strongly suggest consulting with your agent, broker or insurance company professional. They will know your state laws and minimum requirements and can answer questions. Don’t forget to ask about telematics or usage-based insurance (UBI) programs, such as the ones that Octo powers for customers around the world, including four of the 12 leading American insurance companies. Telematics is now an important factor in the determination of insurance premium pricing, allowing consumers to get better rates based on their own driving, rather than the driving behaviors of a group of “like” drivers (based on age, region, etc.).

Oh, and in case you’re wondering, after sharing this wealth of information with Emily, it seems I’ll be handling our insurance needs for another 15 years. Although she said it helped her better understand insurance, she felt it would be in our best interest if I kept handling our personal insurance needs, adding with a sly grin, “Well, you are the insurance guy!”

Safe Driving.

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