Auto Insurance: Knowing your Policy & Reading your Insurance Contract

Your auto insurance policy is a legally binding contract which details every aspect of your auto coverage including cost sharing and coverage limits. When you are getting on a new insurance policy, you should make it a point to read and analyze your new car insurance contract before signing it.

By understanding your policy and contract you’ll ensure that you never face that crummy feeling of knowing you bought a “junk policy”.

This video takes a look at some of the characteristics of insurance contracts from a legal perspective.  It also looks at the ways in which, when handling insurance contracts, the law treats the insured differently from the insurer.

Because auto coverage policies are generally substantial legal documents, many people find reading their contract to be challenging, boring, confusing, and frustrating. On this page, we’re going to try and provide you with a solid understanding of the structure, content, and inner-workings of these contracts so that you’ll be able to know your policy better.

The Structure of a Car Insurance Contract

Every policy consists of the same basic parts.  If you know this generic structure, you’ll have a much easier time reading and understand your policy.  You’ll also know right where to go to find any specific piece of information buried somewhere in the document.

Let’s break down the anatomy of a car insurance contract piece by piece:

  1. Declarations Page — This section has a lot of the information specific to you and your policy; the name of the policyholder (you), your address, information on all of drivers covered under your policy, information about each of the vehicles insured on your policy (make, model, and vehicle identification number), your policy number, the start and end dates of your coverage, your premium and deductible, and any liability limits.
  2. Insuring Agreement — This part of your contract lays out the specifics of exactly what protections your policy covers.  It also lists your dollar limits and deductibles for each type of insurance in your policy.  If you’re wondering whether something is covered under your policy, this is the place to check.
  3. Exclusions — This part of your contract lays out what your policy does not cover.  This may include people, types of damages to property, and specific auto incidents.
  4. Conditions — This section specifies your rights and responsibilities as a policyholder.  Check here if you’re looking for details on your premium or deductible, filing claims, or the procedure surrounding dispute an auto claim settlement.
  5. Definitions — This is the most technical part of your car insurance contract.  It defines the terms used in the preceding parts of your policy.

Car Insurance Contract: Tips and Tricks

Here are some pieces of advice on reading and understanding your car insurance contract:

  • Read your contract in its entirety before signing it; make sure the policy is exactly how your insurance agent or broker described it.
  • Don’t forget to save a copy of your policy.  You should always have easy access to your contract.
  • If there are pieces about the contract that you don’t understand, ask questions!  Go over everything that you’re unclear about with a representative of the insurance company.
  • As with any contract, don’t sign it if it has empty space.  Blank space is an opening for foul play; while it’s unlikely you insurer would do this, it’s better to be safe than sorry.
  • Don’t sign away the right to sue your insurance company.  It’s relatively bad practice for insurers to include such a provision in your policy, but it’s still something to look out for!
  • Make sure that all of the coverage options that you discussed with your insurer are listed in the policy. If it’s not in the policy, it’s not covered.
  • Make sure to review all the important parts like policy length, cost sharing, exclusions, and conditions. Any good policy will provide comprehensive coverage, but those “too good to be true” policies may just include an exclusion, condition, or cost sharing arrangement designed to let your insurer avoid paying claims.
  • If you get into a dispute with your insurance agency, you’ll be able to put together a stronger case in the initial stages of the dispute by drawing evidence from your contract.  You might be able to resolve the claim dispute without getting to the point where you need an attorney’s help – knowing your way around your car insurance contract can save you hundreds in legal consultation fees.