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How To Read a Car Insurance Policy
Every insurance policy has a section entitled Declarations. It can be a single page, or several. While the insurance policy itself is a collection of preprinted contract forms, the Declarations are written specially for you and your specific policy contract.
What do the Declarations do? They spell out exactly what is insured, for how long, and for how much. They also tell you which of many preprinted insurance contract forms apply to your specific policy (we will cover forms in our next article).
The sample Declarations Page format we have created is taken from an actual insurance policy. While it is unlikely to be identical to your policy, it is likely to have all of the same elements, perhaps in a different layout.
The Top Section - General Information
The top quarter of the page is given over to identification of who is the Named Insured on the policy, where they live, where the mail gets sent to and where the insured car is garaged. This area also houses the all-important policy number - which is the serial number for your contract with the insurance company - and the policy term - when the contract starts and when it stops.
Make sure you understand that the listed Named Insured has special rights under the policy. This person (or persons as is the case here) has full rights and is completely protected under all provisions of the policy. Someone who is simply a driver listed on the policy is not in that same position. That is why oftentimes a lienholder will ask to be listed as a Named Insured on your policy.
Next - Vehicle Information
The next section describes the vehicles you are insuring. As with the section above it, the information displayed here is usually straightforward. Expect to see a complete description of the vehicle (make sure its accurate) and the VIN. Make doubly sure the VIN is accurate. In most states the insurance company will report directly to your Department of Motor Vehicles. Without the correct VIN, they'll get that report wrong. Fixing that with the D.M.V. can be simple... or not. Get the VIN right, and double check that the insurance company got it right.
An important item in this section is the vehicle value. You may or may not see this on your Declarations. If there is no valuation listed on the Declarations, then your vehicle is almost certainly valued on an Actual Cash Value basis (read about the difference between Actual Cash Value, Agreed Value and Stated Value). In the case of this example, the value listed here is only Part 1. We'll talk more about it below in the Coverages area.
Note the rightmost column, where there is a list of drivers for each vehicle (more on the Drivers Section below). Oftentimes insurance companies will rate vehicles with the understanding that only certain drivers will have access to them, and it is important to be aware of this.
Premium and Coverages - This is The Big One
This section itemizes exactly what coverages apply to each and every vehicle. Of all the places on the Declarations where mistakes can occur - this is Screwup Central. Pay very close attention to what you see in this part of your Declarations.
The first thing to take careful note of is right at the top of this section, where it says
Coverage is provided only where a premium is indicated
Mistakes are common here. If a premium is not listed next to a coverage that is shown, there is no coverage. The only exception to this rule is where a carrier may write "Included" or somehow indicate coverage is included in the premium space. This indicates the premium was charged and itemized elsewhere. This is common for coverages like Liability that may only be charged once per policy but which apply to all motor vehicles. The example Declarations show this, and further show a covered trailer to which no Liability or roadside assistance coverages apply. Blank spaces mean no coverage!
Don't Forget to List Your Lienholder
Next on the page is the section to list the vehicle lienholder. If you forget to add your lienholder, that lienholder may force you to buy an insurance policy from them as a condition of maintaining the loan. Its a misunderstanding that can be cleared up with time and effort, but save yourself the grief and make sure your auto insurance lists your lienholder and the lienholder is aware they have been added to your auto insurance policy.
The Drivers List
This is where all of the drivers who the insurance company requires you to report are listed on the policy. Different companies have different rules for reporting drivers, but a good rule of thumb would be to expect that you must report all residents of your household, including minor children who are away at school. The Company may tell you that quasi-resident children need not be reported. Be sure of the company's rules before failing to report a driver. Guessing wrong could create a problem down the road. If you look at your own drivers' list and find that someone is missing who should be there, call your agent and make sure to get that driver reported.
Something important to note: On this list A driver is excluded from coverage. John Smith's son, John Jr., has no coverage on this policy. Chances are he had to sign an exclusion form. Note that if this is the case there will be an exclusion endorsement listed in the forms list below. We'll get to the forms section further on down.
Beware the Notes!
The next section on our form is the Misc Notes section. Chances are you have something similar on your Declarations. If not, the sort of information we are including here illustrate the sort of details you want to also stay on top of with your own policy, regardless of whether its laid out like our example. There is some pretty important information here.
Rating bases are shown - These indicate discounts and surcharges to your policy. Make sure the insurance company is accurately reflecting your driving record and is giving you the discounts you deserve.
A special note on Vehicle #1 is included - Up above we saw that the Plan listed for Vehicle #1 was Pleasure, and now we see the car is insured under an Agreed Value. This car must be driven on a limited basis, and is being given extra protection due to its nature - there is no depreciation when a vehicle is insured under an Agreed Value. But as important as this statement is, its equally important to realize what is not being said.
Oftentimes a typical personal auto policy owner will request extra protection for a classic car and will be given a Stated Value. This is very bad, as the article linked above shows. Further, while the valuation basis for Vehicle #1 is spelled out, nothing is said about the other two. That almost certainly means they are insured under Actual Cash Value, which means in turn the values shown in the Vehicle Description section are not binding on the insurance company.
Since the value basis on the other two vehicles are not spelled out anywhere on this Declarations Page, that means you are going to have to read your policy to find out what kind of coverage they have. We'll show you where that is in a future article in this series.
Last and Certainly Not Least: The Forms Section
While its listed all the way down at the bottom of the page, its colossally important. This section lists the forms that are applicable to your policy. What are 'forms'? They are not forms in the sense of a fill-in form, like a job application. Insurance forms are your pre-printed, boilerplate contract text. There are several of them as we will describe in the next article in this series. Taken together, the words in those forms make up the complete insurance contract. Its critical you follow the forms list to ensure you have the exact insurance contract that applies to you - there are literally hundreds of possible forms that could apply to you, depending on your state of residence and other personal circumstances.
This sounds a lot more complicated than it is, but a roadmap is certainly a big help, so here we are.
The Declarations themselves are an integral part of your policy, and they too are listed on this forms list. Look in the lower right hand corner of the example Declarations: You see 'PC01230611', which is the form number in our example. This matches the first entry in the forms list. Your forms list should similarly include your own Declarations page.
Any form not listed doesn't exist insofar as your own insurance contract is concerned. If a form is included in your policy packet that you received in the mail, but is not on the Forms List in the Declarations, chances are it doesn't apply to you. Additionally, the form numbers must match up exactly. If you get a policy packet with unlisted forms, or the numbers don't match, call your agent and bring these discrepancies to their attention. Make them fix the problems and don't put up with any attempt to shrug off the situation.