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Reading Your Car Insurance Policy

Personal Auto Policy - Definitions

Go to the beginning of this tutorial
How To Read Your Car Insurance Policy.

Follow along with
The example form being discussed below


This opening section of the form defines the terms used repeatedly further on in the contract. Terms will be defined here in detail. When you see them later on (usually enclosed in quotes so they stand out as something with special meaning), you will know that they carry the same meaning as was laid out in the Definitions section. Note those quotes. As you read further on in the policy, whenever you see a word in quotes that means it is a specially-defined word whose scope was spelled out in the Definitions section.

The ''Named Insured'' is the titled owner of the vehicle. When a policy refers to this person, the meaning is not the same as someone who is just designated as a driver on the policy. The Named Insured enjoys all policy benefits, whereas a listed driver's benefits are much more limited.

Part A

The section opens with a definition of "you" and "your", which in turn is expanded so that it is understood that when the contract says those words, it is referring to the Named Insured on the policy. We see that your spouse is included in this definition - your spouse is a complete and equal partner with respect to the policy's benefits and protections. We also see that there are circumstances where a spouse will not enjoy Named Insured status, and these center around situations where separation and/or divorce causes your spouse to no longer reside in your household.

Part B

''We'', ''us'' and ''our'' are next defined in straightforward fashion as the insurance company providing you the insurance policy and coverage.

Part C

Next, if it so happens that you are leasing a vehicle and do not actually own it, this section states that so long as you have a written lease agreement that lasts for at least six months, you are considered the vehicle owner under the provisions of the contract. Technically, if you don't actually own a vehicle you have no insurable interest in it: Someone else owns the car so covering it with insurance is their problem. When personal auto leases came about, this clause was added to plug this loophole.

Parts D Through I

These define a number of terms in straightforward fashion. Part F is noteworthy in that it defines specifically what the policy considers a ''family member''. Take particular note of the fact that the individual must reside in your household to meet the definition. Later on we will see that some coverages are extended to a "family member" automatically.

Part J

This is a big one. It describes what "your covered auto" means, which is the whole point of the insurance policy in the first place. Its provisions are fairly simple, again, but note that J.4., which covers a substitute vehicle that you are driving if your regular auto is broken down (i.e. a rental car), does NOT cover physical damage to that vehicle. Notice also that for the first time we see quoted words inside of the definitions themselves. J.2. says a ''newly acquired auto'' is a covered auto. But it is in quotes, so that means it is a specially defined term. ''newly acquired auto'' is in fact defined in the very next section (part K).

Part K

This section describes what kind of coverage you get if you acquire a car. This section gets pretty complicated:

  • For Liability, Medical Payments and Uninsured Motorists coverage, for coverage to apply immediately upon acquisition you have to report the vehicle within 14 days of acquiring it. If you wait more than 14 days to report the vehicle, then that automatic coverage never happens and - once you finally report the car - THEN your coverage starts. So if you buy a car one day, crash it the next and wait a month to tell the insurance company, you've just created a situation where you have no Liability insurance coverages from your policy. HOWEVER, if rather than an being an addition to your policy, its a replacement for a car that you had on the policy, the 14-day provision and restriction does not apply.
  • The above applies to Liability coverages. The rules are different with respect to collision coverage (i.e. crash damage to your newly acquired auto). For collision coverage to apply at all, you have to report the vehicle in
    • 14 days if any car on your existing policy currently has Collision coverage. If you do that, you get the same coverage as the vehicle with the broadest coverage on your policy (i.e. if you have one vehicle with a $250 collision deductible and another with $1000, your new vehcile gets a $250 deductible in case of a loss)
    • 4 (four!) days if there is no vehicle on your policy that already has collision coverage. If you report the vehicle within the 4-day limit and you have an accident, then you get Collision coverage with a $500 deductible.
  • The rules for Other Than Collision (i.e. 'comprehensive) coverage are the same as above for Collision.
Part K is an awfully complicated description of what is usually a very simple process. You are probably already thinking to yourself ''Why all this when I just call my agent, report the car and we decide on the spot what coverages to put on it?'' In fact thats what usually happens... but what if for some reason it doesn't? This section spells out how it will go if you either a) delay reporting the vehicle or b) report it and then don't follow through on choosing coverages.

NEXT: Part A - Liability Coverage

IMPORTANT
We are describing an example car insurance policy. We are not describing YOUR insurance policy. If you want specific details on your insurance policy, read it completely and, if you have questions about what you see, consult your insurance agent.

Matt Robertson's small picture
Article by
Matt is the Managing Partner at Leland-West Insurance Brokers, Inc. He started with the firm while still a college student, way back in 1984. According to Matt his only remaining hobby is Motorsport ... because its all he can afford ("will work for tires"). Reach him at matt@lelandwest.com