How to Read Your Auto Insurance Policy

An auto insurance policy is probably the most common insurance policy in America. Every driver must be insured to legally operate a vehicle on the roads. Of course, that doesn’t mean everyone is! There are varying estimates for the exact number of uninsured drivers, but for South Carolina, about 10% are estimated to be driving without insurance. Even so, Car insurance is something that you almost certainly have and at some point, will probably have some interaction with. Whether that’s in the form of a claim or just shopping for a new policy, it helps to understand what your policy covers and what terms in your insurance policy mean. Reading your policy is the best way to know exactly what is covered, but if you open it up, you might find yourself overwhelmed by exactly what is in it.

That’s why we have this guide for how to read your auto insurance policy, complete with pictures showing you what to look for! Pull out the declarations page of your auto insurance policy if you want to follow along.

Let’s start from the top.

The Company’s name and logo will appear at the top of the declarations page, as well as a heading that says “declarations page”, “policy declarations” or something similar. This simply means that this page is putting in writing what your policy covers, and the amounts of coverage.

After this, you will see your name under the “named insured” heading. Named Insured is an insurance term referring to the primary person that bought the policy, the person “named” by it. Other drivers on the policy can be listed without being named insureds. This could be teenage children on the policy, spouses, or other family members, for example.

Your address and policy number should be right here as well. At the top you will also see your insurance agent’s name, address, and phone number, if you bought the policy through an agent. If you didn’t, then you can expect to see contact information for the insurance company there. There will also usually be a number to call for claims or customer service. If your carrier offers roadside service, the phone number for that will be here as well.

After the first section listing you as named insured, you will see a section for premium. Here it will show you the total premium for the policy term, as well as what that term is. The term is simply the period of time that your policy provides coverage for. It will be either a six or twelve month period.

Remember, the premium is the total cost of your policy, not your monthly payment, if you pay monthly. So if you see a big number here but you are used to only paying a fraction of that each month, don’t worry.

Below premium will be a section listing the vehicles covered by this policy. In the sample, we have just one vehicle here, but you could have several. The declarations page will have the year, make, and model listed, as well as each car’s Vehicle Identification Number (VIN). If you don’t see a vehicle listed that you thought was covered, or you see one you don’t recognize, then call your agent right away.

From here, we get into the meat of the policy, the coverages and limits of liability.

What are “limits of liability”? A limit of liability is the maximum amount of money that an insurance company is obligated to pay for a covered loss. Usually, we think of limits of liability applying, naturally, to the liability coverage of your auto policy, which is the only insurance you are required to have by law. Limits of liability are something that the insured chooses when buying a policy and can range from the state minimum all the way to half a million dollars.

On the example policy, you will see different coverage parts designated by a letter. Coverage A, B, C, etc. Coverage A is Bodily Injury. This is a liability coverage that covers your liability for other people’s bodily injury. Put simply, if you are responsible for another person’s injuries in a collision, this is the coverage that would pay for their expenses as well as provide you legal counsel if someone sues you over their damages. The limit of liability (in this case, $500,000 per person) is the maximum amount of money that your insurance company will pay out to another party. Anything above this you are personally responsible for.

$500,000 is a lot of money, however, it is important to know what your limits of liability are and carefully consider if the amount you have purchased is enough to protect you. The minimum allowed by state law is $25,000 per person.

Next to the limit of liability, you should see a column for premium, indicating the amount of premium you are paying for this specific coverage. In the example, $511 of the total premium is for bodily injury liability.

Below Part A is Part B, Property damage. This coverage is in case you damage another person’s property. This could be their car that you get into a wreck with, or something else, like a fence, mailbox, or anything else someone owns that you damage. In the example, The policy covers up to $100,000 of property damage, and the premium for this piece of coverage is $139.

Coverage C is Medical Payments. You will often see this shortened to “med pay”. This is coverage for you and anyone else in your car, and provides coverage for your medical expenses if you are injured in an accident. The coverage applies regardless of who is at fault, and provides up to the limit of liability for each person in the car. In the example, it is $10,000 per person. Medical Payments are optional in most states, including South Carolina, so your policy may have none at all, but it is usually available in increments starting at $1000 and going up from there, depending on the company.

Coverage D is for Uninsured Motorist bodily injury Coverage. Uninsured Motorist coverage is coverage for your damages in case you are in an accident with an uninsured driver. Did you know that about 10% of drivers in South Carolina are uninsured? Uninsured motorist coverage is mandatory in South Carolina, and you must have a minimum of $25,000 per person in bodily injury, $50,000 per accident in bodily injury, and $25,000 in property damage. You can of course purchase more, but these are the minimums, which mirror state requirements for liability coverage. In the case of this example, the policy has $100,000 per person in bodily injury, with $300,000 per accident.

Coverage D1 is Underinsured motorist bodily injury coverage. This is similar to uninsured motorist coverage, in that it is coverage for your injuries and medical costs, however, it is not required by law, and it only applies if the person who hits you has insurance, but not enough to cover all of your expenses. This coverage would fill in the gap between what their insurance pays and what your damages are, up to the limits you select, if you choose to have it.

D2 and D3 are similar to the above, but for your property damages and not your bodily injury.

Coverage E is Collision coverage. This is protection for your vehicle if it is damaged in a collision with another vehicle, or a fixed object, such as a tree or fence. It provides coverage regardless of fault. You will see on the example, instead of a dollar value for the coverage amount, it says “Actual Cash Value”. This is usually how collision coverage works. Over time, your car will depreciate in value, so the policy will only pay what it was worth prior to the accident that caused the damage. Insurance companies have various tools that they use to determine what your car was worth, but typically they are able to look at other vehicles similar to yours to arrive at a value. Underneath Actual Cash Value, you will see the deductible listed. In this example, it is $500. If you file a claim on your policy, the first $500 of the damage is your responsibility, after that, the insurance company will pay, up to the Actual Cash Value.

Coverage F is Comprehensive Coverage. On some policies, you will see this as “Other-Than-Collision”. This is coverage for damages to your vehicle that are not from a collision. This can include flooding, fire, theft, vandalism, hail, and animal strikes. In our example, this policy has a $500 deductible for comprehensive coverage as well. You will often hear of Collision and Comprehensive insurance together as “full coverage”. This is not an insurance term and can be very misleading, as it implies that no matter what happens, you’ll be covered. This can lead to misunderstandings, or expectations that something will be covered when it may not be. It is best to talk to an agent about each part of your insurance coverage so you have a clear understanding of what is covered, what is not covered, and what the limits of liability for each coverage are.

Comprehensive and Collision are required by lenders if you finance the purchase of your car, as it protects their investment in your vehicle as you pay it off.

After the lettered coverage items, you will see a few more at the bottom.

The first is Extended Transportation Expenses. This provides for your replacement transportation after a wreck, which is typically a rental car. The example policy provides $50 per day, and up to $1500 total, which equals 30 days at that rate.

Below that is Personal Property Coverage. This is a small amount of coverage for your property in your vehicle that may have been damaged or destroyed by the accident that caused the loss. It does not cover theft, so make sure you don’t rely on it to replace things you may leave in your car in plain view. Next to it, where the other coverages showed a dollar amount for the premium, you will see “Pkg”. This simply indicated that the coverage is included as part of an add-on package to the policy that has several features.

Roadside Assistance Coverage is shown next in the example. This policy provides for up to 100 miles of towing if your car is disabled. Different policies have different limits, so it is important to check yours if you have this coverage.

Next, Trip Interruption Coverage provides reimbursement for certain expenses if your vehicle is disabled for over 24 hours while you are away from home. This coverage will have certain terms and conditions that all vary from one company to the next, so the best thing you can do is ask your agent about what your policy specifically covers.

You will also see things listed like Accident Forgiveness, Decreasing Deductible, Minor Violation Forgiveness, and Total Loss Deductible Waiver. These are all features that are included as part of an add on package.

Accident forgiveness is pretty straightforward. One at fault accident will not cause your premiums to go up. This applies to Minor Violation Forgiveness as well. If you get a ticket for something minor, such as speeding or missing a stop sign, your rates will not go up. This does not apply to serious traffic violations like DUI, speeding more than fifteen over the limit, or failure to yield right of way.

Decreasing deductible is included on the sample policy as well. Under this sample policy, for each year the driver does not have a claim, the deductible decreases $100. After five years, the deductible will drop to $0. If a claim is filed, the insured will not owe the deductible in that situation, but the deductible will reset to its original amount after the claim has been closed.

You will also noticed that there is an option included called Total Loss Deductible Waiver. This means that if your car is totaled, your deductible is waived, whether it has already been reduced by the decreasing deductible feature or not.

Finally, at the bottom of the policy, you see what the premium for the added on features was. In this sample, it is $71. Below that, is the subtotal of the other coverages, which add up to $1,314. Adding these two together, you get $1,385, which was the total premium listed at the top of the Declarations Page.

Now that you have gone over this sample policy, you know what to look for and what things mean in your policy. If you see a coverage listed that isn’t on this list, and you’re not sure what it is, a conversation with your agent is an easy way to find out what that coverage that you’re paying for is. If you don’t see something listed that you thought you had, like Medical Payments or Roadside Assistance, then you probably don’t have that coverage after all. It is better to find out you don’t have coverage you thought you did now, instead of after an accident.

Still not sure of something? That’s okay, that’s what agents are for. We have been helping people with their insurance needs for over forty years and are here to help you too. Got a question? We have an answer. Send us an email or give us a call at (843) 797-7285.