How to Understand Your Auto Insurance Policy

How to Understand Your Auto Insurance Policy

If you're driving and you're legal, you have an auto insurance policy. Perhaps you bought it from a local agent you've known for years. Maybe you bought it from a cute little lizard with a vaguely Cockney accent you saw on TV once. Or is it a somewhat British accent? Either way, it's all good.

Now you have your car insurance policy and you know you're legal. You have your insurance certificate you keep in the glove box. You also have something called "declarations" and a policy booklet that talks about things like "perils" and "exclusions." You're going to read that, right? No seriously, you're going to read that? Yeah, we didn't think so. Fortunately, we're just giving the highlights.

What is a Car Insurance Policy?

Just what is an auto insurance policy anyways? What exactly do all these terms mean and what does it do? While we can't answer every question in a short article, we can look at the nuts and bolts of car insurance policy - terms and concepts to help you better understand just exactly what you're buying.

In its most basic form, like all other forms of insurance a car insurance policy is a form of risk management. You others pay an insurance company a premium which they then use to indemnify, or recoup losses suffered by policyholders in certain driving situations.

Car insurance is part of a larger group of insurance products known as "property and casualty" or P&C. This group includes insurance such as homeowners insurance and most commercial insurance. Car insurance policies are available in both personal and commercial varieties. While there are some differences, the basic concepts are the same.

Of Perils and Exclusions

Your policy itself is usually a booklet of boilerplate language that applies to all policies issued by your insurance company under a particular brand name. It's here where one typically finds perils and exclusions.

In insurance parlance, a "peril" is a potential negative event causing a loss. Perils commonly associated with car insurance policies include collision, theft and vandalism. There are usually others listed.

An exclusion is a peril that is not covered. Typical exclusions in car insurance policies include intentional damage, depreciation and any damages incurred outside the policy period.

Car insurance policies may also employ a set of perils and exclusions known as a form. There are three types of forms. The "basic form" covers a small set of perils only, usually around 10. The "broad form" covers a few more perils, up to around 20 or 25. The best form is the "special form," which covers any peril except those specifically excluded. Of course, one should get the special form if available. Since the special form is the most commonly used, this is generally not a problem.

Understanding Your Declarations

Whereas the policy booklet is boilerplate language, your policy declarations include information specific to you. If you read only one item in your car insurance policy, this is it.

Your declarations will tell you what liability limits you have, as well your comp and collision deductibles if you have "full coverage". Different companies print their declarations pages differently; there are no set rules for abbreviations or style. Hopefully your company has the good sense to publish their declarations pages in something resembling plain English.

Liability limitations are usually expressed in 1 of 2 ways. The first and more common way is the "split limit," using numbers such as 50/100/50. This stands for liability limits of $50,000 for bodily injury to any one person in an accident, $100,000 to any group of people in a single accident, and $50,000 in property damage in a single accident. The other method is the "combined single limit," or CSL. As its name suggests, it features the same limit for all possible liability scenarios.

Full coverage deductibles are usually pretty straightforward. For example, if you have a collision deductible of $500 and a comprehensive deductible of $100, it should say so pretty plainly. If not, talk to your insurance agent to help your decipher your declarations. After all, an insurance agent should know how to read his or her declarations page.

Do it Yourself Auto Insurance Comparison

Whenever you are shopping for car insurance it is important to get an auto insurance comparison. Many companies will offer you the comparison, but in most cases it would behoove you to compare the companies on your own.

Many people have heard about progressive and how they actively provide comparisons with other companies so you don't have to worry about the hassle. Although this sounds to good to be true, they claim they will do it, and let you know the company that comes up being the least amount of money. As you can probably guess they almost win all the time.

In order to make sure that you are getting an accurate auto insurance comparison is a great idea to learn how to do it yourself. It's actually not difficult, it does take a little bit of time and patience but you can easily complete the task in no time, and know for sure which company has the lowest rates.

The first thing you must do, when trying to do an auto comparison on your own, is find a search engine such as Google, and enter your state as well as the term auto insurance into the search bar. You will begin to see the screen populate with choices.

Be advised you will have to fill out separate forms for each company. This is where the elongated and strenuous process comes into play. However, after you are done filling out the forms and getting a quote the process will pay off in the end.

You will be able to know for sure that you are getting the lowest quote for your money. In today's economy no one can afford to pay more for anything. It's a great idea to search for cheaper ways to do things on your own time. This way you know there is no room for errors.

When Auto Insurance Rental Car Coverage is a Must

Among the many options of coverage associated with auto insurance rental car coverage is one that the consumer should make an educated assessment of their personal situation to see if it is a wise choice of coverage. Many times it would not be recommended but in certain situations it is considered a must.

Rental car coverage is not offered on all policies for all vehicles. Many times the consumer will need to have comprehensive and collision coverage in order to qualify for rental car coverage. This is the coverage that protects the customer so that in the event of a an accident or stolen vehicle that the insurance company will pay for or reimburse the customer for the expenses that are incurred to rent a vehicle that replaces the vehicle that is unusable. It is not required that this coverage is carried on all of the cars on the policy. It can be selected for only the vehicles that the insured chooses to have protected.

Often, it would be ill advised to have this coverage selected on a policy. If an insured has multiple vehicles on a policy and has fewer vehicles than drivers paying the additional premium would be unnecessary. If there were a loss to an auto then the insured could easily use the other vehicles in the household that are not being used.

It is recommended that consumers that have single vehicle households purchase rental car protection on their policy. This is especially true when renting a vehicle would pose a significant financial burden to the family. Many times for single vehicle households this is the case and being without a vehicle due to an accident or theft could be detrimental to the livelihood of the family.

The premiums associated with this coverage are rather low. It can often be purchased on a $40 per day limit and $1200 maximum for as low as $30 for the year.

Vehicle Insurance - Annual Escalation Or a Fixed Rate?

It has been established that a large percentage of road users are not insured. There are quite a few reasons why someone would choose not to insure their vehicle, although financial constraint is usually one of them. Auto insurance can be very costly, and it is also a rather unfortunate fact that this amount can fluctuate every month. It is undeniable that car insurance is a necessity on our roads, especially taking into consideration the high accident and theft rates.

When you decide to acquire car insurance, there will be two options for you to consider with regards to your monthly premium payment. You can choose either an annual escalating rate, or a fixed rate. An annual escalating rate will fluctuate each year in accordance with interest rates. In addition to the increase due to the interest rates, the premium will also rise due to the normal yearly increase. There are different angles to this choice that need to be carefully considered. You need to assess which kind of option will be more affordable and viable for you. The fixed rate is a set rate that you will pay for your policy each month; this rate is not affected at all by the interest rate or any other hikes, but is therefore more expensive.

The annual escalating rate will be affected by the rates each year. If they go down, your premium will also decrease, saving you money. The problem lies when the interest rate goes up. This can be an annoying extra increase that you may not be able to afford!

This is why one would consider the fixed / flat rate option. A lot of people find themselves to be a bundle of nerves when they hear about the state of the interest rates. These rates affect bonds, many different kinds of monthly repayments and any amount of money that you are paying off on a loan. The fixed rate is definitely a more costly option, but if you consider the fluctuation of the interest rates, then it starts to make more financial sense. There is a certain aspect of safety in choosing the fixed rate option, as at least you will know exactly what monthly fee you need to pay at the end of each month.

In hindsight, it can be said that someone who has chosen the fixed rate will have to learn to ignore the updates on lower interest rates and any money they could have saved. On the other hand, with the current economic situation crumbling around us, not relying on the lowering of the interest rates can be a good idea.