How to Understand Your Auto Insurance Policy
If you’ve ever looked at your auto insurance policy, then you know that auto insurance can be complicated and difficult to understand. Understanding limits and coverage is hard enough for adults; however, if you’re a teen driver it can take on a whole new meaning.
The procedures for determining the coverage limits of your automobile insurance policy may appear basic, but they are often expressed in shortened codes and figures that few drivers understand.
Every Auto Insurance Policy Comes With A Declaration Page
A declaration page is part of every vehicle insurance policy, and it breaks down your coverage and premium for each coverage. It explains what your insurance company will pay in the event of an accident.
BI-PD: This means Bodily Injury – Property Damage and has a limit behind it, like 25/50/25 (it can also be different numbers depending which coverage you choose or for which state).
These numbers describe the maximum what your insurance company would pay a third party in case of an accident caused by you. In this case, it would be $25,000 medical per person / $50,000 medical per accident / $25,000 property damage.
UMBI: This stands for Uninsured Motorist Bodily Injury. The limits often match the BI-PD limits. This part is for medical expenses for you and your passengers in an accident caused by an uninsured driver. In our case now, $25,000 each person or $50,000 per accident.
UIMBI: This part is optional in most states and it describes Underinsured Motorist Bodily Injury. If you buy this coverage, it would cover any excess medical payments if the other driver’s policy only covers minimum coverage, which may not be sufficient to cover all of your medical costs.
With most insurance companies, to add the UIMBI coverage, you must carry higher limits on BI-PD and not the minimum for your state, since every driver must at least carry state required coverage (in Missouri and Kansas, required coverage is 25/50/25).
Med Pay: If you pick this protection, which is optional in most states, it can assist you to pay for your and your passengers’ medical expenditures if you are found to be negligent in an accident. Med Pay generally covers between $5,000 and $25,000 per person, depending the limit you selected.
PIP: This coverage is mandatory in some state, like Kansas. It is Personal Injury Protection and similar to Med Pay, it pays you medical expenses along with lost wages due to an accident and other expenses up to the limit you selected.
Available limits are similar to Med Pay, $4,500 – $25,000 per person.
For Comprehensive and Collision – There is Additional Coverage
- Comprehensive: This is your out of pocket expense in case your car is damaged in case other than collision (weather related, fire, theft, vandalism or collision with an animal). Common deductible is $500.
- Collision: If you have this deductible on your policy, that means you have full coverage. This deductible applies if you are in an collision with another vehicle or object. If the other drivers auto insurance is paying for your damages, you do not need to pay this deductible. Frequent deductible is $500. If you are a victim of a hit and run accident, your collision deductible would still apply.
Rental Car: If you’re driving a rental car, your insurance will cover the cost of that rental while your automobile is in the shop for repairs following an accident. Most insurance companies pay for a vehicle between $20 and $50 per day for up to 30 days. Some policies only cover renting reimbursement after the rental fee has been paid, so double-check carefully.
Roadside Assistance: This one is self-explanatory, it pays for your towing if your car is disabled. It also includes jump-starts, fuel delivery and locked keys service.
Insurance companies will have a limit on how many roadside claims can be made during one policy term (usually around three). Excessive roadside claims can lead to a non-renewal of a policy.
GAP Coverage: If you choose this coverage, it will pay the difference what your vehicle is worth and the amount you owe to the lender. If your vehicle is valued at $15,000 at the time of the accident, which resulted in total loss, but you owe $18,000 on the loan, GAP will pay the difference of $3,000 in this case.
Read your policy carefully; some insurance companies may limit the coverage to 25% of the vehicle’s value. If you owe a lot more than your car’s worth, it might not be enough to pay off the automobile.
This coverage is also often sold by the car dealerships through a third party when you buy a car, you may not need to add GAP to your insurance policy.
Rated Drivers and Excluded Drivers:
Your auto policy declaration page will list in most states your rated drivers and excluded drivers:
A rated driver is a person you disclosed to your insurance company that will be driving your vehicle. That person is insured while driving your car.
An excluded driver is someone who lives in your household but will never drive your car. You’re informing the insurance company that this individual won’t be insured on your policy. If an excluded person gets into a vehicle accident, the insurance company can refuse to pay claims.
You must disclose all of your household’s residents (generally people aged 14 or older) and licensed drivers. An incident involving an unmentioned driver might jeopardize your coverage.
Excluded drivers are not permitted in Kansas, for example. To obtain a policy in these states, you must list all licensed drivers in your household on the application or prove that they have their own auto insurance.
Now that you have an understanding of your auto insurance policy, you can make better decisions about coverage. Don’t just go with the cheapest option; it won’t cover much. The worst method to figure out what’s not covered by your insurance is after a mishap. Prepare yourself and talk to your agent about it in advance.
Also Read: 10 Tips for Saving On Auto Insurance