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Quick citation guide Select a citation to automatically copy to clipboard.APA: Van Keuren, M. (2024, April 17). How to read an auto insurance policy. Bankrate. Retrieved September 09, 2024, from https://www.bankrate.com/insurance/car/how-to-read-insurance-policy/
Copied to clipboard!MLA: Van Keuren, Mary. "How to read an auto insurance policy." Bankrate. 17 April 2024, https://www.bankrate.com/insurance/car/how-to-read-insurance-policy/.
Copied to clipboard!Chicago: Van Keuren, Mary. "How to read an auto insurance policy." Bankrate. April 17, 2024. https://www.bankrate.com/insurance/car/how-to-read-insurance-policy/.
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Written by
Mary Van Keuren
Mary Van Keuren has written for insurance domains such as Bankrate, Coverage.com, and The Simple Dollar for the past five years, specializing in home and auto insurance. She has also written extensively for consumer websites including Reviews.com and Slumber Yard. Prior to that, she worked as a writer in academia for several decades.
Edited by
Natasha Cornelius, CLU
Natasha Cornelius, CLU, is an insurance editor for Bankrate, specializing in auto, home and life insurance.
Reviewed by
Mark Friedlander
Mark Friedlander is director of corporate communications at III, a nonprofit organization focused on providing consumers with a better understanding of insurance.
At Bankrate, we strive to help you make smarter financial decisions. To help readers understand how insurance affects their finances, we have licensed insurance professionals on staff who have spent a combined 47 years in the auto, home and life insurance industries. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation of how we make money . Our content is backed by Coverage.com, LLC, a licensed entity (NPN: 19966249). For more information, please see our Insurance Disclosure .
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Like most drivers, if you have a car, you probably have a car insurance policy. But how do you know exactly what car insurance covers? Understanding car insurance documents can take a little work, but Bankrate is here to help. Our insurance editorial team, which includes licensed insurance agents, reviewed the steps it takes to read and understand your policy so that you can be confident you know exactly what your coverage includes.
Your auto insurance policy is spelled out in documents you will have received from your insurer when you purchased your coverage. Knowing how to read car insurance documents is a skill that all drivers should have so they know exactly what their policy covers, as well as any limits on that coverage. Although your policy may include numerous pages of information, it is vital that you have a general understanding of its contents.
Fortunately, there are several parts to a policy, including a section called a declarations page that summarizes the contents of your contract with your insurer. Let’s take a closer look at this page and the rest of your policy to give you an overview of what it all contains.
Your policy documents will vary somewhat depending on the company from which you bought your policy but will contain most or all of the following elements:
Car insurance is broken down into several categories. Some of these types of coverage are likely to be mandatory, depending on your state of residence, while others may be optional but available to provide you with more robust coverage at an additional cost.
| Coverage | When it’s required | What it covers |
|---|---|---|
| Liability | Required in most states | Includes bodily injury and property damage liability. Provides financial protection to pay for the other party’s injuries and damages when you cause an accident |
| Medical payments | May be required by state | Provides coverage for medical and hospital expenses if you or your passengers are injured in an accident |
| Personal injury protection (PIP) | Required in no-fault states | Similar to medical payments coverage but can also pay for lost wages and the cost of some household expenses you can’t perform after an injury |
| Uninsured and underinsured motorist | May be required by state | Covers your injuries (and sometimes your property damage) if you are hit by someone, including hit-and-runs, who doesn’t have insurance or doesn’t have enough insurance to pay for your losses |
| Collision | Optional but may be required by a lender | Pays for the damage to your vehicle if the damage is caused by colliding with something, like another vehicle or stationary object, rollovers and potholes |
| Comprehensive | Optional but may be required by a lender | Also called “other-than-collision coverage,” this pays for things like a cracked windshield, theft of the car, vandalism, fire damage, hitting an animal and weather-related losses |
Almost every state in the U.S. requires you to have liability coverage. This essential coverage pays for injuries or damage sustained by the other driver, their vehicle or stationary objects in an accident where you are found to be at fault.
Each state sets a minimum limit for its liability coverage. Let’s say, for example, that you live in New York. Liability limits are often written as 25/50/10. This translates into the following:
To drive legally in N.Y., you need at least this amount of coverage. However, many insurance experts recommend you purchase more than the minimum since a serious accident can cause injuries or damage that cost significantly more than the minimum. If you have minimum coverage, and an accident has a higher financial cost than your coverage affords you, you will need to pay the overage out of pocket.
A car insurance declarations page contains a simplified version of your policy information. This includes:
An important feature of a car insurance policy is the exclusions list section. It’s important to understand what your policy covers and what it excludes so that you know what situations you may need to purchase additional coverage for. Car insurance policy exclusions can include:
An exclusion could also be for a specific driver, often called a named-driver exclusion. This could be someone in the household who has a bad driving record or has another reason to not be covered under the policy. If that excluded person drives the car, there is no coverage if they are involved in an accident, even if they are not at fault.
These key policy considerations should be kept in mind while reading your auto insurance policy. An insurance policy is a binding contract between you and the car insurance company. You agree to make payments in exchange for the coverage outlined on the policy. Although you can cancel your auto insurance at any time, the insurance company must notify you prior to cancellation or non-renewal and has limits on when and how it can cancel your car insurance policy based on state regulations. The following are a few aspects you should be mindful of when reading your auto insurance policy:
To find the best car insurance company, you may want to shop around to gather several quotes from different companies. All car insurance companies have unique rating algorithms depending on the level of risk they’re willing to take on, which means that the cost of coverage will vary for each carrier. Additionally, different companies will offer different optional coverage types, discounts, and features like mobile apps and online portals. Figuring out what is important to you and then shopping around might help you find the best insurance company.
No. You should keep an ID card in your vehicle at all times, as you must be able to show proof of insurance if you are pulled over by the police or involved in an accident. A declarations page is also acceptable for this, but an ID card is usually easier to put into your glove compartment and has all the essential information you’d need if you have to show proof of coverage. Some states also allow for digital ID cards that you can access via your insurance company’s mobile app. There’s no need to keep your entire policy in your vehicle as long as you have at least an ID card available.
Yes. If you make changes to your existing car insurance policy, you should get an updated declarations page by mail, email or in an online service portal, depending on how you have your policy set up. The new declarations page will show the changes and reflect the new status of your policy. If you switch car insurance companies entirely, you’ll get an entirely new policy, including a new declarations page and ID card.
If you paid in advance for your brand new car insurance policy, you may be entitled to a refund. Most carriers will prorate the refund when you cancel a car insurance policy, which means you get any unused money back. But terms can vary by company and you might have to pay a cancellation fee, even if the policy is brand new. If you plan to cancel a brand new car insurance policy, it may be worth speaking directly with your agent or the company to determine the correct way to cancel and what your expected refund is.
You should review your coverage when the policy is up for renewal or after you’ve made any major changes that could impact your car insurance. At renewal, make sure your coverage choices are still accurate, and you’re taking advantage of the discounts you’re eligible for. If you’ve bought a new car, paid your car off, your teen got their driver’s license or your elderly parent on your policy surrendered their license, for example, it’s a good idea to review your coverage to see if changes are warranted.
