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What to Know Before You Sign an Auto Insurance Policy

An auto insurance policy is a contract between you, the policyholder, and your car insurance company, the insurance provider. It’s not enough just to know that your auto insurance policy fulfills your state’s coverage requirements.

You need to know exactly what your policy does and does not cover. Checking carefully before you sign an auto insurance policy can prevent you from finding out after you get into an accident that you’re not covered when you thought you were.

The Five Parts of a Car Insurance Contract

Most car insurance policies have the same 5 basic parts.

1. Declarations page (AKA “Dec Page”). This section is like your personal profile. It has the length of your policy, your coverage limits and deductibles, and personal information such as the following:

  • Your name.
  • The names of other drivers in your household.
  • Your address.
  • The makes, models, and vehicle identification numbers of all vehicles on the policy.
  • The policy number.

2. Insuring agreement. The insuring agreement or coverage parts describes your insurance plan. It lists your deductibles and coverage limits for each type of coverage that you are purchasing.

3. Exclusions. These are specific people, damages, events, and property that your policy does not cover.

4. Conditions. This section outlines your insurance company’s responsibilities as well your responsibilities, including payment of premiums, how to file a claim, and the proper procedure for resolving disputes.

5. Definitions. This section may be the “fine print,” but it is equally important. It defines terms used in the policies and describes your rights.

Do Your Due Diligence

Your car insurance contract is binding. You’re obligated to follow its terms once you sign, so it’s worth taking your time to do your due diligence.

  • Read all parts of the contract so you know how much you need to pay, how much you’re covered for, and what is and is not covered.
  • Don’t skim. You'll want to know exactly what is covered in case of an accident.
  • Ask questions when you're unsure about anything in the contract. Your auto insurance agent is there to answer your questions.

Car Insurance Contract Tips

Take your time reviewing your policy so you don’t sign anything you’re not comfortable with. First, research your car insurance company, especially if it’s a small company that you’re not familiar with.

  • Check your state's insurance department website. You can do this online or via phone. The Department of Insurance has consumer complaint ratios, which can help you make your decision about who to insure with.
  • Check with auto body repair shops and car dealerships. These people deal with auto insurance companies daily and can offer first-hand recommendations.
  • Check the company's financial strength rating with on of the following:
    • A.M. Best.
    • Standard & Poor's.
  • Check how the provider rates on J.D. Power and Associates consumer satisfaction survey. High satisfaction ratings among other customers can put your mind at ease.

The following tips can help you make sure you know what you’re signing:

  • Do not sign any contract with an empty space. Have the insurance agent draw a line through the space if no additional information is required.
  • Don't sign if the contract denies you the right to sue the insurance company. Otherwise, you'll lose the right to take the provider to court should you have a disagreement over coverage. Without this option, the insurance company may be more apt to take advantage of you, playing hardball with your accident claims.
  • Think twice about signing if the policy contract states "aftermarket parts may be used for any needed car repairs."
    • If your vehicle is new, you don't want it being repaired with "aftermarket parts."
  • Make sure you're not buying coverage you don't need. If, for example, your car has a $1,200 value, it’s probably not worth it to buy $3,000 worth of collision coverage.
  • Make sure all of the coverage you’ve opted into are listed. For instance, if you've opted for rental car reimbursement in the event of a car accident, be sure you actually see this listed on the contract.
  • Check the deductibles, vehicle information, and coverage limits.

Being knowledgeable about your contract will help you ensure you fully understand your car insurance and don't get any surprises should you need to file a claim.