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Understanding Your Car Insurance Policy

Understanding your car insurance policy should be a priority. Consumers need to know what they are paying for when they send out premium checks to insurers. And they need to understand which part of their plan performs what purpose. Auto plans tend to be a mystery to most of us outside the industry; but it doesn't have to be this way. With just a little bit of study, any consumer can gain a much broader understanding of every aspect of auto protection. As a consumer you can get to know the particular reason why each area of a plan exists, as well as specific examples of when that part of your plan would come into play. Knowing ahead of time what each portion of coverage does and why it is important can help you when a claim arises. And it can also help you to make coverage decisions with confidence whenever the time comes to make cuts to your plan.

Insurance Need Not be Mysterious

Too often, car insurance consumers do not really have any idea what any of the coverage on their plan really means. They are unaware of what each part of a plan covers; and they are also often uncertain about limitations as well. Many of us who are not professionals in the industry tend to take an agent's word for it when it comes to our car insurance policies. We buy whatever they tell us to buy, and simply sign our names on the dotted line and write checks for the amount we are told to pay. But we really should be more involved in the process than that. Any educated consumer can make better informed choices on car insurance just by knowing a little bit about what's involved.

An auto plan does not have to be some big mystery. As a consumer, you have a right and a responsibility to find out all you can about the policy that's protecting you as a driver. To accomplish this, you need to know the basics of auto coverage. Each driver has the option of choosing from among several basic areas of car insurance. One or a few of these areas may be required depending on the state you live in, but the rest will be optional. However, they all have great value because they all do a specific job of protecting you as a covered policy holder. Learning a little bit about each area can help you better understand your policy as a whole, and in turn can give you a more informed basis for decisions in the future.

Auto Insurance Policy Definitions

An auto policy is a contractual agreement between an insured policy holder and an auto insurance provider. The contract between these two parties requires certain actions to be performed by both sides for the contract to remain in force. For example, as a policy holder you have to keep up with payments. If you fail to do this, you are not holding up your end of the bargain and your provider may choose to terminate the contract. On the other hand, the provider has a responsibility to provide the coverage promised in the language of the plan as long as you are in good standing as a driver and policy holder according to the terms of the contract. In more basic terms, an auto insurance policy is a promise between you and your provider: that you will pay for their services, and that they will provide the services for which you have paid.

Every plan contains some sort of provisions for liability protection. This is because virtually every state in the country requires liability coverage in some form. Whether it is a split form or single form liability plan does not matter in that each contain the same basic coverage: both bodily injury and property damage liability insurance. Liability protection is the foundation of an auto policy. It helps take care of your financial obligations in the aftermath of an at fault accident.

Uninsured and underinsured motorist protection are sometimes also required by the state for all drivers to include in their auto policy. Uninsured motorist insurance protects the covered driver from having to personally pay for damages normally taken care of by the other driver. In other words, if you get into an accident with an uninsured motorist and that driver is at fault, your uninsured protection will kick in. This does not preclude you from taking legal action to recover damages for the accident.

Uninsured motorist coverage is particularly valuable in hit and run accidents, which are treated by insurance companies the same as accidents with uninsured motorists, since no insurance policy from the liable driver is ever produced unless that driver is caught. Underinsured coverage is similar but works to supplement the liable driver's insurance in cases where that driver's coverage is not enough to cover all costs. It is strictly a secondary insurance form and only comes into play after all available liability protection has been applied.

Comprehensive and collision are not required by state auto insurance laws, but many car insurance consumers do have to carry them based on the requirements of lien holders when they lease or finance vehicles. Comprehensive coverage pays for covered non collision related damages to an insured vehicle, like vandalism or storm damage; while collision insurance is strictly set aside for dealing with property loss to the vehicle due to an accident.

These areas of insurance do have some limitations. The most obvious one is the financial limit, which is based on the value of a vehicle. If the costs of repair are estimated to exceed the value of the insured car, the insurance company adjuster will choose instead to total the car and write the insured policy holder a check for the company's assessment of the car's value less deductible. These policies are great and each of them provides a wonderful service to policy holders. But they lose value over time as the insured vehicle depreciates; and eventually their value does not justify the cost of carrying these forms of coverage on an insurance plan.

There are other areas of coverage available, like medical payments coverage or personal injury protection (PIP) which are required in some states and just optional in others. Consumers can get a run down on all available forms of insurance by visiting the website of their state's insurance office or DMV. There you can also get valuable information on what is required so you can be sure your policy will be in line with state requirements.

Coverage Choices Based on Knowledge

When an insurance consumer has a more accurate understanding of all that goes into a car insurance policy and what each section of the plan is intended to do as far as coverage is concerned, she is much more likely to make sound decisions on coverage the next time renewal comes around. Auto insurance is a great way for you to protect yourself as a driver and a car owner. Understanding your car insurance policy can help you to make good choices on what to include and what to leave out of your plan.


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