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.

Life Insurance Policies

There are various aspects to consider before getting a life insurance policy. One of them is a sustained doubt about the significance and need for life insurance. A life insurance policy is relevant for all individuals who are concerned about the financial future of their family in case of death.

Apart from the purely protectional needs, life insurance policies, like whole and variable life insurance, offer the opportunity for tax-free investment and reaping dividends, and they have a built-in cash value. Purchased with due discretion, it can be utilized as liquid cash to cater to the various needs of policyholders.

There are various types of life insurance policies customized to suit the different needs of various individuals. Depending on the number of dependants and kind of insurance needs, a suitable life insurance policy can be chosen after consultation with financial experts and advisors.

Whole life insurance and term life insurance are the two basic forms of insurance policies. With time, there have been different variations to suit the changing demands of people. A term life insurance policy is also called temporary or short-term life insurance. These are purely protection-oriented and provide death benefits only if the insured dies within the period specified in the policy. In case the insured lives past the specified duration, no money is given.

People with short-term insurance needs, like a young individual with dependents, a house loan or a car loan, favor this kind of insurance policy because they are cheap and affordable in comparison to whole life policies. In the initial years the premiums are very low; however, as the mortality risk of the insured increases with age the premium cost increases and at time becomes more than that of whole life insurance.

There are now two kinds of term life insurance, namely level term (decreasing premium) and annual renewable term (increasing premium) policies. The premiums of level term are initially higher than renewable term, but become lower in the later years. Whole life insurance has an ingrained cash value and guaranteed life protection features. The initial steep premiums of whole life insurance may exceed the actual cost of the insurance. This surplus, which is the cash value, is added to a separate account and can be used as a tax-free investment to reap dividends, and is also used to enable the insured to give a level premium latter on. There is a guarantee of getting the death benefit on the maturity of the policy or death of the insured, apart from cash value surrendered in case of cancellation.

Return of premium is popular because it combines the features of whole and term policies. It costs double the amount of a term policy. The policy is made for a set time, but full value is given on death within that period or in case the policy matures. Universal, variable and universal variables are different variations of whole life insurance policies. A universal life insurance policy offers the flexibility to the insured to choose the kind of premium payment, the death benefits and the coverage amount.

Variable life insurance policies enable the insurance buyer to invest the cash value in direct investment for a greater potential return. A universal variable insurance policy integrates the flexibility factor of a universal policy and the investment option of a variable policy. Single purchase life insurance enables a buyer to buy the policy and own it through a one-time premium payment. A survivorship or second-to-die insurance policy is a joint form of life insurance policy which is devised to serve the specific purpose of certain individuals. Apart from these, there are also endowment life insurance policies. Endowment is with profit kind or unit-liked kind. On maturity of the policy or on the death of the insured the value of the policy or the amount insured, whichever is more, is given back.

Life insurance policies differ from company to company, and hence the various parameters have to be analyzed meticulously with the help of experts and financial advisors to get the best deal.

Household Insurance Policy – What Is Covered and Where Are the Gaps

There is a lot of confusion about what an ordinary householders policy covers – all the things people think that they are covered for and are not and on the other hand, all the things they can claim for, and often do not realize they can.

Buy a householders policy which includes the building as well as the contents – otherwise a household fire could cripple your family finances for years.

Gone are the days of fine print exclusions, public opinion has persuaded insurance companies to have print no smaller than normally used in a newspaper. This has now made household insurance companies competing for the consumer dollar never more competitive.

Because of the wide variation in policies, this article is to be taken as a general guide only, raising points to check against your policy where applicable.

Do not take for granted the following points to be covered in your new policy, check first before you sign.

It is wise to check your policy’s renewal cost with what you paid last year, because the insurance company may have increased the premium “to take account of inflation”. Some companies do not make it clear that they have done this.

What is Covered?

Items people can claim for under their normal householder’s policy often do not realize they can! Your householders’ policy not only covers your home – but the entire property including the front garden and the backyard.

This means that you can claim for the theft of everything from the pot plants to the clothes hoist. Many people living in apartments, where clothing has been stolen from washing lines, do not realize that they are also covered for the clothing stolen (whether it is the depreciated or the replacement value depends on the policy).

Your car, companies consider this a different class of risk. Whether you are an apartment dweller or live in a house, you’re not covered for the theft of the car itself. Your car insurance has to be a separate policy.

Boats are also excluded from the theft protection of a normal householder’s policy. For example, you may have a dinghy stolen from the top of your garaged car at home, and not be able to claim – but, you can claim for the swimming costume, towels and beach gear which have also been stolen.

Even if the damage to household property is your fault, most policies accept this. For example, a housewife forgets about food cooking in fat which boils over and resulting in fire, damages the stove, walls, ceiling and curtains.

Important point, you are moving house and you have shifted an amount of the furniture and your belongings. If a housebreaking occurs at either your existing home, or your intended one, then you are not covered by many policies if a legalistic interpretation has been taken by the insurer. Such policies stipulate that the home is to be sufficiently furnished for full habitation. Because many insurers regard this as a “grey area”, it would pay you to notify the insurers to find out exactly how they interpret the situation. Better to find out before, rather that after a theft.

Motors.Your washing machine motor burns out. Most policies pay for the replacement motor. This also applies in the case of your household dish washing machines, refrigerator, and air conditioner even the motor of your swimming pool filtration system. Most cover electric motors in various domestic appliances.

The electronic parts of your TV, radio or stereo equipment burning out are not covered in most policies. A subtle distinction is the motor of stereo equipment, but not components such as the baffle or tweeters.

“All risks”policy usually does not cover any damage by vermin, such as moths in a fur coat, or mildew, or wear and tear. It also does not cover mechanical failure, such as over-winding a watch, or a TV or radio breaking down. Although you are able to insure separately against a TV breakdown.

The typical “all risks” policy may not cover damage occurring during, or as a result of riots or war – or any process of repair or renovation.

Some policies also exclude the breaking of glass in a watch or a scientific instrument. Whilst a wall barometer will be covered under most policies, an alarm clock isn’t for the breaking of its glass face.

“All risks” is possibly one of the greatest areas of variation, and it particularly pays to read this section of your policy’s terms and conditions before signing.

If a spark from your incinerator starts a fire which gets out of control and burns down your neighbor’s home, you’re covered under the personal liability section of most policies.

If your car hand-brake does not hold on a steep driveway and the car rolls back into the wrought-iron front gate, the insurance cover only relates to what the car hits. The damage to your car is covered under your motor vehicle’s policy.

Damage to your fence, wall or gate, you are covered virtually against anything falling from the sky. Insurers even regard disintegrating satellites as “aircraft”. Fireballs, meteorites, and other such phenomena are also usually covered.

If someone steals your fence, or a runaway truck flattens it, you’re usually covered. You are covered against theft or damage, but it’s too bad if a “fire-bug” decides to take out his pyromania on your hedge – it’s not covered.

“Storm and tempest”. People commonly believe their householders’ policy covers them for – and it does not. Storm and tempest cover does not include flood, of which is defined as, the violent and temporary escape of a large body of water from the normal confines of any natural or artificial water course such as a river, lake, canal or dam. Insurance companies look upon flood as a separate risk, and require an extra premium to specifically insure against it.

The usual exclusions in a householders’ policy include loss or damage by the sea, tidal waves, or high water. Many policies also exclude damage by rainwater – unless it enters the building through an opening in a wall or roof, caused directly by the storm.

Many policies pay if the rain water damage was caused by your down-pipe or guttering becoming blocked by leaves blown down during a storm. This is because the policy usually includes the overflowing of water tanks, apparatuses or pipes – guttering and down-pipes are normally treated as “water apparatus”.

Storm and tempest includes damage done by wind and wind-driven rain. Damage caused by a landslide due to torrential rain is not covered by many policies. Your gates, fences or retaining walls if blown down or washed away? Excluded!

Not the contents of a home freezer, should the unit itself break down, or should there be a power failure such as a blackout caused by a lightning strike on the local sub-station, or a car knocking down a power pole. However, many companies provide this cover for a few dollars a year more dollars a year.

“Crack trap”,you are shaving and you drop the razor on the ceramic basin it cracks – but not all the way through. Your claim would be rejected. Insurance companies stipulate that a fracture has to go clean through the entire thickness. In other words, it has to be a complete break. This also applies to toilet bowls, baths and fixed glass which are normally part of the furniture. For example, a dressing table mirrors.

Livestock, such as hens, are excluded. Somewhat surprisingly, so is the family dog or cat – even if they have a pedigree. They are technically “livestock” and a special “livestock” policy is required.

If you forget to lock your home when you go out, and you have been robbed, you may find you are not covered. Some policies stipulate that theft has to result from “breaking and entering”. Paradoxically, if you lock the house and then leave the front door key under the mat or in the flower-pot (as many people still do despite warnings from the police), most policies will still cover you. This is because someone who turns the key in the lock is technically regarded as just as much a thief breaking and entering as someone using a jemmy bar on the lock.

Accidental breakages of the glass in a hand mirror or the glass in a radio or TV set are not usually covered.

Light fittings, curtains and carpets are often not included in mortgage insurance policies on buildings only. Check your policy’s terms and conditions – or to remove any doubt, insure both your buildings and contents.

Insurers will not cover damage to goods caused by the normal application of heat such as an iron, blow torch or any other process – but they will cover fire that results from this heat. For example, you’re not covered if you scorch a shirt you’re ironing but if the scorched shirt sets fire to the house, you’re covered.

A burst water pipe; you are not covered for the repairs to the defective part of the pipe – only the exploratory costs to locate the leakage, plus any damage to the ceiling, carpets or wallpaper, Plus the replacement of rest of the pipe. The same situation applies to a leaking pipe from an oil heater

You finally get around to lopping that overhanging tree in your front garden unfortunately a branch falls and crashes through your roof. A claim would be rejected by most insurance companies. Policies generally stipulate that damage from falling trees, or branches,will be covered only if it is from natural causes, such-as wind.

Works of art, curios and other valuable items; generally the cover on each item is limited to only five per cent of the total cover, according to many policies, unless specifically mentioned. It’s important to read your policy to see if its limitations affect any valuable item you have.

A man knocks at your door and offers to clean your windows for a charge. He falls off his ladder and breaks a leg. Are you covered for his medical expenses and loss of earning power during convalescence? No, you need a separate workers’ compensation policy such a policy covers you virtually for an unlimited amount for your liability as an employer. Alternatively, before he commences work, you check with him whether he had taken out a personal accident policy

Your home has been robbed or damaged by fire, storm or tempest – and you haven’t notified the insurance company that you have been away from home for 30 consecutive days for example, on holiday. Your insurance protection will be void under many policies at the discretion of the insurer. (A few policies offer notification time of up to 60 days).

The contents of your home will not be covered by some policies if you rent out your home and do not notify the insurance company in writing.

You rent your home while you are on holiday. You return to find that the tenants have damaged the property, for example, a wild party. By renting, you have automatically cancelled the malicious damage protection of your householder’s policy.

It pays to do due diligence on all Insurance policies, if not you may find it very expensive.