When a driver takes out a new auto insurance policy, the insurance company will often send a thick packet of information that might seem almost impossible to understand. Most policies tend to follow the same format and use the same language, however, which can assist drivers in understanding their auto insurance policy when it’s time to make a claim.
The Format
The front page of an auto insurance policy is the declarations page. It lists the policy holder’s name and address, the names of the other family members on the policy, and the coverage limits for each vehicle. Any name or vehicle not listed on the declarations page is not covered by the policy. The declarations page is followed by the definitions page and the coverages section. The definitions page will help you interpret tricky phrases in the coverages section if you need to make a claim. Endorsements are any changes to the policy that arrive in the mail later. They are equally important and legally binding and should be kept safe.
Actual Cash Value
One tricky phrase that is usually part of an auto insurance policy is Actual Cash Value. This phrase is often included in the definitions section of the policy. Actual Cash Value could mean the original value of the damaged car or part minus depreciation, or the fair market value of the car or part just before the accident happened. Drivers can be very disappointed by the way Actual Cash Value is calculated. Insurance companies might pay for a stereo but not installation, or they might pay only for the price of a used car part rather than a new car part. Drivers must understand what Actual Cash Value means in their specific policy.
Right of Appraisal
Another important clause that most drivers are unaware of is Right of Appraisal. If their car is damaged and they don’t agree with the insurance company’s appraisal that it’s a total loss, drivers can demand that the car be appraised independently, and the insurance company has to pay for it. If drivers don’t agree with the company’s choice of appraiser, they can even pay their own appraiser. The goal of Right of Appraisal is to get the insurance company to agree that the Actual Cash Value of the car at the time of the accident was more than the cost of the damages so that the company will pay to have the car fixed.
Insurable Interest
The Insurable Interest clause is included in an auto insurance policy to protect the company from insurance fraud. It basically means that someone cannot take out a policy on a car they don’t own or don’t have a legal interest in. In the past, insurance companies used the insurable interest clause to deny claims made by parents who bought their teenagers a car and insured it for them. Most states ruled that it was an illegal denial of insurance money by insurance companies, however, so it is important to know the state laws if the insurance company uses the clause as a reason for denying the claim.
As daunting as an auto insurance policy might appear at first glance, it is very important for policy holders to read it and understand it so that they know exactly what is covered and how it’s covered in case they ever need to make a claim.