What is a car insurance policy, standard definitions in your policy, including exclusions and endorsements.
An auto insurance policy is detailed in a lengthy and confusing booklet given to you when your policy is issued.
Unlike the declarations which are specifically tailored to you, the policy invariably consists of boilerplate language which is applies to everyone who holds your particular insurance product.
In addition, policy language must be approved by a state insurance commission. Because of this and other factors, the basics don’t vary much from company to company, although there are certainly differences.
If you read and understand your policy, you’ll not only understand your own insurance, but in many respects you’ll be well on your way to passing your state’s insurance licensing exam for property and casualty lines. That is, if you want to.
If not, that’s OK. We understand.
Definitions in Your Policy
In order to truly understand auto insurance policy language it is important to define several terms used in the insurance industry. Some of these terms are fairly self-explanatory, while others are not necessarily discernible by context alone.
Regardless of what line of insurance you’re looking at, all insurance claims must be tied to at least one proximate cause. This specific cause is known as a peril.
Examples of perils that commonly apply to auto insurance policies include vehicular collision, theft and vandalism. Perils may be covered on a stated “basic form” or “broad form” basis, meaning that companies will only pay claims on perils specifically mentioned in the policy.
Also, they may be covered on a “special form” basis, meaning that all possible perils are covered except those that are specifically excluded in the policy language. Naturally, special form is the best available coverage.
Exclusions & Endorsements In Your Policy
An exclusion is a peril that is specifically not covered by an insurance policy. Examples of common exclusions in auto insurance policies include general maintenance, depreciation and intentional damage. Sadly insurance companies won’t cover you if you blow up your car on purpose, even if it’s ugly.
Amendments to the standard policy language are known in the insurance industry as endorsements. Endorsements can be policy options or blanket changes to the policy language initiated by the company. Examples of endorsements include accidental death and dismemberment coverage and so-called “accident forgiveness” options.
Changes to Your Policy
As with base insurance rates, insurance companies can only make changes to policy language at renewal. In addition many changes to policy language must be approved by your state’s insurance commission beforehand.
In other words wide-reaching policy changes are not particularly common. Even so, it’s always a good idea to periodically review your insurance with your agent. A good agent will alert you to any upcoming changes.
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