How to read your car insurance policy

Most people could not say what their policy would pay if they were in a wreck tomorrow. That is not carelessness; policies are hard to read. This guide covers the one page that matters and what each line on it means.

Start with the declarations page

Your policy may run to dozens of pages, but the first one or two are a summary called the declarations page, or "dec page". It lists who is insured, which cars are covered, the dates the policy runs, each coverage you bought, its limit, its deductible and what it costs. If you only ever read one part of your policy, read this.

What each coverage does

Bodily injury liability

Pays for injuries to other people when a crash is your fault. It is shown as two numbers, such as 25/50: up to $25,000 for one person and $50,000 for everyone in one accident.

Property damage liability

Pays for damage you cause to someone else's car or property. It is the third number, so 25/50/25 means $25,000 for property damage.

Collision

Pays to repair or replace your own car after a crash, whoever was at fault. You pay the deductible first.

Comprehensive

Pays for damage to your car that is not a crash: theft, hail, a fallen tree, flooding, hitting a deer. It also has a deductible.

Uninsured and underinsured motorist

Pays for your injuries, and in some policies your car, when the driver who hit you has no insurance or not enough.

Medical payments

Pays medical bills for you and your passengers after a crash, regardless of fault, up to a fixed amount.

Rental and towing

Optional extras that pay for a rental car while yours is being repaired, and for a tow or roadside help.

What the three numbers mean

Liability limits are written as three numbers separated by slashes. Alabama requires drivers to carry at least 25/50/25:

• $25,000 for injuries to one person
• $50,000 for injuries to everyone in one accident
• $25,000 for damage to other people's property

Those are legal minimums, not recommendations. A new pickup costs more than $25,000, and a hospital stay can pass that figure quickly. If a judgment against you is larger than your limits, you owe the difference yourself. Many drivers choose limits such as 50/100/50 or 100/300/100 for that reason, and the extra cost is often smaller than people expect.

Deductibles

A deductible is the part of a repair you pay before the insurer pays the rest. With a $500 deductible and $3,000 of damage, you pay $500 and the insurer pays $2,500. A higher deductible lowers your premium. Choose one you could cover out of savings on a bad day.

"Full coverage" is not a real term

You will hear it constantly, but no policy says "full coverage" on it. People usually mean liability plus collision plus comprehensive. Two policies sold as full coverage can have very different limits and deductibles, and one may leave out uninsured motorist cover or a rental car. Always compare the actual lines.

Five things to check on your own policy

1. Your liability limits. Are they the state minimum, or enough to protect your savings and income?
2. Collision and comprehensive. If you have a car loan or lease, the lender requires both. On an older, paid-off car they may no longer be worth the price.
3. Your deductibles. Could you pay them tomorrow?
4. Uninsured motorist. Check whether you have it or signed a form rejecting it.
5. Drivers and discounts. Is everyone in your household who drives listed, and are the discounts you expect still there?

Comparing quotes fairly: ask for the same limits and deductibles as your current policy. A cheaper quote with lower limits is a smaller policy, not a better deal.

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