Wrecks & Fires
Chapter 4
Auto Policy Divisions
Reading the Policy
An auto policy is typically broken down into three standard parts:
1. the declarations page,
2. the insuring agreement, and
3. the conditions of the policy.
Declarations Page
The declarations page is where the policy owner’s name will be stated along with the autos covered, the time period of coverage (January first through April first, for example) and the premium amount. Also listed is the description of the coverage provided (from the six components previously reviewed) and the dollar limits.
Even if the consumer doesn’t read anything else in their policy, they need to read this page.
The Insuring Agreement
The insuring agreement is the main part of the policy. Policy terms (or definitions) will be stated. Perhaps most importantly, the benefits given in exchange for the premium will be stated. Who is covered under the policy will also be stated. This can be important information if the policy owner is in the habit of loaning out his or her car. Sometimes this may tie in to the listed definitions or policy terms. For example, a “relative” may be defined as any person who is related to those listed on the declarations page as named insureds and living in the same household.
Exclusions In The Policy
Exclusions will also be listed. An exclusion is a provision in the policy which denies coverage for specified perils, persons, properties or locations.
The third part in an auto policy, the conditions of the policy, describes the policy owner’s responsibilities when a claim occurs. It may state how much time is allowed to report the claim and the types of proof of loss that will be required by the insurance company.
This portion of the contract will also generally list the conditions under which a policy may be canceled. The policyholder may cancel their coverage at any time, but the insurer must follow set procedures. Certainly nonpayment of premium is an obvious reason for which the insurance company may cancel the policy. They may generally also cancel the policy if the policyholder deliberately concealed or misrepresented any facts when applying for the coverage. If this were the case, the company could refuse to pay any losses that occurred.
It is probably not surprising that the most serious legal risk in driving is that of injuring or killing another person. Liability is, as a result, the most expensive type of coverage. Many states require by law that liability insurance be carried. Generally, it is considered wise to buy higher liability insurance limits than the law requires since state mandated requirements are often too low to give adequate protection.
If the policy owner or any other driver covered under their policy is found to be responsible for an accident that injures another person, they may be held liable for his or her medical bills (hospital and doctors), rehabilitative care and therapy, long-term nursing care and perhaps even the injured person's lost wages. Often there may be additional cash rewards given for pain and suffering. Consumer publications often recommend at least $100,000 of bodily injury protection per person and $300,000 per accident. The cost of such protection will depend upon the insurance company and the amount of risk the insured represents.
Umbrella Policies
Many people purchase what is called umbrella policies. If a person has over $300,000 in assets, many professionals do recommend that such a liability policy be considered. As the name suggests, an umbrella policy is a policy which is carried over all other liability insurance. It comes into play only when other types of coverage are exhausted. Most standard policies go up to a $300,000 limit. It is possible, however, to purchase policies with limits as high as $400,000 or even $500,000. Generally an umbrella policy can be bought from the same company that insures the policy owner’s home and automobiles.
Consumers look to their agent for suggestions when buying insurance. Recommending the proper coverage is often more a matter of "fact finding" than anything else. As questions are asked and answers are given, the client will often recognize their own needs as the facts are written down in front of them. The "fact finding" should always be written down and then filed with the client's files at the agency office for future reference.
The Family Automobile Policy
The Family Automobile Policy (often simply referred to as a FAP) has several parts to it:
1. Part I consists of Coverage A, bodily injury liability and Coverage B, property damage liability. Under these coverages, the insurer agrees to pay to third parties money to cover any damages for which the insured is legally obligated due to bodily injury or property damage arising out of ownership, maintenance or use of an automobile.
2. Under Part II, Coverage C, the insurer agrees to pay all reasonable and necessary medical expenses to the insured, their relatives and other persons as a result of an accident involving an owned car or a non-owned car while being operated by the named insured, a resident of the household or any other licensed driver who was operating the vehicle with the permission of the insured.
3. Part III, which are Coverages D through I, provide protection against loss resulting from physical damage to an owned or non-owned automobile.
4. Part IV is Coverage K which is found in some policies. Under Part IV, the insurer agrees to pay a stated accidental death benefit in case of the death of the named insured resulting from bodily injury sustained while occupying or by being struck by a motor vehicle, providing that death occurs within 90 days of the accident.
Each part of the Family Automobile Policy (FAP) contains its own recovery limitations, definitions and exclusions. Coverage under a FAP will vary from contract to contract and among insurers not using standard bureau forms. There are also generally limited policies available in the marketplace at a lower cost. As a result, the FAP owned by one person may differ from that owned by another.
Some states have what is called “no-fault” laws. In such states, each driver's own insurance policy reimburses their medical claims and loss of wages, even if the other person was technically at fault. Even if a driver lives in a no-fault state, professionals still recommend that larger liability policies be carried, because one can still be sued for pain and suffering in most cases.
Rates vary greatly from company to company. Of course, rates are also based on one's personal driving history (the number of tickets received and so forth). Although there may be "standard" policies, there is no such thing as a “standard” price. It is always wise to price shop. According to one leading survey, 73 percent of drivers simply purchased a policy with the first company they contacted, without doing any price comparison at all. Only eight percent compared the rates of four companies or more.
Many insurance experts recommend that consumers consider purchasing their policies from independent agents, since they often carry multiple companies. Of course, this is no guarantee that the agent will suggest the lowest priced policy. Besides, as agents, we are often aware that price is not the only indicator that should be considered. Insurance agents are usually most aware of which companies do the best job when it comes to claim payments.
Women often state that they dislike shopping for car insurance because they feel that they are “out of their element.” There is no basis for such feelings. Consumers do not need to know how an engine is put together to buy a car and they do not need to understand the insurance field to buy automobile coverage. Insurance buyers merely need to know the basics.
Car insurance is probably one of the most basic types of insurance. If the policyholder causes an accident, he or she wants their policy to cover the cost of the other person's injuries, damage to his or her car or property, legal costs and any pain-and-suffering damages that might be awarded. The policyholder also wants their own costs covered. This would include injuries or losses suffered by passengers. In addition, he or she may want theft, towing, auto rental (for a car while theirs is being repaired) and loss of earnings as a result of injuries. Insurance buyers actually help their agents when they know what they want and the amounts of coverage they would like. Good agents want educated clients.
How does an agent educate their clients and still have enough time for a personal life? After all, there is no commission given for client education. What agents may not realize is that every sales presentation is also an educational presentation. Let’s consider this scenario:
Terrence Washington takes an hour to place a policy. During that hour he goes over what an auto policy will cover, what it won’t cover, the cost in relation to the benefits, and the types of accident claims he has seen during his ten years as an agent. He keeps his explanations brief, but they do cover the points Terrence feels are important.
Wallace Milo places a policy in about 30 minutes. He does cover the benefits of the policy, but he does not feel consumers remember most of the presentation so he doesn’t “waste his time” going over claims or what he considers other nonessential sales items. Wallace sells many more policies than Terrance does so an outsider might consider him more successful or perhaps even a better agent. What others would fail to realize is that Terrence’s clients stay with him. His clients have always gotten a fair evaluation of their policies and they trust him.
Wallace has a much higher turnover rate on his policies. As a result, Wallace must sell more policies that Terrance in order to keep his income level steady.
End of Chapter 4