Skip to main content

How to Read and Understand Your Auto Insurance Policy

A middle-age, latino woman looking at an insurance policy in confusion and portraying how to read and understand your auto insurance policy.

Updated 04/08/2021

For those unfamiliar with car insurance, reading and understanding your auto insurance policy may feel like work. Even after an agent has walked you through your policy, it can still seem like too many words to bother with reading.

Thankfully, the insurance industry and government regulators have defined common and specific insurance terms so that insurance providers and insurance buyers have a standard way to communicate insurance ideas.

And, there aren’t many terms you’ll need to understand in order to make a lot of sense of your insurance coverages. Many of those terms can be found in your insurance policy, the document detailing your insurance terms and conditions.

Below we cover a standard insurance policy by explaining the major sections that are common in all policies. We say standard, but there may be some differences between providers. Still, insurance policies are legal contracts and must outline specific requirements common across all providers, so look for these exact terms or something very close.

Your insurance policy will typically be subdivided into a few primary sections. Once you understand these sections, most of the mystery of an insurance policy will disappear, making you better prepared to understand your policy protections and become a better insurance shopper.

Primary Sections of Insurance Policies

  • Car Insurance Declaration Page
  • Agreement
  • Definitions
  • Insuring Agreement
  • Conditions
  • Coverages
  • Coverage Payment Limits
  • Deductibles
  • Exclusions
  • Insurance Endorsements and Riders

Car Insurance Declaration Page

An insurance policy’s declaration page is usually its first page. It summarizes the policy details, containing the most useful policy information so that there is no confusion about the coverages and limits, deductibles, and the policy’s effective dates. This is also some of the same information present on your wallet-sized insurance card, readily available if police should ask for it.

These are the common parts of a declaration page:

  1. Insurance provider
  2. Policyholder name – named insured policyholder
  3. Policy number — your unique policy number
  4. Policy period – the effective dates of your insurance policy
  5. Driver(s) listed – list of main drivers of the vehicle, and any excluded drivers
  6. Vehicle(s) listed – automobiles covered
  7. Coverage – the damage or injuries an insurance company agrees to pay for under the policy
  8. Coverage limits – the maximum amount your insurance company will pay for each covered accident, for each type of coverage
  9. Deductible – the amount you owe in a loss before the company pays its part
  10. Premium – the amount you pay an insurance company for your policy
  11. Endorsements – policy changes that give you more or less coverage and may change your premium
image of a car insurance declaration page document

What is a Dec Page? – Office of Public Insurance Counsel


The Agreement section states that you, as the policyholder, agree to pay a specific premium, displayed on the declaration page, for your insurance coverage. This is your side of the contract. Note, you are not actually obligated to pay your premium. Anytime you don’t want the coverage, simply stop paying premiums, and your provider will cancel the policy.


Because specific terminology is used throughout your policy with common everyday meanings, the Definitions section spells out exactly what certain words in the context of this policy mean to prevent confusion.

Take “family member,” for example. If it is defined in your policy as “a person related to you by blood, marriage or adoption who is a resident of your household,” it could exclude covering your child living away at college or has moved out.

Insuring Agreement

Often right after the declaration page comes the Insuring Agreement. The Insuring Agreement is where the insurance provider explicitly outlines policy details and how it will cover the policyholder. It will start something like:

We will pay damages for “bodily injury” (Coverage A) or “property damage” (Coverage B) for which any “insured” becomes legally responsible because of an auto accident.

The policy scope in this section is outlined broadly. Later, your coverage is narrowed down in the exclusions section by outlining the circumstances when your insurance won’t cover you, like driving intoxicated or driving for business.


In the Conditions section, the policy outlines the rules, provisions, obligations, and codes of conduct that the policyholder and insurance provider must follow to maintain the contract’s integrity. If you breach any of these conditions, you could lose your coverage, or your claim could fail.

Common conditions include proper documentation and timely filing of claims. To file a claim, you will need to do so within a specific time limit after the car accident. And when you do file, you will need to have detailed documentation to support your claim, like a police report. Failing these may disqualify your claim.

But not all conditions apply to the policyholder. For example, as a policyholder, you can cancel anytime simply by withholding your premiums; however, if the insurance provider wants to cancel the policy, they will be required to give you forewarning and a reason for cancellation.


Your policy coverages are listed out in this section, depending on what you’ve included. The five common car insurance coverages you will see in this section are Liability, Collision, Comprehensive, Personal Injury Protection (PIP), and Uninsured Motorist Coverage/Underinsured Motorist Coverage (UMC).

  • Liability — This protection covers medical payments, repairs, and legal settlements of physical injuries or damage done to someone else’s person or property that was a result of an accident caused by you or someone other driver covered under your auto insurance policy. Liability insurance limits are broken down into a per person limit for bodily injury, per incident limit for bodily injury, and a limit for property damage.
  • Collision — Coverage provided whenever your car is damaged in a collision with another vehicle or other object, regardless of who was at fault.
  • Comprehensive — This coverage pays for theft or damages caused by something other than a collision such as fire, hail, windstorms, falling objects, or contact with wild animals. This type of insurance varies, so pay attention to what specific events are covered or excluded in the comprehensive coverage portion of your overall policy.
  • Personal Injury Protection (PIP) — Sometimes known as Medical Payments Protection, PIP will help pay the policyholder’s medical bills and any passengers in the insured vehicle that were injured during an auto accident, regardless of who was at fault. This coverage might also pay for lost wages and funeral costs.
  • Uninsured Motorist Coverage / Underinsured Motorist Coverage — This insurance will make payments for damages done to you or other members under your policy if a driver strikes them with no auto insurance or who has insufficient auto insurance coverage to pay for all your damages.

Coverage Payment Limits

Included with the coverages are the Coverage Payment Limits. This is the total amount that the company is willing to pay out for a covered accident claim. If the amount you need to pay exceeds the limit listed on your policy, you’ll be responsible for paying the remaining amount.

Car insurance policies give their coverage limits as a string of numbers separated by a slash and will look similar to 25/50/25 or $25,000/$50,000/$25,000.

These numbers breakdown into the policy limits according to bodily injury and property damage (limits for collisions and comprehensive are included when applicable):

  • $25,000 of coverage for bodily injury (per person)
  • $50,000 of coverage for bodily injury (per accident)
  • $25,000 of coverage for property damage (per accident)

Let’s illustrate how this works. After running a red light, driver A winds up in a car accident with driver B, making the fault squarely on driver A. After everything was cleared, 3 of the people in driver B’s car went to the hospital, and the car was totaled. The total claims came to the following:

  1. Driver B, $16,000 in bodily injury
  2. 1st Passenger with Driver B, $27,000 in bodily injury
  3. 2nd Passenger with Driver B, $13,000 in bodily injury
  4. Driver B’s totaled car, $17,000 actual cash value

Driver B’s car was worth only $17,000 actual cash value and is entirely covered by driver A’s property damage coverage. The total bodily injury expenses came to $56,000, $6,000 more than driver A’s per-accident bodily injury coverage limit. Driver A must now pay out-of-pocket at least $6,000.


A deductible is an amount you are expected to pay before your auto insurance policy goes into effect. If your deductible is $1000, you will need to pay $1000 before your insurer steps in to cover the rest whenever you are in an accident. That means you need to keep $1000 available just in case of an accident.

Deductibles offset the insurer’s risk and are influenced by your premium amount. If you are paying low premiums, your deductible is likely higher than if you are paying high premiums. So if you want a lower deductible, ask to pay a higher premium.


The exclusions section narrows the broad coverage outline in the Insuring Agreement section by explicitly listing any other perils not covered by your insurance policy. Though some of these perils, like war or nuclear accidents, sound very unlikely to happen, other exclusions you might want to know about, like using your car for a delivery/ride-share business, can also negate your coverage. Here are some standard car insurance exclusions:

  • Intentional damage or bodily injury, acts of rage, using your car in a criminal activity
  • Government action or confiscation
  • Driving while intoxicated
  • Acts of nature such as tsunamis and volcanos
  • Catastrophic events such as war and nuclear accidents
  • Using your car for delivery/ride-share purposes

Insurance Endorsements or Riders

Insurance Endorsements and Riders are add-ons that adjust your coverage. This section outlines any add-ons or riders that are attached to your policy. Some typical riders include:

  1. Family Protection Coverage Endorsement — Increases your liability limits if an un-/underinsured motorist injures or kills you or one of your family members in an accident.
  2. Waiver of Depreciation — Cars lose 30% of their value once they’re driven off the lot. This endorsement covers your brand new car for its purchase amount, and if it’s totaled, you will get the entire amount back instead of adjusted for depreciation. But this rider only lasts for a period of time after the car’s purchase.
  3. Loss of Use — Gets you a rental car if your car is damaged or needs to be replaced in a covered accident.

Find Affordable Coverage With Freeway Insurance

After reading through your car insurance policy, do you think you deserve better coverage? Freeway Insurance can offer you a wide range of auto insurance plans and rates that meet your needs while saving you money. Visit us online, at an office near you, or call us at (800) 777-5620 for a quote.

Ready to Get a Quick Quote?