Insurance is supposed to serve as a safety net, but sometimes
that net has some unexpected holes.
Even if you have full car insurance coverage, you could have
less protection than you think because of exclusions and limits
lurking in your policy's fine print. Car insurance policies can
vary considerably when it comes to who's covered and when.
"Insurance is not a commodity," says Bill Wilson, associate vice
president of education and research for the Independent Insurance
Agents & Brokers of America. "Buying an auto policy is not the
same as buying a two-pound bag of sugar."
Instead, he says, it's more like buying a bicycle. You have to
evaluate features, the company's reputation and reliability and
match the product for how you plan to use it.
That's why it's not only important to
compare car insurance
quotes, but also to compare policy details before purchasing.
"You should always ask for a full copy of your policy and read
through the whole thing," says Penny Gusner, consumer analyst for
Carinsurance.com. "It's better to know what coverage you have than
to find out you don't have the coverage you need after something
bad has happened."
Here are six examples of how coverage might be less than you
1. Lower liability coverage for some drivers
In some states insurance companies can include "step-down
provisions" for auto liability coverage, which lower the policy's
liability limits to
state minimum insurance requirements
when you let a driver who's not on the policy use your car.
Say, for instance, you have liability limits of 100/300/50
($100,000 for bodily injury liability for one person, $300,000 for
all injuries and $50,000 for property damage in an accident). You
loan your car to a neighbor, who gets in an accident. Under a
step-down provision, your liability limits for that accident would
automatically drop to your state's minimum required liability
limits. Those limits vary by state, but are far lower than
"I'd call your insurance agent to ask, especially if you have a
relative coming to visit who will use your car," Gusner says.
2. Confusing underinsured motorist coverage
Underinsured motorist (UIM) coverage kicks in when the at-fault
driver doesn't have enough liability coverage to pay all your
medical bills after you suffer injuries in an accident. (
motorist coverage pays for medical treatment when the at-fault
driver has no insurance at all.)
That might sound simple, but the payout for UIM is complicated.
Why? The amount paid from the at-fault driver's liability coverage
from the amount you can claim against your own UIM coverage.
Say, for instance, you face $50,000 in medical bills for
injuries after a car accident; the at-fault driver has $25,000 in
bodily injury liability coverage, and you have $25,000 in
underinsured motorist coverage.
The payment from the other driver's policy -- $25,000 -- would
be deducted from what you can claim on your $25,000 of UIM
coverage. The result: Your UIM insurance would pay nothing and
you'd be $25,000 short of the $50,000 you need.
Your UIM coverage must be higher than the at-fault driver's
liability limits to do any good.
In some states, you can
"stack" your UIM coverage
- meaning combine the limits on two or more vehicles you've insured
to get more protection. And in Connecticut, you can buy
"conversion" coverage, so payments from your policy are not reduced
by payments from the at-fault driver's insurance.
Gusner says you should make sure you know how your UIM coverage
works and evaluate whether to increase the limits on your
3. No coverage for injuries if you drink and drive
Thirty-seven states have
alcohol exclusion laws
, which allow insurance companies to deny medical coverage for
injuries due to intoxication, according to the Governors Highway
Safety Association. That means in those states your insurance
company could refuse to pay for your medical treatment if you
crashed and were injured while driving and impaired by alcohol or
4. Coverage excluded for unlicensed drivers
Some policies exclude coverage if an unlicensed driver uses your
vehicle and crashes. Bottom line: Be super picky about who drives
"It's awkward to ask to see your friend's driver's license, but
then again you're trusting someone with your car, and if they wreck
and there's no coverage, you're the one who's going to be
responsible," Gusner says.
5. Exclusions for doing business
Many policies exclude coverage for any business use of the
vehicle, Wilson says. Borrowing someone else's car won't help
either - their personal auto policy likely won't cover your
In addition, many policies exclude coverage for pizza or other
"Imagine how many pizza delivery drivers are on the road tonight
without insurance," Wilson says. "This exclusion could apply to all
kinds of exposures, from delivery [of] newspapers to Mary Kay
6. Restricted coverage for car theft
Some policies exclude coverage for theft without any evidence of
forced entry, Wilson says, and some don't offer coverage for
upgraded and custom equipment. That can be a problem if you've made
some after-market modifications to your vehicle.
Wilson recommends working with an agent who understands your
needs and can explain the differences between policies.