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If you find it challenging to read your auto insurance policy, you’re not alone. Insurance is a contract, which means there’s a lot of legal language. Don’t let that scare you. Once you understand what’s contained in the different parts of your policy, you’ll be able to review any policy or renewal that you receive with confidence.

You should also rely on your insurance broker to answer any questions you have about your coverage or policy.

Declaration page

The declaration pages recap information specific to your coverage. This includes your policy number, listed drivers, insured vehicles, and a summary of the coverages, limits, and deductibles that apply. Depending on your situation, you might also see lender information for car loans or leased vehicles and any applicable discounts.

Defining your coverage

The rest of the policy consists of the insuring agreement, a formal document that lists all the conditions, coverages, limits, exclusions and terms.

The first sections will usually provide an overview of the mandatory versus optional coverage. They will also list requirements and general definitions of terms used throughout the policy.

The coverage definition section contains a detailed explanation for each condition under which you are insured.

Most policies include the following coverage options:

Coverage for the driver and passengers

• Third-party liability covers the cost of damaged property, and compensation for injuries or death caused by the insured driver. Liability will cover medical and legal expenses incurred by the injured party or their estate, as well as any settlements, up to the limit of coverage stated on the declaration page. Liability comes into effect only if the driver on your policy is at fault.
• Medical payments (MedPay), or personal injury protection (PIP), pays for the medical expenses of the insured driver, their passengers, and in some cases, injured pedestrians. The terms are interchangeable, and the coverage is mandatory in most provinces.
• Funeral expenses and death benefits are self-explanatory.
• Disability income benefits are also mandatory in most provinces. They provide replacement of lost wages due to accident-related disabilities.
• Uninsured coverage protects the insured driver and all passengers after a hit-and-run. It acts as an extension of PIP coverage to pay for medical expenses related to injuries sustained.

Coverage for the vehicle

• Collision coverage pays for repairs to the insured driver’s vehicle if the driver is at fault or involved in a hit-and-run accident. If the vehicle is financed or leased, the lender will likely require this coverage. The limit of coverage is the actual cash value of the vehicle, or the cost to replace it minus depreciation. This coverage has a deductible.
• Comprehensive coverage is optional. It pays for theft or damages to the vehicle that aren’t related to collisions, such as fires or vandalism. There is also a deductible on this coverage.

For each coverage, the insurer specifies:

• When the coverage applies
• What conditions activate the coverage
• Who is covered
• How or when the coverage will take effect
• How payments will be made

General provisions and exclusions

This section contains some important information:

• Where your coverage applies
• The insurer’s right to litigate and settle
• The insurer’s right to recover its costs
• The insurer’s duty to defend the policyholder and other listed drivers
• Any additional costs paid by the insurer
• What happens if the policyholder dies or is bankrupt
• What’s always excluded (wear and tear, war, nuclear)
• How disputed claims are settled
• The insurer’s right to salvage the vehicle if declared a total loss
• How the insurer handles claim payments when a lender is involved
• The need for inspections
• The insurer’s right to refuse claims when presented with false information
• The factors that can cause the insurer to raise the policyholder’s premiums

Cancellation and termination

In the final section of your policy, you’ll find how you or the insurer can terminate the contract and under what conditions an insurer might cancel the agreement. There is a formal procedure for breach of contract triggers, such as nonpayment of the premium. Finally, the section states when the insurer must send a renewal notice.

While this article should provide some clarity on the terms of your contract, it is not a substitute for your actual auto policy or the guidance of your insurance broker. Call your broker if you have any questions about your coverage or specific aspects of your auto policy.