Myth-busting: How to help your clients grasp their auto policy limitations

Do you have your clients’ full attention when you’re explaining the coverage limitations in their auto policies?

It’s important to be sure, because many drivers in Ontario make incorrect assumptions about their coverage, says Daniel Ivans, an insurance expert at Rates.ca. This can include thinking policies automatically offer full-vehicle replacement, accident forgiveness, and/or consistent deductibles across every type of claim.

“Drivers are often surprised to find that the protections they assume are included may not be part of their coverage at all,” he says. “A small misunderstanding can become a major [out of pocket] expense, so it is important to know what is in your policy and what is not.” 

Related: 15 minutes to explain a benefit that would save your client 8 cents. Is auto optionality worth it?

He says many Ontario auto policy holders share five primary misconceptions about coverage:

• Assuming accident forgiveness is automatic, rather than an optional add-on. Ivans notes the coverage isn’t offered by all insurers, and it doesn’t necessarily stay with drivers if they purchase it with one insurer and then switch to another. Also, many drivers don’t know the coverage applies only to the first at-fault accident. It is not a long-term protection. 
• Thinking their newer vehicle will be replaced at full value if an insurer writes it off. The truth is, a depreciation waiver is required for full-value replacement. “Without it, a newer vehicle will be settled at its depreciated value, which can be much lower than the original purchase price,” says Ivans.  
• Assuming deductibles are consistent regardless of claim type. Deductibles paid out of pocket by clients will differ by type of damage. “Drivers often discover this only when the repair cost is higher than expected,” he says. “Collision and comprehensive deductibles can be different, and some claims may not require a deductible at all.”
• Believing any and all damages are covered, when policies actually separate coverage for theft, vandalism, collision and weather. Ivans gives the example of a fallen tree branch or hail that triggers comprehensive protection, compared to impact-related damage, which is covered under collisions. Sometimes damages and related losses can fall outside a driver’s selected coverages.
• Assuming a lapse in coverage will automatically result in higher premiums. With most providers, a coverage gap caused when an insured properly cancels a policy (e.g., following all the insurer’s rules) won’t have a negative effect on pricing. That’s true even if the gap lasts for several years. “Drivers who cancel coverage intentionally, such as during a period without a vehicle, are often surprised to learn that this alone does not automatically raise their rates when they return to the market,” says Ivans. So, what will trigger rate increases? Things like policies being cancelled for non-payment, or if there is a misrepresentation on a client’s application.

Related: Should your Ontario clients drop optional auto accident benefits?

He adds many problems keyed to those five assumptions show up during the winter because collision rates and weather-related damage can increase and lead to claims.

“Understanding the details ahead of time makes it easier to avoid unexpected bills and to decide whether it is better to file a claim or handle a minor repair independently,” adds Ivans. 

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.