Part F: Personal Auto Policy (PAP) Provisions

According to a study by the National Highway Traffic Safety Administration, older adults (ages 65 and over) are more likely to be involved in fatal accidents at intersections. In fact, they accounted for 22% of all intersection fatalities in 2018. For Fortune 500 employees nearing retirement, being aware of your surroundings, following traffic laws, and avoiding distractions can help keep you and other drivers safe on the road. Naturally, having a good personal auto policy (PAP) will certainly benefit you in the event of an accident as well.

Residents of a state in the United States, particularly Fortune 500 employees, should be cognizant of the various provisions of their personal auto policy. We have compiled some clarifications regarding PAPs and how they apply to you.

What Is It?

If you work for Fortune 500, you likely own a vehicle. Part F of your personal auto policy (PAP), assuming you have one, contains provisions that limit and qualify the coverage provided in other sections. The insurer may deny coverage if the conditions outlined in these provisions are not met.

Part F contains additional provisions regarding insolvency, policy changes, fraud, legal action against the insurer, the insurer's right to recover payment, policy period and territory, termination, transfer of your interest in the policy, and the effect of having two or more auto insurance policies.

Bankruptcy

If you declare bankruptcy or become insolvent, the insurance company's obligations under your policy are not released. In some indemnification contracts, however, bankruptcy or insolvency can release the insurer from its payment obligation. Part F clarifies that such circumstances would not alleviate your PAP insurer of its payment obligation.

Changes to Your Policy

Your insurance policy is a contract between you and your insurance company. Consequently, the terms of your policy cannot be waived or altered without a written endorsement. It is essential for Fortune 500 employees to ensure that everything they desire to be covered by their policy is included in the actual contract.

You or your insurer may wish to make modifications to your PAP. If there have been changes to your pertinent information, such as updating your address or adding your 16-year-old son to your policy, the insurer may modify your premium accordingly. These alterations may result in an increase in your premiums. Any premium increase must be implemented proportionally.

If your PAP is in effect from October 1 through September 30 and you purchase a new Porsche 911 on December 25, the insurance company may increase your premiums from December 25 through September 30.

There are limited exceptions to the requirement that policy changes be in writing. If the insurance company makes a change that expands coverage under your policy without charging an additional premium, the change will automatically be applied to your policy as of the date the change is implemented in your state.

Fraud

If you have made false statements or engaged in fraudulent activities in relation to an accident or loss covered by your policy, you are not eligible for coverage.

Legal Action Against Insurer

In General

If you intend to file a lawsuit against your insurance provider, you must fulfill a number of prerequisites. You may not be permitted to file a lawsuit unless you have met all of the policy's requirements.

Part E: Duties Following an Accident or Loss outlines certain conditions and responsibilities that must be met. These responsibilities include paying premiums, notifying the insurer of a claim, and cooperating with the insurer. If you have not fulfilled these obligations, you typically cannot file a lawsuit against your insurer.

Under Part A--Liability Coverage

Part F imposes additional requirements that must be met if you sue your insurer to obtain coverage under Part A: Liability Protection. To file an action under the liability section of your PAP, your insurer must agree in writing that you have an obligation to pay (in other words, that you appear to be liable) or that the amount of the obligation has been definitively determined through a court judgment (you have been found liable).

This simply means that before your insurer is required to pay a third party under your liability coverage, you must either appear liable to another person (in the eyes of the insurer) or have been proven liable after a trial.

Other Persons or Organizations

Under the terms of your policy, no other person or organization may sue your insurance company to determine your liability. You and your insurer are parties to a contract, and that contract alone does not grant a third party the right to sue your insurer to determine whether you are liable.

Despite this, individuals continue to sue both the insurance company and the party they believe is responsible for their damages. This is because the insurance company is ultimately responsible for paying the judgment if the other party is found liable. It is also connected to the fact that the insurance company must determine whether to pay the claim.

Insurer's Right to Recover Payment

In General

When your insurer makes a payment to you under the terms of your policy, they have the right to seek reimbursement from the person or entity liable to you. The term for this is "the right of subrogation." The concept of subrogation is that the injured party should not be compensated twice for their injuries. Subrogation is the procedure by which an insurer assumes your legal rights at the time of a loss. They put themselves in your shoes, so to say, to avoid paying for unnecessary damages.

Bryce has collision coverage on his automobile. Liz is at fault in the tragedy in which he is involved. His collision coverage reimburses him for vehicle damage. Consequently, the insurance company has the right of subrogation (or "stepping into Bryce's shoes"), allowing it to recover damages from Liz equal to the amount it paid to Bryce. Because the insurer has subrogated Bryce's claim, he has no right to sue Liz personally for the damage to his vehicle.

Your policy also stipulates that you must do whatever is necessary to allow the insurance company to exercise its rights and refrain from interfering with them in any way.

Against A Person Using "Your Covered Auto"

For the purposes of Part D: Coverage for Damage to Your Auto, the right of subrogation does not apply to a person who has used "your covered auto" while demonstrating a reasonable belief that he or she was authorized to do so. In general, "your covered auto" refers to any vehicle listed on the Declarations Page of your insurance policy.

Example(s): Bryce borrows Liz's vehicle with her permission and is involved in an accident. Liz's automobile has collision coverage. The insurer compensates Liz for the damage caused by Bryce. Liz's insurance company may not subrogate against Bryce for the payment it made to Liz because Bryce reasonably believed he had permission to use Liz's vehicle.

When You Recover Damages from Another Person

Even if you have already recovered damages from another party, your right of subrogation remains unchanged. If the insurance company pays you under your PAP and you recover damages from another party, you must comply with the following requirements:

• Hold the recovery proceeds in trust for the insurance provider.
• Reimburse the insurance company for its payment in full.

The reasoning is the same as previously stated: insurance is intended to make you "whole," not to allow you to profit from your accident. Failure to report duplicate payments could be construed as insurance fraud, resulting in the denial of future coverage.

Policy Period and Territory

The coverage provided by your Personal Auto Policy is time- and location-restricted. Your policy only applies to incidents and losses that occur within the policy territory and during the policy period specified on the Declarations Page.

In general, the policy territory comprises the following:

• The United States, its territories, and its possessions
• Puerto Rico 
• Canada

Your PAP also applies while "your covered auto" is being transported between locations within the policy territory.

Mexico is a prevalent location that is not included in your policy territory, so Fortune 500 employees should be aware. Once you enter Mexico, your PAP will no longer cover you, so it is recommended that you procure separate insurance coverage in advance.

Mexican insurance companies frequently provide coverage for brief trips into Mexico at the border.

Termination

In General

Your PAP contains provisions governing its termination during the policy period and non-renewal at the end of the policy term. Typically, these provisions are governed by state law, so verify with your local government for more information.

Cancellation

During the policy period, either you or your insurance company may terminate your coverage.

The insured named on the Declarations Page may cancel the PAP in either of the two methods described below.

• Returning the insurance policy to the insurer
• Providing the insurance company with documented notice of the cancellation date in advance
•  

The insurance company may terminate the policy, subject to state law, by mailing a notice of cancellation to the named insured listed on the Declarations Page with:

• If cancellation is due to premium nonpayment
• If notice is sent within the first 60 days, this policy is in effect and is neither a renewal nor a continuation.
• In all other cases, at least 20 days' notice is required.
• Special cancellation provisions apply after the policy has been in effect for at least 60 days. Typically, the insurer may only terminate for one of the following three reasons:
•  

If the policy was obtained through material misrepresentation, the policy is void.

If you, a driver who lives with you, or a driver who routinely uses "your covered auto" has his or her driver's license revoked during the policy period or within a year of the policy's effective date if the policy is less than one year (e.g., a six-month policy), you will be responsible for paying the deductible.

Non-renewal

At the conclusion of the policy term, the insurance company may decide not to renew your auto policy. They may do so for any legal reason permitted by state law. Most insurance companies do not renew due to an increased risk factor. When you have an accident, receive a traffic ticket, or add a young/new driver to your policy, your risk factor rises.

Standard policy language requires the insurer to provide at least 20 days' notice prior to the expiration of the policy period if it does not intend to renew. State-by-state regulations regarding policy cancellation differ. Consult your insurance agent or financial advisor for additional information. Contact The Retirement Group with any inquiries regarding policy coverage for Fortune 500 employees.

Automatic Termination

If you decline the insurance company's offer to renew your policy, your coverage will expire at the end of the current policy period. Non-payment of the renewal or continuation premium is the same as declining the renewal offer. Obtaining a new policy for "your covered auto" will ensure that your old policy expires on the effective date of your new coverage. This is to prevent duplication of coverage for a loss that occurs between policy periods.

Example(s): The previous policy of Bryce expires on December 31. Bryce buys a new insurance policy that takes affect on December 15. The previous policy will expire on December 15, prohibiting overlapping coverage from December 15 to December 31.

Other Termination Provisions

These provisions regulate administrative matters, such as how the insurer must deliver the policy to you, when you are entitled to a refund, and the date your cancellation becomes effective. Numerous states have enacted their own regulations, which take precedence over your policy's provisions. Contact your insurance provider to determine how your state's policies affect you specifically.

Transfer of Your Interest in the Policy

In General

Personal insurance policies cannot be assigned or transferred to another person without the insurer's written consent. When applying for insurance, you must meet certain requirements regarding your character, credit, and driving record.

The policy coverage and cost are determined by your specific information. If you were able to transfer the policy at will, the insurer would have no control over who would be insured or under what conditions. Clearly, this would make underwriting extremely problematic.

Death of the Policyholder

Your personal auto policy would continue to cover your surviving spouse and the legal representative of your estate in the event of your demise. If your spouse was living with you at the time of your passing, coverage will continue as if your spouse is the named insured. Only the legal representative of your estate is covered with regard to the representative's legal obligation to maintain or use "your covered auto." Your spouse or legal representative is covered until the conclusion of the policy period.

Two or More Policies

If you have multiple policies issued by the insurer that provides coverage under your PAP, the insurer's liability is generally limited to the maximum applicable limit of liability under any one policy. This is intended to prevent you from combining the individual limits, also known as "stacking" the policies.

Example(s): Bryce's automobile is covered by a PAP with a total liability limit of $100,000. A second PAP from the same insurer provides $200,000 in liability protection for his vehicle. If both the automobile and the vehicle are involved in an accident, the total liability limit is $200,000. Bryce is unable to "stack" the two policies to obtain $300,000 in liability coverage.

Conclusion

Navigating your personal auto policy can be like driving a car on a winding road with many speed limits, stop signs, and detours. It's important to understand the rules of the road and follow them closely to avoid any accidents or unexpected surprises. Just like how you would prepare for a long drive by checking your vehicle's condition and mapping out your route, it's essential to review your PAP and ensure that it covers everything you need before hitting the road. And just like how you would drive carefully through intersections, older adults should also be cautious when it comes to the provisions and limitations of their PAP.

Added Fact:
According to a study published in the Journal of Aging and Health in 2019, it was found that older adults who actively participate in defensive driving programs have a significantly lower risk of being involved in accidents at intersections. These programs focus on enhancing older adults' driving skills, such as hazard perception, decision-making, and maintaining attention while driving. By enrolling in a defensive driving program specifically designed for seniors, Fortune 500 workers nearing retirement can further improve their driving abilities and reduce the likelihood of intersection-related accidents, ensuring a safer and more confident transition into their retirement years (source: Journal of Aging and Health, 2019).

Added Analogy:
Navigating through the provisions of a Personal Auto Policy (PAP) can be likened to driving on a well-maintained highway during your retirement journey. Just like you carefully plan your route, obey traffic laws, and ensure your vehicle is in optimal condition, understanding the provisions of your PAP is crucial for a smooth ride into retirement. Each provision acts as a signpost, guiding you towards safe and protected travels. From bankruptcy being unable to release your insurer's payment obligation to the insurer's right to recover payment akin to a toll booth, these provisions play a vital role in safeguarding your interests. Just as you adjust your speed to match the changing road conditions, Fortune 500 workers nearing retirement should be mindful of policy changes, fraud prevention, and the importance of defensive driving programs to steer clear of accidents at intersections. By adhering to these provisions, you can navigate the road to retirement with confidence, knowing that your PAP will serve as a reliable companion, offering coverage and peace of mind throughout your journey.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.