What Is a Step-Down Auto Insurance Clause?
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Policyholders who are letting someone not listed on their policy drive their car might want to speak to their insurer about whether the policy contains a "step-down" clause. This provision in a policy allows the insurer to automatically reduce the amount of coverage to the minimum levels allowed by the state when the insured vehicle is being driven by someone that's not specifically listed on a policy.
For example, if a Californian purchases car insurance with a step-down clause and liability limits of $100,000 for bodily injury caused to one person, $300,000 for bodily injury per accident, and $50,000 for property damage (100/300/50), those limits would only apply to those listed as an insured on the policy.
If a close friend not included on the policy got into an accident while driving the car, the maximum coverage that would be provided by the insurer would be $35,000 in liability insurance, which is the minimum amount required by the state.
Some states ban step-down clauses, and consumers should know what the case is in their state.
Why Step-Down Clauses Are Included in Policies
By including a provision such as the step-down clause, insurers are able to charge lower premiums because they are assuming less risk.
Insurance policies are often designed to cover accidents when the insured car is lent out, but the car insurer does not know who the vehicle is being lent out to and could end up paying for an accident that was caused by a high-risk driver, which some insurers don't want to provide coverage to whatsoever. This could be unfair to the carrier since they would not have collected an extra premium to compensate for the elevated risk, but would have to pay a claim for the full coverage amount if this clause didn't exist.
With the ability to include step-down clauses, insurers are able to protect themselves from paying large claim amounts caused by drivers who are not actually customers. By lowering the amount of potential losses, the insurer can offer reduced rates.
Make Sure You're Aware of Whether This Provision Is on Your Policy
Consumers should always understand the policy that they're thinking about purchasing. Knowing whether a step-down clause would provide less coverage to those not listed on a policy could be extremely important.
If a motorist has relatives visiting who will be using the covered automobile on a regular basis, it may be a good idea to check and see how much protection would be extended following an accident and claim.
Accidents are expensive; that's why some of us choose to purchase higher insurance limits than what's required by the state. Paying the extra premium for more extensive coverage could be a waste of money if it would not offer the same level of protection to others who may borrow the vehicle regularly.
If your policy includes this provision, you may want to consider the cost of paying for a policy without it. You can click here to check and compare estimated rates, but make sure you get the full policy details from the coverage provider before going forward with a purchase.