An insurance policy is a legal contract between the insurance company (the insurer) and the person(s), business, or entity being insured (the insured). Reading your policy helps you verify that the policy meets your needs and that you understand your and the insurance company’s responsibilities if a loss occurs. Many insureds purchase a policy without understanding what is covered, the exclusions that take away coverage, and the conditions that must be met in order for coverage to apply when a loss occurs. The SCDOI would like to remind consumers that reading and understanding your entire policy can help you avoid problems and disagreements with your insurance company in the event of a loss.
The Basics of an Insurance Contract
There are four basic parts to an insurance contract:
- Declaration Page
- Insuring Agreement
- Exclusions
- Conditions
It is important to understand that multi-peril policies may have specific exclusions and conditions for each type of coverage, such as collision coverage, medical payment coverage, liability coverage, and so on. You will need to make sure that you read the language for the specific coverage that applies to your loss.
The Declaration Page
This page is usually the first part of an insurance policy. It identifies who is the insured, what risks or property are covered, the policy limits, and the policy period (i.e. time the policy is in force).
For example, the Declarations Page of an automobile policy will include the description of the vehicle covered (e.g. make/model, VIN number), the name of the person covered, the premium amount, and the deductible (the amount you will have to pay for a claim before an insurer pays its portion of a covered claim).
Similarly, the Declarations Page of a life insurance policy will include the name of the person insured and the face amount of the life insurance policy (e.g. $25,000, $50,000, etc.).
The Insuring Agreement
This is a summary of the major promises of the insurance company and states what is covered. In the Insuring Agreement, the insurer agrees to do certain things such as paying losses for covered perils, providing certain services, or agreeing to defend the insured in a liability lawsuit. There are two basic forms of an insuring agreement:
- Named–perils coverage, under which only those perils specifically listed in the policy are covered. If the peril is not listed, it is not covered.
- All–risk coverage, under which all losses are covered except those losses specifically excluded. If the loss is not excluded, then it is covered. Life insurance policies are typically all-risk policies.
The Exclusions
Exclusions take coverage away from the Insuring Agreement. The three major types of Exclusions are:
- Excluded perils or causes of loss
- Excluded losses
- Excluded property
Typical examples of excluded perils under a homeowners policy are flood, earthquake, and nuclear radiation. A typical example of an excluded loss under an automobile policy is damage due to wear and tear. Examples of excluded property under a homeowners policy are personal property such as an automobile, a pet, or an airplane.
The Conditions
Conditions are provisions inserted in the policy that qualify or place limitations on the insurer’s promise to pay or perform. If the policy conditions are not met, the insurer can deny the claim. Common conditions in a policy include the requirement to file a proof of loss with the company, to protect property after a loss, and to cooperate during the company’s investigation or defense of a liability lawsuit.
Definitions
Most policies have a Definitions section, which defines specific terms used in the policy. It may be a stand-alone section or part of another section. In order to understand the terms used in the policy, it is important to read this section.
Endorsem*nts and Riders
An insurer may change the language or coverage of a policy at the time of the policy renewal. Endorsem*nts and Riders are written provisions that add to, delete, or modify the provisions in the original insurance contract. In most states, the insurer is required to send you a copy of the changes to your policy. It is important that you read all Endorsem*nts or Riders so you understand how your policy has changed and if the policy is still adequate to meet your needs.
Want to Review Your Policy?
To obtain a copy of your insurance policy, please contact your insurance agent or company.
As a seasoned insurance expert, my wealth of knowledge in the field allows me to shed light on the intricacies of insurance policies. Having navigated through various policies, I understand the importance of thoroughly comprehending the terms, conditions, and nuances within an insurance contract. Let's delve into the concepts presented in the article to reinforce your understanding.
1. Declaration Page: The Declaration Page serves as the cornerstone of an insurance policy, providing crucial information at a glance. It outlines details such as the insured party, covered risks or property, policy limits, and the duration of coverage. For instance, in an automobile policy, it specifies the vehicle details, the insured individual, premium amount, and deductible.
2. Insuring Agreement: This section encapsulates the primary commitments of the insurance company, explicitly stating what is covered. The Insuring Agreement outlines the insurer's promises, which may include compensating for covered perils, offering specific services, or defending the insured in liability lawsuits. Two fundamental forms exist: Named-perils coverage, listing specific covered perils, and All-risk coverage, encompassing all losses except those explicitly excluded.
3. Exclusions: Exclusions act as limitations, excluding certain elements from the Insuring Agreement. Three major types of exclusions exist: Excluded perils or causes of loss, Excluded losses, and Excluded property. Examples include perils like flood or earthquake in homeowners' policies, losses due to wear and tear in automobile policies, and excluding specific properties like pets or airplanes.
4. Conditions: Conditions are provisions within the policy that qualify or impose limitations on the insurer's commitment to pay or perform. Failure to meet these conditions can result in the denial of a claim. Common conditions include filing a proof of loss, protecting property post-loss, and cooperating during the insurer's investigation or defense of a liability lawsuit.
5. Definitions: Most policies include a Definitions section, elucidating the meanings of specific terms. This section is vital for a comprehensive understanding of the policy language. Definitions may be standalone or part of another section, requiring careful attention to grasp the intended meanings.
6. Endorsem*nts and Riders: Insurance companies may alter policy language or coverage during renewals. Endorsem*nts and Riders are written provisions that modify or add to the original contract. States typically mandate insurers to provide policyholders with a copy of these changes. It is imperative to read all Endorsem*nts or Riders to stay informed about policy alterations and ensure that your coverage aligns with your needs.
In conclusion, a thorough review of the entire insurance policy is paramount to avoid potential issues and disagreements in the event of a loss. If you're looking to scrutinize your policy, reach out to your insurance agent or company to obtain a copy and maintain a clear understanding of your coverage.
