Insurance policies are created for specific purposes, and they usually contain several elements that are not present in other forms of contracts. In this article, we discuss what an insurance policy is and what constitutes its essential parts.
What is an Insurance Policy?
The insurance policy is a contract between the insurer and the policyholder that specifies the claims that the insurer is legally obligated to pay. It contains all forms involved with the agreement between the insured and the insurer.
Why You Need To Familiarize Yourself with Your Insurance Policy
Legal contracts aren’t known for being enjoyable to read, but being aware of their contents ensures that you understand both parties’ purpose and expectations.
Being an informed policyholder can also help you avoid arguments with your insurer if you need to submit a claim for a loss, make a payment, or renew your insurance.
The 5 Parts of an Insurance Policy
The five parts of an insurance policy are: declarations, insuring agreements, definitions, conditions, and exclusions.
The Declarations page is often the policy’s initial page. It highlights crucial policy-specific information. It includes the insured’s name and address, policy dates, a brief description of the business, the coverage given, coverage limitations, premiums, and policy forms.
The Declarations also includes several schedules that specify the insured’s operating location(s), the various assigned rating categories, the rates, rating basis, and any unique property covered.
2. Insuring agreements
Insuring Agreements specify the property and dangers covered by the policy in further detail and what the insurance company has promised to pay for or deliver in exchange for the premium. Most policies include a section plainly labeled insuring agreements.
Terminologies in insurance plans have unique meanings in the context of insurance. These terms are frequently identified by bold font or quote marks in the policy. The Definitions section clarifies popular terminology, narrows their definitions, and helps to avoid ambiguity, which might act against the insurer in court.
Definitions can restrict or limit coverage. Hence, it is critical that policyholders carefully examine definitions and request clarification anytime a term is uncertain.
Conditions outline the laws that insurers and the insured must follow. Policy conditions address issues such as duties in the event of a loss and how claims are paid and evaluated. The insurer does not guarantee that all losses will be covered.
The insurer has specific conditions for the insured, like premium payment or tasks to be carried out following a loss. An example is when an insurer offers to cover a loss only if the insured has met their contractual commitments. Failure to meet your obligations may result in the policy being voided or severely limiting your coverage.
Exclusions limit, restrict and clarify the coverage provided by the insurance. They basically list what the policy does not cover. Besides the Exclusions section, other exclusions can also appear anywhere in the policy.
What is the importance of having an insurance policy?
Insurance is a valuable financial tool. It helps you live your life with little to no anxiety, knowing that if an undesirable event happens, you have the financial backing to bounce back.
Here at Leadway Assurance, we have a wide range of policies to safeguard you, your family, assets and property from financial risk/loss.
Ready to get started? Check our insurance products and rest assured of protection no matter the situation. Select the policy that works for you today.