Understanding Your Insurance Policy
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:
o Declaration Page
o Insuring Agreement
o Exclusions
o 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. the 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:
o 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.
o 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:
o Excluded perils or
causes of loss
o Excluded losses
o Excluded property
Typical examples of excluded perils
under a homeowners policy are floods, earthquakes, 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.
Endorsements and Riders
An insurer may change the language
or coverage of a policy at the time of the policy renewal. Endorsements 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 Endorsements 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.
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