Parts of an Insurance Policy

Figuring out the type of insurance to buy can be a significant undertaking. Most Americans have several types of policies. Insurance products provide peace of mind for the policyholder. However, they can be complex.

The type of coverage can include the following:

• Health insurance
• Automobile insurance
• Liability insurance
• Homeowners insurance

Trying to understand different parts of the insurance policy is quite a task. Regulation of the insurance industry is concerned with stability in the financial markets and consumer protection.

Part of consumer protection involves making sure consumers understand their policies. The basic parts of an insurance policy include:

• Declaration page
• Insuring agreement
• Conditions
• Exclusions

The article below discusses some of the more significant parts of an insurance policy in greater detail.

Declaration Page

The declaration page is typically the first part of an insurance policy. It identifies:

• Who is insured
• What risks or property are covered
• The policy limits (the maximum amount that the policy will cover based on the amount of coverage purchased)
• The policy term (the effective date of the policy, i.e., a six-month auto policy or a 20-year term life insurance policy)

For example, the declaration page of a homeowners policy would identify your home and the dollar amount of personal property damage covered by your homeowners policy. It could cover up to $50,000 in personal property.

Similarly, the declaration page of an auto insurance policy can include:

• Description of the covered motor vehicle (i.e., make, model, VIN)
• The name of the person covered
• The amount of the insurance premium
• The amount of the deductible

The declaration page will help you to understand the insurance contract better. The definitions section within the declaration page explains key terms used within the document.

Insuring Agreement and Conditions

Next, the insuring agreement provides more detail. It explains what the insurance company promises to do or cover under the insurance policy. For example, the insurance company may agree to the following:

• Pay for the losses associated with a natural disaster, such as property damage and reimbursement of living expenses due to the natural disaster
• Defend you in a liability action provided by the terms of your liability coverage
• Pay for specified items, such as medical care, personal injury protection (PIP), comprehensive coverage, collision coverage, and uninsured motorist coverage

Following are the two key types of insuring agreements:

• Named-Perils Coverage: Covers only the perils specifically listed in the insurance policy
• All-Risk Coverage: Covers all risks and financial losses except for those expressly excluded in the insurance policy

Similarly, the conditions part of the policy describes your obligations under the insurance contract. Common conditions require you to:

• File claims within a specific time
• Cooperate with the insurer in a liability lawsuit
• Mitigate additional damage under a property damage policy

Your insurer may deny coverage if you fail to abide by these conditions.

Insurance Policy Exclusions

It is essential to understand the exclusions section of an insurance policy. Exclusions remove coverage from the insuring agreement. It describes property, losses, causes of losses, or perils that are not covered. Major types of exclusions include:

• Excluded perils or causes of loss
• Excluded losses
• Excluded property

Typical examples of excluded perils under homeowners insurance policies are floods and earthquakes. For life insurance policies, insurers will often exclude death due to suicide or an act of war.

It is critical to read and understand your policy. If you only read the policy declarations page and the insuring agreement, you may be paying for coverage you don't have.

If you have questions about coverage, insurance agents are an excellent resource to explain what's covered. If you need additional assistance with coverage issues, a local insurance attorney can help.

Insurance Policy Endorsements and Riders

Sometimes, an insurer will change the wording, terms, or scope of your insurance plan. For example, when you renew your policy at the end of the policy period, your insurer may change the policy language.

Changes might occur through an endorsement or rider to the policy. Endorsements and riders are legally binding amendments to the original contract. For example, an inflation rider on a title insurance policy adjusts your insurance coverage amount. This change tracks the increase in your home's property value over time.

Insurance law is a matter of state law. Under state law in many jurisdictions, the insurer must send policyholders a copy of the changes to your policy. It's important to read all endorsements and riders from your insurance company to identify coverage changes.

Get Help Protecting Your Insurance Rights

When you make your premium payments, you expect insurance coverage to protect your interests in a time of need. Most of the time, insurance works as expected. Unfortunately, disputes between insurers and policyholders occur.

Understanding your policy will decrease the likelihood of a dispute with your insurer if you make an insurance claim. It also ensures you purchase enough coverage but only the coverage you need.

If your insurer has denied your claim or seems to be acting in bad faith, contact an experienced local insurance attorney who can explain your policy and help defend your insurance rights.