Elements of a Valid Insurance Contract

An insurance contract, also called an insurance policy, is a risk-distributing legal agreement between two parties: the insurer and the insured. The insurer is typically the insurance company extending the contract while the individual or company purchasing the contract is the insured. There are many types of insurance contracts because there are many types of insurance. For instance, a vehicle insurance contract is different from a life insurance contract. However, all insurance contracts share certain fundamental elements.

The declarations page is typically the first part of an insurance contract. According to the National Association of Insurance Commissioners, the declarations page identifies the insured, the property or risks covered by the contract, policy limits and the duration of the contact. For example, the declarations page of a life insurance policy will include the full, legal name of the individual insured and the principal amount of the insurance contract (for instance, $50,000, $100,000, etc.). Similarly, the declarations page of a vehicle insurance contract will include the model and make of the vehicle, its VIN number, name of the owner covered, the premium amount of the policy and its deductible.

The insuring agreement details what is to be covered by the insurance company. There are two main types of insuring agreements: all-risk coverage and named-perils coverage. An all-risk coverage insuring agreement covers all losses except for those that are explicitly excluded. Life insurance contracts are usually all-risk coverage policies. A named-perils coverage, on the other hand, covers only those risks that are explicitly listed and does not cover all those risks, or perils, that are not listed.

The exclusions page of the insurance contract details all those losses that are specifically excluded from the insurance contract. For example, a life insurance contract pays benefits if the insured party dies, but it typically excludes payment benefits if the insured takes his own life.

The insurance contract conditions page specifies the obligations of the insured under the policy. A liability insurance contract, for example, requires a policyholder to pay the insurance premium; give notice of a claim to the insurance company; forward all relevant suit papers to the insurance company; and inform the insurance company of the facts relevant to a loss or claim. An insurance company can refuse to pay the claim if the insured does not meet the stipulated insurance contract conditions.