An insurance policy is a legal contract between an insurance company (insurer) and a person, company, or other entity (insured). Policies can vary slightly as to what specific parts are included in the contract, but all follow the same general format. The National Association of Insurance Commissioners (NAIC) states that reading and understanding your insurance contract is essential in helping to reduce any confusion and avoid problems or disagreements with the insurance company.
The declarations page is usually the first part of an insurance contract. It lists the name of the insurance company, the name(s) and address of the insured, what risks or properties are covered and the amount of that coverage, the period of time that the insurance is in effect, and the premium (amount that the insurance will cost for the policy period).
This section includes definitions of the various words, terms and phrases used in the insurance policy.
The agreement section summarizes what the insurer promises to do. It states what risks, or perils, are covered and the extent and nature of the coverage. It also states what services are provided by the insurer and, when applicable, the extent to which the insurer will go to (if any) to protect the insured against a liability lawsuit by a third party.
Certain risks may be excluded from coverage and are listed in this section. Examples of exclusions, depending on the type of insurance coverage (homeowner's/renter's/auto, medical, life), can include flooding or other "acts of God" such as tornadoes, hurricanes, or earthquakes. These risks require special policies. Other exclusions include intentional acts and pre-existing conditions.
This section describes the provisions in the policy required to be met for the insurer to pay claims. It includes rules of conduct, obligations, and duties required to be met by the insured. If the conditions are not met, the insurer can deny the claim.
Additional forms known as endorsements can be attached to policies. They detail any modifications, additions, or deletions to the standard policy that have been approved by the insurer.
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