While not the most fascinating topic for a blog, as an Independent Insurance Agent, many of our customers and prospects are confused over what insurance is for, what is covered and most important, what is excluded.
In an attempt to clarify things a bit, (and perhaps cure your insomnia), I’d like to show you the main parts of an insurance policy. Before I do that, you need to keep a few things in mind:
The first thing to know is that it is a contract between you and the insurance company. You promise to pay the premium and they promise to pay claims in accordance with the policy coverages. If either party fails to live up to their promises, the contract has remedies for each party. For example, if you fail to pay the premium, the insurance company has the right to cancel your policy and not pay any subsequent claim.
The second thing to remember is the policy is written by lawyers; usually very good lawyers. Almost every word in the contract has been vetted by attorneys and tested in the court room.
Finally, remember that our industry is highly regulated. Every state in the Union has an “Insurance Dept.” In NYS it’s called the Dept. of Financial Services. These regulations are meant to protect you, the consumer. They govern how claims should be paid, financial matters of insurance companies and many other areas.
So, what’s in an insurance policy? Glad you asked! It’s divided into 6 parts:
DECLARATIONS - The declarations section is the first part of an insurance contract. Information contained in the declarations section is used for underwriting and rating purposes and for identification of the property or activity that is insured. The declarations page typically contains information concerning the identification of the insurer, name of the insured, location of the property, period of protection, amount of insurance, and endorsement #’s.
DEFINITIONS - Insurance contracts typically contain a page or section of definitions. The insurer is frequently referred to as we, our, or us the named insured is referred to as “you” the purpose of the various definitions is to define clearly the meaning of key words or phrases so that coverage under the policy can be determined more easily.
INSURING AGREEMENT - The insuring agreement is the heart of an insurance contract, also, the most important. The insuring agreement summarizes the major promises of the insurer. It is the contract that I referred to earlier. It explains what is covered, how much they will pay and your duties in the contract.
EXCLUSIONS- Exclusions are the types of losses the insurance company will not pay. There are 3 major types of exclusions.
1) EXCLUDED PERILS - The contract may exclude certain perils or causes of loss. In a homeowner’s policy the perils of flood, earth movement, and nuclear radiation or radioactive contamination are specifically excluded. In the physical damage section of the personal auto policy, loss to a covered auto is specifically excluded if the car is used as a public taxi.
2) EXCLUDED LOSSES - Certain types of losses may be excluded. For example, in a homeowner’s policy, failure of an insured to protect the property from further damage after a loss occurs is excluded. In the personal liability section of a homeowner’s policy, a liability lawsuit arising out of the operation of an automobile is excluded.
3) EXCLUDED PROPERTY - The contract may exclude or place limitations on the coverage of certain property. An example of this would be in a homeowner’s policy, certain types of personal property are excluded, such as cars, planes, animals, birds and fish.
CONDITIONS - Conditions are another important part of an insurance contract. Conditions are provisions in the policy that qualify or place limitations on the insurer’s promise to perform. In effect the conditions section imposes certain duties on the insured. Common policy conditions include notifying the insurer if a loss occurs, protecting the property after a loss. and cooperating with the insurance company in the event of a liability suit.
ENDORSEMENTS - An endorsement is a written provision that adds to, deletes from, or modifies the provisions in the original contract. In other words, it is a change to the policy. These can be very important because the insuring agreement can give coverage in one place and the endorsements can take it away or give coverage back. Many policies have endorsements that amend the policy to conform to state law.
So, what have we learned? Insurance is boring? Yes, but also it can protect your home, life, business and livelihood! Read your policy. Become an educated consumer and choose the right policy for you. Need help? Call our office or check out our website: www.brookswaterburn.com