How to read an
Insurance Policy - How to Understand Legal Contract Terminology
March 16th, 2006
If you ever put
off reading the fine print of the any insurance policy you will find
this article helpful in understanding what to look for in the fine
policies are a contract between you and the insurer, and are not
written so the average person could pick one up, read it from front
to back, and come away with a meaningful understanding of what they
just read. The structure of a policy is usually very confusing, and
they are loaded with special definitions. Fortunately, most
insurance contracts share a similar structure. Once you understand
how it is structured, you are in a much better position to
understand what is and what is not covered under the contract.
Insurance policies contain the following general sections, but are
not always set-up in the same order.
Declaration Page - A declaration
page includes the name and address of who is insured, the issuing
carrier, what risks or property are covered, the policy limits, the
coverage effective dates and policy numbers. Depending on the
policy type, the premium, deductible and a list of applicable
endorsements may also appear.
You want to
look this over carefully to make sure it lists what you want it to
list. Are all of the coverage’s you discussed with your insurance
agent included? Are the limits of liability or deductibles
correct? If not, make sure you meet with your agent and make the
corrections immediately. You don’t want to wait until you file a
claim to find out you are not covered.
Definitions - Many of the key
terms will be defined in this section. You won’t be able to
understand the coverage without a basic understanding of the defined
policy terms. The definitions section normally appears in the
general conditions section, and is usually printed in bold type. It
is a good idea to either pull it out of the policy or make a copy of
it, so you can keep referring to it as you read the rest of the
policy. Many people make the mistake of assuming that the words in
the policy have a meaning broader than what is defined in the
policy. The insurance company includes these definitions in the
contract for a very good reason as it protects against claims and
court cases. Companies go to great lengths to define their terms as
clearly as possible.
Coverages - Your insurance
policy will discuss each coverage separately. For each type of
coverage, the policy will usually define the meaning of the limits
listed on your declaration page. Read these very carefully, because
sometimes there are lower limits for certain defined types of loss.
In addition to the definition of the limits, each coverage type will
have an insuring agreement and a list of exclusions.
Insuring Agreement - This is the
meat of the policy. In this section the policy will define all of
the coverage you have just purchased. Make sure you have your
definitions handy when you are reading this section; it will be full
of defined terms. Sometimes the coverage section will contain its
own definitions or re-definitions of some of the terms. This
portion of the agreement generally uses broad language to describe
the coverage offered. Read this part very carefully and make sure
you understand it before moving on to the exclusions section.
Exclusions - This section
literally takes away much of what was described in the insuring
agreement. This part informs you how the coverage is limited.
Usually, the exclusions are much longer and more specific than the
insuring agreement. It is important to understand what is
excluded. If you are not comfortable with what you have read, then
by all means, contact your agent to discuss any concerns or
confusion you have.
General Conditions - This
section is perhaps the most straightforward and easy to understand
section of your policy. Here, you will find what you are required to
do in the event of a loss. Also, other general policy terms will be
listed in this section. This section may appear less critical, but
failure to comply with the general conditions could jeopardize your
coverage. Make sure you understand what is expected of you.
Reading an insurance policy can
be overwhelming. It is a good idea to set it aside for a day after
you have read it, then pick it back up and read it again. Whatever
you do, don’t just file it away if you aren’t comfortable with it.
An insurance policy of any kind is not going to be easy, enjoyable
reading, but the better understanding you have of the general
structure, the more assured you can be of having the correct amount
or type of coverage for your needs. A great website to start
researching policies and finding answers to your questions is
http://www.mostchoice.com. Remember, if you have any questions,
or you feel uncomfortable about what you read in your policy,
contact your insurance professional.
Types of Insurance and
Having a health insurance policy
is one of the most important policies you will own. Without a
health insurance policy, you can suffer devastating consequences.
It is better to be covered, than not. When searching for a health
insurance plan, or if you already have signed up for one through
work, the plan terms, descriptions of provisions and coverages, can
be hard to understand. Listed below are some common coverage terms
to help you understand more about what your health plan has to
Your deductible refers to the
amount of money you need to pay, before any benefits from the policy
can be paid on your claim. Co-insurance / co-payments, are the
amount that would need to be paid by you before the insurance pays,
and is in addition to the deductible. The lifetime maximum is the
most amount of money the health insurance policy will pay for the
entire life of the policy.
Exclusions are the things that
the insurance policy will not cover. As you are reviewing your
exclusion’s section, take a look at the size of the list. If it is
a large list, then the insurance company has tried to record all of
the exclusions listed throughout your policy; if it is a short
exclusions list, this usually means that they are listed throughout
your policy. Be careful when you read this list; make sure you
understand it and you don’t miss anything. And a final note, there
are pre-existing conditions. This refers to a medical condition you
or someone in your family had before you obtained the policy. Some
plans will cover pre-existing conditions, while others will exclude
Another important policy to
consider is a homeowner’s insurance policy. If you have a lien
against your home, then you are required to have it insured. It
only makes sense to have your home insured, because your home and
belongings are the most important and valuable assets you own. A
homeowner’s policy is designed to protect homeowners, but of course
there is usually a deductible to meet before you file a claim. The
larger the deductible, the less expensive your homeowners policy may
A typical homeowner’s insurance
policy is divided into two parts: Property Protection and Liability
Protection. Property is usually listed on the declarations page.
Property Protection is normally broken down into four additional
sections: dwelling, other structures, personal property and loss of
The Dwelling section covers your
house, attached structures, plumbing, heating, and electrical.
Other structures covers detached structures, such as garages,
storage sheds, fences, driveways, sidewalks and patios. Personal
Property covers personal property, including the contents of your
home and other personal items. Loss of Use covers living expenses,
if you can not live in your home while it is being repaired.
Then there is the Liability
Coverage’s section. This section is broken down into two parts,
personal liability and medical payments. The Personal Liability
section provides personal liability coverage against a claim or
lawsuit resulting from bodily injury, or property damages to others
that was caused by an accident on your property. The medical
payments section includes coverage to pay medical expenses for
people accidentally injured on your property.
As you are becoming more
familiar with the structure of an insurance policy, we can not
forget about the exclusions section. Most policies do not cover
injuries to animals, damage to motor vehicles or aircraft. Nor do
they normally cover losses due to floods, mudslides, water damage
from sewer backups, war or nuclear hazard, neglect, earthquakes, or
power failures. To cover these exclusions, it will cost you extra.
Congratulations, in taking the first important step towards
protecting yourself or your property by purchasing an insurance
policy. It makes sense to learn how to read and understand it. By
doing so, you have gained the knowledge you need to ask the right
questions when seeking advice from your insurance agent and
potentially saving yourself a great deal of stress or heartache in
the event you need to make a claim.
This article was
http://www.mostchoice.com. MostChoice is a free national service which
speeds up and simplifies the process of finding insurance, real estate, and
financial products by connecting consumers with expert agents and brokers in
their local area. We are dedicated to providing impartial information and
free quotes from multiple sources to help consumers get the appropriate
policy for their needs at the best price.
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