How to read an Insurance Policy - How to Understand Legal Contract Terminology

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 Terminology

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 offer.

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 them.

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 be.

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 use.

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.