May 17, 2017 | Insurance Agent Engine

Understanding Your Insurance Policy

Understanding Your Insurance Policy

Your insurance policy is an important tool that safeguards you against financial loss and more. Like any tool, it’s important to understand how to use it. You don’t have to be an insurance expert to understand insurance terms and definitions or to navigate your way confidently through your policy. Here’s what you need to know to understand your insurance policy.

Common Insurance Terminology

Here are some of the terms you’re likely to see come up on your insurance policy, no matter what kind of coverage you’ve got.

A request for compensation of losses covered by insurance.

The person making a claim and requesting compensation of losses. (If the claimant files a lawsuit, they are also referred to as a plaintiff.)

Claims Adjuster
The party who settles insurance claims. May be employees of the insurer or independent adjusting bureaus. The adjuster typically investigates the loss, negotiates a settlement, coordinates insured’s defense and participates in settlement negotiations.

Certificate of Insurance
Also known as “proof of insurance.” A document providing evidence that certain general types of insurance coverages and limits have been purchased by the party.

The amount the insured will pay before the insurance company will pay up to its policy limits.

A form added to an insurance policy that changes, deletes or adds coverage, terms or provisions of the policy. Endorsements may broaden the scope of coverage, limit or restrict coverage, clarify coverage, or add additional parties or locations to the policy.

A provision in an insurance policy that excludes and/or limits certain coverages.

A condition that creates or increases the probability of a loss.

The act of compensating for a loss. An agreement of one party to assume financial liability for another party, known as risk transfer.

A contractual agreement where one party (the insurer) agrees to reimburse another party (the insured) for a loss caused by specific hazards or perils for a consideration (the premium).

Insurable Interest
An interest by the insured person in the value of the subject of insurance. Insurable interests typically result from property rights, contract rights, and potential legal liability. Insurable interest must be present in order for an insurance contract to be legal and valid.

The person(s) or parties who are insured/protected by an insurance policy.

The company that provides insurance coverage and services.

An obligation to pay compensation for injury or damage caused by one’s action or negligence.

Liability Insurance
Coverage for third-party bodily injury or property damage for which you are held liable (as provided by your policy and state law).

Limits of Insurance
The total amount of losses an insurance company will pay under an insurance policy. Can be expressed on a per occurrence basis (per accident or event) or on an aggregate basis (all losses under a single policy, or for all policies during an underwriting period).

The basis of a claim for damages under a policy. Loss of assets resulting from a risk. The basis for filing a claim.

Loss History
A record of insurance losses. Also known as loss runs. Loss history reports typically include your dates of losses and claims, claim details, and the amount paid out.

Named Insured
Any person or entity specifically designated by name as an insured in an insurance policy.

Named Perils
Also known as specified or named perils. Coverage only for loss caused by perils specifically listed in the policy. In contrast, coverage can be “all-risks” and apply to loss from all causes unless specifically excluded.

The cause of loss, such as theft, fire, windstorm, or collision.

A written contract of insurance between the insurer and the insured (policyholder). Typically composed of a declarations page, policy form, and endorsements or riders that amend the policy form.

The insured or the policy owner. A person or entity specifically identified as the named insured in an insurance policy.

The amount of money an insurer charges to provide coverage described in the policy. Premiums are typically paid on an annual or monthly basis.

Anything that has value. Can be real property and personal property. Can also defined the location where property coverage applies.

Real Property
Land and most things attached to the land, such as buildings and vegetation. The definition of land can include not only the surface of the earth, but also everything above (like airspace) and beneath it (like soil).

Personal Property
Any tangible, physical property not classified as real property.

Common Parts of an Insurance Policy
We’ve deconstructed a typical insurance policy for you. Here are the parts and pieces you’re likely to find inside your actual policy.

Declarations Page
The policy declarations page is typically the first page of the policy package. The “dec” page includes basic information identifying the named insured, address, property covered, coverages, policy period, and premium amounts. Also referred to as the information page.

This section gives you the definitions of words and phrases you’ll see in the policy.

The coverage section describes the specific insurance provided. It details what property is covered and for what damages.

These describe the limits of a policy’s coverage. For example, damage from earthquakes or floods is typically excluded from a homeowner’s policy.

Limits and Special Limits
This section explains how much the insurer pays for particular losses or types of property. Something may be covered under your policy but only up to a specific dollar amount of for a limited percentage of the claim.

The conditions section outlines what the responsibilities of the insurer and the insured. It will include information on how to cancel a policy, transfer rights, and information about payments.

Duties After a Loss
This section provides guidance on what to do when a loss occurs, such as notifying your insurer as soon as practical, notifying the police if appropriate, and protecting your property from further damage.

The endorsement section defines optional coverages available for additional premium costs. It may also include amendatory endorsements added by the insurance company that clarify policy terms and language.

No matter what type of coverage you have, these are the typical policy parts and terms that you’ll find with your insurance. If you have specific questions about your individual policy, such as your coverage details, policy limits, deductible or premium amounts, or specific perils included or excluded, be sure to ask your insurance provider.