Understanding an insurance contract is of the utmost importance. Both the insurer and the insured should have a handle on how insurance policies work and what they contain. Below, we outline the five main parts of an insurance policy, from the declarations page to the exclusions and limitations.
The importance of understanding your insurance policy
To get started, we first want to emphasize the importance of understanding your insurance policy. There are a few key reasons that understanding your policy is so important, whether you are buying an insurance policy for businesses or your first car insurance policy. Continue reading to find out more:
Your insurance policy features several key dates
As a policyholder for insurance, it is your responsibility to know the key dates that are relevant to your policy. Thankfully, these can easily be found inside the policy itself. One important date to keep track of is when your policy expires. This is good to know as it allows you to cancel your insurance policy on this date if you wish to do so or renew your insurance policy if your provider allows it. This will also let you know when it is time to update your vehicle documents and personal files to reflect your current insurance policies.
In addition, your insurance policy will list the maximum time frame that you have to file a claim following an incident. If you fail to read your policy, you won’t be aware of these vital dates and timelines, which can cause problems down the road.
Your insurance policy has a section to help you understand insurance better
Another reason that reading through your policy is so important is that there is a section specially designed to help you understand the rest of the policy. It is known as the definitions section. As the name suggests, this portion of your policy provides clear explanations and definitions for some of the complex industry jargon that you will find throughout the rest of the contract. Thus, reading through this section of your policy can actually help you understand the rest of your policy and what you are and are not covered for.
Your policy outlines what it does and does not cover
Next, your insurance policy clearly outlines what it does and does not cover. This is another reason that checking your policy is so important. For example, a life insurance policy should contain certain types of coverage. Reading through your policy will confirm precisely what it can protect you against. Similarly, your policy will also outline what it does not cover via the exclusions section. This section will explain the risks or instances that your insurance providers will not cover.
Reading through your policy allows you to understand any changes made
One final reason that understanding your policy is so important is that doing so will allow you to keep track of any changes to your car insurance policy or whatever type of insurance policy you’re buying. Remember that many types of insurance coverage are optional, meaning that policyholders can choose to add or remove them as they see fit. In addition, policyholders can change their deductibles or coverage limits. By reviewing your policy regularly, you can keep track of these critical changes, ensuring you are aware of how they impact your premium.
What are the five parts of an insurance policy?
Now that you know a little bit more about why understanding insurance is so important, let’s dive into the five parts of an insurance policy:
Declarations page
First up is the declarations page. This may also be referred to as the “dec page.” Think of this page as a summary of all the key information in your insurance contract. For example, you can expect this page to contain the following information:
- The type or name of the coverage being provided to the policyholder by the insurance company
- Policy details, e.g. the policy period, number, and premium amount
- Legal names of the people and assets covered
- The dollar limits on all coverages and the policyholder’s chosen deductibles
- A list of endorsements included in the policy
- Any discounts applied to the policy
It is important for all policyholders to carefully read through the declarations page as soon as they receive the contract to make sure that all the information is correct. If anything appears to be missing or incorrect, contact your insurance broker or agent as soon as possible. An insurance broker can help amend or rectify the error, whether you find it in your car insurance policy or your home insurance plan.
Definitions page
The definitions page is the second part of your insurance policy to know about. This section is where you will find the meanings and definitions for common words found throughout the contract. It is included in insurance contracts for legal reasons but also to help policyholders better understand their policies, especially given how much jargon these types of contracts can be filled with. Of course, from a legal point of view, it also covers the insurance company, removing any possible ambiguity and reducing the possibility of a misinterpretation of the contract.
Insuring agreements
The third section of an insurance policy is the insuring agreements portion, also known as the policy coverage portion. It is the meat of the policy, as it’s where precisely who and what is covered is outlined. In essence, this is where to look if you want to know what the insurance company provides you in exchange for your premium. Specifically, it will break down what is covered, e.g. bodily injury or property damage, by each type of coverage listed in your policy. Generally speaking, the insuring agreements section is broken down by coverage. Please note that this section is a general overview of the coverage that you receive as a policyholder in exchange for paying your premium. You can find out more details about your coverage, and specifically its limits, by reading through the exclusions section of your contract, which is usually placed right after the insuring agreements section.
Policy limits and exclusions page
The exclusions page of your policy immediately follows the insuring agreement section as it relates directly to it. Where the insuring agreements section details how your coverage protects you and the services provided by your insurance company, the exclusions page details the exact opposite, i.e. the ways in which you are not covered by your policy.
For example, the exclusions section will clearly state what your insurance policy does not cover. In the case of home insurance, you will likely see perils like earthquakes and floods outlined in this section. Meanwhile, for car insurance, damage due to wear and tear may be listed in this section.
In addition to outlining the risks that are not covered by your policy, the limitations of your contract may also be listed in dollar amounts. For instance, some limitation sections will state the maximum dollar amount or percentage of the total loss that may be eligible for an insurance reimbursement under the policy.
Conditions page
The conditions page is the fifth component of your insurance contract. It outlines the conditions or clauses that you must meet in order to qualify for the insurance coverage you purchased. If the policyholder fails to meet the conditions laid out in this section, the insurance company could deny their claim or cancel their insurance policy. A common condition that is found in home insurance policies is allowing the insurance company to inspect a fire damage claim before repairs start or taking steps to protect your home after a claim to prevent further damage. Other conditions may relate to the cancellation or non-renewal of your policy and loss reporting and settlement, such as car insurance settlements and whether they are taxable.
Bonus: endorsements and riders
One bonus section that you will find in many insurance policies is the endorsements and riders section. Not all policies will contain this section as not all policyholders choose to add extra coverage to their policies. However, if you are buying a car insurance policy and choose to purchase additional protection beyond what is legally required of you, then you will have an endorsements and riders section in your insurance contract.
Endorsements and riders are written clauses that typically add to, remove, or alter the clauses written in the original insurance contract. Thus, if any changes are made to your policy, such as a type of coverage being added on or removed, it will be listed in this section. That is why it’s always important to carefully read this section of your policy anytime a change is made or your policy is renewed.
How to choose an insurance policy
With so many different elements to an insurance contract, it might seem daunting to understand. Thankfully, an insurance broker is here to help you navigate the insurance world and help you choose the best policy for your needs. Not only can an insurance broker review your contract alongside you to ensure that you understand all five (or six) parts, but they can also ask questions and offer professional advice that will help you find the right coverage for your needs, lifestyle, and budget.
A few of the questions that you will need to consider and that an insurance broker can help you answer when searching for an insurance plan are as follows:
- What type of coverage do you need?
- How much coverage do you need?
- What premium can you reasonably afford?
- What deductible amount can you afford in the event of a claim?
- What isn’t covered by the insurance policy?
- What does the claims process entail?
- How easy is it to file an insurance claim?
- How does the insurance company handle the claims process?
- Is the insurer typically quick to respond to customer requests?
Contact BrokerLink to learn more about the different parts of an insurance contract
If you still have questions about what insurance policies contain, how they are formatted, and what you are covered for, contact BrokerLink today. We can help explain all kinds of insurance contracts, from reinsurance and double insurance to basic car, home, or business insurance.
We can also give you tips on how to better understand your policy and choose the right one for your needs. To us, this all begins with reviewing your policy on a regular basis, familiarizing yourself with the various terms inside of it, and reaching out to an insurance broker for help when you need it. After all, that’s what we’re here for! Take advantage of our insurance expertise by getting in touch with us today.
BrokerLink is also pleased to provide accurate insurance quotes to all prospective customers. All quotes are obligation-free and do not have any strings attached. Even better, you can request your free quote from the comfort of your home and receive it in as little as five minutes. Reach out to BrokerLink today to get started!
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