An insurance policy is a legal contract, so it’s important to understand policy basics.
Let’s get to know some of the basics of your insurance policy so you can make sure you’re covered when you need it most.
Definitions
Most insurance policies contain a definitions section, which explains specific terms used in the insurance policy. The Definitions section may be a stand–alone section or part of another section. In order to understand the terms used in the insurance policy, you should read this section.
Endorsements and riders
Insurers may change the language or coverage of an insurance policy at the time of the policy renewal, and they may do this with the use of Endorsements and Riders. An Endorsement, also known as a Rider, adds to, deletes, or modifies the provisions in the original insurance contract. In most provinces, the insurer will send you a copy of the changes to your policy so that you can read them. When you review your policy, be sure to read all Endorsements or Riders so you understand how your policy has changed and if the policy is still meeting your needs.
The four basic parts of an insurance contract
In addition to the Definitions, there are four basic parts of an insurance contract: The Declaration, Insuring Agreement, Exclusions, and Conditions. Let’s take a closer look at each part.
- Declaration. The Declarations page is usually the first part of an insurance policy. It identifies who is insured, what risks or property are covered, the policy limits, and the policy period. In an automobile insurance policy, this includes the description of the vehicle covered (e.g. make/model, VIN number), the name of the person covered, and the premium amount. It also includes the deductible (the amount you have to pay for a claim before an insurer pays its portion of a covered claim). The Declarations page of a life insurance policy includes the name of the person insured and the face amount of the life insurance policy (e.g. $25,000, $50,000).
- Insuring Agreement. The Insuring Agreement summarizes the major promises of the insurance company and explains what is covered. In the Insuring Agreement, the insurer agrees to do certain things. Examples include paying losses for covered perils, providing certain services, or agreeing to defend the insured in a liability lawsuit.
- Exclusions. An exclusion details any property and perils that are excluded from coverage. Exclusions narrow the scope of coverage. The three major types of Exclusions are perils, losses and property. As an example, an excluded peril could include intentional acts.
- Conditions. Policy Conditions qualify or place limitations on the insurer’s promise to pay or perform. They state that an insurer can deny the claim if the following policy conditions are not met. Common conditions in a policy include requiring the insured to file a proof of loss with the company and to protect property after a loss. Another condition may be to cooperate during the company’s investigation or defence of a liability lawsuit.
Multi-peril policy
A multi-peril policy is an insurance policy that covers a number of different causes of loss, rather than just one. These types of policies provide comprehensive coverage and are common in property insurance. It is important to understand that multi–peril policies may have specific exclusions and conditions for each type of coverage. Some examples include collision coverage, medical payment coverage, liability coverage, etc. Make sure you read the language for the specific coverage that applies to your loss. Reading your policy will help you verify that the policy meets your needs and that you understand all parties’ responsibilities outlined if a loss occurs.