An insurance policy is a contract between an insurer and a policyholder, outlining the insurer’s obligations. It typically includes declarations, definitions, covered items, exclusions, conditions, and endorsements. The policyholder buys financial compensation for eligible events, and the circumstances for coverage are specified in the policy.
An insurance policy is a contract that outlines an insurer’s obligations to a party that pays the premium, known as the policyholder. There are many different types of insurance, with health insurance, auto insurance, life insurance, and homeowners insurance among the most common. No matter the type of insurance, an insurance policy generally consists of six sections: declarations, definitions, lists of covered items, exclusions, conditions, and endorsements.
When the policyholder purchases insurance, they are essentially buying financial compensation that their insurer will pay after an eligible event. If you buy health insurance, for example, your insurer is expected to pay for eligible health care expenses. The circumstances under which the policyholder will or will not receive coverage are described in the policy or in a contract that specifies the exact obligations of the insurer to him.
Typically, the first part of an insurance policy is known as the declarations section. This section includes details about the policyholder, such as their name and address. It also includes information about the entity that is insured. For example, an auto policy declarations page might list details such as the make and model of the policyholder’s car. Additionally, this section typically includes information about the insurance plan itself, such as the amount of the premium and the dates for which the policy is valid.
Often these statements are followed by a definitions section. This section clarifies the exact meanings of certain words used within the policy to avoid misinterpretation. For example, a health policy may define terms such as outpatient procedure or pre-existing condition.
These definitions are generally followed by three lists: covered items, exclusions, and conditions. The list of covered items sets forth each type of incident or event for which coverage will be offered to the policyholder. In contrast, the exclusion list lists the incidents or events for which coverage will not be offered. Finally, the conditions section lists the circumstances that could invalidate the policyholder’s coverage after an eligible incident or event. An auto insurance policy, for example, may state in its terms that the policyholder will not receive compensation for an accident that occurred while intoxicated.
Lastly, many insurance policies end with an endorsement section. Endorsements are provisions that are generally unique to a particular policy and override conditions given in other sections of that policy. The bulk of the policy usually consists of a standard contract, and the declarations and endorsements are often the only sections that are edited to suit each policyholder.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
