Defining The 5 Key Parts Of An Insurance Policy

If you have ever purchased an insurance policy, you may be surprised to learn that it is generally made up of 5 basic parts. If you are in the process of choosing an insurance policy and wish to learn about what each part is, read on. 

1. Policy Declarations 

This part contains basic information about the policy, such as the name of the insured, when it begins and ends, and how much it costs. It also includes details about what is covered by the policy, such as cars or houses. 

The policy declarations page is often called the “dec” page. This page usually contains a lot of information that you don’t need the complete details of right now. We’ll go over some important things on it later in this guide. 

1. Definitions 

Definitions are an important aspect of an insurance policy and can be important in deciding if coverage applies. Definitions describe the meaning of essential policy words and include definitions of insureds and insured property. 

As stated above, a definition is always written in italics or all capitals. It might also provide some more information that explains what it signifies (for example, “means any person occupying any premises”). The definition part of your policy paper will most likely begin on page 2 or 3; if you have more than one page of definitions, check for a reference to “[continued from the previous page].” 

1. Insuring Agreement 

The insurance agreement or coverage provision is the main “meat” of a policy. It will describe what you’re insuring and how much you’re paying for it. It’ll also cover things like: 

• How long will it last (for example, a one-year term policy)? 
• What type of damage does it cover (such as fire, flood, and theft)? 

• Whether any exclusions apply? 

1. Exclusions 

Exclusions are instances where the policy will not pay. A homeowner’s insurance policy, for example, may not cover damage caused by floods or storms. Flood insurance does not cover earthquake damage. 

Some plans include exclusions that you may pay extra to get removed, like earthquake coverage for homeowners who reside in an earthquake-prone location. You may also purchase individual insurance to cover things that an all-inclusive policy would not cover, such as flood damage or earthquakes, even if one of these risks is covered by your other policies. 

1. Conditions 

Conditions are rules and restrictions that must be followed before making a claim. Most conditions apply to all insurance policies, while others are unique to the policy at hand. Most plans, for example, require the policyholder to contact the insurance company within a particular time period following an accident—typically within 48 hours.