INSURANCE POLICY

INSURANCE POLICY 

Before we carefully discuss the meaning of insurance policy and the important parts of an insurance contract. It is very important to talk about the two major characters that play the most active part in an insurance policy;

INSURER: determines the claims which the insurer is legally required to pay the insured.

INSURED: is referred to as the policyholder. He pays the insurer an initial amount of money to partially or totally cover a particular loss in the events it occurs or the event refuses to occur.

INSURANCE POLICY is a contract between the insurer and the insured (the policyholder), in exchange for an initial payment, known as the PREMIUM.

The insurer pays for loss caused by damages covered under the policy contract. The insurer will pay the insured (the person whom benefits would be paid on behalf of), if certain defined events occur. The event must be uncertain. The uncertainty can be either as to when the event will happen (e.g. in a life insurance policy, the time of the insured's death is uncertain) or as to if it will happen at all (e.g. in a fire insurance policy, whether or not a fire will occur at all).

PARTS OF AN INSURANCE CONTRACT

POLICY JACKETS:

A policy jacket is a cover, binder, envelope, or folder with pockets in which the policy may be delivered. 

DEFINITIONS:

Define important terms used in the policy language.

DECLARATIONS:

These are usually provided on a form that is filled out by the insurer based on the insured's application and attached on top of or inserted within the first few pages of the standard policy form. The form contains the following.

(i)                Identifies who is an insured.

(ii)             The insured's address.

(iii)           The insuring company.

(iv)           What risks or property is covered.

(v)             The policy limits (amount of insurance).

(vi)           Any applicable deductibles.

(vii)        The policy period and premium amount.

INSURING AGREEMENT:

(i)                Describes the covered perils, risks assumed, nature of coverage, makes some reference to the contractual agreement between insurer and insured.

(ii)             It summarizes the major promises of the insurance company, as well as stating what is covered.

EXCLUSIONS:

It is important to take coverage away from the Insuring Agreement by describing property, perils, hazards or losses arising from specific causes which are not covered by the policy.

CONDITIONS:

Provisions, rules of conduct, duties and obligations required for coverage must be clearly stated in the policy. If policy conditions are not met, the insurer can deny the claim.

ENDORSEMENTS:

This an additional form(s) attached to the policy form that modify it in some way, either unconditionally or upon the existence of some condition.

Endorsements can make policies difficult to read for non-lawyers; they may modify or delete clauses located several pages earlier in the standard insuring agreement, or even modify each other.

It is very risky to allow non-lawyer underwriters to directly rewrite core policy language with word processors, insurers usually direct underwriters to modify standard forms by attaching endorsements preapproved by counsel for various common modifications.

POLICY RIDERS:

A policy rider is used to convey the terms of a policy amendment and the amendment thereby becomes part of the policy.

Riders are dated and numbered so that both insurer and policyholder can determine provisions and the benefit level.

A common rider to group medical plans involves:

(i)                Name changes.

(ii)             Change to eligible classes of employees.

(iii)           Change in level of benefits or the addition of a managed care HMOs.