How to read an Insurance Policy

For most people just the thought of reading their insurance documents is daunting. We will try to make this as easy as possible. We have outlined the major parts of a policy.

Policies have 6 basic parts –

a. Declarations
b. Insuring agreements
c. Definitions
d. Conditions
e. Perils
f. Exclusions

Declarations

The Declarations section will identify who the insured is, the item covered (property), the limits of insurance coverage then the effective and expiration dates. It will also indicate the insurance company name with a list of form numbers and endorsements. A form number is a code the insurance company gives to each Section of the policy. For instance, most homeowners insurance will start with HO followed by a number, as an example HO084. Each Section of the policy will have a different form number. Endorsements will change something on an existing policy, either adding or removing something. Some endorsements will include Exclusions for certain types of claims.

Insuring Agreements

The Insuring Agreements will specify what the insurance company has agreed to pay for in exchange for the premium. They can also be referred to as Coverage. For instance on a homeowner policy Coverage A. Dwelling, B. Other Structures, etc.

Definitions

Definitions will define certain words or phrases and will identify these by bold print, italics or quotation marks. Some examples are “insureds”, “auto”, “suit”, “employee”, bodily injury”, “property damage”, just to name a few.

Conditions

The Conditions section will indicate the requirements that an insured must meet for coverage to be effective. These will include how and when to report a claim, how the property is valued, how and when a policy can be canceled and when the insurance company can non-renew a policy.

Perils

The Perils section will indicate what is covered and is not covered. A Peril is a potential disaster such as fire, theft, windstorm, hail, explosion, vandalism, water damage, etc.

Exclusions

The Exclusions will eliminate coverage for a specific type of risk or type of event.

Here are some suggestions when reading a policy:

1. Check for accuracy.
Check for spelling errors and confirm the insured name and address are correct.

2. Review the coverages and limits of coverage

3. Ask yourself these questions –

a. Does the policy cover each expected claim?
b. Are there any exclusion that eliminate coverage?
c. What are the conditions that I must comply with?
d. Is there a deductible and what event does this apply to and how much?
e. How much will the policy pay for a specific loss, such as a break-in?