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Understanding Your Insurance Policy

Let’s face it, reading an insurance policy is not like curling up with a good book. It’s a fairly complex document that tries to explain all the things you’re covered for, and all the things that are excluded when a loss occurs.

Luckily, many companies now provide insurance policy information that is easier to understand, but you still need to review the document carefully. Here are some general guidelines that can help explain how to read an insurance policy.

The common parts of an insurance policy include:

  • Policy declarations – The declarations page is basically the first page of the policy package. The page states who is insured and the time period the policy provides coverage. It also gives the primary general information, such as a description of what’s insured, the coverages and primary coverage limits.
  • Definitions – This section gives you the definitions of words and phrases you’ll see in the policy. For example: “Motor vehicle” and “Deductible” are two terms often found in an auto policy. Words with definitions may appear in bold print throughout the policy. That helps you know what to look up if you don’t know them already.
  • Policy coverages – This section describes the specific insurance provided by listing what property is covered and for what perils. For example, a boat owner's policy may cover direct physical loss or damage to the boat and motor, portable equipment and other specified property. It can also provide liability coverage.
  • Policy exclusions describe what coverage limits exist or how coverage may be eliminated depending on how a loss occurs. Insurers may allow policyholders to buy back coverage for some exclusions for additional premium. For example, earthquake coverage may be excluded for people who live in an area where earthquakes are unlikely to happen. However, if a customer would feel more comfortable with the coverage, they could buy it back.
  • Limits and special limits – This section explains how much the insurer pays for particular losses or types of property. So, while something is covered, it may be covered for a specific dollar amount or for a limited percentage of the entire loss.
  • Conditions – This section tells you what the insurer’s responsibilities are, and what your responsibilities are as the customer. This includes how to cancel a policy, subrogation and payments plans.
  • Duties after a loss – This area gives guidance on what to do when a loss occurs. It includes notifying your insurer as soon as practical, notifying the police, if appropriate, and protecting your property from further damage.
  • Endorsements – This area defines optional coverages available for additional premium. Endorsements change your policy to help better fit the policy to meet your needs. Amendatory endorsements may also be added by the insurance company to clarify policy terms and language.