What is an Insurance Policy?

An insurance policy is a contract which outlines an insurer’s obligations to a premium-paying party, known as the policy holder. There are a great many different types of insurance, with health insurance, automobile insurance, life insurance, and homeowner’s insurance among the most common. No matter the type of insurance, an insurance policy usually consists of six sections: declarations, definitions, lists of covered items, exclusions, conditions, and endorsements.

When the policy holder purchases insurance, he is essentially buying financial compensation which will be paid to him by his insurer following an eligible event. Should he purchase health insurance, for instance, his insurer is expected to pay for eligible health care expenses. The circumstances by which a policy holder will or will not receive coverage are outlined in the policy, or a contract which specifies the insurer’s exact obligations to him.

Usually, the first part of an insurance policy is known as the declarations section. This section includes details about the policy holder, such as his name and address. It also includes information about the entity which is being insured. For instance, an automobile policy declarations page may list such details as the make and model of the policy holder’s car. In addition, this section generally includes information about the insurance plan itself, such as the premium amount and the dates for which the policy is valid.

Often, these declarations are followed by a definitions section. This section clarifies the exact meanings of certain words used within the policy in order to prevent misinterpretation. For instance, a health policy may define such terms as outpatient procedure or preexisting condition.

These definitions are generally followed by three lists: covered items, exclusions, and conditions. The list of covered items states each type of incident or event for which coverage will be offered to the policy holder. Conversely, the exclusions list compiles the incidents or events for which coverage will not be offered. Finally, the conditions section lists circumstances which might invalidate the policy holder’s coverage following an otherwise eligible incident or event. An automobile insurance policy, for instance, may state in its conditions that the policy holder will not receive compensation for an accident that occurred while he was intoxicated.

Lastly, many insurance policies end with an endorsements section. Endorsements are provisions which are usually unique to a particular policy, and which 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 fit each policy holder.