What is a Policy?
An insurance policy is a contract between an individual (the policyholder) and an insurance company (the provider). According to this contract, the policyholder pays set amounts of money, known as premiums, to the insurance company. In return, the provider pays the policyholder a certain amount of money in the event of specified events such as the death of an insured or a car accident, depending on the type of policy.
After you sign off and pay for an insurance premium, you will typically receive a copy of the policy in the mail. To ensure you understand and are comfortable with your insurance policy, you should review it alongside a professional immediately after getting it. This is due to the fact that the policy will include important details such as what will and will not be covered by the insurance company, who receives said coverage, and how to file a claim. Key information on the policy can be found on the declaration page.
- An insurance policy is essentially a contract between a policyholder and an insurance company that stipulates important details about what will be covered by insurance as well as the process for filing a claim.
- Insurance policies consist of premiums, limits, deductibles, exclusions and/or limitations.
- Carefully examine your insurance policy for errors or misunderstandings as soon as you receive it.
Components of an Insurance Policy
- Premiums: One of the most important parts of an insurance policy is the premium. The premium states exactly how much needs to be paid in order to maintain the insurance policy. Insurance companies may allow you to pay your premiums monthly, yearly, or on another schedule that you have decided together. If costs are your top concern when it comes to choosing the right insurance policy, you’ll want to focus on the premium.
- Limits: An insurance limit is the maximum amount your insurer will pay for a claim covered by your policy. Keeping a close eye on your policy limit is crucial since any extra expenses incurred after the insurance pays the maximum will be considered your responsibility. If you are unsatisfied with your current policy limit and wish to increase it, keep in mind that this will usually result in a higher premium.
- Deductibles: Before your insurance benefits kick in, you will have to pay a certain amount of money if you have to file a claim with your insurance company. The amount of money that you are responsible for paying toward an insured loss is referred to as a deductible. Low deductibles mean you'll pay less in claims, but they generally result in higher policy premiums.
- Exclusions and Limitations: Insurance policies will typically include several exclusions or limitations, which are various types of damages that will not be covered by that particular insurance policy. For example, homeowners policies generally do not cover damage from some natural disasters such as floods or earthquakes. While reviewing your policy, be on the lookout for any exclusions or limitations, as they can have detrimental consequences down the road when it comes to filing a claim.
Most insurance policies are written in complex legal language, which makes them difficult to understand at a first glance. Nonetheless, it is important that you understand all aspects of your insurance policy, which means reading through the fine print with the help of professionals such as an experienced insurance lawyer. Having an expert guide you through these intricacies can make all the difference.