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An insurance policy is a contract between the insurer and the insured, known as the policyholder, determining insurance companies must pay when the insured incurred a claim in exchange for a premium.

The insurer is obligated to pay for insured loss caused by perils covered under the insurance policy's wording. All Insurance contracts are designed to meet certain needs and unique to other types of contracts. The contracts are standard forms, have standard wording similar across various types of insurance policies. It is generally an integrated contract that includes all forms associated with the insured and insurer's agreement. Except for supplementary writing, such as letters sent after the final agreement, can make the insurance policy a non-integrated contract. Oral agreements are also subject to the parol evidence rule and may not be considered part of the policy if the contract appears to be whole. Oral contracts pending the issuance of a written policy can occur. Insurance policies come in multiple forms, including home insurance and auto insurance.

Insurance Policy Write-Up

General features of Insurance Policies

The insurance contract or agreement is a contract whereby the insurer promises to pay the insured or on their behalf to a third party if certain defined events occur. This is subject to the "fortuity principle, " describing the event as accidental or uncertain. 

It can be either when the event happens (i.e, Life insurance policy, as the insured's death is uncertain, but it will happen eventually. Or, not at all (i.e. Fire insurance policy, that a fire may not occur at all).

  • Insurance contracts may be a type of adhesion contract because the insurer draws up the agreement, and the insured does not make material changes on it. 
  • The insurer will bear the burden of the contract if it is ambiguous.  
  • The policyholder does not read the detailed wording as they purchase the insurance policies.
  • Insurance contracts are aleatory - The amounts of exchanged on both parties are unequal. It also depends on uncertain future events that would or would not happen.
  • Insurance contracts are unilateral -  Only the insurer makes legally enforceable promises in the agreement. The insured is not required to pay the premiums, but the insurer is required to pay the benefits if the insured has paid the insurance premiums and met provisions on the agreement.
  • The principal insurance contracts govern (Latin: uberrima fides) or utmost good faith, requires both parties of the insurance contract to deal in good faith. The insured has to disclose all material facts related to the risk to be covered, in contrast with the other legal doctrine (Latin: caveat emptor) or buyer beware. 

Insurance policy contract Sections

  • Declarations - 

This section defines:

  • who is an insured, 
  • Insured's address, 
  • the insurance company, 
  • The risks or property covered, 
  • the policy limits (amount of insurance), 
  • any applicable deductibles, 
  • the policy number, 
  • the policy period, 
  • the premium amount. 

Insured complete an application with the above information and the form with signature will get inserted within the policy's first few pages.

  • Definitions - 

The section will define the terms used in the rest of the policy.

  • Insuring agreement - 

The section describes the covered perils, or risks assumed, or nature of coverage. The insurance company makes one or more express promises to indemnify the insured in this section.

  • Exclusions - 

This section list the non-covered. It takes coverage away from the insuring agreement by describing property, perils, hazards or losses arising from specific causes not covered by the policy.

  • Conditions - 

These are specific provisions, rules of conduct, duties, and obligations that the insured must comply with for coverage to incept or must remain in compliance with to keep coverage in effect. 

The insurer will have a ground to deny the claim if policy conditions are not met.

  • Policy form - 

A policy form combines the definitions, insuring agreement, exclusions, and conditions into a single integrated document. 

They are also known as 'coverage form' or 'coverage part.' 

When multiple coverage forms combine into a single policy, the declarations will state as much, and then there may be additional declarations specific to each coverage form. 

Traditionally, policy forms have been so rigidly standardized that they have no blank spaces to be filled in. Instead, they always expressly refer to terms or amounts stated in the declarations.

Most often, complex customization that declarations unable to fit in, then the underwriter attaches endorsements or riders.

  • Endorsements:

Additional forms are attached to the policy that modifies it somehow, either unconditionally or upon the existence of some condition. Endorsements can sometimes make policies challenging to read. 

They may revise, delete and sometimes expand the clauses in many pages or even modify and cancel each other. 

It is very risky to allow underwriters that are now lawyers to rewrite policy forms with word processors directly, insurers usually direct underwriters to modify them by attaching endorsements pre-approved by counsel for various common modifications.

Riders or floater- 

A rider conveys the terms of a policy amendment that become part of the insurance policy. 

Floater or Riders are dated and numbered so that both insurers and policyholders can determine provisions and the benefit level.

Manuscript insurance policies and endorsements

Most insurance policies declaration pages are custom-written according to customers. All other pages are standard forms, and it refers back to terms defined in the declarations as needed. 

However, certain types of insurance are written as manuscript policies, as they are custom-drafted from scratch, written from a mix of standard or nonstandard forms.

Endorsements that are not on standard forms or custom-written are known as manuscript endorsements.

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