An insurance policy is a legal contract between the insurance company (the insurer) and
the person(s), business, or entity being insured (the insured). Reading your policy helps
you verify that the policy meets your needs and that you understand your and the
insurance company’s responsibilities if a loss occurs. Many insureds purchase a policy
without understanding what is covered, the exclusions that take away coverage, and the
conditions that must be met in order for coverage to apply when a loss occurs. With this
being National Hurricane Preparedness Week, the National Association of Insurance
Commissioners (NAIC) would like to remind consumers that reading and understanding
your policy can help you avoid problems and disagreements with your insurance
company in the event of a loss.
The Basics of an Insurance Contract
There are four basic parts to an insurance contract:
• Declaration Page
• Insuring Agreement
• Exclusions
• Conditions
It is important to understand that multi–peril policies may have specific exclusions and
conditions for each type of coverage, such as collision coverage, medical payment
coverage, liability coverage, etc. You will need to make sure that you read the language
for the specific coverage that applies to your loss.
• The Declaration Page is usually the first part of an insurance policy. It identifies
who is an insured, what risks or property are covered, the policy limits, and the
policy period (i.e. time the policy is in force). For example, the Declarations Page
of an automobile policy will include the description of the  vehicle covered (e.g.
make/model, VIN number), the name of the person covered, the premium amount,
and the deductible (the amount you will have to pay for a claim before an insurer
pays its portion of a covered claim). Similarly, the Declarations Page of a life
insurance policy will include the name of the person insured and the face amount
of the life insurance policy (e.g. $25,000, $50,000, etc.).
• The  Insuring Agreement summarizes the major promises of the insurance
company, as well as states what is covered. In the Insuring Agreement, the insurer
agrees to do certain things such as  paying losses for covered perils, providing