Insurance Terms (Misc.)

Policy Document

The policy document is a comprehensive document that details the terms, conditions, coverage, exclusions, and other essential aspects of the insurance policy. Understanding the components of a policy document is important for both insurers and policyholders.

Here are the key elements typically included in a policy document:

Declaration Page: This is often the first part of the policy and includes basic information such as the policyholder's name and address, the policy period (effective and expiration dates), the amount of coverage, and the premiums due. It also lists the insured items or persons.
Definitions: This section clarifies specific terms used in the policy, ensuring that both the insurer and the policyholder have a clear understanding of what certain words and phrases mean within the context of the document.
Coverages: This critical part outlines what the insurance company agrees to cover. It includes various types of coverage provided under the policy, such as liability, property damage, medical payments, etc.
Exclusions: These are provisions in the policy that detail what is not covered. Understanding exclusions is crucial, as it clarifies the limitations of the policy.
Conditions: This section lists the obligations of both the policyholder and the insurance company. It includes conditions under which the insurer must pay claims and the policyholder's responsibilities, such as paying premiums on time and reporting losses promptly.
Policy Limits and Deductibles: The policy document will specify the limits of coverage, which is the maximum amount the insurer will pay for a covered loss. It also details the deductibles, which are the amounts the policyholder must pay out of pocket before the insurer pays a claim.
Endorsements and Riders: These are additions or amendments to the standard policy that alter the terms or scope of coverage. They can be used to add, delete, or modify the coverage.
Premiums: This section provides details about the premium amount, payment schedule, and any related fees or charges.
Claims Process: It outlines the procedure for filing a claim, including how and when to report a claim, documentation required, and the process the insurer will follow to handle the claim.
Cancellation and Renewal Policy: Details regarding how and under what conditions either party can cancel the policy, along with information about how the policy can be renewed.

The policy document serves as the official record of the insurance contract and is a critical reference for any questions or disputes about coverage

Certification of Insurance (COI)

A Certificate of Insurance (COI) is a document issued by an insurance company or its agent that verifies the existence of an insurance policy. It summarizes the key aspects and conditions of the policy for quick and easy verification. This document is often requested as proof of insurance in various business transactions or contractual relationships

Liability Limits / Policy Limits

Liability or Policy Limits is the maximum amount of money that an insurance company is obligated/required to pay for a covered claim under an insurance policy. These limits define the amount of protection provided by the insurance policy. They are crucial in determining how much coverage the policyholder has in various scenarios like accidents, property damage, or lawsuits.

Eg: A car insurance policy might have a liability limit of $500,000 per accident and $1,000,000 in aggregate. That means for each accident they will pay a maximum of 500K and in the entire policy terms they will pay a maximum of 1 million

Further Reading: https://www.embroker.com/uncategorized/policy-limits-definition

Coverages / Optional Coverages / Riders / Endorsements

Optional coverages are additional protections you can add to an insurance policy. These coverages are not included in the base/standard policy offered by the insurance company. Optional coverages provide policy holders the ability to customize their insurance to better fit their specific needs and risks.

Eg: In Auto insurance you can get optional Rental Reimbursement coverage. This coverage covers the cost of a rental car while the insured’s vehicle is being repaired due to a covered claim

Claim / Claims

A claim is the formal request made by the policyholder to their insurance company, asking for payment based on the terms of their insurance policy. When a policyholder suffers a loss, they file a claim to notify their insurer and initiate the process for financial compensation or coverage. The insurance company will then assess/investigate the claim, which involves verifying the event, determining if it is covered under the policy, and evaluating the extent of the financial loss. If the claim is approved, the insurance company will compensate the policyholder or a third party (as specified in the policy) up to the limits of the policy's coverage.

Every claim is not approved by the insurance company. If the insurance company finds that the claim is invalid (not covered by the policy etc) then they will not cover it. The amount paid by the insurance company can also be less than the amount claimed.

Eg: You get into an accident and file a claim with the Car insurance company.

Loss / Losses / Past Losses

This refers to the actual financial detriment or damage a policyholder suffers because of an incident or event that is covered under their insurance policy. A loss can be due to various reasons depending on the type of insurance. For example, in auto insurance, a loss could be damage to a car from an accident, while in health insurance, it might be medical expenses incurred due to an illness. The key point is that a loss represents the actual monetary value that the insured party needs to recover due to a covered event.

In most insurance forms the applicant has to put in details of their past losses for a similar policy. This affects the premium and underwriting decision (Whether the carrier wants to insure the applicant or not).

Modifiers

Modifiers are different factors that can affect the premium of a quote after the original underwriting decision and premium has been calculated. There are usually numerical values that affect the premium either by giving a discount or increasing the premium.

Eg: Experience modifiers in WC.