Structure of an Insurance Contract - Explained
What are the Provisions in an Insurance Contract?
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What is the structure of an insurance contract?
The general structure of an insurance contract is as follows:
The declarations section of an insurance contract identifies the parties to the contract and dictates that the following provisions constitute an insurance contract. It will generally state the intentions of the parties with regard to the subject-matter of the insurance, the term of the policy, the risks covered by the policy, the limits on payment in the event an insured risk occurs, and the financial obligations of the insured (premiums, deductibles, co-payments, etc.).
Most insurance contracts contain a defined terms section that provides the common understanding of certain terms or phrases used throughout the insurance agreement. This section can be very important for avoiding ambiguities in the agreement.
Terms of Insurance
This section, often called the insuring agreement, lays out the promises of the insurance company to indemnify the insured against certain risks of loss. Specifically, it will describe the type of risks insured against and the person, property or subject matter covered under the policy. There are two basic forms of an insuring agreement:
Named Perils Coverage
This form of agreement insures perils specifically listed in the policy. If the peril is not listed, it is not covered.
This form of agreement insures all losses suffered to a person or specific property except those losses specifically excluded. If the loss is not excluded, it is covered.
Exclusions are types of contingent risk that are not covered or insured under a policy. There are three major types of exclusions:
Excluded Perils or Causes of Loss
For example, homeowners insurance may exclude damages caused by flooding.
For example, an automobile policy may exclude normal wear and tear from everyday use.
For example, a homeowners policy may not include certain personal property located within the home.
Conditions are contractual provisions that require a certain fact or circumstance come about before duties or obligations arise under the contract. If policy conditions are not met, the insurer is not obligated to insure against the loss that is subject to that condition. That is, the insurer will deny a claim for losses if an applicable condition in the policy is not satisfied. For example, the insurer may make filing a claim and providing proof of loss a condition to coverage.
These are forms attached to the main insurance policy used to modify the duties or obligations under the policy. Often endorsements will place some condition on the insurers duty to indemnify the insured or cover a particular type of loss. They may also modify or delete express clauses present within the core of the insurance policy. This is the primary method by which underwriters tailor a specific policy to cover a particular insured.
Policy riders are amendments to an existing policy. The rider contains the amended terms and becomes part of the original insurance contract. An insurer will use a rider any time that the terms of coverage change under an insureds policy.
Policy Jackets or Binders
Insurers often issue a policy within a policy jacket. The jacket is a cover, binder, envelope, or folder containing the policy. The binder will often contain boilerplate provisions of the insurance policy. Some insurers now append material to the insurance policy that contains the standard boilerplate provisions, instead of including those provisions on the jacket.
Next Article: Common Legal Disputes over Insurance Agreement Back to: INSURANCE LAW
You will notice that an insurance contract follows a similar format to most contracts, but it contains several insurance-specific provisions. Why do you think that insurance contracts employ endorsements and riders to modify the terms of the existing agreement and the duties of the parties? How do you feel about the use of exclusions and conditions in the insurance policy? How do you balance the insureds need for these policies against the potential abuse of insured parties?
ABC Corp has a general liability policy with 123 Insurance. What terms are likely covered in the policy? ABC wants to modify the policy by increasing the coverage limits. What will ABC need to complete to modify the policy?
- Insurance Law (Intro)
- What is insurance?
- Captive Agent
- Independent Agent
- Captive Insurance Company
- Combined Ratio
- Claims Adjuster
- Capital at Risk
- Assigned Risk
- Incurred But Not Reported
- Qualified Actuary
- Cession (Re-Insurance)
- Burning Cost Ratio
- What is an insurance contract?
- Accidental Means
- Anti-stacking Provisions
- What is an insurable interest?
- What are the common categorizations of insurance?
- National Association of Insurance Commissioners
- Insurance Regulatory Information System
- American Academy of Actuaries Definition
- American Association of Insurance Services Definition
- American Council of Life Insurance Definition
- American Insurance Association Definition
- American Risk and Insurance Association Definition
- LLoyd's of London
- Associate in Insurance Services (AIS) Definition
- Associate in Loss Control Management Definition
- Associate in Marine Insurance Management Definition
- Associate in Personal Insurance Definition
- Associate in Reinsurance (ARe) Definition
- Associate in Risk Management Definition
- Associate in Commercial Underwriting Definition
- Associate in Insurance Accounting and Finance Definition
- Associate in Surplus Lines Insurance Definition
- Chartered Insurance Professional Definition
- Chartered Life Underwriter Definition
- Chartered Property Casualty Underwriter Definition
- Vehicle insurancePrivate Passenger Auto Insurance Risk Profile
- Underinsured Motorist Coverage
- Uninsured Motorist Coverage
- Omnibus Clause
- Health Maintenance Organization
- Capitated Contract
- Point of Service Plan
- Children's Health Insurance Program
- Disability Insurance?
- Credit Disability Insurance
- Life Insurance?
- Cash Surrender Value
- Absolute Beneficiary
- Acceleration Life Insurance
- Accelerated Benefit
- Accelerated Option
- Accelerative Endowment
- Charitable Gift Life Insurance
- Incontestability Clause
- Waterfall Concept
- Assumed Interest Rate
- Clean Sheeting
- Hazard Insurance
- Homeowners, Renters, and Fire Insurance?
- Participating Community (Flood Insurance)
- Insurance Considerations for Business
- Business Liability Insurance
- Commercial General Liability
- Liability Risk Retention Act
- Excess Insurance and Umbrella Insurance Policy
- Business Interruption Insurance
- Key Person Insurance Definition
- Own-Occupation Policy
- Self-Funded Health Insurance Plan
- Basket Retention Policy
- Commercial Blanket Bond
- Alternative Risk Transfer Market Definition
- Commercial Property Casualty Market Index Survey
- What are the primary obligations of the insurer?
- Earned Premium
- Reservation of Rights Letter
- Collateral Source Rule
- What are the primary obligations of the insured?
- Insurance Premium
- Affidavit of Loss
- What is the general structure of an insurance contract?
- Ambiguity Principle
- Accommodation Line
- What are the common disputed provisions in an insurance contract?
- Absolute Exclusion
- All Risks Clause
- What is required for the termination of an insurance contract?
- Risk Management
- Professional Risk Manager
- Associate in Management (AIM)
- Financial Risk Manager
- Forecasting (Business)
- Objective Probability
- Unconditional Probability
- Enterprise Risk Management (ERM)
- Operational Risk
- Business Recovery Risk
- Political Risk
- Asset Protection
- Performance Bond
- Barra Risk Factor Analysis Definition
- Above Ground Risk (Mining Industry)
- Bumbershoot Policy (Maritime)
- Abandonment Clause (Boat or Vessel)
- Bobtail Liability Insurance (Trucking Industry)
- Anti-Indemnity Statute (Construction)