What is an Insurance Policy?
In Insurance, an Insurance Policy is a legal contract between the Insurance Company (Insurer) and the Policyholder (Insured) which specifies the terms and conditions of the Insurance Contract.
How does an Insurance Policy Work?
As per the Insurance Contract, the Insurance Company agrees to pay the Sum Insured to the Policyholder, in the event of damage to the Insured Asset because of Perils specified in the Insurance Contract. The Insurance Company charges an Insurance Premium to the Policyholder in return.
What are the Key Components of an Insurance Policy?
The key elements of an Insurance Policy are as follows:
- Subject Matter Insured: Every Insurance Policy would specify the Subject Matter Insured, that is, the asset that is being insured. In case of a car insurance policy, the insured asset is a vehicle whereas in case of a Fire Insurance Policy, the Insured Asset can be plant and machinery, buildings, warehouse stocks etc.
- Perils Covered: In Insurance, a Peril is an event or circumstance which results in damage to the Insured Asset. Insurance Policy Wordings specify the Perils covered by the Policy, that is the circumstances under which the Policy would pay for the loss to the Insured Asset. For example, a Fire Insurance Policy covers damage due to Fire and Allied Perils along with damage due to Earthquakes, Storms, Floods etc.
- Exclusions: Insurance Policy Wordings also specify the exclusions, that is the circumstances under which damage to the Insured Asset won’t be covered. For example, most Insurance Policies do not provide cover if the damage is due to the wilful misconduct of the Policyholder.
What is the Structure of an Insurance Policy?
A typical Insurance Policy Structure is listed below:
- Policy Number: Every Insurance Policy specifies an Insurance Policy Number which is a unique number provided the Insurance Company. Insurance Companies use the Policy Number to track and manage Policies.
- Name and Address of the Insured: An Insurance Policy specifies the details of the Policyholder, such as Name and Address of the Insured Party.
- Insurance Company: The Policy mentions the name of the Insurance Company as well.
- Sum Insured: Every Insurance Policy mentions the Sum Insured. Sum Insured is the value of Subject Matter Insured and the Sum Insured Amount is the basis of claim payments made by the Insurance Company.
- Add-On Covers: An Add-On Cover in Insurance, also known as a Rider, is an additional coverage benefit which enhances the Policy Coverage. Policyholders have a choice to opt for add-on covers by paying additional premiums.
- Sub-Limits: A Sub-Limit in Insurance is a cap on the amount of loss that will be borne by the Insurance Company in case of a claim. A Sub-Limit is expressed as a fixed amount or as a Percentage of Sum Insured.
- Period of Insurance: All Insurance Policy also specify the Policy Term. Policy Term is the period for which the Insurance Policy is active. Most General Insurance Policies are issued on an annual basis.
- Insurance Premium: Insurance Premium is the amount of money paid by the Policyholder in order to avail insurance protection from the Insurance Company. Most Policies are renewed on an annual basis and Insurance Premium is also supposed to be paid annually.
- Warranties: Warranties in Insurance are a promise made by the Policyholder to either perform or not perform certain actions. Breach of Warranty by the Policyholder makes the Policy voidable, even if the breach has not contributed to the loss.
- Endorsement: Any changes or amendments to the Insurance Policy are accomplished by way of an Endorsement. Endorsements are normally written separately and signed by the Insurance Company.
- Deductible/Excess: A Deductible in Insurance, also known as Excess, is the amount of loss that the Policyholder must pay out of his own pocket before the Insurance Company starts to pay the loss in the event of a Claim. All Insurance Policies specify a Deductible Amount.
An Insurance Claim is a request for compensation by the Insured to the Insurance Company when the Insured Asset is damaged by an Insured Peril. The Compensation from the Insurance Company helps the Insured to recoup the loss suffered because of damage to the Insured Asset. In order to file an Insurance Claim, the Policyholder must intimate the Insurance Company about the loss and submit the necessary documentations. The Insurance Company then appoints a surveyor to investigate the loss and pays out the claim amount if the claim is an admissible claim.
What is Assignment of an Insurance Policy?
An Assignment of an Insurance Policy is transfer of rights and liabilities of the Policyholder (Assignor) to someone else. The Person to whom the rights and liabilities of the Policy are assigned is known as an Assignee. Post assignment, the Assignor loses rights over the Policy.
The Consent of an Insurance Company may or may not be required depending on the type of Insurance Policy.
How to Renew an Insurance Policy?
Today, an Insurance Policy can be renewed online or offline. The ways to renew an Insurance Policy are listed below:
Insurance Broker/Insurance Agent
The Policyholder can approach an Insurance Broker or an Insurance Agent and inform him of any change in the risk profile of the Insured Asset. Additionally, submit the necessary information to the Insurance Broker and pay the Insurance Premium post which the Insurance Policy will be renewed.
The Policyholder can login to the website of the Insurance Company directly, submit the expiring policy details along with the information required for Policy Renewal. The Insurance Policy can be renewed upon payment of Insurance Premium.
How to Cancel Insurance Policy?
There are certain circumstances under which the Policyholder might need to cancel the Policy. In that case the Policyholder can approach the Insurance Broker or the Insurance Company for Policy Cancellation. The Policy will be cancelled based on submission of necessary documents and the Premium might be refunded based on Policy Terms and Conditions.
This article gives a detailed overview of an Insurance Policy Structure. It is necessary to conduct a thorough review of an Insurance Policy before purchasing. You can take the advice of an Insurance Broker to purchase an Insurance Policy.
Qian is a specialist Insurance Broker with experience of 7+ Years in commercial insurances. If you wish to avail assistance to purchase an Insurance Policy or require assistance with a claim, you can reach out to us at firstname.lastname@example.org or call us on 022-22044989.
We would be glad to assist you!