Merritt Personal Lines Manual: Sections of a Policy
Most insurance policies have a common structure. For property and casualty policies there are standard forms that most insurance companies use that have been approved for use in most states. These are updated and changed periodically as the risks change over time. The group that puts these standard policies together is called the Insurance Services Office (ISO).
Most policies have the following sections that use language that has been tested for meaning over time by the court system. We will discuss what each section includes.
"First" Named Insured. The first named insured appearing on a commercial policy. The latest forms permit the insurer to satisfy contractual duties by giving notice to the "first" named insured rather than requiring notice to all named insureds.
Additional (or Supplementary) Coverage. That portion of the policy adding coverages to the major coverages defined in the insuring agreement or adding back coverages at lower liability limits that have been specifically excluded.
Additional Insured. A person other than the named insured who is protected under the terms of the contract. Usually, additional insureds are added by endorsement or referred to in the wording of the definition of "insured" in the policy itself.
Cancellation. Termination of a contract of insurance in force by voluntary act of the insurer or insured in accordance with the provisions in the contract or by mutual agreement.
Conditions. These are provisions of an insurance policy which state either the rights and duties of the insured or the rights and duties of the insurer. Typical conditions have to do with such things as the insured's duties in the event of loss, cancellation provisions and the right of the insurer to inspect the property.
Declarations. That portion of the insurance contract in which is stated such information as the name and address of the insured, the property insured, its location and description, the policy period, the amount of insurance coverage, applicable premiums and supplemental representations by the insured.
Deductible. The portion of an insured loss to be borne by the insured before any recovery may be made from the insurer.
Definitions. That portion of an insurance contract where important term used in the contract are defined.
Endorsements. A form attached to the policy which alters provisions of the contract to make it better fit the needs of the insured or the insurer for that particular risk.
Exclusions. Contractual provisions that deny coverage for certain perils, persons, property or locations.
Flat Cancellation. A policy which is cancelled upon its effective date. Usually under a flat cancellation no premium charge is made.
Insured. The party to an insurance arrangement whom the insurer agrees to indemnify for losses, provide benefits for or render services to. This term is preferred to such terms as policyholder, policyowner and assured.
Insuring Agreement (or Clause). That portion of an insurance contract which states the perils insured against, the persons and/or property covered, their locations and the period of the contract.
Limit of Liability. The maximum amount for which an insurer is liable as set forth in the contract.
Named Insured. Any person, firm or corporation or any member thereof, specifically designated by name as the insured(s) in a policy. Others may be protected as insureds even though their names do not appear on the policy. A common application of this latter principle is in automobile policies where, under the definition of insured, protection is extended to cover other drivers using the car with the permission of the named insured.
Policy Period (or Term). The period during which the policy contract affords protection, e.g., six months or one or three years.
Policy Territory. What geographic territory is or is not covered by the policy of insurance.
Pro Rata Cancellation. The termination of an insurance contract or bond with the premium charge being adjusted in proportion to the exact time the protection has been in force.
Short Rate Cancellation. A cancellation procedure in which the premium returned to the insured is not in direct proportion to the number of days remaining in the policy period. In effect, the insured has paid more for each day of coverage than if the policy had remained in force for the full term.
Sublimit. Any limit of insurance which exists within another limit. For example, special classes of property may be subject to a specified dollar limit per occurrence, even though the policy has a higher overall limit.
