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How to Interpret Insurance Policies

Understanding insurance policies is difficult. The legal terms are rarely explained and policy owners don’t want to appear uninformed so they don’t ask for clarification or explanations. Insurance policies are legally binding contracts and written in ways that are designed to protect insurance companies from loss.

The language is a mish-mash of terms and language that’s been are documents that have been written, changed, modified and rewritten again over the course of the last 170 years. Most individuals don’t read their policies until they need to file a claim and sometimes not even then. The following are key components of every insurance policy and the essential elements individuals need to know.

Who is Insured

There can be multiple levels of coverage – the primary insured, extended insured that have the same level of coverage as the primary, those who automatically have coverage, and any additional people/entities that are covered through a rider or endorsements.

Endorsements and Forms

Make sure all endorsements and appropriate forms are included in the paperwork of the policy. Make sure that those forms and endorsements don’t contradict the wording of the original policy.

What is Covered

This portion of the policy outlines what is covered, such as damage to a structure and contents due to fire or hail. Even dog bites and similar instances will be outlined.

Exclusions and Exceptions

This tells individuals what “perils,” situations or types of damage aren’t covered and what responsibility the policy owner has. Exceptions are the way that insurance companies control the amount of coverage they provide. Policies will typically refer to another section that states provisions that affects coverage. Read those carefully.

Inclusive vs. Exclusive

These are terms that can have big meaning for policyholders. The word “and” typically means that all qualifications must be met. The word “or” means if any of the terms are met, coverage is extended.

Key Words/Phrases

There are dozens of words and phrases used that can limit, alter, or negate coverage. Beware of words and phrases that include not, does not apply, does not include, greater than, lesser than, greater of, lesser of, no more than, unless, except, and subject to. It’s important that policy holders read their policies using these guidelines to understand what coverage they have.

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