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Chapter 10 Nature of the Insurance Industry
could be hard for a customer to tell if an agent is being truthful about
the product. The very nature of an insurance contract makes mutual
trust essential.
Basics of an Insurance Contract
Most insurance contracts are based on policy forms developed
by Insurance Services Office, Inc. (ISO).
ISO
is an organization
that advises the insurance industry and produces policy forms. So,
contracts typically follow the same standard structure. These are the
sections that make up a typical insurance contract:
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¶ dwbktrhnmr
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Insurance contracts can seem overwhelming. In fact, many people
just scan the main page of their policies and then file them away. They
only find out after a loss whether or not they had the right coverage.
Read through your contract before you sign it and again once you have
it in hand.
Declarations
The declarations section lists a policy number, the name of the
policyholder, and the insurance carrier. This section also identifies
what the policy covers and the start and end dates of the coverage. It
will include other information specific to the type of policy, too. For
example, the declarations section on a life insurance policy lists the
name and age of the person it covers.
Definitions
Insurers are careful to clearly define everything in a policy. If
something in the contract is ambiguous and a policyholder sues, the
courts will likely side with the policyholder. Ambiguous means there
is more than one way to understand the meaning. So, policies include
a definitions section to clearly define terms used in the contract. For
example, this section defines who is insured under the policy (“the
insured”). A homeowner’s policy would define “the insured” as the
policyholder, his or her spouse, the children, and any relatives who
live with them.