Legal Definitions - insurance policy

insurance policy

An insurance policy is a formal agreement, or contract, between an individual or entity (the policyholder) and an insurance company. This contract details the terms and conditions under which the insurer agrees to provide financial protection against specified losses or risks. It also refers to the physical or digital document that outlines these terms, including what is covered, the amount of coverage, the premium (cost), and the responsibilities of both parties.

• Example 1: Sarah purchases a homeowner's insurance policy for her new house. This policy is a contract stating that if her home is damaged by fire, theft, or certain natural disasters, or if someone is injured on her property, the insurance company will cover the costs up to the agreed limits. The document itself, outlining these coverages and her annual premium, is also her insurance policy.

• Example 2: A small business owner buys a commercial auto insurance policy for their delivery van. This policy legally binds the insurer to pay for damages if the van is involved in an accident, or for liability if the driver causes injury to another person or property while on the job. The detailed paperwork received from the insurance provider is the insurance policy.

• Example 3: Mark enrolls in a health insurance policy through his employer. This policy is the agreement that the insurance company will help cover his medical expenses, such as doctor visits, hospital stays, and prescription drugs, according to the plan's benefits and his premium payments. The summary of benefits and coverage he receives is a representation of his insurance policy.

accident policy

An accident policy is a type of insurance that specifically provides coverage for losses resulting directly from accidental bodily injuries sustained by the policyholder during the period the policy is active. It focuses solely on unexpected physical harm, rather than illnesses or other types of losses.

• Example 1: A college student purchases an accident policy to cover potential injuries while participating in intramural sports. If they break an arm during a soccer game, this policy would help cover the medical bills, even if their primary health insurance has a high deductible.

• Example 2: A construction worker, whose job involves physical risks, might have a supplemental accident policy. If they suffer a fall and sprain their ankle on a weekend hike, this policy could provide a lump sum benefit or cover specific costs related to that accidental injury, separate from their workers' compensation or health insurance.

assessable policy

An assessable policy is an insurance policy under which the policyholder may be required to pay additional funds beyond their regular premiums if the insurance company experiences significant financial losses that exceed its available reserves. This type of policy is less common today, especially in standard commercial insurance.

• Example 1: In a small, specialized mutual insurance company, members might hold assessable policies. If the company faces an unexpected surge of large claims due to a widespread natural disaster, and its reserves are depleted, the policyholders could be asked to contribute an additional amount to cover the shortfall.

• Example 2: Historically, some agricultural insurance cooperatives issued assessable policies to their farmer members. If a season of severe crop failures led to payouts far exceeding the premiums collected, the farmers holding these policies would be liable to pay an extra assessment to keep the cooperative solvent.

bailee policy

A bailee policy is a type of insurance that covers goods temporarily held by a "bailee" – someone who has possession of another person's property but does not own it. This policy typically covers various items without needing to describe each one individually, as the