Understanding the five parts of an insurance policy

11th November, 2021

The documents of your insurance policy are the real nuts and bolts of your policy. There, you can find the terms and conditions associated with your policy. So, at all times, they are the reference point for you and your insurer. In addition, anytime you are confused regarding the claim procedures, rules, exclusions, and coverages of your insurance policy, you can dig through these documents. Therefore, it is essential for you to read through the insurance policy documents. However, unfortunately, the policy documents might not always be easy to comprehend. So, in this guide, we will discuss the five parts of the insurance policy. Knowledge of these parts will make it easy for you to understand your policy.

However, before we get to that, let us address an important question. Why is it vital for you to review your insurance policy? The insurance policy is a legal contract between the insurance company or the insurer and the insured’s policyholder. A thorough reading and understanding of the policy ensure that you have the requisite coverage you need and expect from your policy. When you read, you are well-informed. This is quintessential to avoid any disagreement between you, the policyholder, and the insurance company, if and when you have to file a claim for loss.

Now, let us get started and address the five parts of the insurance policy. Knowledge of these sections will make it easier for you to read through the policy document.

Declarations page

This is the first, sometimes even the second page of your insurance policy. It is known as the “dec page.” This page will cover the complete snapshot of your insurance coverage. On this page, you can find all the answers to each of the questions associated with the coverage the insurance company is providing you. Therein, you can discover pivotal details, such as the name of the insured, fundamental coverage limits, type of coverage provided, and the applicable deductible amounts, sub-limits, discounts applied to the policy, list of endorsements included in the policy, and the term of the policy.

If the insurance policy covers property, such as a vehicle or home, the declarations page will also mention the same. There will also be additional related details, such as the property value and vital identifying information, such as the vehicle’s VIN.

On the other hand, in the case of health insurance, the declarations page will be referred to as a summary of the health benefits. In there, you can find details, such as maximum benefit limits, premium, copay, deductibles, and coinsurance.


In this part of the insurance policy, you will find the definition of some terms used within the insurance policy. Further, the section will narrow each of their meanings. It is vital to ensure no ambiguity, which may go against the insurer if the matter reaches the court of law.

Some of the commonly used words tend to have a limited definition in context to the insurance contract. Looking through this section carefully, you will notice that all the defined terms listed across the policy are listed with special formattings, such as boldface font, italics, and quotations. This is to give an idea to the reader that these have particular definitions. Typically, the words in the policy not defined in this section are open to interpretations. However, you must carefully review a defined term for coverage exclusions and inclusions if there is a defined term.

It might either be a part of another section or a stand-alone section of the insurance policy. If there is any confusion regarding any term in the policy, you can read through this section.

Insuring agreement

You can find this on the front pages or the main pages of the policy. It contains a summary of all the key promises from the insurance company to you. Further, the agreement will include your and the company’s responsibilities towards each other. For example, a prime responsibility of the insurer is to pay claims on your behalf for the losses incurred because of the listed perils. So, it is a shield during a lawsuit. But, on the other hand, your responsibility towards the insurance provider is to pay your agreed premium timely and report the losses truthfully and in time.

Generally, everything that is covered by your policy will be included in the insurance agreement. In your insuring agreement, you will find everything that the insurer agrees to do, such as offering certain services, paying losses for covered perils, or agreeing to defend the insured in case of a liability lawsuit.

Broadly, there are two fundamental forms of the insuring agreement. These include:

  • All risk coverage
    Under this, all the losses are covered, excluding the specifically excluded ones. When a loss is listed as excluded, the same will not be covered. One of the most prominent examples of all-risk policies is life insurance policies.
  • Named-perils coverage
    In this, only those coverages are listed, which are exquisitely covered. So, if any peril is not mentioned, it will not be covered in the policy.


Exclusions and limitations

Exclusions imply terms that take the coverage away from the insuring agreement. So, they will list everything that your policy does not cover. Almost all kinds of policies will contain exclusions. However, they will differ by type, coverage, the insurance company that issued the policy, and the state in which it was issued.

Typically, there are three kinds of exclusions. These include the following:

  • Excluded property
  • Excluded losses
  • Excluded cause of loss or perils

Some of the instances of excluded property under homeowners policy include personal property, such as an airplane, a pet, or an automobile. In addition, the health insurance policy will consist of limitations or exclusions regarding any pre-existing condition or any claim from an unapproved medical cost.

Further, some instances of excluded loss in the automobile policy are damage inflicted because of wear and tear. Lastly, the excluded perils in a homeowners insurance policy are water damage, earthquake, war, neglect, floods, acts of terrorism, and nuclear radiation.

You can find the policy limits and their application in the “limits of liability.” In the limitations list, you can find the percentage of a total loss, the maximum dollar amount, or a cluster of the two, which the policy must reimburse in any given period or claim.

When you have any doubts regarding the specific loss or the cause of loss, you must read through the exclusions to ensure that coverage offered is not limited.


Lastly, the conditions section has the provisions associated with the policy, limiting or qualifying the insurance company’s guarantee to perform or pay. It implies that if you do not cater to the conditions stated in the document, the insurer can reject your claim.

Some prevalent conditions that you may find in the insurance policy will be the company’s requirement to furnish proof of loss to guard the property following a loss. Alternatively, you may also have to submit the proof of loss to the corporation in times of defense of a liability lawsuit or any investigation. For instance, the auto and the property policies typically required the insured to take all necessary and practical steps to ensure no extra damage to cover the property following a loss.

Bottom line

At first glance, your insurance policy might appear overpowering if you look at it as one big tangle of technical legalese. To ensure that your insurance policy seems more understandable, you must browse through the different parts and head to only the sections, which address your current situation. Naturally, it is easier for those who understand the insurance policy fundamentals and expect from every section to get fair dues. If you are still confused, you can take help from a professional finance adviser or an insurance agent; they’ll help you understand the policy and its offerings. This will help you make an informed decision before choosing a particular insurance policy. Make sure you avoid signing a legal document without reading its contents.