READING AND UNDERSTANDING AN INSURANCE POLICY

IN GOOD TIMES AND IN BAD

DON’T WORRY...GET INSURED!

Insurance Services GuideNo one can predict the future. But you can be prepared for whatever happens.

That’s why we’re here to serve you.

“Just because you do not take an interest in politics doesnʼt mean Politics wonʼt take an interest in you.”- Pericles (430 B.C.)

If you substitute the word “insurance” where “politics” appears above, youʼll have one reason (among many) for you to take an interest in your insurance. Though you may consider it a burden, a nuisance, a collection of complex legal phrases, or worse, please consider your insurance policy in the positive light that itʼs meant to be: a financial tool which will work for you when critically necessary provided that you let it do so.

Granted, it may seem challenging or gibberish --- a previous column addressed the need to be written in legalese because every policy is in fact a contract which should be clear and unambiguous. Still, it can and should be understood. Letʼs walk through it as an introduction.

Every insurance policy has at least four basic parts, and if you look at each of those parts separately, it can be much clearer. This discussion is aimed at all forms of insurance: personal, business, life, health, auto, home, liability, property and everything else.

THE PARTIES

The first part is the parties. This is not a trick sentence or grammatical game. Itʼs an important part of the policy and may not be as simple as it might seem. Who

is insuring whom? The insurer --- usually but not always an insurance company --- shouldbe clearly identified. Is it properly licensed in your state? Does your state regulate it? Do you have access to it in your stateʼs courts, if you need to sue it? What is your agentʼs or brokerʼs relationship to it? These, and most of the other questions in this column, should be answered by your agent. If you are buying without an agent (via mail, internet or other source), you have further reason to search out answers to these questions. Fraudulent policies and unauthorized “agents” are epidemic.

If some of your insurance comes through your employerʼs group plans, confirm with your Human Resources or Benefits department that these matters have been checked and satisfied. Too often group benefits are shaky. (This column wonʼt address some other critical issues, such asthe financial condition of the insurer, so donʼt consider this a full or complete checklist.) Ingroup or association coverages you may get a certificate, or a statement of benefits, rather than an individual policy. In a condominium, you may get something similar short of a policy. I suggest that you get a copy of the master policy --- you usually have that right as an employee or condo unit-owner --- and keep it on file. Anything short of the full policy doesnʼt give you or your advisor the full story, and you shouldnʼt wait until you have a

claim to learn whether or not there are any surprises in your policy.

Another important part of the parties is, of course --- you. (“You” may be a corporation, partnership or other entity, but in this brief outline it will all be “you.”) You are probably the named insured, but there may be other insureds, named or otherwise. In personal home or auto policies, for example, other insured individuals may be members of your family living with you, or even guests. Or not. If, for example, a family member has a terrible driving record, that member might be specifically excluded. You need to know. There may also be additional insureds and possibly their employees -- or not. Again, you need to know. There may be a lienholder --- bank or mortgage-holder, for example --- and you want to be sure that when the lien is satisfied, the policy will no longer show it as a lienholder.

In life insurance, there will also be a beneficiary. Here, too, itʼs important that it be proper and current. Too often a life insurer, which must follow the directions laid out in the policy, is faced with the dilemma of dealing with benefits payable to a beneficiary who died before the insured died. Where will that money go? To the estate? To a child or relative? To charity? Rather than guess, the insurer will usually get direction from a court, but thatʼs a delay and possibly expense which could easily be avoided by frequentpolicy reviews.

A life policy will also

have an owner, another important entity because, among other things, ownership may make a big difference in how much may be taxable or how much tax-free. Normally life policy death benefits are tax-free, but, again, policy reviews should maximize benefits even through changing tax scenarios.

THE BENEFITS

Read the insuring clause. Every policy has an insuring clause, and usually itʼs in clear language, promising to pay or compensate in event of a stated, described occasion. The bulk of the rest of the language is elaboration.

Check the effective date of the policy. Itʼs important, too, because some other benefits or limitations hinge on the effective date. Know, too, that some benefits are in force even after --- sometimes long after --- certain policies expire. For example, most life policies and some health policies have a grace period, usually 30 or 31 days after a premium is due, during which coverage is in force even if the premium is not paid. And some liability policies --- but not all! --- will cover claims even years after they expired. Thatʼs one of the reasons to keep policies and records for some years after expiration.

Since a policy is a contract, every word in it was written with something in the mind of its creator, and probably was also based on the accumulated experiences of many insurers, many

claims, many court decisions and the possibility of many variations of all the above. Hence the policy language, and the importance of understanding whatʼs written. There are many shadings and nuances as well as big differences among the various policies in each category of coverage. Thousands of books, literally, have been written on this, and here I can only summarize by saying that the value of an insurance advisor --- agent, broker, consultant, attorney, accountant --- is needed to guide you through that maze. This may look like a do-it-yourself job by simply shopping for the lowest premium, but it can be much more. Please read your policy with the plan of noting questions as you read, and of not putting the policy away until those questions have been answered by an knowledge source with your interests uppermost. Anything short of this will be only, at best, an introduction to understanding your policy.

DEFINITIONS AND EXCLUSIONS

Donʼt assume anything in insurance, including the meanings of key words. Some policies are better than othersin defining words, and many a claim is paid or denied on the hair-thin interpretations of words. Previous columns havediscussed issues around words like “occurrence,” “accident,” “dividend,” “cash value,” “occupation,” and others. If all other things are equal, I prefer policies which

are generous with definitions of words; they leave less room for misunderstandings.

The exclusion section of a policy --- virtually every policy has one --- is key, because no matter what is promised in the Benefits language (see above), if an exclusion alters or removes it, itʼs probably not going to be honored as a claim.

I feel that no policy can be truly understood without thoroughly understanding the Exclusions.

CONDITIONS

Deductibles, co-payments, co-insurance (theyʼre different from each other, as discussed in a previous column), obligations of insurer and insured, and other important factors are sprinkled throughout a typical policy, sometimes without being clearly labelled as a “condition.” Still, they can govern how much will be paid on a claim and, in some cases, even whether a claim will be honored. Questions? Write ʻem and discuss ʻem.

This introduction to your policy, then, is meant to open the door to your getting to know more --- not necessarily everything --- about your insurance and how to make it work better for you. Donʼt bein awe or fear of it; itʼs a tool meant to serve you if youʼll get the “feel” of it, with help.

Walking through these four sections of your policy, then, should lead you to a new comfort zone which will serve you well.

Copyright 2012 Dave Goodwin

Our insurance columnist, Dave Goodwin, has over 40 years of experience as an agent, agency owner and journalist. He is an insurance marketing consultant and a litigation support consultant. Born in New York, he now lives in Florida.

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