Understanding your Insurance Policy

Insurance policies coverage or con job?

Despite all the media hype about lack of medical insurance coverage in America, if you’re like most people, you have probably two or more insurance policies in force. At a minimum, you probably have life insurance and automobile insurance, and if you own a house with a mortgage, you have insurance to cover that.

When is the last time you read one of your policies? Never, you say? That is no surprise, for insurance policies are among the least read documents in this country, despite their importance.

There is a reason for this, and even though I strongly suggest you take all your policies out and read them from cover to cover, it will not be an easy task. Insurance policies are written by insurance companies in an effort to explain everything that is covered, and most importantly, all the things that are NOT covered. It might not surprise you to know that policies are written to benefit the insurance company.

Even lawyers, except those lawyers hired to craft them in the first place, are reluctant to tackle the job of reading and interpreting insurance policies.

Do I have your interest yet? I do? Good, but before you sit down with a copy of each of your policies, there are a few basic things you need to know. Understanding how policies are structured and some basic definitions will help you make your way through the maze that is most policies.

The average insurance policy contains the following sections:

Declarations. This is the part of the policy that identifies who is insured, what risks or property is covered, limits on the policy, and terms or dates of coverage.

Conditions. This describes the requirements the insured party must fulfill to obtain coverage.

Definitions. Some policies will have this section, defining any confusing or unusual words or phrases in the policy.

Agreements and Exclusions. This outlines what is covered, and more importantly, what is not covered. This is the most important part of a policy.

Limits. This section explains how much is paid for losses or types of property.

Conditions. This is the section that lists the rules that apply to your property, what the company’s responsibilities are, and what your responsibilities are.

Some companies are now providing easy to read’ policies, but for the most part, insurance policies continue to be written in arcane legalese that requires copious amounts of caffeine and patience to get through. They also tend to be written in ways that give the benefit of the doubt to the company rather than the insured. One has but to remember the debates that raged after Hurricane Katrina when companies were arguing over whether destroyed homes were done in by wind or water. Seems the normal homeowners’ insurance didn’t cover water damage, while the flood insurance didn’t cover wind damage (both of which are prominent in hurricanes). Each was claiming that the other cause was actually operative; therefore, they didn’t have to pay. Caught in the middle of this debate were the homeless homeowners who were left with piles of rubble and little else.

I recently received a notice from my credit union that I was eligible for accident insurance as a member, but when I read all the conditions of the coverage, I discovered that it only paid under the following conditions:

I died

I lost both hands or both feet or entire sight of both eyes

I lost one hand AND one foot

I lost the ability to speak and hearing in BOTH ears

I lost either a hand or foot AND entire sight in one eye

I lost either one hand or one foot

I lost entire sight in one eye

I lost ability to speak or hearing in BOTH ears

I lost a thumb AND index finger on the same hand

As I read this, I tried to envision other accidents that could impact my ability to work or make a living, and came up with several, but alas, they were not covered by this policy.

It’s not that the average company is trying to cheat you. They are trying to stay profitable. So, their lawyers write policies that minimize their risk of loss as much as possible. No matter how they try to improve the readability of policies, as long as it is a for-profit business, policies will continue to be confusing to the layperson.

For some information on how to read your policy, I recommend two websites that explain policies in plain English.