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Is there a trick to understanding an insurance policy? p2

Fri Jan 16th, 2015 on     Insurance Claims,    

A friend of ours took a speed reading course a few years ago. The trick, the instructor said, was to read the article or book or whatever several times, starting with a high-level review and drilling down to almost a word-for-word reading. All she remembers now is that she was supposed to draw a “Z” with her finger as she read.

It would be wonderful if we could speed through legal documents. Think of the time it would save, and think of how many privacy statements and cardholder contracts we would actually read. With contracts, though, and insurance policies, we can’t recommend it.

We can, however, offer some pointers on how to approach an insurance policy. In our last post, we discussed the first step: figuring out who is insured. With that done, it is time to dive into the meat of the policy.

Read the insuring agreement. This is the part of the policy that addresses what the insurer will do for the policyholder. The insurer will pay for losses, will provide defense in a lawsuit, will cover the cost of a hotel if the insured’s house burns down — all the information the policyholder needs about covered perils.

Insuring agreements fall into one of two categories: named-perils or all-risk. Named-perils policies are exactly what they sound like: They only cover the perils that the policy actually lists, nothing more and nothing less. A tree falls on your house, but trees falling on houses appears nowhere on the list of perils, you are not covered.

The all-risk agreement takes the opposite approach. Nothing on the list is covered. Tree not mentioned? You are covered. Tree on that list? You are not covered. Typically, life insurance coverage is all-risk.

Next up: exclusions. And it’s not really what you think.

Sources:

Insurance Journal, “How to Read Any Insurance Policy: 12 Rules,” Christopher J. Boggs, Jan. 5, 2015

IRMI Knowledge Base, accessed Jan. 16, 2015

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