Elements of Insurance

Contract
The Basics Parts of an Insurance Contract

1.Declarations
2.Definitions
3.Insuring Agreement
4.Exclusions
5.Conditions
6.Deductibles
7.Miscellaneous Provisions
8.Insured
9.Rider And Endorsement
Cont.

1. Declarations:
Statements about the property or life to be insured.
2. Definitions:
Section of the policy in which the insurer explains the meaning of key
words or phases in the contract.
3. Insuring Agreement:
Part of the insurance contract that states the major promises of the
insurer. Two basic forms are named peril coverage and all-risks coverage
4. Exclusions:
Listing of perils, losses, and property that are not covered under the
insurance contract.
 Cont.
5. Conditions:
Provisions that qualify or place limitations on the insurer’s promise to perform.
6. Deductibles:
Amount of your claim that you agree to pay before the insurer pays the rest.
7. Miscellaneous Provisions: General provisions common to insurance contracts
that address the relationship between the insurer and the insured, and the
responsibilities of the insurer toward third parties.
8. Insured:
Person(s) protected by the insurance policy.
9. Rider And Endorsement:
Clause or term added to your insurance policy to provide protection, for an
additional cost, for risks not covered in a basic policy.
Why Exclusion?
• Some perils considered uninsurable
• Presence of extraordinary hazards
• Coverage provided by other contract
• Moral hazard problems
• Coverage not needed by typical insureds
Purposes of Deductibles

• Reduce the number of small claims

• Reduce premiums
• Reduce moral and attitudinal (morale) hazard
Deductibles In Health Insurance And
Property Insurance
Deductibles In Health Insurance :
• Calendar-year Deductible
• Corridor Deductible
• Elimination Period
Deductibles In Property Insurance :
• Straight Deductible
• Aggregate Deductible
DEFINITION OF “INSURED”
• An insurance contract must identify the person or parties who are
insured under the policy
• Named insured
• First named insured
• Other insureds
• Additional insureds
COINSURANCE
Coinsurance is a contractual provision that often appears in property
insurance contracts.

Nature of Coinsurance:
• A coinsurance clause in a property insurance contract encourages the
insured to insure the property to a stated percentage of its insurable
value.
• The insurable value of the property is the actual cash value,
replacement cost, or some other value described in the valuation
clause of the policy.
Cont.

• coinsurance formula is used to determine the amount paid for a

covered loss.
• The coinsurance formula is as follows:
(Amount of insurance carried/Amount of insurance required) * Loss
= Amount of recovery