Policy documents running in several pages

Policy documents often run a several pages, and it can become a tedious task to read and understand them completely. Yet, you should not commit the mistake of ignoring them or skimming through them else you might have to pay a heavy price for it in the future. But before we delve into the importance of policy documents, let’s first understand what exactly does it contain.

In layman terms- an insurance policy is the contract that legally binds the insurer and the policyholder. This contract lists out all the terms and conditions under which you are liable to pay a certain amount to the insurance company as premium, and the terms and conditions under which the company agrees to pay you after a loss or any unforeseen event.

The policy document might look like a jumbled jargon of words to the uninitiated, but if you just understand the meaning of a few words, you would be able to understand it quickly. Moreover, it is for your own benefit. You should know what you are signing for. So, what are the terms that you should know before reading a policy document?

• Policy number- Every policy is assigned a specific number and you can use it whenever you need to make any changes to your policy or report a claim.
• Effective and Expiry date- Every insurance coverage comes with an expiry date- you need to pay a premium to the company for a stipulated amount of time, and you get a compensation once it expires.
• Underwritten by- It is another term referring to the ‘insurer’ or the ‘insurance company’
• Insured- It refers to you  since the contract is between you and the insurance company
• Additional named insured- If you are buying a vehicle or property insurance, it refers to the co-owner of vehicle or property
• Legal liability- It provides coverage for amounts you're legally responsible for if you unintentionally cause bodily injury or property damage to others.
• Premium- It refers to the cost of your insurance policy
• Endorsement- It is also called ‘rider’ sometimes. An endorsement refers to any addition or change made to an insurance policy. Endorsements can add, delete, change, or exclude certain things from the insurance contract. For example, endorsements can be made to provide coverage for floods and other natural disasters.
• Insured item- It refers to the thing that is covered by your insurance policy such as your car, home, personal property etc.

Why you should read your insurance policy?

I mean out of every fascinating book in the world that you could read, why would you or anyone want to read the insurance policy? It is lengthy, filled with difficult words, and jargon, and probably requires more effort than your calculus homework you used to get during your schooldays. Well, the last part is an exaggeration obviously, but the point is that reading policy documents is probably the most boring and the most important task at the same time.

Here are a few reasons why you should not ignore your policy document despite its length-

• It contains important dates

Insurance policies are quite time sensitive, and contain dates by which something needs to be done. For example, you would have to pay your premium before a certain deadline. If you have not read the policy document, there is a chance that you would miss the deadline and be penalized for it. If you do not file a claim after an accident within the give time limit, the chances of it getting rejected increase significantly. Hence, it is always better to read the policy document thoroughly in order to avoid such problems.

• The jargon is important

Yes, I understand that reading so many difficult legal words can be intimidating and confusing, but there is a reason why they exist. These are specific terms that will determine whether or not you will be getting the payout. If you want to have more clarity, first read the ‘definitions’ of the sections that explains all the words clearly, and then proceed with the entire document.

• It tells you what you are covered for

This section is extremely important. You should know exactly what you are covered for, so that there is no ambiguity between you and the insurance company. You should know what you have signed up for, so that during an unforeseen situation you are aware about what your next step should be. Under this section, pay particular attention to the ‘Exclusion’ clauses.  Exclusion refers to those instances, situations, circumstances that are not covered under this policy.  In other words, these clauses tell you about the limits of your coverage and what you cannot make a claim for.

• It contains policy limits

This is another important section of your policy document. Policy limit refers to the maximum amount of money that you will be paid in the event of a claim. Now I do not stress enough about why you should know about it. If you are buying a policy, you should know what you will be getting at the end of it. No policy guarantees an unlimited flow of money. There are a numerous limits applied to the payouts. It is better for you if you are aware of that.

• It helps you understand endorsements

We defined ‘endorsements’ as modifications made to the document. If you read the policy document carefully, you will know if or not you are allowed endorsements. In fact all policies come with the provision of endorsements that allow you to add coverage or increase coverage limits. Reading your document carefully would help you modify your policy according to your requirement, and also allow you to keep track of any changes that happen under the endorsement sections so that you are not caught off-guard.

It is extremely important to go through the policy document carefully, and even discuss it with your family members and trusted peers. You should not take it lightly. Yes, it is extremely boring, but reading it thoroughly would prevent any discrepancies and complications that might arise in the future.