Policy
An insurance policy is the written contract between an insurer and a policyholder. It states which risks, people, property or services are covered, the limits, deductibles, exclusions, conditions, premium and coverage period, and the duties of both sides. The issued policy and its endorsements decide what the insurer pays after a covered loss.
Also called: insurance policy
Your policy is the document that settles questions about your coverage. A quote, an advertisement or a coverage name like "full coverage" can describe it, but the issued policy and its endorsements decide whether a loss is paid, how much, and what you had to do along the way.
How a policy's numbers decide a claim payment
Several parts of the contract work together on every claim: the limit caps what the insurer pays, the deductible is your share first, and exclusions and conditions can remove a loss altogether. A homeowners example from the NAIC (opens in a new tab) uses a named-storm deductible of 5% of a $300,000 insured value, with a covered named storm causing $40,000 of damage.
Hover or tap a row to highlight it.
| Step | Amount |
|---|---|
| Deductible (5% of $300,000) | $15,000 |
| Covered damage | $40,000 |
| Policyholder pays first | $15,000 |
| Insurer pays before other limits or exclusions | $25,000 |
The premium is still owed on top of that. The $25,000 figure can change if the loss is excluded, falls under another limit, or is settled under different valuation terms, which is why the declarations page alone does not answer a claim question.
The choices inside a policy that change price and payout
A higher limit generally raises the premium and raises the most the policy can pay. A higher deductible generally lowers the premium compared with a similar policy carrying a lower one, according to the NAIC Consumer's Guide to Home Insurance (opens in a new tab); a $1,000 deductible leaves you paying the first $1,000 of a covered loss. Some catastrophe deductibles are percentages rather than fixed dollar amounts, as in the storm example.
Valuation changes the check. Replacement cost pays to repair or replace with similar materials, subject to the policy's terms, while actual cash value generally accounts for depreciation and pays less for older property. The coverage form matters too: HO-3 generally covers the dwelling on an all-risk basis and personal property against broad named perils, HO-4 is a tenant form, and HO-6 covers condominium or cooperative unit owners, according to the NAIC 2022 Homeowners Report (opens in a new tab).
A policy also runs for a stated period, commonly 12 months. On a health plan, the policy year is a 12-month benefit period that may differ from the calendar year, according to HealthCare.gov (opens in a new tab). Optional coverages such as collision, comprehensive, flood, scheduled property, business income and rental add or change protection, often through an endorsement, and they generally affect the premium.
Where you meet your policy
Every line of insurance runs on a policy: auto, homeowners, condo, renters, life, health, pet, commercial, professional liability, umbrella and flood. You see it in pieces before you see the whole thing. A quote proposes coverage and a price based on the information you supplied. A binder temporarily evidences coverage before the policy is issued. The declarations page summarizes the insured, policy number, dates, premium, limits, deductibles and covered vehicles or property, according to the California Department of Insurance (opens in a new tab).
Behind the declarations sit the insuring agreement, which states the insurer's basic promise, and the definitions, exclusions, conditions and endorsements that explain, limit or change it. A renewal notice continues or changes coverage and price, and a claim letter applies those provisions to a reported loss. The procedures you follow after a loss, such as prompt notice, documentation, estimates and cooperating with an investigation, come from the policy's conditions. The law sits around the contract: it can require coverage, regulate cancellation and renewal, prescribe notices and limit what a policy may say.
How Connecticut and New York limit cancellation
State law changes how and when an insurer can end some policies. In Connecticut, an insurer cancelling a covered automobile policy generally must send notice to the named insured and any designated third party at least 45 days before cancellation, under Conn. Gen. Stat. § 38a-343 (opens in a new tab). The notice period drops to at least 15 days for nonpayment of the first premium on a new policy and at least 10 days for nonpayment of another premium, and the notice must state or include the reason.
In New York, once a covered personal-lines policy has been in effect for 60 days, or right away on a renewal, cancellation must rest on a ground the statute permits or an approved program, under Insurance Law § 3425 (opens in a new tab). A conditional renewal that lowers limits or removes coverage generally needs written notice at least 20 days before it takes effect, and personal-lines nonrenewal notices fall in a 45-to-60-day window, according to the New York Department of Financial Services (opens in a new tab). Many commercial policies follow separate rules under Insurance Law § 3426 (opens in a new tab).
Questions to ask an agent or insurer
- What are the coverage limits, deductibles, exclusions and sublimits? Together they set the most the policy pays and the amounts or losses you absorb.
- Which policy form and endorsements apply, and what does each add or remove? An HO-3, an HO-4, an auto form and a life form promise different things, and an endorsement can change the base coverage.
- Is a covered loss settled at replacement cost or actual cash value? Depreciation, deductibles and limits all shape the final payment.
- What notice, documents and deadlines apply if I have a claim? Duties after a loss and proof requirements can affect how a claim is handled.
- Can the policy be cancelled, nonrenewed or changed before renewal, and what notice will I get? State law and the policy itself can restrict cancellation and require specific notices.
Frequently asked questions
Four questions come up often.
Is a quote the same as a policy?
No. A quote is an estimate of premium based on the information you gave, according to the California Department of Insurance (opens in a new tab). If your property, drivers, limits or discounts turn out different, the premium or coverage on the issued policy can change.
Does "full coverage" have a set meaning on an auto policy?
No single package goes by that name. Collision and comprehensive are commonly added auto coverages, but what is included varies by policy and state, according to the NAIC (opens in a new tab). Ask which liability, collision, comprehensive, medical, uninsured-motorist and rental coverages are on yours and at what limits.
Does a homeowners policy cover flooding?
Usually not. Flood coverage generally has to be bought through the National Flood Insurance Program or a private insurer in addition to standard homeowners coverage, according to the NAIC (opens in a new tab).
Who is bound by the policy?
Both sides. The insurer is bound to its coverage promise, and the policyholder is bound to pay the premium and follow the policy's conditions, according to the NAIC glossary (opens in a new tab).