Master Policy

Last Updated: September 15, 2020

Definition - What does Master Policy mean?

A master policy is an insurance contract issued to a policyholder that combines what would have been several separate policies into one. Instead of issuing a separate policy for each location or operation, a master policy combines them all into one policy. There are several situations where a master policy may be used.

In the case of a business owner or employer, they can purchase a master policy that will provide insurance coverage to other individuals (typically their employees). This is common for commercial general liability policies that extend coverage to employees.

Master policies can also be used to include coverage for subsidiaries, sub-contractors, or other parties that the insured has voluntarily agreed to insure under the policy.

Holders of master policies can issue certificates of insurance for other insureds under the policy that they can use as evidence of coverage.

Insuranceopedia explains Master Policy

Master policies combine multiple policies into one unified insurance policy to simplify administration for individuals and businesses. Those who are insured through the master policy are not considered parties of the contract, though they do benefit from it. The policyholder can issue certificates of insurance for the beneficiaries to use as evidence of insurance.

A master policy can be for a group insurance policy, such as group health or group life insurance. The master policy specifies matters such as the eligibility criteria for insurance coverage (for example, length of employment). This ensures employers make objective decisions about who to enroll in the policy.

Another situation that calls for the use of a master policy would be to unify coverage for several business locations or properties being insured under one policy. It is very common for businesses with multiple locations to get a master policy listing all locations instead of arranging separate insurance for each.

By bundling the insurance under one policy and one insurer, you are simplifying administration (ie. instead of dealing with multiple policies that expire at different times) and can likely get some savings by placing larger volumes with the same insurer. Homeowners or property investors also use this to insure multiple homes in their portfolio.

Another very popular use case for master policies is with large businesses with many different operations and subsidiaries. The complexity of these businesses mean that they are hard to insure under a typical standalone policy as they are not designed for this purpose. But trying to administer multiple standalone policies is hard. The solution is to opt for a master policy to ensure you have comprehensive coverage at a reasonable rate while enjoying the efficiencies of dealing with fewer policies.

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