Policy Provisions

Updated: 09 June 2023

What Does Policy Provisions Mean?

Policy provisions are clauses in an insurance contract that lay out the exact conditions for which coverage is provided and for what amounts, along with exclusions and other restrictions.

Put into simple terms, an insurance policy is a contract between an insurance company and a policyholder that contains a promise to pay if an insured peril damages an object of insurance (for example, a fire insurance policy would pay if fire damaged your home).

As with all contracts, it is very important to determine exactly what is covered and under what conditions to avoid any ambiguity when it comes time to trigger the protections offered by the policy.

As insurance is such an old and regulated industry, there is significant standardization across the industry when it comes to policy provisions. The Insurance Services Office (ISO)—alongside regulators who need to approve all insurance contracts—have come up with industry-standard insurance contracts that many insurance companies will follow.

Of course, each insurance company is free to make their own modifications but they all generally follow a similar format and contain similar policy provisions.

Insuranceopedia Explains Policy Provisions

Policy provisions in an insurance contract can include such details as coverage periods, exclusions, riders, start dates, and other important information.

As it determines whether coverage applies and for what amount, it is important for policyholders to carefully read the details and provisions of their policy and understand them. Otherwise, they risk not taking advantage of the protection their policy provides or potential unexpected financial hardships due to losses that are not covered but assumed to be.

Thankfully, policyholders can reach out to their insurance advisors for help on how to interpret certain policy provisions found in their policy. Since most property and casualty insurance companies will use (slightly modified) versions of insurance contracts created by the ISO, your insurance advisor should have a good idea of how each policy provision works and what to look out for as a consumer.

Another advantage to using the standard policy provisions created by the ISO is that they are all pre-approved by regulators. Courts have seen these provisions before and have a strong historical precedence on how to interpret them in different scenarios. This ensures that policyholders get a fair contract and can fully understand the coverages they have purchased.

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