An insurance policy is a legal contract between an insurance company (the insurer) and an individual, business, or entity (the insured or policyholder) that outlines the terms, conditions, coverage, and exclusions related to financial protection against specified risks or losses
. In exchange for paying a premium, the insurer agrees to compensate the insured for losses caused by perils covered under the policy, such as accidents, injury, property damage, illness, or other specified events
. Key elements of an insurance policy include:
- Premium: The payment made by the insured to the insurer, which can be monthly, yearly, or as otherwise agreed
- Coverage: The specific risks or events the policy protects against, such as health issues, car accidents, property damage, or liability
- Deductible: The amount the insured must pay out-of-pocket before the insurer pays for a claim
- Policy limits: The maximum amount the insurer will pay for a covered loss
- Terms and conditions: Detailed provisions that govern how and when claims are paid, including exclusions and obligations of both parties
An insurance policy is typically effective from a specified date and remains valid for a set period (policy term), after which it may need renewal
. Claims are made by notifying the insurer and submitting required documentation when a covered event occurs
. Insurance policies exist for a wide range of needs, including auto, health, homeowners, life, business liability, and specialized coverages like kidnap and ransom or identity theft insurance
. In summary, an insurance policy functions as a financial risk management tool that transfers potential financial losses from the insured to the insurer in exchange for regular premium payments, providing security and peace of mind against unforeseen events
