What is a Policy?

An insurance policy is a written contract of insurance between the insurer and the policyholder. It is typically composed of a declarations page, policy form, and endorsements or riders that amend the policy form.

Understanding Policies

Insurance policies act as a safeguard against accidental but anticipated risks. Insurance policies allow businesses and individuals to navigate potential risks without the threat of financial ruin.

A policy allows the policy holder to receive financial assistance for or protection from certain types of losses. The contract outlined in the policy determines the claims that the insurer is legally required to pay. 

There are several types of insurance policies. Some examples include health, home, life, and auto.

Components of a Policy

Three main components make up a policy: premiums, deductibles, and policy limits.

Premium: A premium is how much the policy costs the insured. It is usually divided into monthly payments for the insured. A policy’s premium is based on the insured’s risk profile as determined by the insurer. 

Deductible: A deductible is the amount a policyholder must pay out of pocket before their insurance company will cover a claim.

Policy Limit: A policy limit is the maximum amount that an insurance company will pay to cover a claim or loss.

Related Terms



Declarations Page

Diligent Search/Diligent Effort


Package Policy

Policy Effective Date

Policy Fee

Policy Limits


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