Policy Contract

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Definition

A life insurance policy contract is a document of agreement between the policyholder and the insurance company. This contract mentions the premium amount that needs to be paid to the insurer to get the coverage along with all terms and conditions.

Description:

A policy contract binds the insurer and the insured in an agreement in which the insured pays the premium and the insurer pays for the financial losses, if there be any. Only if the insured pays the premium, the policy contract remains valid. If the premium is not paid on time, the policy contract goes null and void after which all the benefits payable under the policy will be withdrawn.

A policy contract has 4 parts that includes:

a. Declaration page: A declaration page is the first part of the insurance contract that helps you identify the insured, the risk covered, policy limits, and the policy period for which it will remain in force.
b. Insuring agreement: Under the insuring agreement, the insured promises to pay the premium. The insurer agrees to paying for the losses for covered perils or agreeing to protect the insured.
c. Exclusion: Exclusions are the conditions that indicate the events that will not be covered under the policy. There are 3 types of exclusions: excluded perils, excluded losses, and excluded property.
d. Conditions: Conditions are the provisions in the policy that place limitations on the insurer to pay for the losses.

Example:

Ravi purchased a savings plan to create funds for his daughter’s wedding. Ravi was the insured under this policy contract. The savings plan Ravi bought was for 15 years and annual premium for the same was Rs.11,000/-. The policy contract bound Ravi to pay for the premium against which the insurance company will provide him life cover along with the opportunity to invest and save.

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