There are many parts to an insurance policy that are all very important. This article discusses the pieces and parts, and how they work.
As an industry, insurance is detailed and complicated, and it takes time to understand the basics, let alone the nuances. There are a multitude of policies; commercial property, commercial liability, commercial auto, homeowners, tenants, personal auto to name just a few of the basic ones. There are new
terms and acronyms such as BOP, PAP, CGL, CPCU, E&O, D&O, and others to learn as well. There’s one acronym that most people learn very early on in their insurance careers; that’s DICE, which is used as shorthand for the parts of an insurance policy. While there are many types of policies, they generally consist of the same components, which are declarations, insuring agreement, conditions and exclusions.
When you’re first learning about insurance, it’s important to know how all these parts work together to form an insurance policy and provide coverage and exclusions as well as basic information about the insured and what is being insured. Let’s look at the parts individually.
The declarations is formally called the declarations page and is often referred to as the dec page. It is usually the first page of the policy and it provides the details of who and what is being insured. It provides the insured’s name and address, date the policy started and when it will end, type of policy, policy number, the agent’s name and address, property address where the insured can be reached, what is being covered, coverage limits, premiums charged for each coverage, and a list of endorsements. Endorsements are forms that allow the insured or the insurer to modify the basic policy. For example, a homeowners policy will show the insured’s name and address, address of the home, and show that the dwelling is covered for $400,000, personal property is covered for $200,000, loss of use and other coverages, liability limits of $500,000 and medical payments of $5,000 along with premiums and the deductible.
The next section is known as the insuring agreement. This is where the insurer states its agreement to provide certain coverages to the insured. It begins with language similar to this: We will pay for direct physical loss, or We will pay those sums for which the insured becomes legally obligated to pay as damages. It varies by policy, but the language is indicating that the insurer is agreeing to provide the coverages as outlined in the policy. Commercial policies then proceed to list the coverages the policy provides, such as injuries from an occurrence or physical damage to the insured’s property caused by a covered cause of loss.
Personal lines policies are a little different, and have a definitions section before getting into the coverages. Commercial lines policies have the definitions sections at the end of the policy. The personal lines policies go to the coverages after the definitions. In both types of policies, these coverages are part of the insuring agreement. For example, a commercial property policy will discuss what property is covered and provide a description, such as that building means the building described in the declarations, and that it includes completed additions, fixtures, permanently installed machinery and equipment, business personal property and other property. Different types of property that are covered will be described, and also property that is not covered will be described so the insured knows exactly what is and isn’t being covered.
Note that the insuring agreement refers to the declarations; this is important to note, and most policies refer back to the declarations for descriptions of covered items. In many instances if something is not listed in the declarations then no premium has been collected for it, and there is no coverage.
Some insuring agreements will list covered perils as some policies only provide coverage for listed perils, known as named perils policies. Other types of policies provide coverage for every peril that is not excluded, so the perils are not listed, known as open perils policies.
Most policies don’t totally follow the DICE acronym because the exclusions section generally comes next. The exclusions section details what is not covered in the policy. Insurance policies provide coverage for perils that are common enough for insurers to develop statistics as to chances of certain losses over time which allows for the development of premiums. Certain losses, such as earthquakes and floods, are not as common and affect much larger areas than a fire in an office building or a single home. Intentional loss caused by the insured, such as setting the factory on fire to collect the insurance money is always excluded, as are things like war, nuclear hazards, certain governmental actions, and things that are covered on different policies. For example, a commercial property policy will not provide coverage for autos. Those need to be covered by a commercial auto policy.
Conditions is the last section to be discussed, and is generally at the end of the policy. The conditions describes duties of both the insured and the insurer in event of a loss. Insureds are to report claims promptly, describe what happened, when, what was damaged or who was injured, when it happened, assist in the investigation of the claim, inventory damaged property, notify the police in event of theft, and submit proof of loss notices. The conditions section also lays out loss settlement provisions, what an insured can do if he disagrees with the settlement offer, what the insurer is obligated to pay, how mortgagees are handled, when suit can be filed, and other such details.
So DICE is an acronym to describe the pieces and parts essential to any insurance policy. Without all these pieces, an entire policy does not exist. Having said that, some commercial policies will have separate causes of loss forms, allowing the insured to decide how broadly or narrowly he wants his coverage to be. In these situations it is a package policy, which means that multiple forms are combined to provide all the coverages to correctly insure the property or whatever is being covered.
FC&S Editors
October 26, 2020 at 6:18 am