What is an insurance policy? Simply put, an insurance policy is a binding contract between an insurance company (the insurer) and the person purchasing the coverage (the policyholder).  The insurance policy establishes in clear language the damages or claims caused by the included circumstances, that the insurer is legally required to pay the policyholder. The payment the policyholder provides to the insurer, also known also as the premium, is given in exchange for the promise that the insurance company will make restitution for particular types of loss as specified in the insurance policy.

The insurance policy is the written contract itself which delineates in detail the terms of the exchange.  The premium is paid usually in a lump sum or on a monthly basis. When the policyholder suffers a loss and said loss meets all of the requirements spelled out in the insurance policy, then the loss is considered “overed” and the policyholder receives renumeration as dictated by the policy.

When asking “What is an Insurance Policy?”, consider the answer to be all of the contents within the contract securing insurance, which is the guarantee that compensation will be provided by the insurer to the policyholder should future losses occur under specific circumstances. The policy will typically describe the types of coverage, usually life, health, homeowners, or automobile. It will also describe any applicable restrictions, exceptions, premiums, and deductibles. A deductible is the portion of the loss that the policyholder agrees to pay, while the insurer supplies the remainder.

Only the insurance company, or the insurer, can make guarantees that are legally binding. The policyholder can sue to force the insurance company to provide coverage if they have not done so according to the contract, but not vice versa. Although the insurance company usually includes conditions within the policy itself allowing them to refuse coverage if the premiums aren’t paid by the policyholder.
Once insurance policies are drawn up by the insurer, the insured party usually has very little capability to make changes to the contract. Insurance is intended to protect the financial safety of an individual or company, in the unexpected event that there is some type of loss.  There is an uncertainty usually to whether the event that incurs loss will even occur, as in the case of a fire insurance policy, or a flood insurance policy. In others, such as life insurance, the time of the event is uncertain. Many forms of insurance are legally required, such as automobile insurance for drivers, while others are purely optional and exist for the peace of mind of the policyholder.