Insurance Principles and Policy Provisions
Core principles
Insurance rests on insurable interest, indemnity, utmost good faith, subrogation, and contribution. Indemnity restores the insured to pre-loss financial position - no profit. Actual cash value (ACV) = replacement cost minus depreciation; replacement cost (RC) pays to replace without depreciation. Coinsurance and deductibles affect payout.
Policy structure
A policy has a declarations page, insuring agreement, exclusions, conditions, and definitions. The insuring agreement states what is covered; exclusions narrow it; conditions set duties (notice, proof of loss, cooperation). Endorsements modify the policy and control over conflicting base language.
Key provisions
- Deductibles reduce the payout per loss.
- Limits cap recovery (per occurrence, aggregate).
- Other insurance clauses address multiple policies.
- Vacancy/unoccupancy and concealment/fraud provisions can void coverage.
Traps to watch
- ACV vs. RC: know which the policy specifies; RC often requires actually repairing/replacing.
- Endorsements override conflicting base policy language.
- Insurable interest must exist at the time of loss.
- Deductible application per occurrence vs. per policy period.
Rule of thumb
Read the policy in order: declarations → insuring agreement → exclusions → conditions → endorsements. The endorsement wins over the base form.
Worked example
A policy with a $1,000 deductible and ACV settlement covers a $10,000 loss with $3,000 depreciation. ACV payout = $10,000 − $3,000 depreciation − $1,000 deductible = $6,000 (subject to limits).