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Chapter 4 Common Insurance Policy Provisions

Common Insurance Policy Provisions

Who is Covered by the Policy

Insured. The party to an insurance arrangement whom the insurer agrees to indemnify for 
losses, provide benefits for or render services to. This term is preferred to such terms as 
policyholder, policyowner and assured.

Named Insured. Any person, firm or corporation or any member thereof, specifically 
designated by name as the insured(s) in a policy. Others may be protected as insureds even 
though their names do not appear on the policy. A common application of this latter principle is 
in automobile policies where, under the definition of insured, protection is extended to cover 
other drivers using the car with the permission of the named insured.





“First” Named Insured. The first named insured appearing on a commercial policy. The 
latest forms permit the insurer to satisfy contractual duties by giving notice to the “first” named 
insured rather than requiring notice to all named insureds.
Additional Insured.

A person other than the named insured who is protected under the 
terms of the contract. Usually, additional insureds are added by endorsement or referred to in 
the wording of the definition of “insured” in the policy itself.

Assignment/Transfer of the Insured’s Interest. Assignment to another person cannot 
be made without insurer’s written permission.
When and Where the Policy Covers
Policy Period (or Term). The period during which the policy contract affords protection, 
e.g., six months or one or three years.

The termination of an insurance contract by the insurer when material 
misrepresentation has occurred. A contract may also be repudiated for failure to perform a duty.
Policy Territory. What geographic territory is or is not covered by the policy of insurance.

How Much Coverage is Provided

Limit of Liability. The maximum amount for which an insurer is liable as set forth in the 
Sublimit. Any limit of insurance which exists within another limit. For example, special classes 
of property may be subject to a specified dollar limit per occurrence, even though the policy has 
a higher overall limit.
Deductible. The portion of an insured loss to be borne by the insured before any recovery may 
be made from the insurer.

Unearned Premium vs. Earned Premium. The unearned premium is the portion of an 
insurance premium covering the unexpired term of the policy. Any premium paid in advance of 
the current period is considered unearned premium; for instance, a policyholder pays an annual 

Earned premium is the premium paid for the expired or used portion of the policy. 
How a Policy Can Be Renewed or Ended
Renewal. The insurer agrees to continue the policy in full beyond the expiration date
Non-renewal. The insurer decides NOT to continue the policy beyond the expiration date. 
Lapse. Termination of a policy due to nonpayment of premiums.

Insured’s Right To Cancel. The client may cancel at any time be letting the insurer know 
in writing of the date of cancellation is to take effect.

Cancellation. Termination of a contract of insurance in force by voluntary act of the insurer or 
insured in accordance with the provisions in the contract or by mutual agreement.
Flat Cancellation. 

A policyhich is cancelled upon its effective date. Usually under a flat 
cancellation no premium charge is made.
Pro Rata Cancellation. The termination of an insurance contract or bond with the premium 
charge being adjusted in proportion to the exact time the protection has been in force.

Policy Provisions Covering the Rights and Duties of Insureds

Insureds must comply with particular policy provisions if they want the insurer to pay claims. 

These include:
• Prompt notice of loss or damage
• Taking reasonable steps to protect property from further damage
• Submitting claims
• Notifying the police if the claim is for a theft
• Cooperating with the insurer after a loss. 
Here are some of the common definitions that related to the insured’s duties. 

Abandonment Clause. A clause in property insurance policies that prohibits the insured from 
abandoning partially damaged property to the insurer in order to claim a total loss.
Mortgage (or Mortgagee) Clause. A provision attached to a property policy that covers 
mortgaged property, specifying that the loss reimbursement shall be paid to the mortgagee as 
the mortgagee's interest may appear, that the mortgagee's rights of recovery shall not be 
defeated by any act or neglect of the insured, and giving the mortgagee other rights, privileges, 
and duties. 

For instance, one duty is that the mortgagee must report to the insurer any change in 
hazards that he becomes aware of. 
Loss Payable Clause. 

A provision in property insurance contracts that authorizes payment to 
persons other than the insured to the extent that they have an insurable interest in the property. 
This clause may be used when there is a lien or loan on the property being insured, and it 
protects the lender.

Coinsurance Clause. A provision stating that the insured and the insurer will share all losses 
covered by the policy in a proportion agreed upon in advance, i.e., 80-20 would mean that the 
insurer would pay 80% and the insured would pay 20% of all losses.
Vacant. A term used in property insurance to describe a building that has neither occupants nor 

Unoccupied. Refers to property which may be furnished or have furnishings in it but is not 
occupied or being lived in.
Short Rate Cancellation. 

A cancellation procedure in which the premium returned to the 
insured is not in direct proportion to the number of days remaining in the policy period. In effect, 
the insured has paid more for each day of coverage than if the policy had remained in force for 
the full term.

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