Reading an insurance policy: schedule of forms and endorsements

In my last post I began discussing how to read an insurance policy, beginning with the coverage selection page. The next thing you should understand is the order in which you should read a policy. (Hint: it's not necessarily front to back.)


The coverage selection page of many policies includes a section called "Schedule of forms and endorsements" or some variation of that. That section will contain a list of names of forms referred to by a combination of numbers and letters that make no sense to anyone who is not an underwriter (a person who puts together insurance policies). An example from a malpractice policy I had a few years ago:


U-PL-871-A CW (4/98)


The schedule identifies the forms and endorsements (which, for practical purposes are the same thing) that make up your policy. Some policies, such as a motor vehicle policy, may contain only a coverage selection page and the main policy form. Others, such as commercial general liability policy, will contain a coverage selection page and up to a couple of dozen forms, some as short as one page and others quite lengthy.


Generally the form identification, corresponding to the entries in the schedule of forms and endorsements, is at the bottom of each form. Each listing on the schedule of forms and endorsements should correspond to a matching form, and vice versa. If you have a form that is not listed on the schedule, or an entry on the schedule without a corresponding form, you should follow up with your insurer to see if the mistake is on the schedule or (more likely) in the insurer putting together the forms.

Reading an insurance policy: The first step

An insurance policy consists of several sections, and to understand what coverage you have purchased you need to understand what each section means.


The "coverage selection page," also called the "declarations page" or "dec page" is created for you personally when you purchase or renew your insurance. It indicates how much insurance you have bought ("the limits," discussed in a previous post) and any other information unique to the policy your policy. For example, the dec page of an auto policy will indicate what cars are included in the policy. A Commercial General Liability policy will indicate what premises are covered in the premises liability portion of the policy. A dec page may also indicate the names of the people or businesses that are covered under the policy.


Each and every time that you purchase or renew insurance, you should review the dec page to make sure that the insurer has issued to you the policy that you meant to purchase. In an auto policy it is not unknown for an insurance agent to raise your insurance limits (and your premiums) without discussing that with you. If your policy renews automatically, it is a good time to consider if the limits you chose still meet your needs.


In future posts I will discuss other parts of an insurance policy, beginning with the "insuring agreement."

How much insurance should you have?

The amount of insurance coverage you purchase is called the "limit" of the insurance--the maximum amount the insurance will pay. Most policies have two limits, the per person limit and the aggregate limit. The per person limit is the most that will be paid to any single person. The aggregate limit is the total amount the insurance policy will pay. If you have an auto policy with limits of $20,000/$40,000, and you injure three people in a car accident, the most any single person can recover from your insurer is $20,000. The total all three people can recover from your insurer is $40,000.


Of course, if you have severely injured someone, they can seek amounts in excess of your policy limits. If they win at trial, that excess amount will come from you.

In deciding the amount of insurance you should have, you should consider:


* The amount of damages you may cause if you are negligent. For example, in attorney malpractice insurance, the common advice is to have enough insurance to cover the full value of the largest cases you work on.


* What your own assets are. In a typical case, the plaintiff's attorney will not encourage the plaintiff to seek amounts in excess of the policy limits if you have limits that are reasonable in light of your personal situation. If you are rich, or even comfortably middle class, and you have the minimum auto policy coverage of $20,000, and you severely injure someone in an accident, it is likely that the injured person will seek to go after your personal assets. If you have very little income, savings, or assets, the injured person may seek a small contribution from you as a matter of principle, but the plaintiff's attorney will understand there is little to gain by forcing you into bankruptcy.


* The moral issues. How would you feel if, for example, you severely injured a person so that he is disabled, unable to work, and unable to take care of his kids, and the most he could get from your insurer is $20,000? A large financial settlement from your insurer obviously won't give him his health back, but it will help make his post-accident life easier. Such a settlement is only possible if you have higher coverage.

* The cost of the premiums. Until this year all personal auto policies in Massachusetts cost the same for whatever level of coverage you were purchasing, no matter which insurer you used. With deregulation you will need to shop around for the best price. While you're at it, compare prices for different levels of coverage.