Learn to Read Your Bank’s Insurance Policies

The mere thought of reading an insurance policy can make your head hurt. Understanding your bank’s insurance, however, requires that you review the contracts. Here are some hints to make it less painful.

Understand the Purpose of the Policy – An auto policy is designed to cover vehicular accidents. General liability insurance is purchased to protect the insured from liability arising out of bodily injury, property damage, personal injury, and advertising injury. Directors’ and officers’ insurance indemnifies your key people for errors in judgment and bad decisions. Reading a policy with the intent of coverage in mind goes a long way to helping you understand the contract.

Read the Declarations Page – The declarations page is usually the first few pages of the policy. It will contain information specific to the policy being reviewed, such as policy effective and cancellation dates, names of insured, the subject of the insurance policy (list of vehicles, buildings, description of property, etc.), premiums charged, policy form numbers, and form edition dates.

Review the Definitions – In most insurance policies, words that are defined by the policy are in bold type or quotation marks. Find the definition section of the policy and browse the terms. Mark the section of the policy with a paper clip. You’ll be going back to it time and time again. Read the endorsements. They can change the definitions.

Read the Insuring Agreement – The insuring agreement is usually the first part of the actual policy wording. It will tell you what is covered by the policy. For property insurance, learn what causes of loss (perils) are insured. For a directors’ and officers’ insurance policy, look at the definition of “wrongful act.”

Review the Exclusions – The exclusions on your bank insurance policies tell you what is not covered by the policy. Most policies start with broad insuring agreements and then whittle away at the coverage with the use of exclusions. Broad exclusions are not necessarily bad. For example, a general liability policy will exclude auto accidents. No problem. That’s why you buy an auto insurance policy. Look for exceptions to the exclusion, with wording like, “This exclusion does not apply to…” For example, the general liability policy excludes watercraft. There is an exception to the exclusion in most policies for watercraft that you do not own and that are less than twenty-six feet in length. (The exception to the exclusion provides non-owned watercraft coverage if the boat is less than twenty-six feet long.)

Review the Endorsements – The endorsements are usually found at the end of the policy. They amend the standard policy language. It is not unusual to have more than ten endorsements to a policy. The title of the endorsement usually gives you a good idea of what is trying to be accomplished with the form. If an endorsement deletes a section of the policy, mark that section in the policy document for future reference.

Review Policy Conditions – The policy conditions will show you the general “rules of the road” for the contract. Issues like cancellation, arbitration, and claims reporting are usually covered in this section.

Read Your Policies With a Pencil – I read insurance policies with a pencil in hand. I mark sections and summarize the contents of a particular clause in two or three words. It helps me find sections later and ensures that I am not wasting time looking at a section that is amended by an exclusion.

 


The above is an excerpt from “Simmonds on Bank Insurance.”  For a free copy go to www.BankInsuranceBook.com.