What is an Insurance Policy?

At its core, insurance is a contract—an agreement governed not only by the principles of general contract law but also by detailed rules outlined in the California Insurance Code (CIC). In this chapter, you’ll learn the legal components of an insurance policy, as well as the effects of fraud, concealment, misrepresentation, and warranties on its validity.

Under California Insurance Code §380, an insurance policy is defined as:

“The written instrument in which a contract of insurance is set forth.”

This definition emphasizes that an insurance policy must be in writing to be valid and enforceable in California. Unlike casual business arrangements where oral agreements may sometimes hold legal weight, oral contracts are not recognized as valid insurance policies. The written document itself is what establishes the rights, obligations, and protections of both the insurer and the insured.

Key Elements of an Insurance Policy:

1. Declarations Page – Identifies the insured, the insurer, the policy period, coverage limits, premiums, and other essential facts.
2. Insuring Agreement – Outlines the insurer’s promise: what risks are covered, and under what conditions.
3. Exclusions – Specifies situations, losses, or perils that are not covered by the policy.
4. Conditions – States the duties and responsibilities of both the insurer and the insured (e.g., notice of loss, cooperation with claims investigation).
5. Endorsements/Riders – Amendments that add to, remove, or modify policy provisions.

Together, these documents form the entire insurance policy.

Practical Example:
A homeowner’s insurance policy may include:

• A declarations page listing the property address, coverage limits, and premium.
• An insuring agreement promising to pay for covered losses such as fire or theft.
• Exclusions for events like floods or earthquakes (which require separate coverage).
• Endorsements adding coverage for high-value jewelry or business property at the residence.