Insurance Policy

An insurance policy is a legally binding contract between an insurance company and the person who buys the policy, commonly called the "policyholder, who also is often the person insured.
In exchange for payment of a specified sum of money, called the "premium," the insurance company agrees to pay for certain types of loss or damage as specified by the contract. When a loss occurs which meets all of the requirements described by the terms of an insurance policy, the loss is said to be "covered" by that policy.

The contents of an insurance contract. The policy describes the specific types of coverage (life, health, etc.), the restrictions that apply, and the applicable deductibles and premiums. Only the insurer makes legally enforceable promises in an insurance policy: the insurance company cannot legally compel the insured person to pay his/her premiums, but the insured person can sue to compel the insurer to provide coverage if it does not do so. All insurance policies, however, include a provision allowing the insurer to refuse coverage if the insured person does not pay the premiums.

Is your Insurance Policy Safe?
What happens if your insurance company fails?

You can rest assured that your insurance policy is safe and your claims will be paid — within limits — even if your insurance company fails.

Many consumers may be questioning the safety of their insurance policies after the federal government announced an $85 billion bailout of American International Group, one of the largest insurers in the United States.

AIG has not failed, but it lacks the cash on hand to pay immediate bills. The difference is if you only have $1,000, but owe $10,000 right away, you are insolvent. But if you own a $100,000 business that you can sell to pay off that $10,000 debt, you just lack cash, or are illiquid.

With the help of the federal government, AIG will have the money to pay its immediate bills and will have time to sell off some of its businesses to pay back the government’s loan.
Experts say AIG insurance policyholders are safe and that the company will not fail. But if AIG can get into trouble, what about other insurance companies?

Insurance companies do fail sometimes, but even when that happens, there are still safety nets in place to protect you.