The policy is the written instrument in which a contract of insurance is set forth (Ins. Code §380). The application is part of how the contract is formed, and an agent's oral promise is not the policy.
Every policy must specify (§381):
- the parties between whom the contract is made;
- the property or life insured;
- the insured's interest in the property insured, if not the absolute owner;
- the risks insured against;
- the period during which the insurance is to continue;
- a statement of the premium, or, if the exact premium can be determined only when the contract ends, a statement of the basis and rates on which the final premium is to be determined and paid.
The insurer's financial rating is not on the list, so a policy without it still complies.
Paperwork terms:
Application: the form an applicant completes to ask for coverage.
Policy: the written contract itself.
Rider: an attachment that adds to or changes the policy's coverage, such as a cost-of-living benefit added to a disability income policy.
Ending terms:
Grace period: extra time after the premium due date when the premium can still be paid and coverage stays in force.
Lapse: the policy ends because the premium was not paid by the end of the grace period.
Cancellation: a party's act of ending a policy that is in force.
Money terms:
Rate: the price per unit of coverage. Premium: the amount paid for the policy.
Earned premium: the part that paid for coverage already provided; the insurer keeps it.
Unearned premium: the part for coverage not yet provided. Example: $1,200 is prepaid for one year, and the policy is cancelled after 3 months with a pro rata refund. $300 is earned; $900 is unearned and refunded.