Insurance Policies - Pay attention to the contract The Contract Terms Control Everything As we touched on above, there are certain ways insurance policies are written up and approved to protect providers, or at least their financial interests involved. These include: Using a large number of covered parties to dilute the impact of a potential loss paid out. Again, the assumption is that a large number of clients most of the time won’t file a claim for recovery. This means that the larger the universe, the bigger the revenue stream from premiums. If big enough, a loss can occur and be paid for without the insurance provider going bankrupt in effect. This universe can then be tightened down even further from loss by defining parameters of when losses are covered, so that claims are capped or limited in exposure. See our next point. Defining the loss in such a way that it is essentially limited in nature. The worst thing that can happen to an insurance provider is having an an open-ended policy in terms of coverage. So insurance policies frequently include a lot of verbage putting limitations on exactly how much loss is covered in a given situation. Generally, for a loss to be covered the insurer wants to be able to know, using a reasonable person standard, the causation, location and time a condition occurred. Being able to validate all three allows the insurer to confirm the loss did occur and is an eligible cost to be covered per the insurance policy. Restricting accidents to not being the recipient’s fault. An insurer doesn’t want to write up an insurance policy for someone who constantly goes around causing problems. The whole point of insuring is to cover those things that happen rarely, if at all. Therefore, accidental coverage needs to clearly be provable that the recipient had no control over the accident occurring. Where there is a general acceptance of risk, i.e. cliff-jumping tends to result in injuries on the natural, the proposed policy will be denied. Avoiding large damages or losses is the key. Claims for large recoveries eat away at the revenue stream of providers. So their policies are drafted to avoid these situations as much as possible. However, insurance is only worth buying if it actually provides the coverage sought. So providers have to find a middle-path between their interests and that of recipients. This is a constantly recalculated position where recoveries are made out of new policy premiums when an insurer doesn’t recover enough off of existing policies. Marketing affordable prices for policies. Providers have to compete against each other in a free market. Price insurance policies at super expensive levels will simply drive potential insured customers away to a cheaper substitute. After all, the service offered is coverage from loss. All things being equal, there’s not much else different between providers besides customer service and following through on contracts in good faith. Barring acts of God as an industry practice. This part could probably be combined with capping losses to avoid paying too much, but it has its own category because catastrophes are just an overwhelming problem in and of themselves. Natural disasters and weather destruction on a wide scale frequently get blocked out entirely in terms of their damage being covered. This is because the scale of loss is so big, no matter how big their client pool insurers would lose their shirts. So, in many cases, insurance policies specifically exempt such situations from coverage altogether