What is an Insuring Agreement

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What is an Insuring Agreement

Brief Introduction About an Insuring Agreement

An insuring agreement is that segment of an insurance policy, wherein the insurer promises to make payments to/on behalf of the insured. Well, what is an insurance policy, and how is it different from an insurance agreement? An insurance policy is a formal contract issued by an insurance company which highlights aspects such as terms, mode of payment, deductibles, etc. An insuring agreement, in other words, terms of insurance, is a part of this broad framework called Insurance Policy.

The agreement clarifies the categories of risks that would be covered in the ambit of an insurance policy. It also lists the kinds of exclusions so that the policyholder is aware of the exact extent of the coverage. Overall, it highlights the perils, the persons and, or the property, and the period of the policy.

Who Are the Parties to an Insuring Agreement?

Similar to an insurance policy, the agreement is entered into between the insurer and the insured. The insurer is an individual who underwrites an insurance risk; s/he is that person in an insurance contract who undertakes to pay compensation. The insurer may also be a company that seeks to provide the other party with financial coverage.

The insured is the person or entity who obtains and is covered by insurance on his/her health, life, property, etc. In case of damage (included in the policy), the insured has a right to seek monetary compensation from the insurer.

What Is the Purpose of an Insuring Agreement?

  • Insurance is a way of managing risks. This agreement allows you to transfer the cost of a serious potential loss to the insurer, in exchange for a premium.
  • The agreement allows one to seek benefits such as: owning a home or a vehicle, maintaining the standard of living, covering health costs, running a small business, and, most importantly, providing for the family in case of death, etc.
  • It also allows commerce to keep moving. Supposedly there is a natural (earthquake) or a man-made disaster (terror attack, as in 9/11), all business would get disrupted, in case there is no institute or individual to cover the costs. Insuring agreements prevents businesses from extinction.
  • Small lenders are offered protection under these agreements. Big business corporates are mostly able to survive in case of financial risks; it is, however, the smaller organizations which hit the bedrock and dissolve. The agreement not only prevents such smaller firms from being sold out and shutting down but also help them revive in case such a scenario occurs.
  • Tax-Saving benefits can also be extracted. When an insurance premium of a certain amount is availed, it might be declared as a tax-saving deduction.

What Are the Contents of an Insuring Agreement?

Depending on the kind of insurance policy, the contents of this agreement would be determined. An insuring agreement is the thrust of the policy, and it summarizes all the main premises of the contract. The contents are as follows:

  • Perils – These are the risks assumed, or the dangers which the insurer is ready to cover. For home insurance, the perils might include perils such as windstorms and theft, vandalism, etc. It might be an all-risk coverage policy too. Typically, if it is medical insurance, then the insured party is required to pre-disclose what illnesses they suffer from on an insurance declaration page.
  • The Policy Limits – This includes the amount of insurance or the insurance coverage, i.e., up to what amount of damage will the monetary premium be extended by the insurer. This also includes the kind of tax-benefits, if any, to be comprised in the policy.
  • Applicable Deductibles – This is the amount of money that an insured person will pay in a claim before the insurance coverage kicks in, and the company starts covering up. The insurance company determines this deductible; there might be multiple deductibles for different circumstances.
  • Policy Period – These are the dates during which the policy is effective. The start and end dates for documentation, payments, and coverage are included in this policy period. This might be monthly, yearly, or in any other specific format which the parties may decide upon.

How to Draft an Insuring Agreement?

What points should be kept in mind while formulating this agreement?

  • Policy Worth – The amount of policy should be clear; expert opinion should be sought on what the value of the insurance cover should be.
  • Ideal Tenure of the Policy – Similar to other factors, the tenure of the policy is dependent on the kind of insurance you want to seek. If you wish to seek life insurance, it must hinge on your retirement age.
  • Online/Offline – Insurance policy might be purchased online, as well. In this case, it is essential to be careful and wary of the peculiar terms and conditions before entering into an insuring agreement.
  • Needs – You must review your need before entering into the agreement, and periodically every n number of years. This will ensure that changes in your assets and liabilities do not negatively influence the benefits you might seek from insuring agreements.
  • Comparison – Although it is essential to make a comparison with other insurance schemes in the market, you must not be lured into unrealistic benefits. You must also be wary of marketing techniques such as daily or weekly premiums.
  • Documentation and Other Information – You must keep track of all documents and other information that need to be submitted and disclosed. The process should be as transparent as possible. Further, you must set reminders and ensure that the premiums are paid on time.

What Are the Benefits and Drawbacks of the Insuring Agreement?


  • Provides Economical Protection – Insuring agreement allows for financial protection to the insured against unexpected losses. In the case of the premature death of the insured, the agreement also covers the protection to the family members.
  • Shares Risks – People are exposed to a range of risks and uncertainties, and large losses may result. Risks might not be eliminated, but they might be shared with the insurer.
  • Encourages Saving – Insuring agreements encourage regular savings and reduce unnecessary expenses.
  • Remove Dependence – Due to death or destruction of property, a family might suffer from the unbearable loss. This is removed by the insuring agreement, which provides financial coverage.


  • The exploitation of an individual’s a weakness/poor condition – Insuring agreements might be unreasonable and gain benefits out of a person’s financially weak situation.
  • Not all types of losses are compensated – Insuring agreements do not compensate for, or cover all kinds of damages.
  • Insuring agreements are expensive – In certain industries where injuries are common, these agreements are costly; this might leave a business or individual totally underinsured.

What Happens in Case of Violation?

Violation of an insuring agreement might happen when an insurer denies the claim unreasonably when it fails to provide assistance or benefits mentioned in the contract. In case of violation, a suit may be brought by the policyholder. If there is ambiguity or uncertainty regarding the terms of the agreement, the meaning would be resolved in favor of the policyholder.

Such scenarios might provoke a suit for bad faith; there must be an absence of a reasonable basis for denying a claim by the insurer. The law of insurance is based on indemnity, where an insured is indemnified against the loss stipulated in the contract. The courts in India have strictly construed the terms of an insurance contract; no phrases are added, deleted, or substituted in case of interpretation.

The rule of the fundamental breach(1) is applied. The insurer has to prove that the damage suffered constituted a fundamental breach of the insurance contract. Accordingly, the suit is decided on by the judges.

While the importance of insuring agreements in today’s corporate world cannot be ignored, it also needs to be kept in mind that such policies, carry with them, a lot of riders. A thorough understanding of the terms and conditions, and juxtaposing this understanding with your own needs and requirements is the need of the hour.

If you keep in mind the points mentioned in this article, it is highly likely that you’ll be able to lock the most apt insuring agreement for yourself and your family. With the economy developing at such a rapid rate, easy-flowing finances are needed by the business individual. Insuring agreements allow you to gain credibility and then repay during specific time periods.

If we look at the drawbacks of this agreement, it can be gauged that these are not unavoidable. These drawbacks can be tackled if you have a clear head and a suitable understanding of what is the demand of the present scenario. Many-a-times, people fall in the rosy trap laid by insurance agencies; by luring people into unreasonable and impractical insurance arrangements, these companies might capitalize on an individual’s helpless situation. It is here that you need to realize that legitimacy and transparency are the keys to a healthy insuring agreement. Greed to try and seek more financial gains than legally and practically possible will only lead to more and more security troubles in the future.