If you have ever purchased insurance before, you have likely signed an insurance agreement. Unlike your actual policy that can stretch on for page after page, your insurance agreement is often quite short (only 2-3 pages) but it is that agreement, which often requires you to sign it, that really affords you the protection you are looking for. The insurance agreement is carefully constructed to be both ironclad when need be and also flexible in cases where the insurer feels that they aren’t obligated to honour the policy.

While different insurance agreements vary depending on the industry they represent, in general, agreements contain the same basic parts: a top section that spells out the name of the insurer, a definition section that describes who everyone in the contract is, some dense legal paragraphs that explain the bounds of the policy and the obligations of everyone involved and finally a section at the bottom that both parties sign. Even corporate insurance agreements are often quite short since they contain all of the policy in just a few words. If you are unsure about parts of your current insurance agreement, you can choose to ask a lawyer or your insurance company about what particular clauses mean and how they affect you. It is a good idea to clarify any questions you may have since a particular interpretation of a clause can completely change the kind of coverage you think you have.

Case in point - during Hurricane Katrina, residents on the Gulf Coast of the United States believed they were covered from water damage that occurred to their homes because they had purchased hurricane insurance. As it turned out, millions of people found out later that several insurance companies argued in court that the damage to the homes there happened because of flood damage not hurricane damage and since more people had flood damage, millions of people received nothing from their insurance company. While a particular circumstance such as this may be difficult to foresee, it is exactly this kind of wording that needs to be explored and understood in your insurance agreement.

Word for word, your insurance agreement may be one of the most important documents you’ll ever sign. The average personal insurance agreement only stretches for 2-3 pages, but the words printed there can change your life. Make sure you have a complete understanding of how your insurance agreement and policy work before you sign it.