An insurance policy is a legal document. It’s a contract between the buyer and the insurance company. It spells out the terms and conditions of the coverage provided. In a real sense, the contract is what you are buying. However, most legal documents are difficult to read and nearly impossible to understand.
In fact, legal documents are so hard to read we have a term for this kind of writing. We call it legalese because it reads like a foreign language.
Because most legal documents are written this way, many people assume that they must be. But this is not the case.
The problem with legalese is that only lawyers understand it. When it is used in a contract, most people won’t. Most won’t even try to read it.
It virtually guarantees that ‘normal people’ won’t have a firsthand understanding of the document. This means the buyer has to rely on an explanation of what is covered.
Typically this is offered by the insurance salesman. If the salesman provides a clear explanation of the policy, then customers will understand the policy.
But if the salesman is tired or rushed, then a customer may not. This can lead to problems and disagreements.
The benefits of readable policies
Failing to provide readable policies is a missed opportunity. Writing a readable policy takes more time up front, but has many benefits.
A readable policy is easier to sell
A clear document, that explains what is and isn’t covered, is easier to sell. Selling any complex product requires an explanation of the risk and benefits.
When the policy is easier to understand, the salesman has less to explain. They can focus on answering the customer’s specific questions, instead of covering the details of the policy.
A readable policy is also easier and cheaper for the salesman to support. If the policy is clear, there will be fewer questions about what is covered. This means fewer phone calls and questions in the future.
A clear policy minimises disagreements
If both parties understand the policy, it is less likely to wind up in court.
The policy needs to written with precise language. It must be clear to the courts what it covers.
The bulk of a policy is about the definition of terms. A clearly written and readable policy defines terms without using jargon.
Most auto insurance offers two types of coverage, comprehensive and collision. Many people are confused about what comprehensive insurance covers.
It sounds like it covers nearly everything. In reality, comprehensive covers damage to your car that occurs while you are not driving it.
It covers things like branches falling on the car and hail. Comprehensive coverage usually doesn’t cover accidents. For that, you need collision insurance.
Customers that understand their policies are less likely to challenge them in court. A legal contract outlines the roles and the possibilities of the parties involved.
A good contract creates a shared understanding. Using plain language and avoiding jargon lessens the chance that the parties have different understandings.
Most insurance companies have lawyers on staff, so the costs of appearing in court may not concern them. However, any disagreement has costs associated with it.
Customers unhappy with their coverage are unlikely to refer their friends or buy additional policies.
A policy is a two-way street
A contract outlines a trade. One party is providing something in exchange for payment by the other party. In an insurance policy, both sides have obligations. In a health insurance policy, you trade monthly payments for access to doctors, prescription drugs, testing and the like. A typical policy limits the doctors a participant can see. Doctors that are ‘in network’ can be seen at lower cost than doctors that are ‘out of network’. A well written policy defines its terms clearly. By doing so, it makes the responsibilities of each party clear. This makes it easier for both sides to uphold their end of the contract. Customers will make payments on time and use preferred providers. A clear policy means fewer support questions from customers. All of these reduce the costs associated with insurance, and make the company more profitable.
Many states require readable contracts
Starting in the 1980s, many states passed laws that required contracts to be readable. For example, Connecticut requires that all insurance policies receive “…a minimum score of forty-five on the Flesch reading ease test.” These laws were developed to combat the predatory practices of some insurance companies. Convoluted legal language was used as cover by some companies to deny claims. The confusing language could also be an attempt to mislead customers about what is covered. Or to appear to cover things which are excluded. These may save the company money in the short term, but they tend to erode confidence. People who have this happen to them feel ripped off. They aren’t going to recommend the company to friends. They won’t buy more insurance themselves.
Readable contracts are good business
Insurance companies sell policies. That’s their business. They can choose to sell confusing contracts, that the average reader can’t understand. Or they can choose to write contracts that clearly explain the benefits and the responsibilities of the policy. Companies that choose to write clearly, that don’t hide behind complex language, communicate that they are trustworthy. In the end, that’s what insurance is: a promise by the company to take care of its customers when things go wrong.