What is the primary purpose of a policy in insurance?

The primary purpose of a policy in insurance is to serve as a contract between the insurer and the insured. This contract establishes the terms and conditions of the insurance coverage, detailing the rights and responsibilities of both parties. It defines what is covered, any exclusions, the duration of the coverage, the premiums to be paid, and how claims should be handled. By creating a legally binding agreement, the policy ensures that the insured knows what is expected and what to expect in return from the insurer, fostering trust and clarity in the insurance relationship.

While collecting premiums, specifying the duration of coverage, and outlining procedures for claim handling are important aspects of an insurance policy, they fall under the broader umbrella of the contract. Without the fundamental contract, the specifics regarding payment, duration, and claims procedures would not have a legal foundation or context. Therefore, the contract aspect is central to the purpose of an insurance policy.