Insurance policies are looked at as one-sided contracts because the only person making a legally binding promise is the insurer. However, that doesn't mean the insured can live life as though they have no duties when it comes to having an insurance policy. For the policyholder to receive the benefits of their policy and for it to be continuously renewed, they have certain things they need to handle too. Here's a look at the responsibilities of both parties to help you understand it from both perspectives.

The Insurer

Pay Benefits: Once an insurable accident happens and the damages have been reviewed, if it's found that the claim qualifies based on the benefits, time periods and exclusions given in your policy, your insurance provider has to pay you (beneficiaries too, if applicable) within the financial limitations of your policy. Remember that your insurer isn't liable for the deductable of your policy and that they have the option of paying only the replacement value or actual value, based on the type of coverage you have. Also if you have a life insurance policy with cash values, your benefits may decrease if you have any outstanding loans.

Risk Assessment: Underwriters are hired by insurance companies to figure out the amount of risk that each potential insured person presents and to charge a premium in accordance to that. If they don't do this then they risk having more claims than premiums and not being able to hold up there end of the bargain for policy holders.

Reserves for Policy: Insurance companies have to set aside a certain amount of their income for policy reserves. Policy reserves mirror the potential amount of claims they'll be required to pay. Because the money is in reserves, it ensures they'll be able to pay it out.

Privacy Protection: In order to protect your privacy, insurance companies have to abide by privacy and HIPAA regulations. Therefore, they have to keep and give out your information in accordance with strict rules for your protection. In case you want someone else to have access to your information, that person may be required to have a power of attorney or written proof of authorization on file, according to whatever is dictated by the privacy guidelines.

The Insured

Application honesty: A potential insured person can't lie to an insurance company; otherwise the policy will be under false pretenses. If any false information is discovered in the underwriting, there's a chance that you're policy will be canceled and you will be returned all the premium payments you made.

Keep down exposure to risk: If insurance companies discover you've been behaving recklessly, in a way that could increase your chances of a claim, they'll consider discontinuing your insurance coverage.

Pay your premiums: Your responsibility as an insured person is to pay your premiums on time, whenever they are due. Should you not pay your premiums, your policy will end and your insurance company won't be required to pay your benefits anymore. Regardless of how many premiums you've paid for in the past, once you stop paying for your policy the insurance company is no longer responsible for their end of the deal. (Having a life insurance policy with cash values could be an exception.)

Keep your information current: If you move, change your beneficiaries, or you no longer own the property that you had insured, make sure you let your insurance provider know.

For the concept of insurance to work correctly, the relationship between an insurance company and policyholder must be a partnership. Each party must be able to rely on one another and abide by the guidelines of their end of the agreement, regardless of whether they legally have to or not.