Complexity of insurance policy contracts

Insurance policies can be complex and some policyholders may not understand all the fees, regulation and coverages included in a policy. As a result, people could buy policies at unfavorable terms. In response to these issues, governments often make detailed regulations that set down minimum standards for policies and govern how they may be advertised and sold.

Many individuals purchase policies through an insurance broker. The broker can counsel the policyholder on which coverage to purchase and limitations of the policy. A broker generally holds contracts with many insurers which allows the broker to "shop" the market for the best rates and coverage possible.

People may also purchase policies through a "producer". Unlike a broker, who represents the policyholder, a producer represents the insurance company from whom the policyholder buys. A producer can represent more than one company. In the United States, these people are known as "resident producers" in the states where they are licensed. In some states , insurance brokers are not allowed to operate because the cheapest rates may not be in the best interest of the policyholder.

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