What is the legal significance of a car insurance policy?

A car insurance policy is a contract between the person purchasing the policy and the insurance company. This contract is legally binding on both parties. The person buying the car insurance policy is known as the ‘policyholder’ or the ‘insured’. The insurance company could be termed as the ‘insurer’. The insurance company would agree to pay the policyholder or other persons specific amounts for certain agreed types of damage or loss. If a loss or damage occurs, it should meet all the requirements that had been described in the terms and conditions of the car insurance policy. In such a case, the loss or damage is deemed to be ‘covered’ by that insurance policy. For this ‘cover’, the policyholder should pay a specific amount at regular mutually agreed intervals for a certain specific period. This amount is called as the ‘premium’.