Did you just come up with a plan for reducing the number of paper clips your department uses at work each month? Then you’ve created a policy, a plan of action.
The noun policy can be used to refer to a plan developed by an individual or a group. You’ll often see the word used to describe a plan developed by a government, such as a housing policy or a defense policy. A policy typically outlines a specific course of action designed to further the general goals of the group. The word can also be used to describe a formal written agreement, such as an insurance policy.