How to Make Sense out of Your Insurance Contract Easily
Suffice to say, there are some types of insurance cover that most people cannot do without. For example, homes usually come with homeowner’s insurance, people with cars require auto insurance, and life stands to benefit from life policies in case of tragedies.
It is also equally important to advise that when the policy document is handed to a client by the insurance company; it is advisable that the client gives it the attention it deserves. While an insurance advisor can explain jargons that sound too difficult, clients should be equipped as well with how to read their own contract. The goal of this article is to demystify the insurance policies and contracts in such a way that even the layman can know how these concepts of insurance policies hold to specific issues of everyday life.
The Basics of the Insurance Contract
When one engages oneself in reviewing an insurance contract there are some things and issues that are always constant.
- Offer and Acceptance is Self-Explanatory: The process starts with the submission of a completed proposal form to the insurer. This is your offer. The insurer may agree to your h9oes or instead seek to alter certain details then give terms.
- Consideration: This is the fee paid to the insurer. The insurer in return is required to settle any losses that arise as per the claims made. Value must flow in both directions for the contact to be enforced.
- Further the Legal Aspect: There must be mental willingness from both parties who entered in a specific contract. For example in this case a minor or a person with mental sickness will most likely not qualify.
- Legal Purpose: A contract must have legal objectives. If the contract includes illegal matters, then it is null and void.
Don’t rush to sign any document just like that. When in doubt about the terms ask for help and call an insurance expert.
Contract Values
This section of an insurance policy contract defines to what you and what you pay as a deductible from the insurer. It is different in the case where you are having an indemnity or non-indemnity policy.
Indemnity Contracts
Most of the insurance that one will take will fall under indemnity contracts which will cover payment in respect of insurable losses.
- Principle of Indemnity: This prohibits the insurer from paying out more than the insured loss. The restoration of the insured does not aim to provide a profit, but to restore an earlier financial condition.
To illustrate, should your car get stolen, the claim in the event of the loss is based on the car’s value as opposed to the amount that is used to obtain a new car which is more valuable.
- Under-Insurance: If you insure your property for lower than what it is worth, which of course is done to avoid high premiums, you will sustain some loss that the insurer will not insure against.
- Excess: The insurer determines a minimum amount that the insured can claim. Any claim that is below this amount is not payable.
- Deductible: This is the sum of money that you will pay out of your own pocket before claiming under insurance. It is a well known fact that high deductibles result to lower premiums.
Non-Indemnity Contracts
Life and personal accident insurances fall under non-indemnity contracts. For example, a life insurance policy does not emphasize the need to assign a worthwhile financial figure to one’s life but pays out a fixed amount.
What typically is included in a life insurance policy?
- Declarations page: This identifies the owner of the policy, policy details, policy number, policy effective dates, policy premium class and any other add–ons.
- Policy terms and definitions: Highlights and explains important phrases such as the death benefitable, premium, beneficiary etc.
- Coverage particulars: States amounts and dues for premiums, and other penalties on defaulting as well as information on beneficiaries.
- Additional policy particulars: Indicates any riders that are non-compulsory such as long term care benefits or benefits that accelerate payment upon death.
While in the act of purchasing a life insurance cover, they should take their time to analyze the advantages of a term insurance against the permanent policies available and also go on polices comparison.
Insurable Interest
This is the right which law gives you to insure something lest you incur financial losses or expose some liability. For example, it is against the law to insure a house that one does not own.
In life policies, this principle justifies policies on spouses, children, business associates or any other parties with a financial stake.
Subrogation Principle
Their lawyer will interest this principle because your insurer action allows them to obtain compensation from someone else for the loss incurred by someone covered by this insurance policy – For example if there are car accidents where you are not at fault, then even though you will be compensated by your insurer, he will file a suit against the other party for making your claim.
Doctrine of the Faith
This is because in every insurer and insured relationship there is a contract the insurance between the parties is based on utmost good faith, that is why it’s called insurance. You have to give your insurer every relevant piece of information in his possession and the opposite is also true for the insurer.
- Duty of Disclosure: All material facts that could affect the outcome of the insurer’s risk analysis have to be brought to the attention to the insurer. For example if there have been past claims, or they are already having health issues.
- Representations and Warranty: The answers to the questions on the application form must be truthful in every respect. And even a minor misrepresentation might result in the whole insurance policy being void or some punitive damage being tagged onto your rates.
- Breach of Good Faith: Whether on purpose or by accident, if any vital information is omitted, the contract could be nullified.
Other Contract Aspects
- Doctrine of Adhesion: The only option you have to adopt the insurance contract is taking it in the form in which it is offered to you. Usually, such clauses or provisions within an agreement that appears to be ambiguous are normally interpreted in the light of expectations of the insured.
- Waiver and Estoppel: If your thinking is that your company will be able to rely on missing information since your close to them policies seem so clear, you cannot do so if you issue a policy under that factual setting.
- Endorsements: These are slight changes that are made to the terms or conditions of your policy.
- Co-insurance: At certain times, multiple carriers can take the risk of covering one major risk. In case of medical insurance, you may also share the costs with the insurer, for instance, an 80-20 ratio bill.
- Reinsurance: Covering the obligation is one thing, however, insurers may pass some of your coverage to another company. In many cases people take high-risk policies which for instance could be shared by two insurance companies and pays one policy holder claims.
The Bottom Line
It has been said that, knowing your insurance policy can save you from undesirable expenses and failures in settling claims. The principles and terms can be useful so that you know that everything is in its place in case you need your cover for the most difficult occasions. But if an insurance policy is purchased the client cannot keep silent but read the policy terms and explain any points the client may not understand. Something as simple as an erroneous thought can be of grievous effects on the client as he or she could be under insured.
