Understanding insurance contracts is very important in other for you to make the right financial decisions. This is why we’ve provided you with the Best Tips On How To Understand Your Insurance Contract
In the insurance market, there are different types of insurance out there that you need to have as an individual who wants to secure his future.
When you own landed properties like a home, you’ll need to have Homeowner Insurance, for cars(s) you’ll also need an Automobile Insurance policy, while for the sake of your life or health, you’ll need Life and Health Insurance policy in other to protect yourself and your family against any worst-case scenario that may arise.
When you go out there to shop for an insurance policy, your insurer will give you the policy document. It is very important to carefully go through it and understand what it is all about. Your insurance advisor will be able to assist you in explaining anything you might not understand or find tricky as you go through the document. With that, it is still not enough to rely only on your advisor. Try to make sure you totally understand the content of the document or contract.
In this article, we’re going to talk about understanding insurance contracts, and how you can easily read an insurance contract whenever you come across it by understanding their principles and how they are put into use in daily life.
The key thing I need you to understand is that insurance contracts spell out the terms of your policy being contained in the document, as well as what it covers or not, as well as what you’re going to pay. This document will contain so many terminologies that make look like jargon to a layman who is not familiar with it. This is why we always advise people to take their time to read and go through the insurance contract meticulously to ensure that they totally understand it before picking a pen to sign the document.
Even though in many cases the contract might not contain errors, it is also important to carefully check and make sure you review it if you can find any error that may affect your coverage or cost.
With that all said, let us dive into how you can review an insurance contract.
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How To Review an Insurance Contract?
According To Investopedia. To review any insurance contract, you need to consider the following
- Insurance Contract Essentials
- Contract Values
- Insurable Interest
- Principle of Subrogation
- The Doctrine of Good Faith
Insurance Contract Essentials
When you decide to shop for an insurance policy, the first thing you do is to get the proposal form from your insurer. Once you get the form, you’ll need to fill in the requested details and then send it back to your insurance company. This will be considered as your OFFER. Upon receiving it from your insurance company, the company will then go through it, and once they agree to insure you it is then considered as ACCEPTANCE.
In some cases, the insurer may only agree to accept your offer once they make some certain changes to the proposal.
Another Essential you need to know in an insurance contract is CONSIDERATION. This is known as the future premiums that are expected of you to pay to your insurance company. For the case of the insurance company, CONSIDERATION can also be referred to as the money the company pays out to you should in case you file an insurance claim.
LEGAL CAPACITY is also essential in an insurance contract. When you come across that, I want you to know that it refers to you being legally competent enough to enter into an agreement with an insurer. If for any reason you’re considered to be a minor or suffering from any mental disability or illness, then you’re not competent enough or qualified to make a contract with the insurance company.
LEGAL PURPOSE in an insurance contract simply means that if the purpose of your contract is to encourage illegal activities of any sort, then the contract will be considered invalid.
Contract Values
This section of the insurance contract has to do with what the insurance company may payout to you if you make any claim that is considered valid. It also covers what you may pay to the insurer for a deductible.
The structure of this particular section of the insurance contract is structured in a way that it identifies whether you have an indemnity or non-indemnity policy.
When I say INDEMNITY CONTRACT, it means that if there is a loss for any reason, it should be something that can be measured with money. There is a different INDEMNITY when it comes to insurance.
When the Principle of indemnity is mentioned in your contract, then you should know that it is talking about the state at which the insurer pays no more than the actual loss being suffered. With this, the insurance contract leaves you in the same financial position where you were, prior to the incident leading to an insurance claim. In a broader explanation, if for any reason your car or property is stolen, you should not expect the insurer to replace it with a brand-new one that is different from the one you had initially. For that, it means that when your Lexus is stolen, don’t expect an Audi model because you felt you needed a change of ride.
In other words, you will be remunerated according to the total sum you have assured for the car.
Insurable Interest
When INSURABLE INTEREST is mentioned, then know that it is referring to your legal right to insure any type of property you own or any event that may cause financial loss or even create legal liability to you or your business.
A good example made by Investopedia shows that despite you being the person who is to inherit the property of your uncle when he is no more, you can still not visit an insurance company to get an insurance policy for that property because you’re not the owner of the property. Even when the unforeseen happens, you’ll not be financially affected.
Principle of Subrogation
In an insurance contract, the principle of subrogation allows an insurance company to sue a third party that has caused a loss to the insured and pursues all methods of getting back some of the money that it has paid to the insured as a result of the loss.
The insurance company will ensure you get compensated as a result of the damage caused to you by a third party. This also means that the insurance company can sue the person who causes the damage in an attempt to recover the money.
The Doctrine of Good Faith
The doctrine of good faith is based on the concept of UBERRIMA FIDES. This doctrine emphasizes the presence of mutual faith between the insured and the insurer.
In simple terms, while applying for insurance, it becomes your duty to disclose your relevant facts and information truthfully to the insurer. Likewise, the insurer cannot hide information about the insurance coverage that is being sold.
Conclusion/ Final Verdict
If you want to shop for an insurance policy, you’ll find a huge range of insurance products available in the market.
It is very important to ensure that you understand what you’re getting into before you make the wrong financial decision.
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