Most individuals have some type of insurance. When you first receive the policy document, nearly all clients glance at the fancy words and file it away. However, if you are spending a large sum of money each year on insurance it is beneficial to learn about those tricky terms and exactly what it says.
Fundamentals of an Insurance Contract
The first step to acquiring insurance is filling out the proposal form and sending it to the company.
This is considered your offer to the insurance organization. If they agree you are insurance-worthy, this is known as an acceptance. In many instances the insurance agent will accept your offer with a few changes to the proposal. To enter into any agreement you must be legally competent and not a minor. However, insurers can be considered competent if they are licensed under specific regulations. The next step is consideration, which details the money paid if you must file a claim. Otherwise known as a premium, consideration designates that each legal entity in the contract must provide some amount of value.
Indemnity Contracts
With the exception of life insurance, the majority of insurance agreements are known as indemnity contracts. These apply to specific types of insurance where the loss incurred is quantifiable by monetary gain. Therefore, the principle of indemnity outlines that insurance organizations are not required to pay more than the actual loss. The idea behind an insurance contract is that you are left in the same financial position prior to the claim. Additional factors of an insurance contract include excess and under-insurance. Excess refers to the insurance company paying you in excess of a specific amount of damage. For instance, if you have a car accident with an amount totaling $6,000 and the applicable excess is $5,000, the insurance company will pay you $6,000. However, if the damage is only $3,000 then the company will not pay a penny. Under-insurance designates insurance that is less than the total value of item to save on monthly premiums. If there is a partial loss then you must pay any costs over that amount. For instance, if you insure your residence for $90,000 while the total value is $100,000, during a partial loss the insurance company will only pay $90,000 and must cover the remainder. This is not a recommended practice.
Principle of Subrogation
The Principle of Subrogation permits the insurance company to sue a third-party entity that has instigated a loss to the insured client. During the suit the goal of the insurer is to retain some or all of the money that they have paid to the client from the loss.
Insurable Interest
As a customer it is your legal right to insure any type of property that could result in financial loss or induce a liability. This is known as insurable interest. This prevents future owners of vehicles, residences or properties from insuring the entity because they do not own it. Also, insurable interest helps married couples complete life insurance policies on their spouses and can exist in business arrangements between a creditor and debtor or between employers and employees.
Doctrine of Good Faith
The doctrine of good faith or uberrima fidei specifically outlines the presence of a mutual faith between the insurance company and the insurance client. For instance, when applying for life insurance, it is your duty of good faith to divulge previous illnesses. Similarly, the insurance company cannot hide information about the coverage.
Doctrine of Adhesion
The doctrine of adhesion recognizes that you are required to accept all the terms and conditions of the insurance contract without negotiating. Since the client does not have an opportunity to change the conditions of the contract, any uncertainties favor the insurance company. This concept was created to protect the consumer. During the insurance purchasing process, most clients rely on their advisor for all aspects from selecting the policy to completing the forms. Most people steer clear of the legal jargon found in their lengthy and boring contracts. However, it is always important to be familiar with this terminology as well as the conditions of your contract since you have to live with it.
0 comments: