Understanding Insurance: Coverage, Premiums, and Claims

Value of Interest and Amount

The security interest is a quantitative assessment. In damage insurance, the value of interest is determined by objective criteria that take into account the value of the thing at the time of the accident. In personal insurance, by contrast, the value of the interest is usually set by fixed amounts agreed upon beforehand.

Insured Amount, Full Insurance, Overinsurance, and Underinsurance

The insured amount represents the maximum compensation payable by the insurer for each incident. The sum insured is also known as the capital insured. The ratio of the value of interest and the insurance amount results in situations of full insurance, underinsurance, and overinsurance. Overinsurance and underinsurance can be caused by a poor assessment of the insured or because the value of the protected property varies and the sum insured is not updated.

Compensation of Damage: Proportional Rule

To qualify for payment of compensation, the insurer must be notified of the incident within seven days, unless a broader communication period has been agreed upon in the policy. The insured must provide the insurance company with any information on the circumstances and consequences of the accident. Breach of these duties may entitle the insurer to request an award of actual damages or cause the insured to lose their right to compensation if they proceeded in bad faith or with gross negligence.

In any event, the insurer shall, within forty days from receipt of the statement of claim, pay the minimum amount which may be due, according to the circumstances known to it.

Calculation of Compensation

The compensation does not always coincide with the damage. It depends on the sum assured.

First Loss Insurance

In this case, the insurer compensates for all the damage, but premiums are higher.

Value of the Property

• Replacement Value: The sum insured is in line with the replacement value.
• Market Value: The sum insured is in line with the market value.

Premiums and Expenses on Insurance Contracts

One of the main obligations of the borrower is paying the premium. Premiums may be single or periodic.

Non-Payment of a Premium:

• If the first premium has been paid, the insurer is entitled to terminate the contract.
• If the first premium is not paid before a loss occurs, the insurer has no obligation to pay compensation.
• If the second or a subsequent premium is not paid within one month, a grace period applies.
• If the insurer does not claim the amount due within six months after expiration, the contract is terminated.

Other Obligations Under the Insurance Contract

Once the contract is signed and before a loss occurs, the policyholder or the insured must inform the insurer as soon as possible of all circumstances that aggravate the risk to such an extent that, had the insurance company known, it would not have contracted or would have done so under more onerous terms. Additionally, the policyholder must disclose any other insurance contracts concluded with other entities covering the same risks. Upon a claim, the policyholder, insured, or beneficiary must notify the insurer quickly of its occurrence, and the first two are also obligated to do everything possible to lessen the damage caused by the incident.