Understanding Insurance Policies: Principles and Parts

What is an Insurance Policy

It's a contract of agreement between the insurer and the policy holder. It contains the terms and conditions.

The insurer agrees to cover the losses, if they occur, in return for premium payments.

Principles

• Principle of Insurable Interest: You can't insure anything that is not in your name. You can only insure something that, if something bad happens to it, you incur losses.
• Principle of Indemnity: The insurer will only return you the current value of the loss, they will pay you the current value of the object right before the incident, not the original price.
• Principle of Subrogation: Your insurance company pays the money and then they ask for the money from the company that has to pay.
• Principle of Contribution: When you have the same risk covered by 2 or more insurance companies, when you make a claim you will only receive compensation for the amount of money of the loss, and then the company that has not paid to you, will pay 50% to the other company.
• Principle of Utmost Good Faith: Both parties of the contract must be honest, if they don’t and the other party finds out, the policy can be annulled.

Types of Insurance

Life - Motor - Homeowners - Health - Travel - Deceased - Commercial

Parts of a Contract

• Definitions: The terms
• Declarations: The info of the policy holder, premium, etc
• Conditions
• Endorsement
• Underwriting: Is the process of evaluating a risk to determine if the insurance company will insure it and for which price. The job of the underwriter is to evaluate the risk and the potential exposure of insuring this risk and set a price for this risk.