Understand Your Insurance Contract

Understand Your Insurance Contract



Understand Your Insurance Contract
All insurance contracts are governed by the​ concept of​ ‘offer and acceptance’ .​
This requires you​ to​ fill the​ proposal form and send it​ to​ the​ insurance company .​
Sometimes you​ are also required to​ attach a​ check for the​ premium amount,​ with the​ proposal form.
Your filling the​ proposal form and sending it​ to​ the​ insurance company is​ the​ ‘offer’ and when the​ insurance company accepts your proposal it​ is​ the​ ‘acceptance’ part of​ the​ concept .​
The amount you​ pay as​ premium is​ considered as​ the​ ‘consideration’ part of​ the​ contract .​
The concept of​ ‘legal capacity’ also applies to​ insurance contracts .​
It requires both the​ parties to​ be legally capable of​ entering a​ contract .​
Your insurance contract is​ based on​ ‘legal purpose’,​ which means that the​ contact is​ not meant for encouraging illegal activities .​
The other legal principles that govern the​ contracts are:
Principle of​ Indemnity:
This principle requires the​ insurer to​ pay an​ amount,​ not more than the​ actual loss suffered,​ in​ case of​ loss .​
The amount paid as​ claim by the​ insurance company should not be more than the​ sum assured in​ the​ insurance contract .​
The aim is​ to​ provide a​ claim amount that will help the​ claimant to​ regain the​ lost financial position .​
In some indemnity contracts,​ the​ amount payable by the​ insurance company is​ subject to​ the​ amount of​ actual loss .​
Some indemnity contracts also have a​ provision for the​ claim to​ be paid only if​ the​ actual loss exceeds a​ certain amount .​
For example,​ in​ an​ auto insurance contract of​ 3000 dollars,​ you​ would be eligible for the​ claim amount only if​ your actual loss exceeds 3000 dollars .​
In case,​ the​ actual loss amount is​ below 3000 dollars,​ you​ would be liable to​ bear all the​ costs.
Insurable Interest
In this insurance cover,​ the​ insurance contract covers only those properties or​ events specified at​ the​ time of​ investment .​
For example,​ if​ you​ live in​ your uncle’s house and apply for a​ homeowners’ insurance,​ the​ insurance company will reject the​ claim,​ since you​ are not the​ owner of​ the​ property and do not suffer any personal financial loss in​ case the​ house gets damaged.
Principle of​ Subrogation
The principle of​ subrogation enables the​ insured to​ claim the​ amount from the​ third party responsible for the​ loss .​
It allows the​ insurer to​ pursue legal methods to​ recover the​ amount of​ loss,​ which the​ company has paid the​ insured via the​ insurance claim .​
For example,​ if​ you​ get injured in​ a​ road accident,​ due to​ reckless driving of​ a​ third party,​ the​ insurance company will compensate your loss and will also sue the​ third party to​ recover the​ money paid as​ claim.
Doctrine of​ utmost good faith
This means that both the​ parties are expected to​ disclose any information,​ important to​ the​ contract .​
For example,​ when applying for life insurance,​ it​ is​ your duty to​ disclose any permanent ailments that you​ might have .​
Likewise,​ your insurer also is​ expected to​ be clear on​ the​ illnesses that are not covered under the​ contract.
Once you​ become familiar with the​ principles,​ you​ will be able to​ understand the​ scope of​ your insurance contract .​
This makes you​ independent of​ the​ insurance advisor.




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