Insurance
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Understand Your Insurance Contract
by: Joseph Kenny
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.
About The Author
Joe Kenny writes for the UK Personal Loan Store and offer more
information on UK debt consolidation loans and other loan topics
available on site.
Visit Today: http://www.ukpersonalloanstore.co.uk