Understanding Insurance Contracts: Key Elements and Policy Types
The Valuation of Risk in Insurance Contracts
The insurance contract obligates the insurer to pay compensation for damages caused by an accident in exchange for a premium. The contract of insurance is based on the legitimate interest of the insured. It sets with absolute precision the real value of the sum insured or guaranteed. This value can be set as:
- Use value: Established according to the inconvenience incurred by the insured not being able to use the insured asset.
- Custom value: The customary value of the insured object.
- New value: Corresponds to the replacement of the insured and damaged object with an identical new one at the market price.
- Agreed value: Known or estimated, where the amount of compensation is fixed by agreement between the signatories of the contract.
When fixing the sum insured, depending on the use value or the new value, the correct statement or not of these assessments can lead to different treatment by the insurer at the time of compensation.
- Normal or full insurance: Any of the preceding steps are correctly assessed, and there is no gap between the value of interest and the sum insured.
- Over-insurance: Not common, as premiums paid would be higher.
- Under-insurance: The real value of the insured property is less than the sum insured.
Personal Elements of the Insurance Contract
Insurer: A legal entity that, in exchange for receiving a premium, professionally assumes another person’s risk pursuant to established regulations. The rule specifically states that it cannot be a natural person. To act as an insurer, a company must meet certain requirements.
Requirements
The first is to be entered in the register of Insurance Companies, Bureau of Insurance, with authorization from the Ministry of Finance, and not engage in the exercise of any other kind of activity.
Insured: The person on whom the risks fall, ensuring their integrity or suffering economic harm, and therefore directly affected by the policy coverage. Life or accident policies must refer exclusively to individuals. (The one who receives compensation, except in cases where the beneficiary does not match the insured).
Policyholder: The person or entity that formally establishes the contractual relationship with the insurance. They sign the contract and are therefore responsible for the commitments required, especially the payment of premiums. (The one who signs the policy and pays the premium).
Beneficiary: A natural or legal person on whom the benefits arising from the agreement will fall if the casualty occurs.
Types of Insurance Policies
- Nominative Policies: Provide personal protection to a particular risk because they identify the insured by name.
- Order Policies: Can transmit the benefits arising from the contract to another person by means of an endorsement. Most used in the transportation of goods.
- Bearer Policies: Rare, used almost exclusively in shipping. The insurer undertakes to pay the amount specified in the contract, if the accident occurs, to the person presenting the policy.
- Simple Policies: Cover a single risk (e.g., life insurance).
- Combined Policies: E.g., blanket car insurance policy.