Acquiring insurance

Normally, when something physical is bought or sold, the buyer receives the good and immediately begins to enjoy it.  In the case of insurance, the buyer pays a premium in exchange for a possible future service; however, protection begins from the moment the insurance contract is signed.

The sale of the insurance constitutes the beginning of the relationship between the policyholder and the insurance company; the latter not only has to handle the claim, it must also keep its customer informed and properly advised at all times.

Keys to buying insurance

So that the insurance that is taken out is adequate in terms of the real protection needs, the consumer must jointly evaluate several factors, including: the coverage, the insurance company, other additional services to the insurance, and the price.

Coverage

This is the most important factor, since the level to which the goods are protected depends on the choice of coverage. There are many options on the market, even within the same insurance company; it is therefore essential to be familiar with their meaning and scope, and to compare them until one is found that suits the real needs of the individual.

The sum insured is an important factor to take into account when determining coverage. It is the monetary value assigned to the insured goods, and it is also the maximum amount that the insurer would pay to the policyholder in the event of a loss covered by the policy.

Knowing which risks or circumstances are not covered by the insurance is also very important information when taking out the policy.

Insurance company

An essential requirement is that the insurance company must be legally authorized to carry out the insurance activity. Throughout the life of the policy, it is the contact person with the policyholder, providing the information and offering the service.

It is advisable to take out policies with reliable and financially solvent companies so that the response in the event of a claim is adequate and the policyholder is reassured by the product they have purchased.

The experience that the company has in this type of insurance, the variety of products offered and the access to information, either physically or digitally, are other aspects to take into account.

Other services

It is interesting to consider the additional services provided by the insurance company, such as, for example, professional maintenance and repair services, medical services, and so on.

Price

The price is an important aspect when purchasing insurance, but it should always be evaluated in conjunction with all the previous factors.

Each insurance company sets its rates according to the different elements that make up the insurance, the extent of the cover offered and the quality of the services provided.  For all these reasons, very cheap insurance will possibly imply less coverage and benefits than a higher-priced one, so before taking out the policy, you should check whether the coverage is adequate for your protection needs.

Sometimes, the excess is related to the price of the insurance. This is an amount for which the policyholder is his own insurer, since in the event of a claim they will bear the cost of the portion of the damage that corresponds to them.

In a car insurance policy, an excess of 300€ is set. This means that if the vehicle is involved in an accident with damage amounting to 250€, the insurer will not compensate the policyholder. Up to a value of 300€ (the excess) any costs will be borne by the policyholder.

If the loss is valued at 1,000€, the insurer will indemnify 700€, which is the amount above the excess. The policyholder will have to pay 300€.

Buying and selling insurance

To understand this better, we will separate, on the one hand, the purchase process and, on the other hand, the actions that take place during the sale of the insurance.

Buying insurance

A person decides to take out insurance (for themselves or their property) against a given risk. Two things can happen:

• They know what kind of insurance they need and go to a particular company.
• They do not know what insurance they need, and prefer to seek advice from an expert (a broker, an insurance agent from the company itself, etc.) before making their choice.

Once they are aware of the type of insurance they need, its coverage and benefits, the price and other characteristics, they decide to take out the policy (or not).

The insurer draws up an insurance contract (policy) which the policyholder accepts, signs and pays the premium for (which may be paid in installments).

The policyholder is covered, and a loss may or may not occur:

• If it does occur, the policyholder has to notify the insurance company and the latter proceeds to check whether the damage that has occurred is covered by the policy. If the loss is covered by the policy, the policyholder receives the corresponding indemnity.
• If it does not happen, the policyholder may benefit from a reduction in the premium when the insurance policy is renewed.

Usually, at the end of the coverage period, the insurance company will automatically renew the insurance policy and notify the policyholder. Either the insurer or the policyholder may cancel the contract so that it is not renewed, which must be communicated in writing to the other party prior to its expiration date.

Selling insurance

The insurer designs a series of products which it then markets. From the policies it sells, it obtains premiums from the policyholders, and with that money:

• It pays any claims that occur.
• It covers its management and operating expenses.
• It makes a profit, and pays dividends to shareholders (if any).

Simultaneously, it reinvests a portion of its funds to increase its financial strength.