How do you take out an insurance policy?
Traditionally, one would go “in person” to the office of the chosen company, to an authorized bank (bancassurance operators) or to a trusted broker.
In general, if you know what type of insurance and the coverages you need, or if it is an insurance that you have already taken out on other occasions, it will probably not be necessary to go to the experts. But we recommend that, in case of doubt, you should always consult a professional, who is there to advise you, regardless of the channel you choose.
In addition, for certain types of insurance that may be more complex, it is always advisable to seek the help of a specialist from the outset, because of their experience and knowledge.
The process of insuring against a risk
The general process for insuring against a risk is the following:
1. Insurance application
The interested party contacts an insurance company or a mediator explaining what risk they wish to insure against and all the circumstances they consider appropriate. The insurance company accepts or rejects the proposal, but there is no formally binding relationship yet.
It is very important for the interested party to know:
- The real value of what they to insure, so that there is no underinsurance or overinsurance.
- Its characteristics.
- The real coverage needs.
This must be communicated to the insurer so that they can correctly evaluate the characteristics of the insurance they are going to propose. Otherwise, the insurance company may propose insurance that is not adapted to reality or to the customer’s needs, and therefore, that do not fulfill their purpose: protection against the insured risk.
In this field, the principle of presumption of good faith applies, in other words, it is assumed that the declarations of risk made by the person concerned are correct and that they are not trying to make a profit.
2. Insurance offer
With the above information, the company makes a written offer to the potential policyholder. Once the proposal has been submitted and accepted, it is binding for the insurer for a certain period of time.
3. Formalizing the insurance contract
If the interested party accepts the proposal, they then receive the insurance policy, which comes into force on the date stated on it, once the policyholder has paid the corresponding premium.
The policy is the document that reflects the general, particular or special regulations governing the conditions agreed between the insurer and the policyholder. It is, therefore, a particular type of contract and, as such, it generates obligations and rights for both the insurer and the policyholder.
Every insurance policy must contain:
General Conditions
The general conditions reflect the set of basic principles established by the insurer to regulate all insurance contracts belonging to the same class or type.
In these conditions, regulations are usually established regarding the extent and purpose of the insurance, generally excluded risks, the way claims are settled, the payment of indemnities, payment of bills, communication between the insurer and the insured, jurisdiction, and so on.
Specific conditions
These include more specific information such as the name and surname or company name of the parties, the insured item, the amount of the premiums, place and method of payment, etc.
Special conditions
These modify the general conditions, but in no case may they contradict the provisions of the Law, which apply to each user according to their specific characteristics. They must be accepted by the customer.
4. The term of the insurance policy
The term of the insurance policy refers to the period during which the guarantees are in force. The insurance takes effect from the moment indicated in the policy, for a given period of time (generally one year).
Example 1: a person is thinking of taking out home insurance during the first week of the year. If the term indicated in the insurance policy is from 00:00 am on January 15 and runs for one year, any loss occurring before that date will not be considered as covered.
The terms and conditions of the policy provide that, before the end of the period of coverage, the insurance may be automatically renewed for a new period, usually for another year. This renewal takes effect if the policyholder continues to pay the corresponding premium.
Example 2: in a home insurance policy whose term is from 00:00 am on January 15 of one year, and whose duration is annual, will a loss occurring on January 17 of the following year be considered as covered by the policy?
In this case, there is a so-called “grace period” by virtue of which the policyholder has one month from the expiration date of the policy to pay the corresponding premium. During this period the insurance remains in force as long as the policyholder pays the premium. Once this period has elapsed, the following consequences come into effect:
- Coverage by the insurer is suspended.
- For six months from the expiration date, the insurer may claim payment of the premium from the policyholder, and the contract is terminated if no such claim is made within this period.
In certain cases, both parties (insured and insurer) may terminate the insurance contract before the expiration date, and the coverage will be terminated. This situation is not frequent, but the insurer may make this decision in cases where there is an alteration of the risk, a false declaration of risk, or non-payment of premiums.