Thursday, May 14, 2009

Understanding Insurance Contracts

Understanding Insurance Contracts

Almost all of us will have taken out some sort of insurance. Whether it be car insurance, home insurance, health insurance or travel insurance to name just a few, we will all have paid over considerable sums of money to an insurance company in exchange for the peace of mind that comes with knowing that should disaster strike, you are insured.

However, how many of us have fully understood the details of the agreement we are entering into?

Within all the documentation that comes with any new insurance contract, there is contained some of the most complex legal provisions and contractual terms that you are likely to find anywhere. Insurance companies spend millions on lawyer’s fees and have teams of professionals constantly up dating and amending the terms of their contracts to cover for every possible eventuality.

You on the other hand, probably have very little time to spend getting familiar with the contents of your insurance contract and will simply glance over the main points that are highlighted by the insurance company.


However, there are a couple of things that you can do to make sure you have at least a reasonable understanding of the contract you are signing. All insurance contracts basically have the same purpose and methods. They take on the risk of an event, which may or may not occur and pay the cost of it if it does.

This may be any event, but the most common are car accidents, house damage, medical treatment and the like. Life assurance is slightly different in that it guarantees to pay out on your death, which unfortunately is still a certainty that is bound to occur. However, the timing of death is uncertain and in this sense there is still a very real risk that you will die at a time when your children or spouse is completely dependent on you.

There must also be some financial cost to the occurrence. The insurer must be able to have a reasonable idea of the cost of the loss if they are to be able to calculate the price of the premium accurately. Therefore, while medical expenses and lost earnings are recoverable under insurance, the pain and suffering, or the sadness of losing a loved one will not be recoverable under an insurance contract.

Therefore, what you will really be looking for in an insurance contract is what exactly is covered. In which circumstances will the policy pay out and which occurrences are not covered. Then there are the exclusions and conditions you must meet to keep the policy valid. This might include keeping your door locked or having health checks. Make sure you understand what you have to do under the contract and do it.


By: Joseph Kenny
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