Whether it’s to protect your home, repair a vehicle or travel hassle-free, insurance helps cover the cost of damage to people and their property.
Mario has adopted a middle-aged dog called Bimba and wants to take out pet insurance. While he’d never needed one for pets, he had taken out car insurance and other policies that are mandatory under EU law.
In this article, we answer the most common questions that people like Mario ask before taking out insurance.
What is an insurance policy?
It’s a contract under which an insurer pledges to fully or partially repair or compensate damage to property (vehicle, home, etc.), people or animals. There are many types of insurance. Most of them offer coverage in exchange for a “premium” we pay to the insurer. The premium rate depends on our needs and what our policy will cover.
When taking out insurance, it’s important to know the difference between the contract and the policy. The contract is a legal document that sets out rights and obligations of the insurer and the policyholder. It may be extended to third parties, so we should be aware of everyone involved:
Sometimes, the “policyholder”, “insured” and “beneficiary" are the same person.
The insurance policy sets out the terms and conditions of the parties’ contractual relationship and includes these key words:
What types of insurance are there?
Insurers offer several policies such as personal, property damage and fee-for-service insurance. In addition to covering damages, insurance policies may include other services. Here we delve deeper into each one.
Personal insurance: Policies cover the person who takes it out to protect their personal well-being, including physical and mental health. They include:
Property damage insurance: Policies that pay out against the loss, breaking or theft of a person or company’s property. They are:
Fee-for-service insurance: The insured receives a service and, depending on the coverage, a pay-out. Examples are:
How to take out an insurance policy
The first thing we must do is find out what insurers are offering based on the coverage we need.
We can usually take out insurance in person or online. The insurer asks for information on the property we want to insure (vehicle, house, etc.) or, in the case of life and health insurance, about our medical history. If we meet its requirements, the insurer then determines the protection we need and offers a quote.
Once we receive the quote, we must examine the contract carefully to check that its terms match what we were looking for. It’s vital to make sure the scope of the coverage and risks subject to pay-out meet our needs.
After signing the contract, the insurer cannot amend the policy terms unilaterally. If the insurer seeks to amend the premium or coverage, the policyholder can terminate the contract if they disagree with the new terms.
Want to know which insurance policy suits you best? Check out this article (in Spanish) by Finanzas para Mortales (Finance for Mortals).