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:

  • Insurer: The company that covers the risk.
  • Policyholder: The natural or legal person who takes out the insurance policy. 
  • Insured: The person whom the policy protects.
  • Beneficiary: The person who receives the pay-out or service that the policy covers.

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:

  • Coverage: The elements that the insurer pledges to protect.  
  • Claim: The event that causes damage to the insured person, property or animal. 
  • Pay-out: The amount the insurer pays in the event of a claim. 

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:

  • Health or medical insurance that offers healthcare and a pay-out if a person falls ill. Find out more in this article (in Spanish) from Tu Futuro Próximo.
  • Life insurance that affords financial protection in the event of the insured’s death or disability.
  • Dependency insurance that covers assistance to people with a physical and/or mental disability. 
  • Personal accident insurance that covers injury.

Property damage insurance: Policies that pay out against the loss, breaking or theft of a person or company’s property. They are:

  • Home insurance, which is one of the most common and important since it protects against several types of incidents. To find out more about protecting your home, check out this Openbank article (in Spanish).
  • Car insurance, which is mandatory by law to travel within the European Union. Further coverage can be added against losses from things like theft.
  • Theft insurance that covers the loss of belongings through violence or intimidation.
  • Pet insurance that covers damages to, or caused by, a pet animal.
  • Buildings insurance that covers owners and developers against construction-related risks.
  • Credit insurance that protects companies against payment defaults.
  • Transport insurance where the insurer pays out if goods are damaged during shipping.
  • Fire insurance that pays out for damage caused by a blaze under certain circumstances.
  • Civil liability insurance that pays out to a third party if they and/or their property suffer damage.
  • Fully comprehensive insurance that covers multiple risks (fire, theft, etc.). The most common type is multi-risk home insurance.

Fee-for-service insurance: The insured receives a service and, depending on the coverage, a pay-out. Examples are:

  • Travel insurance that covers incidents that occur during a trip.
  • Funeral insurance that covers the costs of the insured’s interment.
  • Legal expenses insurance that covers court-related costs.

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.

a senior man working in his garden with a laptop computer

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).

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