Are you getting ready to sign an insurance contract, but you are unsure if you understood it correctly? Although there are some specifics depending on the insurance type chosen, most deals have the same essential elements. We designed a guide to ensure you better understand them before signing. Here is what you should know about the integral elements of your insurance contract!
The Basics Of Every Insurance Contract
Here is how the process of signing a contract works and what are its basics:
- Offering and accepting the offer – it’s interesting to note that you are the one offering an insurance contract. You make the first move by completing a form and sending a proposal to the agency. They can accept or get in touch to arrange specifics before accepting.
- Consideration – as the policyholder, this is the sum to pay to activate the contract and keep it active for the specified timeframe. The sum you pay is called a premium. As for the insurance company, they consider the compensation required if you decide to file a claim. The consideration ensures that both parties contribute to the deal with a specific value.
- Legal purpose and capacity – the first thing to ensure is that your contract will follow the law. It’s vital that you meet the age and other requirements to sign the deal.
The Indemnity Principle
Here is another essential element of a vast majority of insurance contracts. The indemnity principle ensures that your potential losses will be counted in the agreed currency (real money value). The primary purpose of this principle is to return you to the identical financial position you found yourself before filing the claim. For example, if someone steals your 10-year old car, no insurance agency will replace it with a new model. Instead, they will pay you the agreed or market value of the vehicle. While we are talking about potential compensation sums, here are some other essentials to learn:
- Deductible – it is the sum that can lower the premium. You agree to pay the agreed deductible amount first, and then the insurance company jumps in for the rest of the compensation sum. If the deductible is MYR10,000, but the damage is MYR50,000, that means you pay the deductible, and the insurance adds MYR40,000.
- Under-insurance – another thing that can decrease the premium. It involves agreeing to a compensation lower than the estimated car or property value.
- Excess – it’s compulsory if the driver is younger than 21, has an L or P license, or isn’t a named driver in the policy. That excess involves RM400.
What Other Insurance Contract Essentials You Should Know?
Here are some other elements that every insurance contract should have:
- The policyholder’s insurable interest – if you want insurance on your vehicle or property, you must prove it is a legal, financial liability. Proof of ownership is often sufficient as it shows that you want insurance to protect your assets.
- Good faith – this is a doctrine used in various insurance categories. It implies the policyholder should be honest and provide accurate information on their application form. They shouldn’t hide important info regarding the policy. The insurance company can reject your claim compensation if you provide inaccurate info.
- Non-claiming discount – it is often approved on car insurance policies if you don’t file a single claim while it’s valid.
- Add-ons – these are special additions included in your insurance contract, such as windscreen and named driver coverage.