What is an insurance policy? Definition

An insurance policy is a contract between a natural person, an individual entrepreneur or a legal person (Policyholder) and an insurance company, which is bound by virtue thereof and in which the obligations and duties of each of the parties are specified (the terms and conditions to which both parties are subject, such as the scope and coverage of the insurance).

What is an insurance policy for?

This type of policy covers the insured for the risks provided for in the contract, that is, the possibility of the harmful event occurring and for which he is covered so as not to have to face a high expense at a given time. All this occurs in exchange for a premium, which is normally paid on an annual basis.

Credit and surety insurance policies allow companies to insure the risk of default, breach of contract, agreed requirements and other considerations, which are provided for in the insurance policy.

This allows it to operate in a much safer way and for the company to carry out its activity without worries, understanding that the points related to collection and incident management of contracts or agreements are covered.

What are the differences between an insurance contract and an insurance policy?

The credit or surety insurance policy is the document in which the insurance contract is formalized, in which the rules, rights, duties and obligations of the parties are specified.

The insurer, for its part, has the obligation to provide the insurance policy to the insured or, failing that, a provisional coverage document

How do you take out an insurance policy?

An insurance policy is contracted with an insurance company, which offers a series of coverages to which the insured person has access by paying a premium and whose price will vary depending on the amount of coverage or types of coverage.

Before contracting insurance, the insurance company sends an offer to the possible insured so that he can study it, and once an agreement has been reached, the Policy will be formalized under the agreed conditions.

Personal elements of an insurance policy

• Insured is the person who will be protected by the insurance, and may or may not be the same person who hires it.
• Policyholder is the natural or legal person who signs the contract, whether insured or not, and who assumes the obligation to pay the premium and other obligations that correspond legally and contractually.
• Insurer is the company that will protect the insured and will take care of the risk associated with the incident or cause.
• Beneficiary is the natural or legal person designated by the insured to collect the compensation arising from the claim.

Conditions and indications

The credit or surety insurance policy shall contain, at a minimum, the following indications:

• Name and surnames or corporate name of the contracting parties and their address, as well as the designation of the insured and beneficiary, if any.
• The concept in which it is insured.
• Nature of the risk covered, describing, in a clear and understandable way, the guarantees and coverage granted in the contract, as well as with respect to each of them, the rights, exclusions and limitations that affect them.
• Designation of the insured objects and their location.
• Sum insured or scope of coverage.
• Amount of the premium, surcharges and taxes.
• Due date of the premiums, place and form of payment.
• Duration of the contract with expression of the day and the hour in which its effects begin and end.
• If a mediator is involved in the contract, the name and type of mediator.

What are the essential elements in an insurance contract?

There are four and in the absence of one of them, the contract is considered null, that is, the contract does not produce any effect: the insurable interest, the insurable risk, the insurance premium or price and the insurer's conditional obligation.

What is the insurable interest?

It is the relationship that exists between the policyholder or the insured with the insured object.

For example, Carlos bought a new car and Jairo wants to take out insurance on that car. Since Jairo is not the owner of the vehicle, he has no insurable interest in Carlos's car, therefore, he could not insure it.

What is insurable risk?

It is that uncertain and measurable fact that you want to ensure. There must be a probability that the risk will occur and that this does not depend on the will of the insured.

A house located near the sea is an insurable risk so that it is protected in the event of a tsunami, but a house located on a mountain, thousands of kilometers from the sea, is not an insurable risk for the event of a tsunami.

In the event of the realization of an insured risk, the insurer is obliged to pay compensation, which may be an insured sum or the provision of a service, depending on what has been defined in the insurance contract.

What is the insurance premium or price?

It is the value that the policyholder must pay for the purchase of the insurance. It represents the income of the insurer that, together with the collection of other insurances, allows the payment of the claims of those policies that have suffered a risk.

What is the conditional obligation of the insurer?

It is the obligation acquired by the insurer in the event of the realization of a risk, as long as the events have been future and uncertain. If they do not meet these conditions, the insurer will not have to pay the compensation that had been contracted.

For example, Alejandro takes out glass breakage insurance for his apartment. If the insurer receives a request for compensation from Alejandro because a current of winds broke the windows, it will have the obligation to pay for them. Now, if it is found that Alejandro was the one who broke the windows, the insurer will not have to pay said compensation.

What are the obligations of the insurance company?

The insurer issuing insurance must:

• Deliver the original insurance policy to the policyholder. For this you will have a period of fifteen days after the purchase of the insurance.
• Deliver a copy of the policy, if required by the policyholder or the insured. In some cases this copy may have an additional cost.
• Reduce the stipulated premium in case of reduced risk. The insurer will take into account the corresponding rate and the unexpired time of the insurance. There are some exceptions.
• Respond to the claim request when a claim occurs. The company will have a maximum period of one month to study the case and proceed with the payment, if there is room for it. If the company is late in payment, you will have to pay default interest.