One of the things which prevent individuals from purchasing life insurance is the preponderance of legalistic terms which is enough to make any average, reasonable person’s mind spin. Spontaneous individuals just make sure to ask how much the premiums are and where to sign. On the other hand, more conscientious individuals would want to know what all those documents are for. Regardless of which of the two groups you belong in, this article seeks to de-mystify insurance policies.
What makes a life insurance policy valid?
1. Offer and Acceptance
When applying for a policy, you should obtain a proposal form from the insurance company of your choosing. You’re asked to fill in the required fields and premium check may accompany this form. This will constitute your offer which your insurance company may choose to or not to accept. It is possible that your insurance company may only accept to insure you after amending parts of your offer like increasing your premium if you’re found out to be a smoker or a drinker.
This is just another term for premium. On the side of insurance companies, the term is used to refer to the insurance money you get after filing a successful claim.
3. Legal Capacity
Since you’re entering into a legal agreement with your insurer, you must be legally competent. In a nutshell, you must not be mentally ill nor be a minor. Insurance companies are deemed legally competent if they are properly licensed.
Who gets to insure who?
Insurable interest means that a person can insure any property or event that can lead to financial loss or create legal liability. What this means is that married individuals can take out a policy on their respective spouses under the premise that they will suffer financial loss should their partner die. Insurable interest also applies to business arrangements such as in between creditors and debtors, business partners or employers and employees.
What is the Principle of Subrogation?
Basically, this means that your insurance company can go after someone who has caused a loss to you. Let’s say, you went past your sell-by date after someone shot you in a robbery. While your insurance company will still pay you all the benefits it owes, it can also sue your murderer in order to recoup the money they had lost on you.
These are just some of the terms and concepts that one has to be familiar with when purchasing an insurance policy. The disadvantage of being too reliant on an insurance advisor is that you might not be able to fully appreciate the policy which you are paying for. Being insurance-literate also allows you more freedom when shopping for policies and can even get you more favorable and cheaper insurance comparisons.
Kevin Walker writes interesting articles answering the most common questions about life insurance .