Understanding Insurance Contracts: Types, Elements, and Processes
UNIT 7: THE INSURANCE CONTRACT
What is Insurance?
Insurance is a contract where the insurer agrees to compensate the insured for damages or losses within agreed limits upon payment of a premium and the occurrence of the covered event.
TYPES OF INSURANCE COMPANIES
Insurance companies can be categorized based on their legal structure:
A) Corporation
A company where capital is divided into shares. Key features include limited liability and the aim of generating profit (lucro).
B) Mutual Insurance Society
A society formed by individuals (mutuals) who contribute money to cover potential damages. The goal is not profit but to reduce premiums or improve the society’s financial stability.
C) Cooperative Society
A society that unites partners with shared socioeconomic interests. The aim is to generate profit, which is distributed among partners based on their activity, not capital contribution.
D) Social Welfare Mutual
Similar to mutual insurance societies, these lack a profit motive. Partners contribute to cover damages and provide social benefits complementary to the social security system.
REINSURANCE COMPANIES AND CO-INSURANCE CORPORATIONS
These entities manage risks for insurance companies themselves:
A) Reinsurers
They divide and spread risk among insurers in exchange for a portion of the premiums. The insured cannot claim directly from the reinsurer.
B) Co-insurance Corporations
They divide and distribute risk among insurers. The insured is aware of the group of insurers and can claim from any of them.
INSURANCE AGENTS AND BROKERS
A) Insurance Agent
A natural or legal person who works on behalf of a specific insurance company. Their tasks include attracting and retaining clients. They earn commissions based on sales.
B) Insurance Broker
Works for multiple insurance entities and is not tied to any specific one. They must hold an insurance agent title and perform similar functions as agents, but any liability for negligence rests with the broker.
THE INSURANCE CONTRACT
A contract where the insurer, upon receiving a premium, agrees to indemnify the insured for damages or losses within agreed limits upon the occurrence of the covered event.
ELEMENTS OF THE CONTRACT
Personal Elements
a) Insurer: The legal entity authorized by the Ministry of Finance to act as an insurer. They assume the risk in exchange for the premium.
b) Policyholder: The individual or entity who signs the policy and pays the premium.
c) Insured: The owner of the insured property, possessing legal capacity.
d) Beneficiary: The person who receives compensation in case of a covered event.
Material Elements
a) Risk: The potential event against which the insured seeks protection.
b) Premium: The monetary amount paid by the policyholder for coverage.
c) Accident: The event specified in the policy that leads to damage or loss.
d) Compensation: The payment received by the beneficiary in case of a covered event.
PAPERWORK FOR EXECUTING THE CONTRACT
1. Insurance Application: Completed by the mediator with the insured’s information.
2. Proposal: The insurer reviews the application and presents an offer to the client, who has 15 days to accept.
3. Policy: Upon acceptance, the policy is issued and signed by the insurer, policyholder, and insured.
4. Receipt of the Premium: Confirms payment and summarizes coverage.
DOCUMENTS OF THE INSURANCE CONTRACT
Policy
The document outlining the terms of the insurance contract. It includes:
– General Conditions: Standard terms for all contracts of the same type.
– Special Conditions: Specific obligations for each individual case, including personal information of the policyholder, insured, and beneficiary.
Other Documents
a) Insurance Proposition: A written offer of specific coverage and price.
b) Application of Risk: A questionnaire completed by the policyholder.
c) Letter of Guarantee: A temporary document provided while the policy is formalized.
d) Appendix or Supplements: Used to modify the contract.
e) Receipt of Premium: Proof of premium payment.