5 Tips for Understanding Your Insurance Contract
It’s important to understand the key terms of your contract to be sure your policy truly protects you. To help you, we’ve put together these five tips for understanding your insurance contract:
- Understand the offer and acceptance relationship. When you pay premiums, you are making an offer for coverage. When companies take your money, they’re accepting your offer. However, companies may accept with certain considerations – like requiring more premium because you’re a smoker or restricting drivers on an auto policy. Always read the fine print to understand your offer and acceptance relationship.
- Indemnity protects against financial loss. Insurance contracts operate under the principle of indemnity. This means that when losses can be measured in terms of money, they’ll make you whole financially.
- The Good Faith Doctrine applies. The good faith doctrine means you’ve entered into an insurance contract without withholding key information – like a past illness or illegal business activity – that would make the contract unattractive to the insurance company. If they find you’ve not acted “in good faith”, your contract may be voided.
- Subrogation happens. Subrogation means your insurer can sue a third party who caused you a loss – even if it’s a friend, neighbor, or relative. Be prepared that even if you’ve received a check, the company may involve you in pursuing those they view as truly responsible to recoup their money.
- Legal capacity matters. The law requires good legal capacity for insurance contracts. This means you must be of sound mind to sign an agreement, and also that your insurance company is current on all their licenses in your area. It’s a great reason to only work with the most reputable firms.
For more tips for understanding your insurance contract or to adjust your coverage based on these tips, reach out to our team now.