All you need to know about Insurance

  • Contents
  • What is insurance?
  • Insurable risks
  • The language of insurance
  • Types of Insurance
  • Life insurance
  • Health insurance
  • Motor insurance
  • Business insurance
  • Buying insurance
  • Who is an agent
  • Who is a broker
  • Why should you consider using a broker
  • Choosing an insurance company
  • Qualifying for insurance
  • How are premiums calculated?
  • Making a claim
  • Complaintshandling at IBSL

What is insurance?

Insurance is a way for businesses and individuals to reduce the financial impact of a risk occurring by entering into a contract with an insurance company.
In exchange for a small premium paid by the customer, the insurance company agrees to pay a certain amount of money if the event you are insuring against is covered and happens during the term of the policy.
The insurance company pools the risks of a large number of clients to minimize the risk to the company and to make insurance premium affordable for the insured.

Insurable risks

Not all risks and loss exposures are insurable. Insurance companies generally are unwilling to insure unusual risks or those that represent a potential for catastrophic loss. Certain requirements must be met for a risk to be insurable from a company’s point of view. To be insurable, a risk must meet the following general requirements:

  • large enough to cause economic hardship yet feasible to insure
  • not excessively catastrophic;
  • unintentional and accidental.

Some insurance policies require consumers to honestly evaluate their own risk, while others will be evaluated by the insurer. The honest evaluation of risk is essential to determine insurance claims. In some rare instances, claims can be denied due to inappropriate evaluation of risk.
Consumers are the best judge of their own risk and most risk mitigation are common-sense actions to safeguard insured property and people who depend upon its integrity.

The language of insurance

Here is a list of some basic insurance terms that you may encounter as you look into insurance.

Agent

Someone who represents one insurance company and sells its insurance products. In some cases, a life insurance agent may represent several different insurance companies.
Agents must usually be licensed in the province or territory in which they do business.

Broker

Person or company who sells the insurance products of several different insurance companies.
Brokers must usually be registered in the province or territory in which they do business.

Claim

Official notice you provide to your insurer requesting to be paid for a loss or event covered by your insurance policy.

Claim investigation

Process used by insurers to get the claim information necessary in order to decide whether to pay a claim.

Coverage

Amount of protection you have purchased.
The maximum amount of money the insurance company will pay you if you make a claim for a loss or event covered by your policy.

Deductible

Amount of your claim that you agree to pay before the insurer pays the rest.
Choosing a higher deductible will decrease the cost of your insurance premiums because you agree to pay for a larger part of your loss.
This term may be used with health, dental, home and auto insurance policies.

Exclusions

Things that are not covered by your policy. You must read your policy carefully and make sure you understand what is and is not covered.
For example:

  • Some health insurance policies may exclude certain medical conditions you had before you applied for the insurance.
  • A travel policy may exclude claims made if you travel to a high-risk country.
  • A home insurance policy may exclude claims for some types of water damage.
  • You may be able to buy extra insurance, known as a rider or endorsement, to pay for risks not covered in your basic policy.

Insured

Person(s) protected by the insurance policy.

Insurer

Insurance company that issues the insurance policy.

Policy

Legal contract between you and the insurer.

The policy specifies;

  • what risks are covered by the insurer under what circumstances the insurer will make a payment to you
  • how much money or what type of benefit you will receive if you make a claim.
  • The amount of money or level of benefit you would receive depends on the amount of your damage or loss.

Policyholder

Person who owns the insurance policy; usually, but not always, the insured.

Premium

Amount you pay to buy insurance.
The premium is usually paid monthly, quarterly or annually. The amount of your premium may change over time.

Rider

Clause or term added to your insurance policy to provide protection, for an additional cost, for risks not covered in a basic policy. Also known as an endorsement.
Check with your insurer to find out what is and is not covered by your policy and for what risks you might need extra coverage.

Risk

Probability that an insured event, such as loss, injury or death, will happen while your policy is in effect.

Beneficiary or beneficiaries

The person(s) named on the life insurance policy who will receive the death benefit when you die. For example, you may want to name your spouse or child as the beneficiary of your life insurance policy.

Beneficiaries may be revocable or irrevocable.

If the beneficiary is revocable, the policy owner can change the beneficiary at any time without advising the beneficiary.
If the beneficiary is irrevocable, the policy owner must have the irrevocable beneficiary’s written permission before making beneficiary changes.

Benefit

Amount that the insurer will pay you if the insurer accepts your claim.

Cash value

Cash amount that the life insurer pays to the policyholder when a life insurance policy is cancelled, or that is added to the face value of the insurance policy and paid to the beneficiary upon the insured’s death.
It may also be possible to take out a loan against the cash value of the policy. This term is normally used with a permanent life insurance policy.

Death benefit

Amount that the insurer will pay your beneficiary or beneficiaries upon your death.
This term is normally used with a life insurance policy.

Material facts

Things you know that could affect an insurance company’s decision about whether to insure you and what price (premium) you will pay.
For example, if you are applying for life insurance, you need to tell the insurer if you smoke.
If you do not tell the insurer about material facts, the insurer could cancel your policy and refuse to pay any claims.

Pre-existing condition

Medical condition you know you already have before you apply for insurance.

Rescission right

A policyholder’s right to cancel the insurance policy with the insurance company within 10 days of receiving the policy and to be refunded any premiums paid.

Types of Insurance

All too often we hear about various types of insurance policies without really understanding what they are and more importantly, what they protect. The truth is, there are two main types of insurance, namely life insurance and general insurance which covers different aspects in your life. Depending on the risk that one wants cover for general insurance can offer a wide range of solutions. Only a few types are discussed here.

Life insurance

The main purpose of life insurance is to insure against loss of income due to death and can also be used for retirement planning and investing. It is the one kind of insurance you pay for, but only others benefit from it. Except in rare cases, the purpose of life insurance is to provide for others at the time of your death. Life insurance companies offer a wide array of policies to meet your needs as your personal circumstances change and evolve.
Following is a brief description of the three basic kinds of life insurance;

Term lifeor “temporary” insurance:

Provides coverage for a defined time period, generally five, 10, or 20 years; pays cash benefits to a named beneficiary if the insured dies during the term of the policy.

Whole life insurance:

Covers the insured for their whole life; benefits are paid to the beneficiaries when the policyholder dies.

Universal life insurance

Whole life insurance with more flexibility; allows the policyholder to maintain their policy and still make changes, such as decreasing the death benefit or changing the premiums.

Evidence of insurability

Life and health insurance companies may require that you complete a detailed medical questionnaire or exam, also called Evidence of Insurability, before approving you for a policy. In addition to asking you about your past health history and lifestyle, the insurance company may also ask that you undergo medical testing such as saliva or blood tests.
If the insurance company conducts a claim investigation after you or your beneficiary submits a claim, and determines that the medical questions were not answered properly or that the insured did not include material facts, the insurer could void the contract and refuse to pay the claim even though you have already paid premiums.
For most types of life insurance, the insurance company cannot increase your premiums based on a change of health after your policy is issued.

Health insurance

There is a variety of health insurance products available that could help you pay for services that your regular health care plan does not cover supplement your income if you suffer a major illness or severe injury pay for your medical expenses if you become ill while on vacation.

Supplementary health insurance

pays for health services, such as prescription drug and dental services, not generally covered by provincial and territorial government health plans.

Disability insurance

provides coverage if you cannot work temporarily or permanently due to a injury or illness, such as loss of a limb, a heart attack or an operation.

Travel medical insurance

pays for medical treatment while you travel outside the country. The policy may not provide coverage for medical conditions you had before applying for coverage,so read the policy carefully.

Critical illness or trauma insurance

pays a one-time lump-sum payment if you are diagnosed with a critical illness that is specified in your policy, such as cancer or Alzheimer’s disease.There are often exclusions, so read the policy carefully. Be sure you know what is and is not covered.

Long-term care insurance

provides coverage if you enter a long-term care facility such as a nursing home.

Motor vehicle insurance

Third part liability Motor insurance is mandatory in Sri Lanka. Yet one can expand the motor insurance to cover a variety of needs.

Liability Insurance

In the event that you are in a car accident and the police decide it is your fault, liability insurance covers the cost of repairing any property damaged in the crash (such as cars or buildings), as well as the medical bills from resulting injuries.
Collision Insurance
Collision insurance isn’t a must-have, as far as insurance goes. But the the biggest problem with carrying only liability insurance is that if there is an accident, you may wind up without the money to repair your own vehicle. A collision insurance policy ensures that your insurer will pay for the repairs to your car.

Comprehensive Insurance

Liability and collision insurance policies exclusively cover car accidents. If something else happens to your car weather damage, theft, an animal collision you won’t be able to get your insurance company to address the problem. With a comprehensive insurance policy, however, your insurer will handle just about any situation that comes up.

Medical / Personal-Injury Protection

The costs associated with treating injuries after a car accident can be astronomical. In order to cover those costs, medical and personal-injury protection is available. No matter who is at fault, such protection will cover your medical bills along with those of your passengers.

Business insurance

Insurance coverage is available for every conceivable risk your business might face. Cost and amount of coverage of policies vary among insurers. You should discuss your specific business risks and the types of insurance available with your insurance agent or broker. Your agency can advise you on the exact types of insurance you should consider purchasing.

General Liability Insurance

Business owners purchase general liability insurance to cover legal hassles due to accident, injuries and claims of negligence. These policies protect against payments as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.

Product Liability Insurance

Companies that manufacture, wholesale, distribute, and retail a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defect product that causes injury or bodily harm. The amount of insurance you should purchase depends on the products you sell or manufacture. A clothing store would have far less risk than a small appliance store, for example.

Professional Liability Insurance

Business owners providing services should consider having professional liability insurance (also known as errors and omissions insurance). This type of liability coverage protects your business against malpractice, errors, and negligence in provision of services to your customers. Depending on your profession, you may be required by your state government to carry such a policy. For example, physicians are required to purchase malpractice insurance as a condition of practicing in certain states.

Commercial Property Insurance

Property insurance covers everything related to the loss and damage of company property due to a wide-variety of events such as fire, smoke, wind and hail storms, civil disobedience and vandalism. The definition of “property” is broad, and includes lost income, business interruption, buildings, computers, company papers and money.
Property insurance policies come in two basic forms: (1) all-risk policies covering a wide-range of incidents and perils except those noted in the policy; (2) peril-specific policies that cover losses from only those perils listed in the policy. Examples of peril-specific policies include fire, flood, crime and business interruption insurance. All-risk policies generally cover risks faced by the average small business, while peril-specific policies are usually purchased when there is high risk of peril in a certain area. Consult your insurance agent or broker about the type of business property insurance best suited for your small business.

Buying insurance

Make sure you get the right insurance to meet your needs, which may change over time. You can buy insurance from:

  • an insurance agent
  • an insurance broker
  • an insurance company.

Some types of insurance can also be purchased over the phone or Internet or by mail; however, life insurance is usually purchased from a licensed agent or a broker.

Who is an insurance agent ?

A person registered as an insurance agent with an insurance company or an insurance brokering company under the provisions of the Act, and who in consideration of a commission, solicits or procures insurance business for such insurance company or insurance broker, as the case may be. The provisions of the Act stipulate minimum qualifications that an individual should possess and passing a pre-recruitment test conducted by Sri Lanka Insurance Institute (SLII) in order to become an agent. A person who is already registered as an insurance agent with an insurance company or an insurance brokering company cannot be appointed as an insurance agent by any other insurance company or an insurance brokering company.

Who is an insurance broker?

An insurance broker is a company incorporated under the Companies Act, No. 07 of 2007 and registered under the Act in order to carry out insurance brokering business. Insurance brokers function as an intermediary for the placing of insurance business for or on behalf of an insurer, a policyholder or a proposer for insurance or reinsurance, with an insurance company or reinsurance company, in expectation of a payment by way of brokerage or a commission.

Why should you consider using a broker?

Insurance brokers have access to many different insurance policies because they deal with a range of insurance companies directly. Brokers will be aware of the benefits, exclusions and costs of competing policies. An insurance broker can also help arrange and place the cover with the chosen insurer and can often provide advice on how to make the most of your insurance budget.
When arranging insurance, many people take shortcuts without seeking proper advice, understanding the fine print or considering whether they are getting value for money. An insurance broker can help you determine the level of cover that is required so you can ensure you are properly protected.
It is always good to have an independent party to advice you on insurance which is a highly technical subject. If you approach an insurance company direct or go through an agent the chances are you will not receive an unbiased opinion about the products and services available in the market. An insurance agent is also aligned to a particular company. On the other hand an insurance broker is independent and can offer you choice from a variety of products and services available from different companies. The broker can evaluate these products and services using expert knowledge and negotiate better terms with the insurance companies on your behalf.

When selecting the right insurance broker, pay attention to the following

  • The quality of the team and the expertise available
  • The ability to understand your business and your specific needs
  • Commitment to service your account
  • Focus more on giving right advice than just selling

Qualifying for insurance

Insurance companies will evaluate whether they will issue a policy based on certain criteria, such as;

  • your age
  • your medical history
  • any previous claims you have made
  • the amount of coverage you are requesting.

A proposal form is generally designed in the form of a questionnaire and requires full disclosure of information requested therein. For example if the proposal is for a Life Insurance Policy, you are required to furnish facts material to your health (past and pre-existing medical conditions), occupation, habits and pursuits in addition to personal details. It is essential that questions should be answered truthfully and to the best of your knowledge and belief. In the event of a doubt of the relevancy of particular facts, it is in your best interest to disclose them.
The particulars contained in a proposal form will be assessed and evaluated by the insurance company before accepting the offer made by you. Therefore, failure in disclosing all pertinent information would deprive the insurance company of a proper understanding of the risk to be borne by them. Further, an insurance proposal form is of utmost importance as it forms the basis of a contract of insurance, and non-disclosure or misrepresentation of facts will result in the repudiation of future claims.
It is advisable to fill the proposal form by yourself and never sign a blank proposal form.

How are premiums calculated?

Your premium is based on the probability that you will make a claim. Factors such as the ones listed previously may affect the cost of your premiums. Insurers usually charge higher premiums to people who they think are more likely make a claim. People whom insurers consider less likely to make a claim will usually pay lower premiums. For example, if you have a history of medical issues, you may pay higher life insurance premiums than someone with few medical issues. If you have several accidents on your driving record, you may pay higher auto insurance premiums than someone who has no accidents on their driving record.

Making a claim

When you make a claim, you are officially asking the insurer to pay you for a loss or event covered under the terms of your insurance policy.
Before submitting a claim, check your policy’s terms and conditions, as well as any exclusions, to see if your loss is covered.
Insurance companies will pay only for the specific losses described in your policy. Your insurer will review your policy and advise you if your claim is eligible under the terms of your contract.
Contact your insurance agent, broker or insurance company promptly about your claim. Most insurers have time limits within which you must submit your claim. The timeframe usually varies from 90 days to 12 months from the date of the occurrence.
When submitting your claim to your insurer, make sure to provide all supporting documents. For example, in the case of an auto insurance claim, you may need to provide an accident report; for a life insurance claim, you may need to provide a death certificate.

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