Understanding Insurance

What is insurance?

Insurance is a financial arrangement that provides protection against potential future losses or risks. It involves a contract between an individual or entity(policyholder) and the insurer, - in which the insurer promises to provide financial protection to the policyholder in the event that the insured risk occurs. This may be death, disability and loss or damage to property. 

What is an Insurance Policy?

An insurance policy is a document that represents the contract between the policyholder and the insurer. The policy contains terms and conditions of the insurance contract and it also outlines the key elements of the contract such as: 

  1. premium – the amount the policyholder pays to the insurer as a condition of the contract, usually monthly or annually; 
  2. coverage – the specific risks or contingences that the insurance protects against; 
  3. term – the duration for which the insurance policy is active and provides coverage to the policyholder; and 
  4. sum insured - the amount of money that the insurer promises to pay the policyholder or beneficiary in the event that the covered loss occur. 

What to consider before buying insurance 

Before buying an insurance policy, consider the following: 

  • Do you understand how the policy works and have you asked for explanations where you are not clear before signing? 
  • Is the proposed policy relevant to your needs? 
  • Did you shop around to compare the same policy from different insurers. Other insurers could be offering the same policy at a lower premium. 
  • Did you confirm whether the insurer is licensed by the FSRA or not. If you cannot confirm this, don’t take chances; you could be exposing yourself to a scam. 
  • Did you consider your financial status first before committing. Make sure you can afford the premium and enquire whether the premium will escalate in the future or not. Remember that if you stop paying premiums, your policy will lapse. If your policy lapses, you will lose the insurance cover. 

Upon receipt of the policy document: 

  • Read the policy document and make sure you understand it: If you don’t understand it, contact the insurer or the intermediary for clarification. 
  • Verify if your details are correct. Don’t keep the policy until you are satisfied that it is a true reflection of what the seller presented to you and that your details are correct. 
  • Confirm if your details and all benefits in the policy document are as per what you signed for at application stage. 
  • Keep the policy document in a safe place