What is an Insurance Policy?

So, what is an insurance policy? The response is: it is the legal contract between the insurer (an insurance company) and the insured (a policy holder). It provides the evidence that you are insured, and is normally, also a legal requirement (in our case), that it be issued only after the payment of insurance premium, under the cash-and-carry. As a policy holder, it is important that you take time in reading and understanding the contents of the insurance policy. This will enable you to verify whether the policy meets your insurance needs. Furthermore, reading the insurance policy will help you to understand your rights as well as your obligations, also those of the insurance company.

It is important that you understand the policy document flow, and some of its key terms, conditions and terminologies which are basic standards commonly used in insurance policies. As a policy holder you need to understand and familiarize yourself with them. Therefore, in today’s article we will cover this, but some.

Title of the Policy: This section of the policy covers the class or type of the policy that you are taking, and it includes the registered name and address of the insurance company.

The Preamble: it sets out the necessary conditions that must be met by the parties before the completion of the insurance contract. It identifies parties to the contract, brief about the agreement itself, and the premium amount, it also refers you to the policy schedule, and any report or other document relating to the policy, policy terms and conditions, compensation upon the occurrence of the insured event and the sum insured.

Policy Schedule: This section outlines the type of policy taken; the policy number; your names, business, or profession; date of commencement of cover; period to be covered by the insurance; sums insured; premium amount and provision for signature of the insurance company’s authorized official. It also contains cover limits defining the highest benefits payable in case of a loss.

Definitions: This section only defines the terms used in the policy document. It is important to note that this section is very important as it is meant to guide you in understanding your policy. You are required to refer to it when reading the policy.

Policy Benefits: this describes the types of benefits the policy will pay in the event of a loss. These include benefits related to loss due to accidents, theft, burglary, illness, disability, and maturity benefits (in the case of life insurance) among others.

Policy Exclusions: The exclusions section covers the kind of risks that the insurance company is not prepared to cover under the policy. Examples may include riot, intake of illegal drugs and alcohol, war, etc. However, it is important to also note that some insurers may allow policyholders to buy back some of the exclusions by paying additional premiums.

Policy Conditions: This covers rules guiding the policy such as how to revive a lapsed policy, surrendering a policy, rules guiding policy loans, loss of policy document, duty of disclosure as well as policy cancellation and termination.

Signature and Attestation: it contains a place for signature of the insurance company’s authorized officer and the policyholder’s signature. You are required to sign this part of the policy only when satisfied with the policy. Normally you will be given some days, also known as the cooling off period, within which you can decide to sign or refuse to sign the policy.

It is a fact that a sizable number of buyers of insurance sign policies without understanding its terms and conditions and proceed to keep it only to produce it at the time of a loss. This is not healthy; and it actually is synonymous to using a driving license to which you have not appended your signature and whose expiry date you do not understand. Note that different policies have different terms, however, the ones highlighted here above are standard and common to most insurance policies.

Why Insurance Cover Could be a Necessity

To start with. Do you really need to have an insurance cover (i.e., for your property, motor vehicle, business, education, health, life, etc)? and have you ever wondered whether it is necessary that you should have an insurance cover?  By the way – do you really understand what you are being covered against? Either way, it all starts with, what is an insurance cover?

Answers to these questions would be yes – of course you need to have an insurance cover; yes – you need to understand what the insurance policy is covering or protecting you against; and yes – there is a need for you to understand the needs and benefits of insurance so as to make an informed decision before purchasing that cover or policy.

Insurance operates based on the fact that losses and misfortunes do occur in people’s lives, and at any moment. This is informed by the wisdom saying it is better to plan on a rainy day, as you plan for a sunny day – perhaps, to minimize or manage the negative impact of the loss, should it occur, and when it occurs. Now, there are various religious teachings and other wisdoms that underscore the necessity of insurance as a financial planning tool, as a risk mitigation and management mechanism. One may argue that in our traditions and conduct of life, we do sometimes set up and practice acts that enable the pooling of resources and help those in need, so why insurance? Well, much as that is true but these practices are not sustainable as it were, hence the necessity for individuals and businesses and governments to purchase proper insurance covers as the real means of mitigating risks and losses.

So, what is it? you need insurance because losses and misfortunes occur from time to time, and in most cases when such incidents occur – i.e., fire, motor accidents, sickness, or death, you are not prepared for the financial consequences that follow. It is not uncommon to see people resort to borrowing or asking for help from friends and relatives who unfortunately are often short of money to lend a hand and therefore do not help as such, and by itself results in more stains in relationships. In extreme cases, it is common to see families dispose of their hard-earned assets at throw away prices because of the mentioned emergence situations. It is sad to see when such assets are sold to pay medical bills for the patient whose bills need to be paid off when s/he has died. No doubt this is a double, or triple tragedy, if the person died was a bread earner for the family, the family which is now left with no assets and their beloved one. While it is understood that insurance will not stop accidents from happening, or people from getting sick, or deaths from happening, but having a cover cushion those who suffer losses from availing funds to cover for the insured losses.

By what has been said above, and in our own experiences, we know that life has a lot of uncertainties. By buying an insurance policy, you transfer financial losses from yourself to an insurance company, which has the role of pooling clients’ risks together, making payments more affordable for the insured. So, while you cannot avoid the misfortunes of life, you can be assured that with the right insurance policy, you will recover from your financial loss. After all has been said, the bottom line is you need to have an insurance cover that is relevant to you and the risk you are mitigating. How would you achieve that?

By identifying your risk(s) and your needs and setting priority around them – remember, not all risks are insurable, and your insurance needs should be specific to you. Avoid making decisions based on hearsay or gossip or what your friend bought.

Discuss your risks and needs with an insurance adviser – this should be a competent, skilled, and licenced person – either an insurance company, or insurance broker or an insurance agent. Even then, it is wise to compare policy benefits against premiums of several insurers. As of December 2022, there were 32 insurance companies, 89 insurance brokers, and 910 insurance agents with thousands of professionals scattered across the country. These will willingly advise and assist you in identifying the right insurance policy that matches your needs, thus you may choose the policy that meets your needs at the affordable costs. A cover that is relevant for you, based on your risk assessment, priority, and advice. Where possible, try to avoid instances of buying more insurance that you need. But don’t buy less.

Remember – the most significant benefit of insurance is the protection of your family and assets, which result in peace of mind – plus other several benefits: i.e., savings, financial security, investment vehicles and tax management mechanisms. Remember, your health is your wealth, as the saying goes –sickness strikes without notice; therefore, take charge of your health and consider buying medical insurance cover. But also, accidents occur anytime and anywhere – consider buying a personal accident cover against disabilities and deaths resulting from accidents. 

Tips on Buying Insurance Policy

To start with, what is insurance?Well — insurance is a contract, represented by or in the form of an insurance policy, in which a policyholder (the insured) receives financial protection or reimbursement against losses from an insurance company (the insurer) following the actualization of an event insured against. To achieve this objective, the insurer pools clients’ risks together, in a way making payments more affordable for the insured.

As it is, people have some forms of insurance covers: for their cars, their houses, their businesses, their crops, their livestock, their health, or their lives.

The purpose of insurance policies is to hedge the insured against financial losses resulting from accidents, injury, property damage, medical or health challenges or even death. Insurance also helps cover costs associated with liability (legal responsibility) for damage or injury caused to third parties.

So, simply put, the major role of insurance is to pay some money, to make some repairs, to replace a destroyed or stolen property, to cover for medical costs, or to replace to some degree the lost incomes following the death of the insured.  

There are two types of insurance – general and life. General insurance pays money, replace lost or destroyed property, following misfortunes such as fire, motor accident, sickness, theft, strike, storms, pests, drought, floods, and the like. On the other hand, life insurance pays for policyholders if he/she survives the policy period or for his/her dependents in the event of an untimely death or disability.

Now, the challenge that many people face when seeking to buy insurance is deciding which policy(s) to buy, and for which motive. Today’s article aims to share some tips that may help you in your selection of the right insurance product for your need:

If you own a motor vehicle or are an employer, ensure that you buy the compulsory motor vehicle third party insurance and the workers injury benefit insurance – somehow supplementing coverage provided under workman’s compensation fund.  

It is prudent to also have a life policy which will pay money to your dear ones and dependents in the event of your untimely death. This can go a long way in assisting the family in settling down as they cope with the realities of your death.

Prudence also requires that you take insurance for your treasured possessions such as your home, business, crops, or livestock, why? Because their loss will cause you financial loss that may be quite difficult to cope with, at times even changing the lifestyle of your family.

It is well advisable to arrange for health insurance as well – both for yourself and the family because sickness may come suddenly, sometimes when money is not available. You may not even have time to raise money if you could.

As you think of it, you may have noticed that education is increasingly becoming expensive by the day. However, you may have picked the wisdom that the future belongs to the educated, and most people seem to entertain the idea that their children would have to go to the best schools. That being the case, it is not always possible to have enough money to pay school fees as well as meet other competing needs of life. Therefore, an education insurance policy can take care of this by allowing you to pay small regular amounts from the time the child is born or when still young.

It is a fact that we are all growing old day by day, statistics also point us to the fact that people are likely to live longer after retirement, thanks to medical advancements. However, for the time that you live without work due to old age, you still have needs; it is therefore advisable to arrange for sources of income that you can rely on during these times. Life insurance policies, annuities, and fund management schemes are best suited to meet these old age needs.

Finally, illness is a risk we live with right from birth to death. It is important to plan for illness in order not to be caught unaware when and should it strike. Illness can at times be critical and brutal e.g., stroke or heart attack, or accident – make sure you have a medical insurance policy to take care of your hospital bills. Note that personal accident policies also pay given sums of money to policyholders or beneficiaries following an accident that often results in injury, disability, or death.

Now, in order to buy a valid insurance policy, always ensure that the insurer, insurance broker, or the agent you are dealing with are licensed by TIRA. And, in case of difficulties in accessing your insurance claims you are encouraged to raise the issue with TIRA, as detailed in their website.