Insurance is the financial coverage of anything which a person may consider precious. In most cases, insurance covers life, health, homes, automobiles, etc. Hence, several insurance plans lead us to the term generally known as ‘Insurance Policy.’
What is an Insurance Policy?
When you speak of insurance, you discuss an agreement between two parties. One of these parties is known as the insurer, and the other is the insured or, in some cases, the policyholder.
Insurance cannot exist until these two sides come together to agree. The agreement between both sides is what establishes the insurance policy.
Hence, the insurance policy is a contract that details the agreement between the insurer and the insured. It specifies the legal claim that the insurer will pay in the incidence of loss on the policyholder. However, this claim is in exchange for an initial payment from the policyholder who aims at recovering from unforeseen losses.
Features of a Good Insurance Policy
The agreement between the insurer and the policyholder must have specific characteristics to certify that it is authentic. Indeed, it should have certain declarations that show the person insured, addresses, risks or property it covers, etc. However, here are the three principal features of a good insurance policy:
Aleatory in Nature
This feature means that the amount the insurer and policyholder exchange is dynamic. It is subject to change which depends on uncertain events.
It is Unilateral
Understand that the insurer makes the promises in the agreement that the law enforces. As long as the insured has paid the premiums, the insurer is to stick to the arrangement of the policy.
Uberrima Fides
The words translate into utmost good faith. Both parties deal with good faith in avoiding the chaos of losses. Nevertheless, in the incidence of loss, the deal comes in.
