Insurance policy

The basic principle of insurance is that an entity will choose to spend small periodic amounts of money
against the possibility of a huge unexpected loss.
[Insurance = a contract in which an individual or entity pays an insurance company in exchange for
financial protection or reimbursement (náhrada) of losses resulting from a covered event]

Principles of insurance

1) Principle of Utmost Good Faith

• insurer and insured should enter the contract in good faith, highest degree of honesty
and fair dealing
• both parties are expected to disclose all material facts relevant to the insurance
contract
• any misrepresentation or concealment of information can lead to the voiding of the
policy
• ensures that the insurer has a clear understanding of the risks involved and can
accurately assess the appropriate premium
2) Principle of insurable interest
• the insured party must have a financial stake in the property or life being insured
• this means that the insured would suffer a direct financial loss if the property were
damaged or the life was lost
• insurable interest prevents fraudulent claims and ensures that the insurance is being
used for its intended purpose
3) Principle of indemnity
[indemnity = protection against loss or damage; compensation]
• indemnity aims to put the insured in the same financial position as they were before
the loss occurred
• this means that the insurer will compensate the insured for the actual loss suffered up
to the policy limit
• the insurer will not make a profit from the loss, and the insured will not be
overcompensated
doesn’t apply to life insurance contracts
4) Principle of contribution
• if an insured item is covered by multiple policies, each insurer is liable for a
proportionate share of the loss based on the coverage amount they provided
• this prevents the insured from profiting from their loss by claiming more than the actual
value of the damaged property (can’t make profit by making claim for the same loss
more than once)
• when the same risk is insured with more than one insurance company, if the risk
happens, the insurance companies will split the cost of the compensation
5) Principle of subrogation
• this allows the insurer to step into the shoes of the insured and pursue legal action
against a third party who caused the loss
• this helps to recover the amount paid out to the insured and prevents the insured from
receiving double compensation
• when the insurance company pays you compensation for the insured item, the
ownership of the item passes to the insurance company (e. g. your car is written off
after an accident, the insurance company pays you compensation for you to get a new
car, the insurance company now owns the damaged car and may try to sell it for scrap)
 6) Principle of loss minimalization
• the insured party must take reasonable steps to prevent or minimize the loss after an
insured event occurs
• this includes actions like contacting emergency services, securing the property, and
preventing further damage
• failure to do so may result in reduced coverage or denied claims by the insurer
7) Principle of causa proxima
[causa proxima = “nearest cause”]
• this establishes the direct link between the insured event and the loss suffered
• the loss must be a natural and foreseeable consequence of the insured event
• if there are intervening factors that break the chain of causation, the insurer may not be
liable for the loss
• an accident may be caused by more than one cause; in such case nearest cause of the
accident is found out – insurer pays the claim only if the nearest cause is insured

Different types of general insurance:

Today it’s crucial to know about the different types of general insurance because of the numerous benefits they
offer.
• Home insurance = Needless to say, home is valuable possession, which is important to secure
with proper home insurance policy. Home and household insurance safeguards your house and
items in it, covers man-made and natural circumstances that may result in damage or loss.
• Motor insurance = Motor insurance provides coverage for your vehicle against damage,
accidents, vandalism, theft, etc. It comes in two forms – third-party and comprehensive.
- When your vehicle is responsible for an accident, third-party insurance takes care of the harm
caused to a third party, however it does not cover any of your vehicle’s damages. Third-party
motor insurance is mandatory.
- Comprehensive insurance policy safeguards your vehicle against fire, earthquakes, theft,
impact damage, etc. Additionally, it provides coverage against third-party liability in the case of
third-party property damage, bodily injury, or death.
• Travel insurance = When you travel internationally and suffer losses because of loss of
baggage, trip cancelation, or delay in flight, a travel insurance policy safeguards you. You may
also be offered cashless hospitalization if you are hospitalized travelling.
• Life insurance = Health insurance is vital tool for risk mitigation (zmiernenie) and helps you
deal with medical emergencies. One can opt for a standalone health policy or a family floater
plan, which offers coverage for all family members.
A health insurance plan covers hospitalization expenses up to the sum insured.
An applicant for a life insurance policy will be asked to provide information about their health
and family history. Based on these responses, the insurer will decide whether to insure him and
what premium to charge.

Vocabulary:
Premium = the amount of money paid regularly to keep an insurance policy active
Insurance agreement/contract
Policyholder (poistník) = a person or entity that holds an insurance policy
The difference between insured and policy holder: The policyholder is the person or organization in
whose name an insurance policy is registered. The insured is the one who has or is covered by an
insurance policy.
Coverage/insurance benefits = the range of protection provided by an insurance policy
Claim = a request made by insured to the insurer for payment of a loss
Deductible = the amount of money the insured must pay before the insurance covers the rest
= fixed amount of money that you pay before the insurance company will start to help you
with your medical bills (pay for some or all of your claims)
Liability insurance = a type of insurance protecting against claims of legal responsibility
Health insurance = a type of insurance that covers medical expenses
Pension insurance = insurance designed to provide income after retirement