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Part Two: How You Can Properly Understand Your Insurance Contract (Continued)

Representations and warranty: In providing details of your property to be insured, ensure that the information is very correct. Many insurance providers mandate you to sign a declaration stating that every bit of information provided on the form is absolutely true and complete. Representations are statements written by you on your application form, which represent the proposed risk to the insurance provider while warranties are imposed by the insurance provider to make sure that the risk remains the same all through the policy and does not increase. For instance, if have an auto insurance contract and you decide to lend your car to a friend who does not possess a license and that friend of yours is unfortunately involved in an accident, your insurance provider may see it as a breach of warranty because it was not made aware about this alteration and your claims could ultimately be rejected.

Other Policy Parts

The doctrine of adhesion: This stipulates that you must strictly adhere to the entire insurance contract and every one of its terms and conditions without bargaining due to the fact that the insured has no power to change the terms. Any vagueness in the signed contract will be interpreted in his or her favor.

Principle of Waiver and Estoppel. A waiver is described as a willing surrender of a known right. Estoppel on the other hand stops a person from fully claiming those rights because he or she has performed in such a manner as to deny interest in preserving those rights. For example, if you failed to provide some information in the insurance proposal form and your insurance provider didn’t request for that information but carries on to issue the insurance policy, it is regarded as a waiver. If in the future a claim springs up, your insurance provider cannot question the contract on the basis of non-disclosure. This is referred to as estoppel and for this point, your insurance provider will have to pay the claim.

Co-insurance is the division of an insurance by two or more insurance providers in an agreed way. Some very big companies might see the risk of running the place to be very high and may choose to bring in two or more insurance providers to share the risk. Coinsurance can also be agreed between you and your insurance provider.

Reinsurance happens when your insurance provider "sells" some of your coverage to another insurance provider. For example, if you are a footballer and you decide to insure your legs  for $10 million. If insurance provider A agrees to your offer and along the way they could not meet up with the risk management, it can choose to pass up some of this risk say ($7 million) to Insurance provider B. In the event that you get an injury on your legs, you will be paid $10 million from insurance provider A ($3 million + $7 million) with insurance provider B contributing the reinsured amount ($7 million) to insurance provider A. This practice is referred to as reinsurance.

It is advisable to always make adequate use of the services of your insurance advisor when going through an insurance contract, he or she can search about and ensure that you are getting full insurance coverage for your money. Always watch out for essential information before signing any insurance contract. There may be instances when your claims are rejected because you did not pay proper attention to certain details requested by your insurance provider. 

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