What is Insurance and Who is involved in the Contract 2024?

What is Insurance

Introduction

Do you know what is insurance? Insurance is a financial instrument that protects people, companies, animals, or material assets against certain events, accidents, or occurrences that may put the assets of an individual or a company at risk.

It is normal for you to associate the word “insurance” with complicated terms and bureaucratic processes, but it does not necessarily have to be that way! In this publication, we will explain what insurance is in a simple way so that you know how it works, understand its importance, and are prepared when you have to use this instrument.

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What is insurance and what is it for?

In a simple definition, it is protection against certain types of risks that a person or a material asset may face. We know that there are certain things in life that we cannot control and difficult times can come when we least expect them. For this reason, insurance exists to help you cover risks in the event of accidents or certain events that may represent a danger to your assets.

Let’s say you take out insurance for your home that covers various risks, including damage caused by fire. One day a fire accident occurs and your house is damaged. At that point, you can activate the insurance and receive compensation for the losses caused. This insurance can cover the total value of losses, thus providing support during difficult times.

Each insurance has specific coverage for what you need. This means that it is very important that you know the insurance you are taking out and what risks it can cover. Remember that any damage or situation that happens to you and is outside the coverage agreed in your insurance contract will not be a reason to receive compensation. You may be interested in knowing: Personal Insurance: the best options for you and your family.

Who is involved in an insurance contract?

If we explain it in more detail, insurance is a contract between two parties, which establishes that a person, material asset, or property has coverage against certain risks. The party that covers the risks is identified as “the insurer” and the person who contracts the insurance is identified as “the policyholder.”

There is a third party called “the beneficiary” who is the person who receives the compensation if it is not the same person who hires them. We will explain these terms to you below:

Insurer

Authorized by the Financial Superintendency of Colombia, it is the legal entity that assumes the risks agreed in the insurance contract. In a simpler way, these are authorized insurance companies.

Insurance Policyholder

Also called “contractor”, is the person who signs the insurance contract, pays the premium, and signs the policy, assuming the obligations agreed in the contract. This person can be natural or legal.

Beneficiary

It is the natural or legal person who owns the right to the insured benefit at the time the risk occurs. That is the person designated to receive compensation. In some insurance, such as car insurance, you can be both the policyholder and the beneficiary.

In others, the beneficiary is freely designated. For example, in life insurance, when the insured dies, the beneficiaries are generally the children and spouse.

6 Attributes of Insurance

An insurance contract has certain characteristics or attributes that we explain below:

1. Bilateral

Insurance is bilateral, meaning that there are responsibilities on both sides. On the one hand, the insurer is responsible for paying the premium. And on the other hand, it is up to the insurer to assume the risks and pay compensation if necessary.

2. Random

Insurance is given the attribute of random since it cannot be known whether the incident against which one is insured will occur or not. Nor can you predict when it will happen.

3. Consensual

Previously, insurance contracts were solemn. That is, they required the formality of a written document for their existence. However, today, thanks to its consensual attribute, insurance contracts can be carried out with the mere consent of the contracting parties and through different means such as emails, telephone calls, etc.

4. Onerous

The attribute of onerous is given since it is necessary for the policyholder to pay the value of the premium for the insurer to assume the stipulated risks. The purpose of an insurance contract is the utility of both contracting parties, taxing one for the benefit of the other. The policyholder must pay the premium, the insurer must pay the compensation.

5. Good Faith

Good faith is also an important attribute that characterizes insurance. This means that the two parties (the insurer and the insured) trust each other. On the one hand, the insured declares honestly about the risk and prevention of the incident. And on the other hand, the insurer designs the policy and executes compliance with the contract.

6. Successive Execution

The insurance contract has the characteristic of successive execution. This means that it is not only executed at a single moment, and that, on the contrary, it occurs in specific periods of time.

How does insurance work?

When you obtain insurance, you agree to pay a specific value (premium), either in cash or in installments, so that your assets are insured against certain risks and for a certain period of time. Once the contract is agreed and signed, the beneficiary is protected in the event that he or she suffers an event that is covered by the insurance purchased.

If the insured suffers an accident or event covered within the insurance policy, they may activate their insurance and benefit from the compensation and conditions agreed in the contract. You must keep in mind that all insurance has a validity period and, if within that period you did not suffer any unforeseen event or did not have to activate the insurance, it is not possible to request a refund. If the validity of your insurance expires, it is necessary to renew it or take out a new one.

Insurance and policy, are they the same thing?

No. Although they are words that are related and it is normal to hear them in the same context, it is important that you know that insurance and policy are two different things.

The policy is the document where all the coverage and conditions of the insurance are explained. In Colombia, the policy must be written in Spanish and must be signed by the insurer. Simply put, insurance is the agreement or contract, and the policy is the document that includes that agreement.

Types of Insurance

The insurance market is quite extensive and has various levels of customization and classification, starting with the basic classification, which is mandatory and voluntary insurance.

Mandatory Insurance

This type of insurance is stipulated as mandatory through legislation and regulations of the National Government in order to protect society in general. They are mandatory, as they represent those frequent risks that have a high impact on society such as traffic or work accidents. Some mandatory insurances are:

Voluntary Insurance

As its name indicates, voluntary insurance is a type of insurance that is not mandatory. In this way, the policyholder does so of his own free will in order to protect his life or his assets. There is no law here that forces you to take insurance. Some of the most popular voluntary insurances are life insurance and car insurance.

By Type of Coverage

Personal insurance: These are all those that cover individual risks such as life, travel, and health insurance.
Damage or property insurance: These are those that cover risks that may affect the assets of the individual and also of companies. For example, automobile, home, transportation, SME, and civil liability insurance, among others.

By the number of people insured:

Individual: When it is a single person who is contracting the insurance, it is called individual insurance.
Collective
: These insurance policies are divided between two or more people. They allow coverage to people who are part of the same homogeneous group or have a common bond. For example, employees of the same company.

What assets can be insured?

Nowadays it is possible to insure your assets in different ways. Among the most popular insurance in Colombia we can find:

Life insurance

Life insurance gives you financial support that can cover cases of accident, death, or serious illness. It is a way to ensure financial protection for your family in case you are absent. This type of insurance is also necessary when acquiring a loan with a financial institution.

Auto insurance

In addition to SOAT, you can insure your car to protect yourself from theft, damage to the vehicle, and damage to other people or their property, among others. All this is to cover the possible expenses of a traffic accident or a natural disaster such as an earthquake.

Home Insurance

This type of insurance covers risks that may affect the assets of your home, such as damage due to natural causes such as rain or earthquakes, and also in the event of theft.

Pet Insurance

Pet insurance protects your dog or cat from different events such as accidents or illnesses and even covers cremation and burial expenses. An important factor of these insurances is that they also cover possible damages that your pet causes to third parties. In Colombia, dogs considered dangerous breeds must be compulsorily insured.

Travel Insurance

These insurance policies are specific for when you go on a trip and want to protect yourself against any type of unforeseen event while you are away from home. Travel insurance can cover medical assistance, lost luggage, and lost air connections with trip cancellation.

The conditions and prices of each insurance may vary according to the coverage selected and the insurer chosen. Therefore, we always recommend you quote and buy different alternatives.

How to choose the best insurance?

Taking out insurance is much easier than many people think. The cause of the difficulty may be the lack of knowledge due to which confusion may occur about which policy exactly suits the needs of each person or company. Therefore, it is very important to have expert advice to contract the ideal insurance policy.

Below are the steps to take out your insurance:

1. Quote

The first step to contracting insurance is to quote different options and to do that you must take into account what your specific needs are, what your expectations are, and your budget. It is normal to feel that you don’t know where to start and for this, you can hire an insurance agency that advises you on your needs and the different options you can take.

2. Compare

Once you have all the quotes seen, it will be important that you compare the benefits and costs of each insurance. Your insurance agency or advisor can help you with this comparison by presenting tables with the main benefits and costs.

3. Receive advice

To make your insurance contracting process easy and effective, you can get advice from expert teams to discover your needs and which policies are best for you. At Perez Lara we provide you with free advice on all types of insurance, we help you resolve your doubts and present you with the best contracting options at no cost. Schedule a free consultation here.

4. Choose

Once you have found the ideal insurance for you, and you have the support of your advisor, you only have to make the decision and carry out the necessary documents to purchase the insurance.

5. Fill out the Sarlaft form

This form is one of the most important requirements to be able to issue a policy. By its acronym, Sarlaft is the Money Laundering and Terrorist Financing Risk Management System, and as its name says, it is a mechanism created in order to prevent resources from illicit activities such as money laundering from entering the financial system of assets or financing of terrorism.

Your advisor can help you fill out this form to do it correctly, remember that it is mandatory to take out insurance for the first time. There are some policies that are extensive with this form, it is important that you consult with an expert to know if your policy requires the Sarlatft form. Learn everything about the Sarlatf form and how to fill it out.

6. Make payment

This is the last step to contact your insurance is to make the payment. You can pay your insurance in different ways, this will depend on the insurance company with which you decide to take out your policy.

The last step to take out insurance will be to make the payment. Nowadays insurance companies provide different payment methods to facilitate the acquisition of insurance. You can learn how to take out insurance step by step here.

Conclusion

Insurance is an important instrument to protect the stability and assets of people and companies against certain types of risks. The practice of insurance in Colombia is fully regularized and is conceived as a good practice for the protection of assets.

There is a wide variety of mandatory and voluntary insurance that can protect you and your assets against different events. It is important that you know well which policies are ideal for the protection needs you have. Count on Perez Lara to advise you for free on choosing your insurance and help you choose the ideal policy for you.