Understanding Your Insurance

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As business people in the construction industry, we possess a variety of insurance: contractors, BOP, car, home, life,etc. However, we don’t always realize what insurance entails. Wikepedia defines insurance as a “means of protection from loss.It is a form of risk management primarily used to hedge against a risk of a contingent, uncertain loss.”

Insurance Transaction

The entity that provides the insurance is called the insurance company or carrier. The person who directly sells you the insurance is referred to as an agent. You as the buyer is known as the insured or policy holder.

The transaction works where you pay a certain amount to the insurer to cover defined losses. The loss must be something that can be translated into financial terms. The owner must own it, possess it or have a relationship with it.

Insurance Policy

The insurance policy is a contract that outlines the conditions and circumstances under which the policy holder will be financially compensated. The cost that the insured pays for the insurance is called the premium. If the policy holder believes that he has suffered a loss covered by his policy, then he files a claim. The insurer than has the claims adjuster process it.

Types of Insurance Losses

There are a number of insurance losses:

  • Definite Loss is a loss that happens at a definite time, place and for a definite cause like a death.
  • Accidental Loss is when the insured has no control over the incident. It is an incident that could be anticipated but it could not be pinpointed when it would happen. That would be like an injury on the job.
  • Large Loss The size of the loss must be significant to the insured. The insurance premium must cover the cost of the loss, the administrative services and the amount the insured will need to makeup for his losses. An example of this might be the loss of a house.
  • Calculable Loss must be able to be estimated, must be probable and must have a predictable cost. It could be likened to the cost of a totaled car.

Insurance Legal Terms

  • Indemnity The insurer will only cover the losses of the insured that have a direct relationship to the policy holder and are covered by the policy.
  • Benefit Insurance The insurance carrier does not have the right of recovery from the party that caused the injury even if the insured is suing that party.
  • Insurable Interest means that the insured must have an interest in the event that took place. In general liability insurance, a third party is the beneficiary of the claim. However. general liability insurance protects the insured from being sued by that third party.
  • Utmost Good Faith means the policy holder and insurance carrier must deal fairly and honestly with each other.
  • Subrogation The insurance company has the right to recover assets on behalf of the insured.
  • Causa Proxima The cause of the loss must be covered by the policy and must include the dominant cause of the peril.
  • Mitigation The insured must keep the costs to the insurance company to a minimum.

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