The insurance contract is the legal bond between an insurance company and a policyholder, the insured, which commits them to certain obligations and rights. Each of us has at least one insurance contract: home, car, health insurance, school… The contract, also called insurance policy, can seem complex because of the multitude of information it contains and the specificities surrounding it. So, what is it used for? What is its content? How can I cancel an insurance contract? Is it possible to retract after signing? We help you to see it more clearly.
Definition of the insurance contract
What is the purpose of an insurance contract?
An insurance contract is a “contract by which the subscriber is promised by an insurer, on his behalf or that of a third party, a benefit, generally pecuniary, in the event of the realization of a risk, in return for the payment of a premium or contribution”.
A risk is an uncertain event occurring independently of your will. In other words, a risk represents the probability that a damage will occur at random. You are therefore insuring yourself against this potential accident, whether it is related to your person or your property. It is the definition of this risk that allows your insurer to establish the insurance premium, i.e. the contributions you will have to pay to the insurance company to be protected.
In addition, the insurance contract contains all the information relating to the rights and obligations of the insurer as well as the insured, the general and specific conditions of the insurance, the rules for cancelling the insurance, certain clauses imposed by law, etc.
As a general rule, the insurance contract is taken out for a period of one year, very often with tacit renewal. This means that it is automatically renewed if you do not express your wish to stop it. This is the case for most P&C insurance policies such as home, car, motorcycle, school, etc. However, there are contracts of a more variable duration, such as for loan insurance for example.
What is a deductible on an insurance policy?
Most insurance policies have a deductible. This is the amount that the insurer will not pay in the event of a claim. This deductible can be calculated in various ways. Often seen as the black spot of the contract, it is however quite possible to take out an insurance policy without a deductible. Definition and interest, accounting, redemption, difference with the deductible of brokerage… We tell you everything!
An insurance deductible is the sum of money that will remain payable by an insured in the event of claims. In other words, it is a portion of the cost of the damage that is not covered by your insurer. Most insurance contracts include a deductible, but it is not mandatory. It is an arbitration, a choice to be made by the insured according to his budget and his perception of the risk.
The deductible affects your monthly policy premiums: the lower the deductible, and therefore the less you have to pay out of pocket, the higher the premiums. Conversely, your company will cover a smaller portion of the cost of the damage if your premium is lower. By sharing the cost of the damage, the insurer makes its policyholders responsible. Each insurance policy must specify how the deductible is calculated.
What is an insurance premium?
When you take out an insurance policy, you agree to pay a specific amount of money in order to make a claim. This is called the insurance premium. This mechanism applies to all types of coverage, whether it is to protect your children, your home, your car, your pet or your mobile devices. Calculating the amount, due dates to respect, revising the premium… let’s go for a complete overview of the insurance premium.
What is the difference between an insurance contribution and a premium?
These terms are part of the insurance vocabulary and refer to much the same thing. Indeed, the insurance contribution and the insurance premium both refer to the amount you have to pay to benefit from the guarantees present in your daily insurance contracts, such as civil liability for example.
However, insurers make a distinction between these terms:
- As a general rule, the insurance premium refers to the amount paid each month, or each quarter by the policyholder. This term is normally used to refer to the monthly cost of your coverage.
- The annual insurance premium, on the other hand, represents the total cost of your insurance policy over the course of a year, i.e., the total amount of premiums paid up to the anniversary date of the contract. While the difference is subtle, it helps to better understand your contractual commitments.
How to calculate your insurance premium?
Your premium is determined at the time of purchase based on your declarations and according to the coverage provided.
The calculation of the insurance premium takes into account a number of elements, including
- The level of coverage chosen (formula and additional guarantees),
- The amount of the deductibles and compensation ceilings,
- The profile of the insured or insureds,
- The characteristics of the vehicle, the home or the goods to be insured,
- The claims history.
In addition to the net premium, i.e. the portion of the premium used to absorb the cost of claims and the organization’s operating expenses, there are other factors that impact the price of the insurance. These include ancillary fees, government taxes and the index on which the insurance contract is indexed.