What risks are to be covered
What is a risk?
From a consumer’s perspective a risk is a possibility that something unpleasant or dangerous may happen. An insurance product serves the transfer of some of these risks against a fee.
Which are my risks?
When choosing an insurance product, the first thing to do is to identify the reason for purchasing the insurance policy. Generally, insurance policies are purchased to cover some types of risks that you may face. When you are clear about the risk you want to guard against you can then seek out a policy that covers this. You can do this yourself or get a qualified person to do it for you. Apart from these policies covering specific risks there are some policies which also serve investment purposes.
Is this the best way to cover my risk?
Limitations of coverage. Since insurance policies are designed to protect against certain risks, it is necessary to understand what is not covered by the policy. Insurance policies vary quite a bit on their limitations and exclusions so it is always very important to read the actual policy carefully, or have it explained to you, before making a selection. Frequent limitations of coverage include among others ‘act of God’ (force majeure) clauses for liability insurance or the non-disclosure of pre-existing medical conditions that you have in health or life insurance.
Is the risk already covered? Sometimes, certain risks that you want to protect against are already (at least partially) covered elsewhere by other means. Frequent examples would be travel insurance, where certain risks are often covered by insurance policies sold with credit cards, or supplementary health insurance policies covering risks which are already covered by primary health insurance.
Which product would have the best fit for my needs?
Ideally, an optimal insurance product would cover all the necessary risks you want to cover, for a given period at the best price. However, because not everyone has the same needs, sometimes tailor-made solutions cost more, and, in some cases, purchasing a number of standard insurance policies to cover the risks might be a better alternative. When searching for the most suitable product, you must assess the key aspects of the different products available and find the best price for such a product. Depending on the complexity of the product, this often makes external help in the form of an advisor necessary.
Where should I turn to if I want to purchase an insurance product?
Intermediaries represent a key part of the distribution in many insurance markets, and they play a vital role in concluding contracts. Intermediaries might be brokers, who compare different offers available on the market for you, or tied agents, who offer the products of certain (or a small number of) companies. Whereas tied agents are paid by the insurance company with whom they have a contractual relationship, brokers are compensated either on the basis of a fee arrangement between yourself and the broker or on the basis of a commission.
Apart from intermediaries, it is also possible to go directly to the insurance company.
Direct sales do not necessarily lead to a reduction in prices, as many insurance companies do not incentivise this type of purchase by customers.
Internet sales may come in the form of direct sales by the company or through sites listing the offers of several insurance companies. This is even more so for internet sites which list the offers of several insurance companies. These comparison websites (also called price comparison websites or aggregator websites) can serve both as sources of information and in some cases can directly allow for the conclusion of a contract.
Independent financial advisors act as impartial advisers to consumers. They offer independent advice usually on a number of financial products and services including but not only insurance. Independent financial advisers are paid for their services either on the basis of a commission or direct fee.
Can I afford it?
When deciding on an insurance policy, you have to
consider the financial costs associated with that policy. This is especially true for contracts having an investment nature (frequently the case for life insurance contracts). The most important points to be taken into account are the following:
- When purchasing an insurance policy, you need to make sure that the
premiums to be paid do not represent too high a proportion of the household income.
- When deciding on the duration of the contract, it makes sense to consider the possibility of future changes in your individual situation. As there might be considerable costs for early termination of a policy, depending on the personal situation and preferences, it might make sense in some cases to choose policies which offer some flexibility, e.g. no penalties or dis-incentives for terminating early.
What is expected from me?
Telling the truth pays off and keeps you on the safe side
As a consumer you have obligations as well as rights. Among your obligations when signing an insurance contract is to provide the insurer with
truthful information about yourself. This is important so that the insurer can correctly assess your individual situation and, if necessary, adapt the coverage or the cost of what you need. To do this, you may be presented with a questionnaire requesting – depending on the type of product you are interested in –background information e.g. about your health.
If you are given such a questionnaire, please take it seriously and fill it out truthfully. Should it become apparent at a later stage that you have withheld some relevant information (e.g. a sickness), your claims associated to this condition may not be accepted or even worse – your total coverage may be lost.
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