Non-life insurance, also called property and casualty insurance, is a type of coverage that is very common and covers businesses and individuals. It protects them, monetarily, from disaster by providing money in the event of a financial loss. Before you purchase this type of insurance or if you already own any kind of non-life insurance, you should understand what it is.
There must be an insurable interest before the insurance company will issue a policy to you. This means that you must be the insured individual, and you can only insure your own property. Examples of this would include your personal automobile and home. Each item may require a different type of policy. For example, insuring your automobile requires an automobile insurance policy, whereas insuring your home requires a homeowner's policy.
Non-life insurance, also called property and casualty insurance, is a type of coverage that is considered personal insurance. Life insurance is not a personal contract. This means that life insurance is coverage that can be purchased on another person. There is not necessarily a personal contract between the insured individual and the insurance company. With property and casualty, there is always a personal contract between the insured and the insurance company.
Contract of Adhesion
All non-life insurance policies are contracts of adhesion. This means that one party (the insurance company) writes the contract, and you agree to it. The contract does not result from any negotiation. As a result, any ambiguity in the insurance contract is normally interpreted so as to be most favorable to you and not the insurance company.
An aleatory contract is one made on the premise of some kind of uncertainty. In the case of non-life insurance, the uncertainty is whether or not you will be in an automobile accident or whether your house will catch fire.
While life insurance contracts are valued contracts, non-life insurance contracts are indemnity contracts. This means that, when a claim is filed, the insurance company works to restore you to the financial position you were in prior to the incident that caused the claim. This is also called "making you whole." In this type of arrangement, for example, the insurance company will not pay more than the cost to fix your car to its pre-accident state.
The conditional nature of non-life insurance is such that the insurance company will not pay unless the conditions are met for a claim. This is normally spelled out in the contract. For example, you will not be able to collect on your auto insurance unless some damage occurs to the automobile, and even then the damage must be in accordance with whatever the insurance company is insuring against as outlined in the contract.
- "Life & Health Insurance, License Exam Manual, 6th Edition;" Dearborn Financial; 2004
- "Practicing Financial Planning for Professionals, practitioner's 10th edition;" Sid Mittra, Anandi P. Sahu, Robert A. Crane; 2007
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