What is an insurance policy?
An insurance policy is a contract specifying the situations that will cause an insurance broker will pay out to the policyholder. On the other side of the deal, the policyholder pays a sum of money known as a premium to the insurer. The premium depends on the likelihood of the events outlined in the document happening. If any of the events do indeed occur, the insurer is legally bound to pay the policyholder.
Insurance policies only cover somewhat uncertain events. For example, travel insurance policies deal with potential accidents, lost luggage etc. that are not certain to happen. Even policies such as life insurance have a level of uncertainty – in this case when exactly death will happen.
What does an insurance policy cover?
Insurance policies can cover almost anything that has a risk of financial loss. This ranges from home insurance and car insurance to industrial-scale building insurance and life insurance. All policies have the same objective of paying the policyholder if defined events occur.
The insurer is responsible for writing the contract and is accountable for any incoherency or inconsistencies in the policy. The circumstances that a policy covers are therefore very specific.
Can I cancel my insurance policy?
Many insurance policies have a “cooling-off” period that allows the policyholder to cancel the contract within a window of time. Insurers often charge a fee to cover the days that have passed since the beginning of the policy until the cancelation date. Cooling-off periods vary between country, company, and type of insurance policy.
Cooling-off periods often do not apply to short-term travel insurance policies.
Canceling a policy after a cooling-off period will usually incur administration fees which can outweigh the policy itself. Instead, a better option is often to wait until policy renewal before changing.
In all cases of canceling an insurance policy, it is crucial that you do it directly with the insurer.
Can the insurance broker modify my insurance policy?
A simple answer is that the contract is legally binding, so your insurer cannot modify the policy.
However, if something has happened that significantly increase the probability of a claim, or you have broken the terms of the contract, your insurer can cancel your policy or refuse to renew it.
Another way an insurance policy can change is with letters of correspondence after the signing of the policy. As long as this correspondence has the consent of both parties, most courts will accept it as part of the policy.
Are insurance payouts taxable?
In general, insurance payouts are a replacement of expenses, rather than income, and therefore do not incur taxes. Some governments may tax large sums of money handed down from life insurance, such as over $1,000,000. Furthermore, policies with untaxed premiums can possibly be taxed if paid out.