Different insurance companies in the world are in constant competition with one another. They are always in a lifelong battle to outdo one another. For that purpose, they are coming up with new facilities and offers every time. Such insurance policies are important for several businesses in the world, as they continuously face different issues like losses due to fire or other natural calamities, theft, robbery, etc. Most insurance companies provide insurance in the form of written documents, although there are options for receiving notifications in the form of schemes, premiums, and policies. All these forms of notifications are called insurance correspondence.
What is Insurance?
[Image will be Uploaded Soon]
Before getting into the different types of insurance correspondence, it is essential to know about insurance. Insurance is considered as a form of protection against any loss or risk. Mostly the financial aspect of the government is considered in insurances. The insurance is a form of risk coverage contract between an insurer and an applicant. The applicant has to pay a premium at a rate determined by him from the different schemes made available to them by the insurer. In return, the insurer pays compensation according to the insurance scheme. Any written information related to the insurance is called the insurance correspondence.
Insurance- The Seven Principles
There are seven principles related to insurance. They are:
1. Indemnity Principle
According to this principle, the insurance is not related to any profit. The insurer has to pay the entire amount, as mentioned in the insurance plan to the applicant.
2. Faith
Both the insurer and the insured must have complete faith in each other. Both the parties must disclose correct, clear, and complete information as required for the insurance process.
3. Insurable Interest Principle
The insurance process must have a clear and complete statement with respect to the object being insured.
4. Contribution Principle
This principle says that in the case of any losses, the insured is eligible for claiming compensation equal to the loss amount.
5. Loss Minimization Principle
The main motto of this principle is that the insured must take all responsibility to prevent the risk from occurring.
6. Subrogation Principle
According to the subrogation principle, once the insured is compensated for the loss, the ownership rights related to the lost property is transferred to the insurer.
7. Causa Proxima Principle
The main theme of this principle is that if there is more than one underlying principle for the loss, then the one most relevant to the case is considered.
Insurance Types
[Image will be Uploaded Soon]
On a broader aspect, insurance is of two types- life insurance and general insurance. The different types of life insurance schemes are as follows.
Money-back Policy
Money-back policies provide financial returns during cases of death or critical illness. Such a policy provides a return after a certain number of years from the start of the policy. This process continues until the end of the policy. It is different from the general insurance policies because the general ones provide financial returns upon completion of the policy.
Term Life
Term Life is the life insurance policy that is provided to the insured upon his or her death during the term of the policy. The financial return in a ‘term life’ insurance policy depends on the premiums paid by the insured during the policy term. Such insurance policies are directed not only towards the financial security of the family but also in securing the child’s future like education, marriage, etc.
Pension Plan
Pension plans are those insurance policies whose premium is being paid during the working years of an insured, but the financial returns are being provided after his or her retirement. Such a plan was policy to support any individual after retirement. The pension returns are generally enough to support the individual for the rest of life.
Unit-linked Insurance Plan
The unit-linked insurance plan had the provisions for the investor to perform both insurance and investment in an integrated manner. The amount paid as premium by the policyholder is divided into two parts- one part is used to cover the insurance policy while the rest part is being used as investments for debt or equity securities. Such investments made in the equity and debt policies are being made in a similar way to mutual funds.
The Different Types of General Insurance Policies are as Follows.
Health Insurance
The health insurance policies cover any medical assistance required for the treatment of specific diseases. It covers hospital expenses, doctor’s support, medical bills, and any cost incurred during any surgeries.
Travel Insurance
The travel insurance policies cover flight insurances in the case of an emergency, accidental death, or dismemberment during any travel, loss of luggage, emergency medical evacuation during an unnatural scenario, etc. The insurance money is paid to the nominee in the case of the death of the insured.
Motor Insurance
The motor insurance policy is applicable to cover the cost incurred due to damage to any motor vehicle.
Home Insurance
Home insurance policies provide financial coverages to any damage cost to home property.
Fire Insurance
Fire insurance policies provide financial coverage to any damage caused due to fire.
Insurance Correspondence Types
The following are the types of insurance correspondences.
Renewal of Policy
Renewal of policy refers to the continuation of any policy beyond its term, and it might include changes in the existing scheme.
Null and Void
If the insured fails to pay a few premia, then the policy becomes null and void. The insured will not get the benefits at the time of any mishap.
Reporting Loss
In the case of any losses, a detailed report is required during the insurance application process. It must mention in detail about the loss, reasons behind it, the amount estimated for compensation, etc.
What are the Features of Insurance Correspondence?
For any insurance correspondence, the application letter must be concise, clear, and mention all the important points. The insured must maintain a polite tone in the letter without using abbreviations or slangs.
FAQs on Essentials of Insurance Correspondence
1. What is meant by insurance correspondence in the context of Commerce?
Insurance correspondence refers to all formal written communication between the two main parties of an insurance contract: the insurer (the insurance company) and the insured (the policyholder). This includes all letters, forms, emails, and documents related to proposing, creating, maintaining, or claiming against an insurance policy. It serves as a formal record of all dealings.
2. Who are the two primary parties involved in insurance correspondence?
The two primary parties involved are:
- The Insurer: This is the insurance company that provides the insurance cover. Their correspondence includes sending policy documents, premium notices, and responding to claims.
- The Insured: This is the individual or entity who has purchased the insurance policy. Their correspondence includes filling out proposal forms, notifying the insurer of any changes, and writing letters to make a claim.
3. What are the essential characteristics of effective insurance correspondence?
Effective insurance correspondence must possess several key characteristics to be valid and useful. These include:
- Clarity: The language used must be simple, direct, and unambiguous to avoid any misunderstanding.
- Accuracy: All details, such as policy numbers, dates, names, and amounts, must be completely accurate.
- Completeness: The communication should contain all necessary information relevant to the matter.
- Timeliness: Correspondence, especially for claims and renewals, must be sent and responded to promptly.
- Principle of Utmost Good Faith: All information disclosed by both parties must be true and complete.
4. What are some common types of insurance correspondence?
Insurance correspondence can be categorised based on its purpose. The most common types include:
- Enquiry and Proposal Letters: Initial communication where the prospective insured asks for details and submits a proposal form.
- Policy Issuance and Endorsements: Letters accompanying the final policy document or any amendments (endorsements) made to it.
- Premium and Renewal Notices: Reminders sent by the insurer about paying the premium or renewing the policy.
- Claim Correspondence: Communication initiated by the insured to report a loss and claim compensation, and the subsequent responses from the insurer.
5. Why is the principle of 'Utmost Good Faith' so critical in all insurance-related communication?
The principle of 'Utmost Good Faith' (Uberrimae Fidei) is the foundation of any insurance contract. It is critical because insurance involves one party (the insurer) taking on the risk of another (the insured) based on information provided. All correspondence, from the initial proposal form to the final claim letter, must be perfectly honest. If the insured intentionally withholds crucial information or provides false details in any written communication, the insurer has the legal right to void the contract and refuse to pay any claims.
6. How has modern technology changed the way insurance correspondence is handled?
Technology has significantly transformed insurance correspondence from traditional paper letters to digital formats. Key changes include the use of emails for instant communication, online customer portals for policy management and document access, and mobile apps for claim submission with photo evidence. This has made correspondence faster and more efficient, creating an instant digital record. However, it also places a greater emphasis on data security and privacy.
7. What is the importance of maintaining proper records of all insurance correspondence?
Maintaining a complete record of all insurance correspondence is crucial for several reasons. It serves as legal proof of the terms, conditions, and communications between the insurer and the insured. In case of a dispute over a claim or policy terms, these documented communications are essential evidence. For the insured, it helps track the status of their policy, payments, and claims, ensuring transparency and accountability from the insurance company.
8. What key details should a student include when writing a letter to file an insurance claim?
When writing a letter to file an insurance claim, it is essential to include specific information to ensure the process is smooth. A student should remember to include:
- The policy number for quick identification.
- The full name and contact details of the policyholder.
- The date, time, and location of the incident or loss.
- A detailed, factual description of how the loss occurred.
- An estimate of the financial loss or damage.
- Reference to any supporting documents being attached, such as police reports, repair bills, or photographs.
