In its simplest form insurance is a transfer of risk. That “risk” could be your car, your home, your business or even your life. These risks come in many forms from the common automobile to Tina Turner’s legs. The amount that can be insured can range from pennies to millions for a single risk.
The transfer can be sought by yourself or to protect the interest of another party. This party can be a mortgage company, loan or leasing company or anyone else that may have an “insurable interest” in the property. The transfer could also be mandated by the Government, such as the automobile policy to protect not only yourself, but every motorist on the road.
The transfer of risk is completed through a policy or contract. This contract is between you (first party) as the insured and the insurance company (third party) as the insurer. To be a legally binding contract, a contract must have five proven elements – Offer and Acceptance, Consideration, Legal Object, Competency/Capacity, and Mutuality of Obligation. However, insurance has three more elements that make these contracts special – Indemnity, Utmost Good Faith and Insurable Interest.
The contract offered by the insurer is up to you to accept or reject, like any other contract. You may reject an offer based on lack of coverage, form, price or any other reason that you wish. This is your right as a consumer. This is why we call the initial offer a “quote”.