Essential insurance terms and concepts you should know (Part II)

In this edition, we’re focusing on the offer, the channels through which you can purchase a policy, and other important moments in the life of an insurance contract. Don't miss this new installment! 

Let's begin with a key concept in insurance: the line of business. Put simply, it refers to a group of insurance products designed to cover similar types of risk. Motors, Life, and Home insurance are among the most familiar. But insurers also offer many other lines, such as Third-Party Liability, Assistance, Accident insurance, and more.  

These are often confused with modalities, which are actually subdivisions within each line. For example, within Motors insurance, you might choose a basic third-party policy, a comprehensive policy (with or without a deductible), or a third-party plan that includes theft and glass coverage. The same goes for Life insurance, where you’ll find policies focused on risk (providing compensation in case of death or disability), as well as savings and investment options. In each case—do we really understand what they cover? 

Also referred to as guarantees, insurance coverages are the benefits outlined in a policy that protect the insured party if the covered risk occurs, up to the agreed limit.  

That’s why coverages are so important: they must align with your needs to ensure you’re truly protected. For example, a home insurance policy may include both basic and additional coverages such as fire, theft, water damage, and third-party liability, giving you greater peace of mind.  So, where can I purchase insurance? 

It’s easy. As in many other industries, the insurance sector offers several distribution channels for purchasing a policy. You can go through the insurer’s own sales team, or work with an agent or broker, who serve as intermediaries between the insurance company and the customer.  

Another way to access insurance products is through financial institutions— a model known as bancassurance. In addition, with the rise of new technologies, insurtech companies and digital insurance platforms are gaining ground as convenient alternatives. More and more insurers are adopting a multichannel approach, giving customers the flexibility to choose the option that suits them best. 

Once you’ve identified the line of business, the modality of coverage, and the channel through which you’d like to purchase your policy, the next step is to understand how the process works—leading to the official issuing of the contract, which activates your coverage.  

The first step is to notify the insurance company of your interest in signing a contract. This is done by completing an insurance application, a questionnaire that should include as much detail as possible about the risk you wish to insure. The questions will vary depending on the type of insurance. 

Once the insurer has reviewed your information, they’ll prepare a policy offer or proposal, which includes the key elements of the contract: the object of the insurance (the person or asset to be insured), the covered risks, the duration of the policy, and of course, the premium that the policyholder will be required to pay. This offer is binding on the insurer for 15 days.  

Once you accept the offer, the policy is formalized through the issuing of the contract, signed by both parties—the policyholder and the insurance company—and followed by payment of the initial premium. 

Now, imagine that, whether due to external circumstances or your own actions, the level of risk initially outlined in your insurance policy increases. This situation is known as a risk aggravation. So, what should you do? Notify the company, as required by law, for a simple reason: since the premium is calculated based on specific conditions, any change may result in a variation of the premium.  

Another important concept you may come across is the amendment (or novation) of the insurance contract. This refers to a modification of one or more essential terms of the policy, such as changes to the insured property, the addition of new risks, or an update to the insured amounts. To be valid, these changes must be documented in an official policy endorsement.  

Another important document to be aware of is the insurance certificate. It serves as official proof that you hold an active policy, without need to carry the full contract with you. The certificate confirms that the policy has been issued and outlines the covered risk, but it does not include thefull terms and conditions of the contract.

Finally, if you’re wondering about policy expiration—although your premium payments may be scheduled monthly, quarterly, or semi-annually, the policy’s end date is typically annual, unless you’ve purchased insurance on a daily basis. 

You should also know that, to cancel your insurance, the law requires you to notify the insurer at least one month in advance. Otherwise, your policy will automatically renew. If your policy renews but you haven’t paid the premium, you have a grace period of one month to make the payment. If you don’t, your coverage will become invalid.  

We hope this guide has helped you become more comfortable with new insurance terms and concepts! 

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