Insurance is a contract that provides financial security to the insured in the event of loss or damage to their property. Within the insurance contract there are two essential elements, which are: premium and indemnification. We will deal with the former in a future capsule, and today we will share with you some characteristics of the latter.
Indemnification could be defined as the consideration paid by the insurer to its insured in exchange for the payment of the premium by the latter. Indemnification is therefore the compensation paid to the insured in the event of a loss covered by the policy.
The function of the indemnification is to financially compensate the insured, to reestablish the economic situation in which he was in before the occurrence of the loss; without its payment representing a profit for the insured. The insurance and the indemnification paid are therefore eminently compensatory.
Key Conditions for Claiming Compensation
For an insured to be eligible to collect indemnification, there are several conditions that must be met. Among others, we can mention the following:
1° It is necessary and an indispensable requirement that the loss has occurred and is covered by the policy.
2° That the insured is up to date in the payment of the agreed premium.
3° That the insured notifies the insurance company, in due time, of the occurrence of the loss. The term for giving notice is normally included in the policies but, in the absence thereof, notice must be given “... as soon as such damage is imminent or has occurred. Failure to do so within eight days from the day on which he or she became aware of the damage or that such damage occurred, he or she shall incur the consequent liability for the damages he or she may cause by his or her negligence”. (Art.1020 C. of Commerce). “… tan luego como tales daños sean inminentes o hayan ocurrido. No haciéndolo dentro de los ocho días siguientes a aquel en que tuvo conocimiento o que ocurrieron dichos daños, incurrirá en la responsabilidad consiguiente por los perjuicios que pudiere ocasionar con su negligencia.”(Art.1020 C. de Comercio).
4° Once the insurer receives notification of the occurrence of the loss, the insured is asked for all the documentation deemed relevant for the evaluation of the claim (apart from that which has already been detailed in the policy), and in this way the viability of the claim is then assessed. For this purpose, the insurer is normally assisted by an independent firm of adjusters, a figure we have already discussed in the August 2023 Information Capsule.
Additional Factors That Impact Compensation
As can be seen from the above paragraphs, there are several factors and conditions that must be considered before the insured can receive the indemnification, but these are not necessarily the only ones that will be evaluated by the insurer.
Besides those mentioned in the preceding paragraphs, the following are also of importance and should also be taken into account: a) the type of coverage, especially in damage insurance and mainly in fire insurance, which may be contracted for replacement value, agreed value or other methods of calculation of the indemnification, b) limit of the insured amount, the deductible, possible existence of underinsurance and exclusions, just to mention a few others.
The indemnification in the insurance contract is the reason for its existence and what moves the insured to contract it, hence the importance for them to understand the terms and conditions of their policy, for which, as we have already mentioned on many occasions, the advice of insurance brokers of proven professionalism is essential.
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