An insurance contract is a contract in which a company, the insurer, agrees to compensate another person, the beneficiary, if an unexpected event occurs (for example, a death, a disability, a serious illness, an accident, a theft, a fire, a flood, etc.). When property is damaged, the event is also called “a loss.” The insurer accepts, in some measure, the risk in exchange for the payment of a certain amount of money (the insurance premium).

The beneficiary can be the insured (the person who made the insurance contract) or any other person chosen by the insured.

The written document that confirms the insurance contract and defines its conditions is called the insurance policy.

There are so many! You can insure against all sorts of risks and catastrophes through various insurance companies and financial institutions.

Insurance is divided into two main categories: marine insurance and non-marine insurance. Marine insurance compensates a company against losses that occur at sea. However, in this Infosheet, Éducaloi focuses only on non-marine insurance, which is also divided into two categories: insurance of persons and damage insurance.

Insurance of persons: This kind of insurance compensates the relatives of a person if the person dies; it also compensates a person if his health or the health of a relative deteriorates.

Damage insurance: This kind of insurance compensates people if their property is damaged (property insurance). It can also compensate a person who has been unintentionally harmed by someone else (liability insurance).

Property insurance covers losses such as theft, fire, flooding, lost baggage, etc. An amount of money, called an insurance indemnity, is then paid to replace or repair the property in question, according to the conditions of the insurance policy.

Liability insurance protects a person against the consequences of his own actions or those of people, buildings, and animals under his control. It covers the costs of claims and lawsuits.

For example, the liability insurance of a driver who causes a car accident covers the damage suffered by the other driver’s car. And, it is your liability insurance (often contained in your home insurance policy, which covers damage and liability) that will pay for the costs when a baseball hit by your eldest child accidentally breaks your neighbour’s new bay window.

Insurance is a contract that is made to protect a person from the risks of life such as illness, death, loss of property, etc. In exchange for the payment of a premium, an insurer agrees to pay the person an indemnity if the risk occurs. Thus, it is normal for the insurer to carefully evaluate the risks that it is taking before insuring someone. Usually, the greater the risk, the more it will cost to be insured.

Some insurers can even decide to completely refuse to cover certain risks. And this is why some people have trouble getting insurance. For example, the older a person is, the more difficult it will be for her to find an affordable life insurance policy, or even to get insurance at all.

Similarly, a person who lives in a dangerous neighbourhood will have more trouble getting insurance against theft. And good luck getting flood insurance if you own property along a river that overflows almost every year.

Certain factors are directly related to the behaviour of the person who wants to be insured: a person who is notoriously involved in the drug scene will have more difficulty getting life insurance, while a person who has been found guilty of fraud will have more trouble getting insurance against theft, especially if he has been guilty of fraud against an insurer.

The world of insurance has its own language. All the same, these complicated words describe fairly simple things!

A person makes an application when he applies for insurance, i.e. he fills out a document asking the insurer for insurance and submits it to the insurer. The concept of an application is important because some types of insurance, like life insurance or disability insurance, enter into effect once the insurer has accepted the application.

A rider is a written document that contains a change to the insurance policy. The change can be made while an insurance policy is in effect or when the insurance policy is being renewed.

For example, Gertrude bought several new pieces of furniture and some appliances. She realizes that if there is a fire, the actual amount of her insurance ($10,000) will not cover the cost of replacing her belongings. Gertrude, therefore, contacts her insurer who agrees to increase the amount of her coverage to $25,000 in exchange for an increase in her premiums. The insurer sends Gertrude a rider to confirm the change.

It depends on whether it is damage insurance or insurance of persons (see the question “What are the different kinds of insurance?”).

For damage insurance, the insurance contract takes effect on the date chosen with the insurer, so long as the risk that you want to insure against already exists on that date. For example, you want to insure your new house against fire. For the insurance to take effect on September 15, like you want it to, you must already be the owner of the house on that date. (This is because if the house you want to insure doesn’t belong to you, you are not risking anything.)

For life insurance, the insurance contract takes effect from the moment when the insurer accepts your application to become insured with that insurer. (See the question “What is an application? What is a rider?”) You don’t need to have a copy of the policy to start being covered by the insurance.

There are, however, three conditions for the insurance to be truly in effect:

• The insurer accepts the application of the insured without any changes.
  
• The first premium was fully paid by the insured (through one of the methods of payment accepted by the insurance company).
  
• There is no change in the risk being insured between the time the application is made and the time the application is accepted by the insurer.

For example, two days after making an application for life insurance and disclosing everything about her health, a person is seriously injured in an accident. She must tell the insurer about the changes in the state of her health before the insurer accepts the application. This is because the risk (that the person will die) has changed significantly and the change is of a kind that will influence the insurer’s decision. If the person does not disclose the change to the insurer, the insurer can refuse to pay an indemnity if the person dies because the person hid important information. See the question “What happens if I give false information to my insurer when I am making the application?"

Finally, for sickness and accident insurance, the insurance takes effect the moment the insurance policy is delivered to the person who took out the insurance.

Paying premiums is an essential element of a valid insurance contract. If a premium is not paid, the insurer can end the contract.

For life insurance, the first premium must be paid in order for the contract to be valid. Afterwards, the insured must pay the premiums at the times set out in the insurance policy. If the insured is late with the payment of a premium, he has 30 days to pay the premium. After the 30 days, the insurer can cancel the insurance, even without giving a prior notice to the insured.

For sickness or accident insurance, the insurer can also end the contract because a premium was not paid, but the insurer must give a prior notice of at least 15 days to the insured.

For damage insurance, the insurer can unilaterally decide to cancel the contract, without a specific reason for doing so, regardless of whether the premiums have been paid or not. The insurer must inform the insured about the cancellation in writing at least 15 days before the end of the insurance.

Yes, but you must get written permission from this person. It would be a bit morbid to allow anyone to secretly take out life insurance on the life of another person, for example, a famous singer who looks a little shaky or a former athlete whose health is deteriorating.

However, a person has the right to take out life insurance (or health insurance) on the life of another person with whom she has a close relationship. The written permission of the other person is, therefore, generally not required.

The law considers that there is a close relationship between a person and her spouse, her children and grandchildren (and those of her spouse), her parents and grandparents, and the persons who contribute to her support or her education. A person can also take out life insurance on the life of her employees and staff or any other person in whose life or health she has a moral or financial interest.

Contrary to the restriction on who can take out life insurance (see the question “Can I take out insurance for myself on the life of another person?”), anyone can be named the beneficiary of a life insurance policy. This choice is made by the insured when he completes the application for insurance.

A person can, therefore, name as beneficiary of his life insurance policy: his spouse, his children, his estate, his favourite foundation, his little neighbour who always runs errands for him, his favourite singer, etc. It is even possible to name as the beneficiary a person who does not exist yet, for example, “my future children”. What’s important is that these children must be born or conceived when the insured dies and that they are viable (meaning that they don’t have a health problem that is likely to cause their death very soon).

It depends on whether, at the time of the application for insurance, the beneficiary was designated as revocable (i.e. the beneficiary can be changed) or irrevocable (i.e. the beneficiary cannot be changed). The insured can change a revocable beneficiary whenever he wants, but he must get permission from an irrevocable beneficiary before naming someone else as beneficiary.

In principle, the designation of a beneficiary is always revocable, unless it is indicated in writing that it is irrevocable. The only exception: if the beneficiary is the married or civil union spouse of the insured, the opposite is true. The designation is automatically irrevocable, unless it is indicated that it is revocable.

A person doesn’t have to designate the beneficiary of his life insurance in the life insurance policy itself. She can also do so in a will. If the designation is made in a will, the designation will always be revocable even if it is designated as “irrevocable” or even if the beneficiary is the married or civil union spouse of the insured.

The answer depends on the type of insurance.

For damage insurance, the insurer can ask that the contract be declared void and refuse to pay the indemnity. The insurer must, however, prove that the insured hid the information out of bad faith, meaning that he did not respect his obligation to be transparent, that he chose to be evasive when asked clear, direct questions, etc. The insurer must also prove that if it had known this information, it would not have agreed to provide the insurance.

If the insurer cannot prove both of these elements, it must pay an indemnity that is adjusted by taking into account the premiums that it would have collected if it had had all of the relevant information in comparison with the premiums that it actually collected.

For insurance of persons, if the contract has been in effect for less than 2 years, the insurer can ask that the contract be declared void and refuse to pay the indemnity or the benefit. The insurer must, however, prove that the insured hid the information in bad faith.

If the contract of insurance has been in effect for at least 2 years, the insurer must prove that the insured committed fraud. Fraud implies an intention to deceive the insurer. But, in the case of disability insurance, the insurer can refuse to pay the indemnity without having to prove that the insured committed fraud; instead, the insurer just has to prove that the insured hid the information in bad faith.

If an event covered by the insurance occurs, the insured must claim the indemnity from the insurer. If the insurer discovers that the insured gave false information to the insurer when making a claim in order to get an amount of money that he is not entitled to, the insured loses his right to the entire indemnity.

For example, Sophie’s apartment was robbed. While filling out the declaration form for her insurer, Sophie decides to upgrade her lifestyle a little bit: she writes that she had a 36-inch digital TV and that she had 357 CDs. The insurer discovers that Sophie’s roommate’s declaration to the police contained an entirely different description of the stolen goods, in addition to a photo that contradicts Sophie. Sophie does not have a single receipt to prove her claims. She won’t get anything from the insurer, even for the property that she did not lie about, like her computer and her DVD player.

There is one exception: if an insured has insurance for his immovable property (house, chalet, pool, etc.) and for his movable property (car, appliances, electronics, furniture, clothes, jewellery, etc.), a false statement about property belonging to one category will not affect the right to receive an indemnity for property that belongs to the other category. So if a person lies about her movable property, it will not affect her right to receive an indemnity for her immovable property and vice versa.

It is important to note that the false declaration of one insured person is not opposable to other insured persons if these other persons were not accomplices: so, Sophie’s roommate who is also covered by the same insurance policy as Sophie, can be compensated for the theft of her VCR and her digital camera.

An insurer cannot cancel your life insurance contract because you lied about your age, unless all of the following conditions have been fulfilled:

• Your real age falls outside of the insurer’s rates;
  
• The insurer asks a court to cancel the contract during your lifetime;
  
• The insurer asks the court to cancel the contract within a maximum of 3 years after the contract was made.
  
• The insurer asks the court to cancel the contract within a maximum of 60 days after it discovers your real age.

However, the insurer can adjust the amount of money that is insured (the amount of money that the insurer commits to pay) according to the premium that you have already paid. The insured amount can, therefore, be reduced according to your real age.

Exclusions contained in the insurance policy

Insurance policies specifically indicate certain situations in which the indemnity cannot be claimed. For example, most damage insurance policies contain a clause excluding damage that is caused by rioting, civil war, or acts of terrorism. Many types of exclusions exist.

The insured’s failure to respect guarantees

Insurance policies can also contain conditions that the insured must guarantee to fulfill; if the insured does not fulfill these conditions, he will not be paid the indemnity if the damage occurs. For example, these conditions could be installing an alarm system in your car, installing sprinklers in a room, etc.

Intentional fault and fraud

For damage insurance, the insurer does not have to compensate the insured if the loss (the event that is the basis of the claim) was caused voluntarily by the insured. For example, an insurance company does not have to compensate a person who sets fire to his own house in order to collect money from the insurance company.

For insurance of persons, there is no similar rule in the law but an insurance policy can contain exclusions to the same effect.

An attempt on the life of the insured person

An insurer can refuse to pay the indemnity to the beneficiary of a life insurance policy if it is proven that the beneficiary killed the insured person in order to collect the life insurance indemnity.

Yes, but only if the following two conditions are met:

• The insurance policy clearly mentions an exclusion for suicide; and
  
• The insurance has been in effect for less than 2 years.

It is important to note that the renewal of an insurance policy that is already in force is not considered a new insurance policy for the purposes of calculating the 2 year period.

1 – Notice of loss

The first thing a person should do is to inform her insurer about the fire through a notice of loss, so that the insurer can properly inform itself about the causes and circumstances of the loss. For example, the insurer might want to send a loss expert to collect statements from police officers, firefighters, etc. to make sure that the fire was accidental.

There can be serious consequences if a notice of loss is given to the insurer too late. The insurer can refuse to pay the indemnity if it can show that the late notice prevented it from properly informing itself about the circumstances of the loss and that, as a result, the insurer suffered harm. However, it is necessary that the insurance contract includes this type of a right of refusal in a special clause, also called an indemnification forfeiture clause.

2 – Statement made to the insurer and documents to be provided

If the insurer asks for it, the insured must also provide the insurer with a sworn statement that informs the insurer about the claim. This statement is made at the request of the insurer. It describes the circumstances surrounding the loss, and, among other things, it allows the insurer to have more complete information about the extent of the damage. At this time, the insurer will also give the insured information about the indemnity. The statement also carries with it the obligation for the insured to provide exhibits and documents that support his claim: receipts, police reports, etc.

3 – Payment of the indemnity

Once the insured has made the statement and submitted all of the documents to the insurer, the insurer has 60 days to pay the indemnity to the insured person. If the insurance policy gives the insurer the choice, it is up to the insurer to decide whether it would rather repair, rebuild, or replace damaged property. Therefore, until the insurer has not made a decision, the insured must preserve the property in the state that it is in. For example, in the case of a house that burned down, the insured cannot sell what remains of the house to a building contractor without the insurer’s approval.