We are constantly in search of security. Life is full of uncertainties. We try to follow all the rules of proverbial wisdom, never leaving for tomorrow what you can do today. We apply ounces of prevention endlessly. It is still likely that we will still be exposed to the risk of accident and disaster.
A hurricane may ruin your house. A sudden, unforeseeable illness may present you with doctor and hospital bills. A thief may break into your home and walk off with your most valued possessions. Your minor daughter may ram your car into a neighbor's, causing an accident that can cost you a small fortune in damages. If you are in business, you may face as many risks as a porcupine has quills.
Fortunately, most, if not all of these things can be addressed through the concept of insurance. It has been said that insurance is trading an unknown for a known. This means that if we're not insured, we may have to pay the full amount to repair damage or recover from an injury. Many times we don't know, in advance what that cost will be. With insurance, and, for example a $500.00 deductible, we know that our maximum cost will be $500.00.
It is difficult for the average person to bear the cost of serious damage to his property or injury to his person. Liability for injury to others can be even more costly. It was precisely for these reasons that insurance was developed.
Insurance offers a method to share the risks of life and business with other people so that the consequences will not be to heavy, if you experience a severe loss. The principle is an extremely simple one. People who are exposed to the same kinds of hazards pay set sums of money (called premiums) into a general fund.
When one of them suffers a misfortune of the kind insured against, money is drawn from the fund to indemnify him. Since a large number of people contribute to the fund and only a relatively small number suffer the loss within a given period, the cost of the premium is not great.
Insurance, then is a cooperative plan for sharing risks with a group. To join the group you must make a contract with it. Under this contract (or policy) you agree to make payments to the plan at regular intervals. In exchange, the plan promises to make payments to you up to a specified sum if you suffer any of the misfortunes or meet the other conditions covered by the policy.
When an insurance policy goes into force depends largely on the kind of insurance and on the provisions it contains. With casualty or fire insurance the insurance company or its agent may give you a memorandum (or binder) summing up the coverage you have agreed to purchase.
This insurance is effective immediately. It gives you protection while the company checks on your insurability and issues your policy. Often you may be issued a "binder" even before you have made a payment. Sometimes an agent will give you an oral acceptance that is effective at once and may be as binding as a written receipt.
A life insurance company may also give you a binder, which may place your insurance in force either immediately or as of the date you pass a medical examination. As a rule, however, you are expected to pay your first premium at the time the binder is written up. It is better to pay some money as a means to also bind the insurance company.
If your binder is effective at once and you should die before the policy is issued, the company must pay the insurance benefits if you were insurable on the day the binder was issued.
If the insurance company doesn't give you a binder or issue an oral acceptance saying that you have temporary protection, your insurance generally doesn't go into effect until the policy has been delivered to you. With life insurance a common stipulation is that you must also pay the first premium or part of it on receipt of the policy.
A policy does not necessarily have to be in your hands for it to be considered "delivered" to you. the moment the policy is dropped into the mail, addressed either to you or to the insurance agent for forwarding to you, it is generally regarded as having been constructively (that is, in effect) delivered.
As the value of your property (home, automobile, jewelry, business) rises, now is a good time to review your insurance policies to make sure you have enough coverage. After all, if you own your home for five or ten years, property values have increased during those years. Don't you think the amount of coverage should also increase?
The business you started a few years ago may now be a multi-million dollar company. Your insurance coverage should be increased to so reflect. Check with your insurance company or agent to confirm that you have the proper coverage on your property.
Michael R. Barnes practices law in Key West, Florida. His comments are provided as a pro bono community service and are not offered as legal advice for a particular set of circumstances. His paralegal Christine Gorman contributed to this article. If you are concerned that you may need a lawyer, you are encouraged to contact one and follow his or her advice for your individual situation.