Think about how much time you spend researching before buying a new phone—you compare models, their features, prices from different retailers. You do this to ensure your choice meets your desires and needs. But do you apply the same level of detail when purchasing insurance, even though it might determine your financial future?

An informed consumer is generally a satisfied consumer because they understand the nature and specifics of the product or service they have chosen and know what to expect. This principle fully applies to insurance - as well as all financial products.

There are a few key questions to consider when selecting the right insurance for your needs.

Subject of Insurance or What do you want to insure?

Your need for insurance and the type of coverage depend on your personal situation. A person with no financial commitments and high-value assets has different needs compared to someone with children, a home, and a car. The subject of insurance can generally be movable and immovable property, receivables, health, life, and physical integrity of a person.

Insurance Coverage or What adverse events do you want to insure against?

Many people assume that having insurance guarantees protection in all negative situations. This is far from the case—the level of coverage depends on the risks included in your policy. If a certain risk is not covered under your policy, you cannot receive compensation for it.

Insurance products are generally diverse and flexible, allowing consumers to find the right combination for their needs. The exception is mandatory third-party liability car insurance, which has standardized conditions.

Insurance offers often come with basic risk packages that can be supplemented with additional coverage. For example:

-          In home insurance, the standard package usually covers fire, natural disasters like storms, hurricanes, hail, etc. Additional coverage options may include “Short circuit and power surge,” “Theft,” “Liability to third parties,” and more. “Earthquake” risk may also be an add-on.

-          In life insurance, the basic coverage includes death resulting from an accident or illness, with optional protection for permanent or temporary loss of work capacity. Additional coverage may include medical expenses related to a covered risk.

Some risks are excluded from insurance coverage. These exclusions are detailed in the general terms and conditions of the insurance contract. Examples include war, civil unrest, pandemics, intentional actions by the insured, accidents due to alcohol consumption, etc.

Insured Sum or How much coverage do you need?

The insured sum or liability limit represents the maximum compensation an insurer can pay for a particular risk under the policy. It's important to note that the amounts for the different risks covered under the policy may be different.

For instance, in home insurance, the sum insured for real estate (building, walls, etc.) may be 100,000 EUR, while for personal property (furniture, appliances), it could be 5,000 EUR. If your household belongings are destroyed in a fire, you cannot receive more than 5,000 EUR for that loss, even if replacing them would cost more.

There are a number of specifics regarding insurance amounts that arise from the type of insurance product. For example, in the case of investment life insurance (life insurance with an investment component[1]), the amount you will receive at the end of the policy term, i.e. under the survival risk, is not predetermined but depends on the investment results.

Therefore, when choosing insurance, carefully review the terms and conditions, assess what amounts under the policy are realistic and would meet your needs. Discuss with the insurer or insurance intermediary the possible options and the possibility of adjustments if necessary.

Insurance Premium or How much will your insurance cost?

The price or premium for insurance depends on the scope of coverage—the number and type of risks included, the insured sum, the contract term, and certain other conditions often linked to the way in which the compensation is calculated. In property insurance such condition may be “deductible,” which typically lowers the price of the insurance because the policyholder assumes part of the risk.

Price should not be the primary factor when selecting insurance. Comparisons between different offers should be based on your specific protection needs and must include all aspects of the insurance product - risk coverage, insured amounts, other conditions, and cost.