Uncertain event · premium · indemnity
What is insurance?
Insurance is a contract: you pay a premium and the insurer carries a risk you cannot bear yourself. What that means in law determines what you do and do not receive when you claim.
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Deze pagina in het Nederlands: Wat is een verzekering?.
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In brief
Insurance is a contract under which you pay a premium and the insurer undertakes to pay out if an uncertain event occurs. That definition is set out in Article 7:925 of the Dutch Civil Code and has one firm consequence: there has to be genuine uncertainty at the time the contract is concluded. Damage that has already occurred, or an event that is certain to happen, cannot be insured. For that reason a policy covers no damage from before the start date and no wear and tear, because wear and tear is certain.
There are two main forms. With a non-life insurance the loss actually suffered is paid, as with home contents, buildings, motor or liability cover. There the principle of Article 7:960 of the Dutch Civil Codeapplies: the payment may not put you in a clearly better position. With fixed-sum insurance an amount is agreed in advance and paid out regardless of the actual loss; personal accident insurance works that way. The difference explains why one policy involves discussion about market value and underinsurance and another does not.
Insurance works because many people pay a small amount and a few are paid for a large loss. That is why it is in an insurer's interest that the premium matches the risk, and that is why it asks questions on the application. If you want to know which policy picks up which event, read what you are insured for. For the question of which insurances you really need, there is which insurances you really need.
This page deals with one situation. The full overview is on Compare personal liability insurance (AVP).
The four building blocks of every policy
Every policy, from bicycle to liability, consists of the same elements.
The cover: what is insured
The description of cover says which events are insured, up to what amount and where in the world. Some policies work with a list of covered perils (fire, storm, burglary), others with an all-risks approach in which everything is covered except what is expressly excluded. That difference determines who has to prove what: with a list, you; with all risks, the insurer.
The exclusions: what is never insured
Every policy has standard exclusions. Intent and recklessness fall outside the cover under Article 7:952 of the Dutch Civil Code. Also universally excluded are war risks and nuclear reactions, as is damage caused by earthquake and flood from a primary flood defence. There are also product-specific exclusions, such as wear and tear, deferred maintenance and construction defects.
The premium and the excess
The premium is the price for transferring the risk. The excess is the part you keep yourself. A higher excess reduces the premium and keeps small claims off the policy. If you do not pay the premium, cover can be suspended after a reminder: there is then a policy in force, but nothing is paid when you claim.
Your obligations
On taking out the policy, the duty of disclosure applies under Article 7:928 of the Dutch Civil Code; if you withhold something, the insurer can pay less or nothing under Article 7:930 of the Dutch Civil Code. When you claim, Article 7:941 of the Dutch Civil Code requires you to report in good time and to cooperate, and an intention to deceive causes the right to payment to lapse. You also have to take reasonable steps to limit the loss.
What does your premium depend on?
- Likelihood of a loss: the more often an event occurs, the higher the premium
- Size of the risk: the maximum loss that can arise
- Sum insured: the upper limit of the payment
- Excess: the part you bear yourself for every claim
- Personal circumstances: age, address, occupation and use
- Claims history: previous claims count towards acceptance and premium
Insurers weigh these details differently. That is where your saving is.
What is covered
| Situation | Extended | Comprehensive |
|---|---|---|
| A fire after a short circuit in the washing machine | Yes | Yes |
| Theft from your home after the back door was forced open | Yes | Yes |
| Your laptop falls off the table because you pull the cable | No | Yes |
| A stain on the sofa that was already there when you took out the policy | No | No |
| A phone that no longer charges because the battery has died after three years | No | No |
| Damage you cause deliberately during an argument | No | No |
The pattern behind the right-hand column is always the same: everything is covered except what is excluded in so many words.
Frequently asked questions
This is what people ask us most.
What is the difference between indemnity insurance and fixed-sum insurance?
Indemnity insurance pays for what you actually lose and no more; Article 7:960 of the Dutch Civil Code prohibits you from ending up better off. Fixed-sum insurance pays an amount agreed in advance, regardless of the actual loss. As a result, fixed-sum insurance has no underinsurance and no argument about market value, but it also has no automatic adjustment for rising costs.
Why does an insurer ask so many questions on the application?
Because the premium has to match the risk it takes over. The questions concern your situation, the use, previous claims, insurance previously refused or cancelled, and any criminal record within the period asked about. You are obliged to answer those questions fully and correctly. If it turns out afterwards that something was withheld, it costs you part of the payment or the whole of it.
Can I insure a loss that has already occurred?
No. Insurance requires an uncertain event. What has already happened, or what you knew was going to happen, cannot be insured. That also applies to gradual processes such as wet rot, rust and subsidence: those are not an event but a consequence of time and maintenance. Consequential damage from such a defect can sometimes be covered; that differs from policy to policy.
Is insurance compulsory?
For a few things it is. For a motor vehicle the insurance obligation in Article 2 of the Dutch Motor Insurance Liability Act applies, and in the Netherlands there is compulsory basic health insurance. In addition, a mortgage lender can require buildings insurance and a landlord can require liability insurance. All other insurance you take out voluntarily, based on the risk you do not want to bear yourself.