Understanding Insurance
-------Mark Jiang

Over the last ten years, insurance products have been understandable and accepted by consumers in China. This is attributed to China's policy of continued openness and reform, rapid improvements in people's living conditions, the recent overhaul of the medical system and the many methods used in selling policies. Recently though, Chinese insurance applicants have been facing many more and different insurers, insurance products and aggressive insurance agents. In order to be prepared, people need to master the basic concepts of insurance as well as how to invest in the most suitable policies. Following is a brief introduction on insurance and items that need to be paid special attention to when purchasing a policy.

Where a policy enters into effect, there should be insurance interest among the policy owner, the beneficiary, and the insured. Provision 11 stipulated in China's Insurance Law states: "The policy owner should have insurance interest with the subject matter of insurance". This however, leaves out the beneficiary. Two other provisions of the Insurance Law provide that: "The policy owner should get permission from the insured when he designates the beneficiary…." and Provision 62 states: "The policy owner should get permission from the insured when he changes the beneficiary." From these two provisions we can conclude that there should be insurance interest between the beneficiary and the insured. These work to prevent improper persons with no legal insurance interest from fraudulently inserting themselves as a beneficiary.

Provision 11 of the Insurance Law goes on to state that: "The insurance interest is the interest of subject matter that is granted by law." Based on this somewhat vague phrase, one must wonder what is insurance interest? The Insurance Law does not provide any detailed explanation, but in all likelihood, insurance interest is whether a policy owner or beneficiary of an insurance policy will suffer a genuine loss or detriment if the event that is being insured against occurs. It is typically understood that people have insurance interest with regard with their own bodies and their dependents' bodies and health, and businesses have insurance interest with regard to their key employees that they are insuring. In those instances, if the employee's expertise and his service is vital to a company's business success, if the employee's illness, disability or death will cause loss to the business, the company takes out "key man" insurance on that employee, and thus has an insurance interest in that employee.

Other items to consider are paying close attention to the beneficiary's name, share and their numbers when purchasing a policy. In practice, many policies do not specify the beneficiary's name, simply designating the beneficiary as "legal heir." In accordance with the Provision 63 of the Insurance Law, the money to be claimed should be considered as part the insured's estate. In the event a claim arises, the beneficiary should first obtain notarization from a notary office, the estate should then be probated in compliance with the procedures for the benefit of the legal heirs. Where the legal heir is different from the named beneficiary, this can result in unnecessary conflicts. Other adverse results may be that the estate law should be applied to this money of claim once the estate law becomes published (this is known as the "big face amount" policy).

Another important thing to pay special attention to is that the insurance applicant should disclose the truth while purchasing the policy. While underwriting, the underwriter of insurance company will assess every applicant's risk according to materials regarding health, work condition, etc. that are provided by the applicant. The underwriter then classifies the risk to determine whether the common rate or a special rate should be applied to the particular applicant. If the applicant provides false material or information that results in a lower, preferred rate (for customers that present a lower risk to the insurance company), the insurer has the right to terminate the policy.

This is backed up by the law, as well. Provision 16 of the Insurance Law stipulates that, "where the policy owner deliberately conceals facts, fails to disclose the true facts, or fails to disclose the true facts due to negligence, and as a consequence the insurer reconsiders whether or not to agree to underwrite the insurance or to raise the insurance premium, the insurer shall have the right to terminate the insurance contract "and" the insurer shall not be liable for paying compensation or for paying the insurance money and shall not be obligated to return the premium. Meanwhile, the insurance applicant shall have the right to ask the insurer to explain the terms of the contract." Provision 17 goes on to say that, "The terms that exempt the insurer's liability should not be valid with no clear explanation to the applicant." So, for both the insurer and the insured, correct and complete information avoids problems.

Obtaining insurance is one thing, making a claim is another. Article 22 of the Insurance Law somewhat describes how claims should be made: "After the occurrence of an insured event, when lodging a claim with the insurer for compensation or payment of insurance money in accordance with the insurance contract, the insurance policy holder, to the best his or her ability, shall present evidence and information to determine the nature and cause of and degree of loss resulting from the insured event." In reality, in the event of claim arises, the consumer had better contact the insurance agent or the insurer and prepare the following: policy, medical records, original bills, medical conclusions, conclusions for leaving the hospital, etc. A traffic accident report from the traffic police office should be submitted when a traffic accident takes place. Another thing that should be paid attention to is the time allowed for making the claim. Every insurance company has different time frames in which an applicant has a right to apply for a claim.

So, what is insurance? Insurance is something that holds promise for protection for a person, and his or her loved ones and belongings. Insurance is also something that takes careful thought both in planning and in processing. Finally, even though it can provide some measure of financial assurance, it is hopefully a product that you will never need to use.