What is Insurance?

An insurance contract is defined in Article 1401 of the Turkish Commercial Code. Based on this article, insurance contracts are bilateral agreements where the policyholder undertakes the obligation to pay premiums, and the insurer undertakes the obligation to provide insurance coverage. Premium, sum insured, insurable interest, and risk (riziko) are the fundamental elements of such a contract. The primary rule for the formation of the contract is the existence of an insurable interest. An insurance contract can be formed either in writing or orally, provided there is an agreement on its essential elements. Consensus ad idem (meeting of the minds) is essential in insurance contracts. However, if the insurer does not respond to an offer within 30 days (neither rejecting it nor presenting an alternative proposal), the offer is deemed accepted, and the insurance contract is concluded.

Riziko, a fundamental concept in insurance law, refers to the probability of suffering damage, or simply, risk. Thus, events that have the potential to cause damage are called risks and can be insured against. For an event to be considered a risk, there must be uncertainty regarding its occurrence or the timing of its occurrence. For instance, in motor third-party liability insurance, the occurrence of an accident is uncertain. In life insurance, death will certainly occur, but its timing is uncertain. In short, a contract cannot be made for a risk that has already materialized or has become impossible to occur. Furthermore, the scope and limits of the risk must be clearly defined in the contract. As per Article 1409/1 of the Turkish Commercial Code, the insurer is liable for damages arising from the materialization of the risk stipulated in the contract. Moreover, Article 14/4 of the Insurance Law emphasizes that, in addition to the risks included in the scope of the contract, risks excluded from coverage must also be explicitly stated. Risks not explicitly stated as excluded in the contract are considered to be within the scope of coverage, and the insurer's liability exists in such cases.

Payments made by the policyholder to the insurer at regular intervals are called insurance premiums. Premium calculation is based on the value of the insured property and the likelihood of the risk materializing. For example, a risk with a 90% probability of occurrence requires higher premiums. Conversely, risks with a lower probability of occurrence can be insured with lower premium amounts.

What Happens if Insurance Premiums Are Not Paid?

In non-life insurance, if the first premium is not paid, the insurance coverage will not commence. If the insurer sues for the first premium, the policyholder may withdraw from the contract by paying half of the agreed premium. Concurrently, the insurer may withdraw from the contract within three months as long as payment has not been made. In the event of non-payment of subsequent premiums, while the insurance coverage continues, the insurer may terminate the contract to end the coverage. The insurance coverage will continue until the end of the period granted for termination. The insurer shall notify the policyholder, via a notary public or registered mail with return receipt, granting a ten-day period to fulfill their obligation, failing which the contract will be deemed terminated. If the premium payment is not made within this period, the contract shall be terminated. Furthermore, if a warning has been sent twice within an insurance period, the insurer may terminate the contract at the end of that insurance period.

In life insurance, if the first premium is not paid, the insurance coverage does not commence. If the insured dies before paying the first premium, the insurance contract becomes invalid. In the event of non-payment of subsequent premiums, as per Article 1501 of the Turkish Commercial Code concerning lending, the insurer is obliged to lend money to the insured based on the value calculated in accordance with actuarial principles, upon the policyholder's request. According to Article 1502 of the Turkish Commercial Code, if the policyholder subsequently fails to fulfill their premium payment obligation, the insurer cannot terminate the contract or demand premiums on this ground. The sum insured is paid based on the ratio calculated between the premiums paid and the premiums that should have been paid according to the contract. This is referred to as paid-up insurance.

What is the Insurer's Indemnity Obligation?

Payments made by the insurer to the insured as compensation for damages incurred upon the materialization of the risk specified in the contract are called insurance indemnities. The extent to which the damage will be covered is determined by the content of the contract, and the insurance indemnity cannot exceed the value of the insured property. As a rule, the sum insured and the insured value should be equal. That is, the maximum amount the insurer is obligated to pay should correspond to the value of the insured interest. There is no obligation for the indemnity to be paid in cash. For example, under comprehensive motor insurance (kasko), the insurer can fulfill its indemnity obligation by replacing damaged parts such as the engine, hood, or bumper with new ones following a traffic accident.

What are the Types of Insurance?

Different types of insurance emerge depending on the risks covered. While some of these insurance types, each with distinct features, are mandatory, others are optional. Briefly, the most common types of insurance encountered in daily life are as follows:

• Motor Third-Party Liability Insurance: This is a type of mandatory insurance. It is taken out to indemnify damages suffered by the third party in the event of an accident.
• Comprehensive Motor Insurance (Kasko): This is optional. It is taken out to cover damages suffered by the vehicle owner due to an accident.
• DASK (Turkish Catastrophe Insurance Pool) Insurance: This is mandatory for homeowners. It is taken out to cover damages incurred due to earthquakes.
• Life Insurance: This is taken out to indemnify financial losses incurred if the insured dies, suffers a disability, or becomes unable to work.
• Private Health Insurance: This is optional. With this insurance, health-related risks are covered within the policy limits.
• Individual Retirement Insurance: Unlike other insurance types, this is a savings model aimed at future investment.

What is the Distinction Between Policyholder and Insured?

The policyholder is the person who enters into the insurance contract and is obligated to pay premiums. It is important to note that the policyholder can enter into the contract for their own benefit or for the benefit of a third party. The aforementioned third party is defined as the insured. In this case, the obligations arising from the insurance contract belong to the policyholder, while the rights belong to the insured. The insurer, in this situation, provides coverage against the risk that the insured may face. However, the party making the premium payments is the policyholder, not the insured.

What is Subrogation?

Subrogation can be explained as the recovery of financial damage incurred on the subject matter of an insurance contract from the at-fault party. When damage occurs to the items covered by the insurance policy, the insured applies to the insurer to have their damage covered. The insurer covers these financial damages. Subsequently, the insurer may pursue legal remedies to recover the amount it paid from the persons who caused the damage. To the extent that the insurer indemnifies the damage, it becomes the subrogee of the insured's rights. The concept that enables the insurer to recover the amount it paid from the negligent parties who caused the damage is subrogation.

What is the Statute of Limitations in Insurance Contracts?

While general provisions apply to non-life and life insurance, special provisions apply to liability insurance, which is a sub-branch of non-life insurance. According to general provisions, the lower limit for the statute of limitations is two years, and the upper limit is six years. According to the special provisions applied in liability insurance, the statute of limitations is ten years. The statute of limitations begins from the date the claim becomes due and payable (matured). The maturity of claims is regulated by Article 1427 of the Turkish Commercial Code. In non-life insurance, claims become due and payable after the risk materializes, following the submission of documents related to the risk to the insurer, after the insurer's investigations are completed, and in any case, forty-five days after the notification of the risk's occurrence. In life insurance, unlike non-life insurance, claims become due and payable fifteen days later. All claims arising from the insurance contract can be asserted within the statute of limitations periods. Contractual provisions altering these periods are invalid.

In this article, we discussed insurance. You may submit any questions you have regarding the topic in the comments section.

Av. Mehmet Yücesoy

İzmir Attorney & Legal Consultancy