Insurance means the transfer of offsetting the consequences of an unexpected and/or sudden event on reasonable terms and for a certain fee. On the basis of an insurance contract, the insurer undertakes to pay insurance indemnity upon the occurrence of the event agreed and the policyholder undertakes to pay insurance premiums.

The terms and conditions of the insurance cover are agreed upon in the insurance contract:

  • the thing insured (for instance the person’s health or life, car, house or personal liability);
  • the event of insurance case or the events after the occurrence of which the insurer is obligated to pay compensation;
  • the amount to the extent of which the damage will be compensated or the compensation paid out;
  • what constitutes an insurance event in terms of time and location or in other words, when and where the insurance is valid;
  • what the obligations of the policyholder are; and
  • the amount of the policyholder’s excess.

Classes of insurance

Voluntary insurance means that the obligation to enter into an insurance contract does not arise from the law. The premise for the entry into an insurance contract is the party’s interest to protect themselves from the harmful effects arising from unexpected and unforeseen events. Classes of voluntary insurance are, for instance home insurance, vehicle insurance, accident insurance, etc.

In the event of compulsory insurance, a party has an obligation to enter into an insurance contract in accordance with the procedure prescribed by law. A person may choose the insurer that they will conclude the contract with. The most common class of compulsory insurance is motor insurance and the obligation to enter into it arises from the Motor Insurance Act.

Mandatory insurance means that a party is legally obliged to pay an insurance premium or other contribution and the duty of compensation has been imposed on the state or on a certain party. Mandatory insurance is for instance health insurance, which is funded from social tax and also unemployment insurance.

Insurers and insurance intermediaries

Insurance service is provided by insurers. Insurance contracts can be entered into either directly with an insurer or via an insurance intermediary.


An insurer is a provider of insurance services who is obligated to pay compensation in the event of insurance case. Insurance contracts are entered into with an insurer. In the delivery of service, insurers follow the good practice for insurance.

Insurance brokers

Insurance intermediaries are insurance brokers and insurance agents. Intermediaries offer intermediation services.

An insurance broker intermediates insurance contracts in the interests of the customer, i.e. the policyholder.

An insurance broker must:

  • determine the customer’s insurable interest and requirements to the insurance contract;
  • inform the customer of the possible types of insurance contracts and present to the customer a sufficient number of insurers’ offers for the entry into an insurance contract;
  • inform the customer of the terms and conditions of the insurance contract prior to the conclusion of the insurance contract, including insurance premiums and the limitations and exclusions with regard to the contract;
  • inform the customer of the principles of compensation in the occurrence of an insured event;
  • recommend to the customer the insurance contract that best meets their insurable interest and requirements;
  • explain to the customer the advice given and their recommendations; and
  • consult the customer on other issues related to insurance.

An insurance broker intermediates insurance contracts as a representative of the insurer.

Steps in entering into a good insurance contract

Starting from the intension to take insurance, there are several steps to be taken in order to enter into a good insurance contract.

  • Think of the circumstances that may affect your economic situation. You should pay particular attention to those rare occasions that can cause major damage.
  • You should analyse what you can insure so it would also be reasonable and consider the losses you should insure and on which terms.
  • Make your decision on whether to enter into an insurance contract directly with an insurer or through your representative, i.e. insurance broker.
  • If you intend your interests to be presented by an insurance broker, select the insurance broker. In making the selection, you should take into account the services that the broker provides and decide on the actions that you authorise the broker to perform and the broker’s responsibilities.
  • Specify your insurable interest and needs with the insurance broker or the insurer. Find out what you will receive in return and why and which terms of insurance are good for you. Ask the insurer or the insurance broker to explain the service to you in greater detail.
  • Compare insurance offers and make your initial choice with regard to the insurer and the service.
  • Read the documents of the insurance contract and the terms and conditions of the insurance carefully. Ask questions from the insurer or the insurance broker. Insist that they explain to you the terms and conditions of the insurance.
  • Satisfy yourself that the insurance contract offered is a good insurance contract.

Dispute with the insurance company

As in other spheres of life, disputes are also common in insurance. In most cases, the parties of the insurance relationship settle their disputes by way of negotiations. If these fail, parties can refer the case to the motor insurance conciliator.

Compiled by: Estonian Insurance Association