SS 2 Commerce First Term Week 5

Topic: Insurance

Content: Meaning of Insurance

                 Insurable and Non Insurable Risk

                 Indemnity and Non Indemnity Insurance

                 Principles of Insurance

Insurance is a contract by which one party undertakes to indemnify (restore) another party against loss ,damages or liabilities  arising from an unknown event.

It is a system of providing financial compensation for the effects of loss, the payment being made from accumulated contributions of all parties involved in the scheme.

Insurance is another of commerce, it is basically based on the principle of pooling of risk. The insured i.e the person insuring life or property contributes funds called premium to the insurer i.e the party who indemnify,the accumulated premium is then use to compensate the insured when the needs arise.

Assurance on the other hand is the cover on event that will surely occur at some time in the future,it is based on possibilities .Example is the death of a person. Insurable risk :These are the risk whereby the insurer is ready to take cover for because it is possible to collect, calculate and estimate the likely future loss.Example is motor vehicle insurance, fire insurance, life assurance etc

Non insurable risk :These  are the risk whereby the insurer cannot take cover for because the likely future losses cannot be calculated and estimated. Example is loss of profit, risk due to war, poor location of business etc.

Indemnity insurance: This is the kind of insurance whereby the insured is fully restored to his or her former position before the incident occurred by receiving compensation.

Non – indemnity insurance : This is the kind of risk which no amount of compensation can equate the loss suffererd,therefore only a consolation payment is made to the insured.

Principles of Insurance.

  1. Insurable interest :This principle states that a person can insure properties that will bring loss to himself alone and not other person.e.g a person cannot insure the building of his neighbor
  2. Contribution: This principle states that in a situation where a person has insured his property in more than one insurance company he cannot claim compensation from all the insurance company i.e if he has been settle by one of the insurance company he is not entitled to receive compensation from other insurance firm.
  3. Proximate cause :This principle states that there must be a close connection between the loss actually suffered and the risk for which insurance has been taken out. Example is if Mr Ade insured his house against fire accident but the house collapse ,the insurance company will not pay compensation because the risk cover is fire accident and not collapsing.
  4. Subrogation :This principle states that once the insurer has given indemnity for a loss the insurance company can take over the property insured and the right relating to it. Example is if Olefin’s car had an accident and she have been compensated for it, the insurance company can take over the scrap of the car and sell it, the car no longer belongs to Mrs.  Olofin but to the insurance company.
  5. Abandonment : This principle states that a property can be abandoned if the cost of repairing is more than the actual value or if its actual loss is unavoidable
  6. Indemnity : This principle states that the insured should be indemnified to the limit of the amount covered by the policy .it provides that the insured should be adequately compensated.
  7. Utmost Good Faith (uberimae Fides) :This principle states that all relevant information about the property or object must be disclose to the insurance company, this will help the insurer to determine weather to cover the risk or not.

Test and Assessment.

  1. ————-is the main principle of insurance (a)pooling of money (b)making profit (c) pooling of risk (d)collecting contribution.ans (c)\
  2. —————– is a contract by which one party indemnifies another party against risk is called (a)insurance (b)marketing (c)subrogation (d)Assurance.ans (a)
  3. The principle that states that a property can be abandoned if the cost of repairing is more than the actual cost is called (a)indemnity (b)subrogation (c) proximate cause (d) Abandonment.ans (d)
  4. The contributionmade by the insured is called——- (a)premium (b)interest (c)shares (d)bonds.ans (a)
  5. —————is the cover on the event that must happen at some time in the future.(a) insurance (b)non insurance (c)Assurance (b) non assurance.ans (c)