Chapter 7: Indemnity Flashcards
Define indemnity.
Financial compensation sufficient to place the insured in the same financial condition enjoyed immediately before the loss.
What are the four methods of indemnity?
- Cash payment
- Repair
- Replacement
- Reinstatement
What happens if the insured declines replacement in favour of cash payment?
The insured will be required to pay the insured the amount they would have paid a retailer (potentially at a discounted rate).
What is replacement?
Where the insurer will provide a brand new version of the destroyed item to the insured.
How does reinstatement differ from repair?
Reinstatement applies only to buildings (and sometimes machinery). It is concerned with bringing the property back to it’s pre-loss condition.
What is a valued policy?
One in which the insurable value is agreed between the insured and insurer. This value is unaffected by subsequent market variation.
How is value determined in a property policy?
It’s value at the time and place of loss.
What is a reinstatement memorandum?
The sum insured must represent the full value of the building at the time of reinstatement. There may be a premium charged for the higher sum insured.
What is day one reinstatement?
The insured is required to state the reinstatement value on the first day of the policy and insurers provide an automatic increase of 50% to allow for inflation.
It is more important to get accurate.
What is new for old over?
Where an insurer will supple new items to the insured without accounting for wear and tear.
What does indemnity look like in machinery and contents insurances?
- If a second-hand market - the used cost of the machine plus carriage and installation costs.
- If no second-hand market - the cost of repair or replacement minus wear and tear.
What is the difference in indemnity between a manufacturer’s stock and retailers’/wholesalers’ stock?
- Former: indemnity is the cost of the raw materials and labour
- Latter: indemnity is the cost of replacement including transport costs.
How does farming stock differ from other stock?
Indemnity also includes potential profits.
What is a first loss policy?
Where the insured will only pay up to a certain value determined by the insured as they believe that the chance of a total loss is highly unlikely.
What does the Enterprise Act 2016 enable insureds to do in relation to indemnity?
Seek damages for late payment. Insurers must now pay indemnity within a ‘reasonable time’, as determined by the type of insurance and complexity of the claim.
