IF2 - Module 5 Flashcards
What is pecuniary insurance?
Pecuniary insurance is concerned with intangibles, such as income, revenue, or value.
Legal expenses and business interruption insurance are both forms of what insurance?
Pecuniary insurance
What is the purpose of legal expenses insurance?
The basic purpose of legal expenses insurance is to provide indemnity for costs arising out of the need to seek legal advice or to pursue or defend a civil action.
What are the two main types of commercial legal expenses cover?
- Group legal benefit policies
- Commercial legal protection policies
What are group legal benefit policies?
These are designed to operate on behalf of a group of people, such as the employees of a company and their immediate family. They may be provided by an employer as a benefit for employees and offer a choice of covers, including:
employment cover: defence of any claim or proceedings brought against a member during their employment; defence and compensation awards resulting from actions brought under specified legislation, such as the Equality Act 2010; costs of claiming for compensation arising out of the member’s employment;
personal cover: to pursue rights or defend personal actions;
motor cover: for claims not covered by an ordinary motor policy; and
conveyancing cover: to cover the legal costs of buying and selling a home, usually up to a specified limit.
What are commercial legal protection policies?
Taken out by a business to protect itself, these policies have five main sections from which cover can be selected:
- employment cover: to defend actions against the firm for unfair dismissal or discrimination, plus agreed awards made against the company if the defence is unsuccessful;
- criminal prosecution defence cover: costs of defending an action, usually under the Health and Safety at Work legislation;
- property disputes cover: e.g. disputes between a landlord and tenant over the freehold or leasehold of business premises;
- motor cover: pursuing uninsured loss recoveries; pursuing or defending actions in connection with the sale, purchase, hire, etc. of vehicles; pursuing damages following a road accident and defending motoring prosecutions; and
- patents, registered designs, copyright and trademarks cover: pursuit of an action e.g. for infringement of a patent, or registered design.
What are the optional extensions to a commercial legal protection policy?
Optional extensions to a commercial legal protection policy include cover for the cost of:
- defending libel and slander actions;
- involvement in public enquiries;
- investigations by professional bodies; and
- taxation proceedings.
What is business interruption insurance?
Business interruption (BI) insurance covers the actual or potential loss of earnings and additional expenses incurred because of a material loss.
It has two dimensions:
- the maximum amount that needs to be insured; and
- the maximum time the interruption will affect the business (the maximum indemnity period).
What does business interruption insurance usually cover?
The total amount insured includes the gross profit (i.e. turnover of the business less any variable expenses, such as the cost of raw materials) and additional expenses, e.g. the cost of renting alternative premises. Any fixed expenses of the business, such as wages and salaries, are covered.
A cash payment to the insured is the normal method of settling a claim under a business interruption policy.
What are the ways of arranging cover under a business insurance policy?
- Sum insured basis
- Declaration-linked basis
What is a sum insured basis for business interruption cover?
The BI sum insured is chosen by the proposer at the outset. It needs to be enough to allow for any anticipated business growth during the indemnity period. To encourage the insured to choose an adequate sum insured, the policy allows for a premium rebate if the actual gross profit earned during the insurance period is found to be less than the sum insured.
What is the declaration linked basis for business interruption insurance?
The insured provides an estimated gross profit for the forthcoming year which is used to calculate the initial premium. The policy provides for a limit of liability of 133.33% of the estimated figure to take account of future growth and the premium is adjusted (up or down) when the actual results are known.
What is a condition of almost all business insurance policies?
A condition of virtually all BI policies is that valid material damage insurance is in place to cover the physical damage which results in the loss of earnings (e.g. the damage caused by an insured peril, such as fire).
This requirement is the material damage warranty. It is now more commonly referred to as the material damage proviso, although the term almost never appears in policy wordings.
What does a fire and special perils business interruption policy cover?
The standard BI policy wording covers much the same perils or contingencies as the material damage policy but is extended to include the explosion of any boilers on the premises (not just domestic boilers as covered by the standard fire policy).
Also, the BI policy may extend to cover six special engineering perils relating to the explosion, collapse and overheating of steam pipes, vessels, boilers, tubers and economizers, which are not covered by the material damage policy.
What does an ‘all risks’ business interruption policy cover?
Where BI cover is arranged on this basis, similar cover will normally be required under the material damage policy to avoid any gaps in cover which might otherwise arise and invoke the material damage proviso.
It is common for insurers to cover both the material damage and BI risks under a single ‘combined’ policy.
