Indemnity Flashcards
What is Indemnity
Is a financial compensation sufficient to place Insured in the same financial position they were before the loss occured
Which policies fall into the benefit categories
- Personal Accident
- Sickness
- Critical Illness
- Payment Protection Indemnity
- Hospital crash plan
- Permanent health
- Elements of travel Insurance
What are the settlement options to an insurer which will provide the insured with the necessary indemnity
- Cash Payment
- Repair
- Replacement
- Reinstatement
Which types of insurance always involve payment in cash
- Money Insurance
- Fidelity Gurantee
- Business Interruption
- Liability Policies( which are usually paid out to the wronged party not the insured)
Why would Insurer opt to Repair Damage to an insured item
They choose to do this, so that they can provide indemnity, at a lower cost than the insured might achieve, because of the negotiating power of large organisations. Its common in motor insurance
What does a quick replacement mean
Quick replacement means further losses are minimized
What are the benefits of using nominated retailers to the insurers
The benefits are
- The discount received means lower claims cost
- Using replacement options, can prevent or at least minimize fraudulent claims. As fraudster will be looking for easy money from the insurer not goods
- Customer Service is improved by the use of quality retailers
What are other situations in which insurer will opt for replacement
- Car write off, where the car is less than on year
2. Loss relating to jewelry, if the insurer can obtain a worthwhile discount from the jeweler
What is Reinstatement
This is when an insurer agrees to restore a building(or piece of machinery) that has been damaged by an insured peril
Why is reinstatement not a popular option among insurers
This is because they are bound to reinstate the property so that it is largely in the same condition it was before the loss. Also once they choose to reinstate they lose the certanity that the sum insured will be the maximum they have to pay out
What is the difference between Reinstatement and Replacemenent
Reinstatement applies mostly to buildings and occasionally machinery, and is concerned about bringing the property back to its pre-loss condition.
For reinstatement the insurer effectively takes occupation of the premise to reinstate. Repair does not carry occupation
What are Property policies and liability policies
They are contracts of indemnity, because value can be placed on the subject matter that is insured. This also applies to pecuniary Insurance. Life and personal accidents are not
When damage to property is partial, how do you calculate indmenity
Indemnity is Calculated by taking Repair Cost less an allowance of wear and tear
When damage to property is full, how do you calculate Indemnity
Indemnity is calculated by taking Replacement cost less an allowance of wear and tear
what does liability insurance include and not include
Liability Insurance does not define the financial value of the indemnity, this is usually decided by the courts.It states the elements to be included in the indemnity settlement, thus always states a limit on how much policy will pay in case of a claim
In property insurance, how does insurer determine the value of the subject-matter
The value of thee subject matter is determined by its value at the time and place of the loss
For Marine Insurance what is the Insurable value in a valued and unvalued policy
In a valued policy the insurable value is agreed between the insurer and the insured.
In unvalued policy The insurable value must be calculated using the formula in the Marine Insurance Act 1906.
Thus for both policies, there is an identifiable value from the policy inception, and is unaffected by the market price varuation
What is the basic cover for building insurance referred as
Basic cover is referred to as an indemnity settlement, to distinguish it from reinstatement
How do insurers calculate the indemnity settlement of building insurance
Insurers calculate the indemnity of loss or damage to property as the cost of repair or reconstruction at the time of loss. And they make an allowance for any improvement that may result from the repair and reconstruction.i.e.betterment.
Basic cover is very rare type of insurance for building
What is the extension of reinstatement cover
Reinstatement cover applies on the basis of full reinstatement value at the time of reinstatement
What are the two common types of insuring clause in reinstatement
- Reinstatement memorandum
2. Day one Reinstatement
what are the main facts of reinstatement memorandum
- The most important aspect is that the sum insured must represent full value at the time of reinstatement.
- The premium an insured pays is based upon the higher amount, this clause allows a margin of error in estimating sum insured.Insured value must be at least 85% of the actual value,otherwise claim payments will be reduced
- The Insured is left with a problem, if the claim amount exceeds 85%, since insurer will not pay more than sum insured in event of a loss
- Reinstatement should be carried out without delay. Insured is given flexibility about where and how reinstatement takes place
what are the main facts of Day One Reinstatement
- Insured should state reinstatement amount on the first day of the cover
- Insurer provides an automatic uplift to account for Inflation(additional 50% of the declared value), but only charges a modest increase for this inflation element(15% of the premium)
- Th day one reinstatement value must be accurate
- There is no 15% margin for error as there is in reinstatement memorandum
What is the Basic Cover for Machinery and Content like
The Basic cover will depend on whether there is a second hand market for the item or not:
1.When there is a ready second- hand market, indemnity is the cost of the second- hand item plus carriage or installation cost
2.When there is no second hand market, indemnity cost is the replacement or repair cost less an allowance of wear and tear if applicable
This is a very limited form of cover is rare
Which type of reinstatement is common for building and content insurance
Reinstatement memorandum and day one reinstatement are the most common methods of insuring such items
what is the key element for reisntatement
In order to benefit from the cover the insured must reinstate.
If no reinstatement takes place, the insured is entitled to settlement based upon strict indemnity, thus meaning wear and tear and depreciation will be taken into account
What policy caters to stock
Business Interruption Policy
what does stock of Manufacturers’ stock in trade consist of
- Raw Materials
- Work in Progress
- Finished Stock
What is the indemnity in Manufacturer’stock in trade
The cost of raw materials at the time and place of loss plus labor and other costs incurred in respect to work in progress and finished stock
What is the indemnity in wholesalers’ and retailers’ stock in trade
The indemnity is the cost of replacing stock at the time and place of loss plus cost of transportation to the insured premises and handling cost.
It is not possible to insure stock of any kind on reinstatement basis
what is the difficulty in measuring stock losses
The stock may not have a definite constant re-sale value.Thus settlement must be made to maintain the insured’s financial position and not to improve it.This means paying only the market value.
How is indemnity paid with Basic Cover for Household goods
Indemnity is based on the cost of replacing the item at the time of the loss,,subject to wear and tear deduction
New for old cover
This cover modifies the principal of indemnity, by making no allowance for wear and tear.
Most insurers retain wear and tear deduction for household linen and clothing, but apply new to old cover for all other items
How is the sum insured set up for New for Old Cover
Sum Insured represent the full replacement cost of the household goods and the premium paid reflects this
Why is farming stock different from other stock
Market price is the basis of Indemnity. Unlike other stocks, the insured is entitled to receive any potential profit on sale. This is because the market price is both the buying price and the selling price at any time,
In liability Insurance how is indemnity measured
Indemnity is measured as the amount any court award or out of court settlement plus costs and expenses arising in connection of the claim e.g medical treatment for an injury
Which polices modify the principle of indemnity
Its modified in agreed valued policies and first loss policies
For agreed value policies what happens in the event of a claim
The value of the subject matter need not to be proved at the time of the loss.
In agreed value policies the value of the subject matter of insurance is agreed at the start of the contract, and the sum insured is fixed accordingly
Agreed value policies are common in what area of insurance
They are common in Marine Insurance,also used in insuring work of arts and other vintage motor cars whose true value may become a dispute at the time of a claim.
When do first loss policies come about
When the insured request that their policy has a sum insured that is less than the full value
Which policies do New for Old Cover apply the most
They apply to household policies and Commercial property risks that are insured on a reinstatement basis
How are Insured Damages settled in Agreed value policies
Settlement for a claim damage, will depend on the policy
- If the agreed value is restricted to total losses then partial losses will be settled on an indemnity basis
- If the agreed value is not restricted to total losses, then claim will be settled on proportionate basis
What is Underinsurance
Under insurance occurs when the insured understates the value of the subject-matter of the insurance
Because of the issue of under insurance , insurer limit their liability by applying the term known as average condition
Averaging condition this means that the insured is stated to be on their own for the amount they have chosen not to insure, if their is underinsurance at any time of the loss.
Even Partial losses will be shared in proportion to the amount of under insurance
What is the formula for averaging
Sum Insured/Value of goods at risk *Risk
When is the averaging condition commonly used
Its Commonly Used in Commercial Fire and theft policies
