Indemnity

Question 1

What is Indemnity

Answer 1

Is a financial compensation sufficient to place Insured in the same financial position they were before the loss occured

Question 2

Which policies fall into the benefit categories

Answer 2

1. Personal Accident
2. Sickness
3. Critical Illness
4. Payment Protection Indemnity
5. Hospital crash plan
6. Permanent health
7. Elements of travel Insurance

Question 3

What are the settlement options to an insurer which will provide the insured with the necessary indemnity

Answer 3

1. Cash Payment
2. Repair
3. Replacement
4. Reinstatement

Question 4

Which types of insurance always involve payment in cash

Answer 4

1. Money Insurance
2. Fidelity Gurantee
3. Business Interruption
4. Liability Policies( which are usually paid out to the wronged party not the insured)

Question 5

Why would Insurer opt to Repair Damage to an insured item

Answer 5

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

Question 6

What does a quick replacement mean

Answer 6

Quick replacement means further losses are minimized

Question 7

What are the benefits of using nominated retailers to the insurers

Answer 7

The benefits are

1. The discount received means lower claims cost
2. Using replacement options, can prevent or at least minimize fraudulent claims. As fraudster will be looking for easy money from the insurer not goods
3. Customer Service is improved by the use of quality retailers

Question 8

What are other situations in which insurer will opt for replacement

Answer 8

1. 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

Question 9

What is Reinstatement

Answer 9

This is when an insurer agrees to restore a building(or piece of machinery) that has been damaged by an insured peril

Question 10

Why is reinstatement not a popular option among insurers

Answer 10

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

Question 11

What is the difference between Reinstatement and Replacemenent

Answer 11

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

Question 12

What are Property policies and liability policies

Answer 12

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

Question 13

When damage to property is partial, how do you calculate indmenity

Answer 13

Indemnity is Calculated by taking Repair Cost less an allowance of wear and tear

Question 14

When damage to property is full, how do you calculate Indemnity

Answer 14

Indemnity is calculated by taking Replacement cost less an allowance of wear and tear

Question 15

what does liability insurance include and not include

Answer 15

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

Question 16

In property insurance, how does insurer determine the value of the subject-matter

Answer 16

The value of thee subject matter is determined by its value at the time and place of the loss

Question 17

For Marine Insurance what is the Insurable value in a valued and unvalued policy

Answer 17

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

Question 18

What is the basic cover for building insurance referred as

Answer 18

Basic cover is referred to as an indemnity settlement, to distinguish it from reinstatement

Question 19

How do insurers calculate the indemnity settlement of building insurance

Answer 19

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

Question 20

What is the extension of reinstatement cover

Answer 20

Reinstatement cover applies on the basis of full reinstatement value at the time of reinstatement

Question 21

What are the two common types of insuring clause in reinstatement

Answer 21

1. Reinstatement memorandum

2. Day one Reinstatement

Question 22

what are the main facts of reinstatement memorandum

Answer 22

1. The most important aspect is that the sum insured must represent full value at the time of reinstatement.
2. 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
3. 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
4. Reinstatement should be carried out without delay. Insured is given flexibility about where and how reinstatement takes place

Question 23

what are the main facts of Day One Reinstatement

Answer 23

1. Insured should state reinstatement amount on the first day of the cover
2. 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)
3. Th day one reinstatement value must be accurate
4. There is no 15% margin for error as there is in reinstatement memorandum

Question 24

What is the Basic Cover for Machinery and Content like

Answer 24

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

Question 25

Which type of reinstatement is common for building and content insurance

Answer 25

Reinstatement memorandum and day one reinstatement are the most common methods of insuring such items

Question 26

what is the key element for reisntatement

Answer 26

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

Question 27

What policy caters to stock

Answer 27

Business Interruption Policy

Question 28

what does stock of Manufacturers' stock in trade consist of

Answer 28

1. Raw Materials 2. Work in Progress 3. Finished Stock

Question 29

What is the indemnity in Manufacturer'stock in trade

Answer 29

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

Question 30

What is the indemnity in wholesalers' and retailers' stock in trade

Answer 30

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

Question 31

what is the difficulty in measuring stock losses

Answer 31

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.

Question 32

How is indemnity paid with Basic Cover for Household goods

Answer 32

Indemnity is based on the cost of replacing the item at the time of the loss,,subject to wear and tear deduction

Question 33

New for old cover

Answer 33

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

Question 34

How is the sum insured set up for New for Old Cover

Answer 34

Sum Insured represent the full replacement cost of the household goods and the premium paid reflects this

Question 35

Why is farming stock different from other stock

Answer 35

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,

Question 36

In liability Insurance how is indemnity measured

Answer 36

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

Question 37

Which polices modify the principle of indemnity

Answer 37

Its modified in agreed valued policies and first loss policies

Question 38

For agreed value policies what happens in the event of a claim

Answer 38

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

Question 39

Agreed value policies are common in what area of insurance

Answer 39

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.

Question 40

When do first loss policies come about

Answer 40

When the insured request that their policy has a sum insured that is less than the full value

Question 41

Which policies do New for Old Cover apply the most

Answer 41

They apply to household policies and Commercial property risks that are insured on a reinstatement basis

Question 42

How are Insured Damages settled in Agreed value policies

Answer 42

Settlement for a claim damage, will depend on the policy 1. If the agreed value is restricted to total losses then partial losses will be settled on an indemnity basis 2. If the agreed value is not restricted to total losses, then claim will be settled on proportionate basis

Question 43

What is Underinsurance

Answer 43

Under insurance occurs when the insured understates the value of the subject-matter of the insurance

Question 44

Because of the issue of under insurance , insurer limit their liability by applying the term known as average condition

Answer 44

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

Question 45

What is the formula for averaging

Answer 45

Sum Insured/Value of goods at risk *Risk

Question 46

When is the averaging condition commonly used

Answer 46

Its Commonly Used in Commercial Fire and theft policies