IF1 - Chapter 7 Indemnity

Examples of "Agreed Value Policies" are:

Works of Art Vintage Cars Antiques

The Term Betterment is

An allowance for improvements taken into account that result from the repair/reconstruction of an accepted claim.

Day One Reinstatement

Insured to state the reinstatement amount on 1st day of cover. Insurers provide an automatic up lift for inflation (50% of declared value) Insurers charge a modest increase in premium of 15% for inflation. Reinstatement figure at day one easy figure to establish Day one value must be accurate ,as no 15% margin.

Examples of benefit policies are:

Personal accident Sickness Critical illness Payment Protection indemnity Hospital Cash plans Elements of Travel Insurance

In the event of a claim Manufacturers', Wholesalers and retailers' stock in trade:

is not entitled to payment, potential profit element on sale of stock. This is covered by Business interruption policy.

Indemnity of Liability Insurance is:

measured as the amount a court awards (commonly out of court settlements) plus the costs & expenses connected to the claim.

Compulsory Excess is:

set by the insurer. The compulsory excess is added to the voluntary excess to you give the total excess.

Indemnity of Farming stock is:

the local market price is the Basis of indemnity. The Market price is both the buying & selling price at anytime, no way of separating the profit.

What is reinstatement ?

to provide indemnity to the insured. This means the insurer agrees to restore a building or piece of machinery that has been damaged by an insured peril.

Single item limit

usually for gold, silver or similar items of 5% of the sum Insured

Average Condition is:

when the insured is considered to be their own insurer for the amount they have chosen not to insure, if there is underinsurance at the time of any loss.

Voluntary Excess is:

where the Insured receives a premium reduction for agreeing to the excess.

Liability Insurance

This policy provides indemnity to the insured in respect of their legal liability to pay damages & claimants costs.

Special conditions of Average is:

applied to agricultural produce and livestock, due to the value of both fluctuating significantly.

The financial ombudsmen has indicated that most Policyholders who wish to have a replacement should:

be allowed to choose where they purchase this and are entitled to a cash settlement if they cannot find an acceptable alternative.

Limits to Sum Insured are:

commonly household policies, usually there is a single item limit for gold, silver or similar items of 5% of the sum Insured.

Excess is:

is an amount deducted from each claim and paid by the insured

Benefits of using a nominated retailer to the insurer, are:

1,The discounts that they receive mean lower claims costs. 2,Using the replacement option can prevent/minimise fraudulent claims as fraudsters would be looking for a cash payout rather than goods. 3,Customer service is improved by the use of quality retailers.

Sum Insured for Property Insurance policy + claiming for a loss

= Limited to Sum Insured

Sum Insured for Liability Insurance policy + claiming for a loss

= Maximium indemnity limit plus costs.

Ways of providing indemnity to the Insured are through:

Cash Payment Repair Replacement Reinstatement

The importance of the principle of indemnity was emphasised by Brett, LJ in the case of

Castellain v. Preston (1883)

Indemnity

Financial compensation sufficient to place the insured in the same financial position after a loss as they enjoyed immediately before the loss occurred.

How is the financial value calculated ?

In the absence of policy conditions - in property insurance, the value of the subject matter of the value is its value at the time and place of loss.

Equipment Partially damaged is calculated: Repair cost - Wear & Tear =

Indemnity cost

Equipment completely destroyed is calculated: Replacement cost - Wear & Tear =

Indemnity cost

Indemnity for Household goods are :

More popular form of cover available and universally used within the UK - New for Old.

Repair is commonly used in what type of claim ?

Motor insurance claims

Life & personal accident are

NOT contracts of indemnity as the insured cannot be restored to the same financial position after a loss.

Basic cover is

Referred to in the market as an 'indemnity' settlement in order to distinguish it from reinstatement.

Benefit policies are also known as

Short term policies

Average Formula is :

Sum Insured x loss Value of goods at risk

Reinstatement Memorandum is

Sum insured must represent the full value at time of reinstatement. Insured pays premium on the higher amount. A margin for error in estimating the sum insured. Insured value must be at least 85% of the actual value, otherwise claims reduced. Insured has a problem if a claim amount is over 85%. Only sum insured paid out. Reinstatement must be carried out without delay, insured given flexibility of where/how.

Average is:

The sum insured is the total value declared by the insured, it is this figure used to determine the premium

Agreed Value Policies are:

The value of the subject matter of the insurance is agreed at the start of the contract and the sum insured is fixed. The value is reviewed at each renewal. In the event of a claim, the value need not be proved at the time of the loss.

"First loss policies" are:

When the insured believes that the Full Value of the insured property is not really at risk, in other words a total loss or even a very substantial loss seems impossible. In this case the insured may request that their policy has a sum insured that is less then the full value.