General Insurance Products in Insurance Planning

General insurance policies are based on the principle of indemnity. This principle enunciates that a person who has suffered a loss must be placed in the same position as he was before the loss (after being duly compensated), provided that the sum insured is adequate. What this simply means is that individuals cannot profit from a general insurance policy. The insured is only entitled to recover to the extent of his actual loss. For example, if a house is partially destroyed by fire, it is not possible for the owner to insist on rebuilding the entire premises, or even enhancing the premises, just because the owner has a fire policy. Indemnity dictates that the premises will be repaired and the owner compensated to the extent that the premises is reconstructed to approximately the same condition it was in before the fire occurred.

Arising from this basic concept of indemnity are the two subsidiary principles of contribution and subrogation.

Contribution 

An insured is entitled to effect more than one policy on the same risk ( subject to the terms of the insurance policy ). However in the case of policies of indemnity, an insured who has effected two or more policies cannot recover more than the amount of his loss and often enough, only one insurer is called upon to indemnify him. Where this is the case, the insurer who has paid for the insured’s loss is entitled to call upon the other insurer or insurers, as the case may be, to contribute towards the amount which has been paid to the insured in respect of his loss. Each insurer bears a rateable share of the loss.

The right of contribution, ensures that the insured is not unjustly enriched by effecting several policies of insurance on the same risk.

Subrogation 

The right, which is given to an insurer who has settled the claim of the insured under the terms of an indemnity policy, to step into the shoes of the insured and claim his rights against the third party who has caused the loss to the insured is called subrogation. Thus, from the foregoing an insurer cannot exercise his right of subrogation under a policy of indemnity unless the insurer has already indemnified the insured. Once indemnified, the insured has a duty to assist the insurer in the exercise of the right of subrogation and must ensure that he does not prejudice the insurer’s position to claim from the third party.

The principle of subrogation has no application in non-indemnity polices such as life insurance policies.

Property Risk Exposures

 

Identifying the Risks: Expenses and Losses 

All properties are directly or indirectly exposed to risks of being destroyed or damaged. Generally, these properties are accumulated by the owner over a period of years in line with the wealth accumulation plan. Any damage or loss of such property can have a direct or indirect impact on the individual’s financial circumstances – especially when there is no provision made for loss transfer.

In the respect, we need to familiarize with two types of losses that properties can experience:

• A direct loss is a financial loss that results from the physical damage, destruction or theft of the property. An example of a direct loss is a house destroyed by fire, or a valuable item that is stolen. 

• An indirect or consequential loss is a financial loss that results indirectly from the event of a direct loss of the property. The consequential loss in the case of a house been destroyed by fire is the cost of rental that is paid for a place of stay while the original property is being repaired for habitation.