PROCEDURES OF INSURANCE CONTRACT
The various processes involved in obtaining an insurance are:
- An Inquiry- i.e. finding out about the insurance either directly from the insurance company or agents(brokers)
- Proposal Form – This is issued by the insurance company. It must be completed truthfully and honestly (i.e. with utmost good faith) by the person seeking insurance. It forms the basis of the contract between the insured and insurer.
- Premium: This is the amount paid by the insured, either in lump sum or by annual, monthly or weekly installment. If premiums are not paid subsequently when due, the policy ceases to be valid.
- Cover Note: After the first premium has been paid .the insurance company issues a cover note to the insured, giving him a temporary cover(i.e. protection) until enquiries are made by the insurance company and the insurance policy has been prepared .The cover note is usually valid for thirty days after which a fresh one is to be collected if the insurance policy is not yet ready.
- Insurance Policy: This is the legal document which gives details of the contract i.e. it set out the exact terms of the insurance contract.
TERMS FREEQUENTLY USED IN INSURANCE INDUSTRY
- Underwriter: This is a person or company who undertakes to cover a part (portion) of the risk involved in insurance.
- Re-insurance: This is a situation whereby an insurer agrees to insure with another insurance company, all or part of the risk. By spreading large risk among many insurance companies, losses will be reduced. Re–insurance is the transfer of risk from one insurer to another. It provides additional security to the insured and all other policy holders.
- Actuary: This is a person who assesses the risks involved in an insurance and calculates the premium relevant to that risk. He is also involved in handling matters concerned with pension funds.
- Surrender Value: This is the amount in cash an insurance company will repay to an endowment policy holder if he wishes to discontinue prior to the date of maturity of the policy. It is usually calculated as a percentage of the total premium paid up to the date of surrendering the policy.
- Jettison: This is the deliberate throwing overboard of cargoes in a ship in order to lighten the ship and prevent it from sinking.
- Barratry: This refers to any act committed by the captain of a ship that is contrary to the interest of the ship owners.
- Define an actuary
- Explain the terms a) surrender value b) re-insurance
THE IMPORTANCE OF INSURANCE TO COMMERCE AND INDUSTRY
- It facilitates International Trade
- It makes funds available for investment
- It helps in reducing risks of businesses
- It provides a means of savings and making provisions for the future
- It serves as a collateral security to obtain loans from banks i.e. life assurance
- It confers on the insured the benefits of tax relief or tax rebate i.e. life assurance
- It provides employment opportunities for brokers , actuaries etc
- It provides a sense of security giving confidence to businessmen to engage in commercial activities
- Explain the meaning of the word “underwriter” as it relates to insurance
- State five benefits of Insurance to commerce.
Essential Commerce for SSS by O.A Longe page 185-200
GENERAL EVALUATION QUESTIONS
- Give four similarities and four differences between hire purchase and deferred payment
- State five reasons why a life assurance policy may be taken
- Describe any five insurance policies which a large departmental store owner may take
- Describe three types of risks that may be insured against under marine insurance
- Differentiate between contribution and group insurance
- Which of the following does not relate to Marine Insurance? a) floating policy b) time policy c) valued policy d) endowment policy
- The term which refer to the deliberate throwing of cargo into the sea to save a ship from sinking is known as a) charter party b) Lloyds c) jettison d) re-insurance
- The temporal document which is issued by an insurer when an insurance policy is being processed is a) contact note b) debit note c) credit note d) cover note
- What covers the risk which an employer may suffer as a result of the dishonesty of an employee a) accident insurance b) fire insurance c) fidelity guarantee d) consequential loss
- The primary objective of insurance is to a) prevent accidents b) meet uncertainties in future c) give loan to businessmen d) control the flow of cash
- Explain the meaning of the term “premium” as it relates to insurance
- List three benefits of insurance to commerce.
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