DEFINITION
Is the system of pooling risk where by a large number of people contribute to a common pool or fund from which they are paid or compensated if certain specified events/loss occurs to them.
Pooling of risk
Everyone who is exposed to a risk should pay a small amount and all such collections should go to a pool. If there is a person suffers loss, should be paid compensation out of the pool.
TERMS USED IN INSURANCE
I. INSURER
Is the party which grants insurance i.e. Insurance companies. In Tanzania, the insurance companies may be National Insuarance Company(NIC), Zanzibar Insurance Corporation (ZIC) etc.
II. INSURED
− Is the person who takes insurance.
− Is a person / business firm who takes out an insurance and is promised by the insurance company to be compensated after event of a loss has occurred.
III. PREMIUM
− Is the payment made for an insurance policy under or usually on a regular basis e.g. monthly or annually.
− Is the sum paid by an insured to the insurer in order to insure the property.
IV. PROPOSAL FORM
This is the printed form on which the insured makes a written application for the issue of policy. Normally before issuing a policy an insurance company(insurer) will require information about what is to be insured.
V. ACTUARIES
These are high qualified mathematicians who are employed by the insurance companies for calculating premium and losses occurred.
VI. RISK
This is the event against which an insurance is taken out or the uncertainties which may occur and give unfavourable effect to the business.
VII. COVER NOTE
This is a document acting as a evidence of agreement to cover any loss that may happen between the time insurer accept the proposal and the insurer issue the policy to the proposer.
Its valid for a period of 30 days only after a policy has been issued.
VIII. POLICY
Is the document which sets out precisely the insurance cover provided (ie is an insurance contract).
IX. SURRENDER VALUE
Is the amount paid to a person who want to discontinue with the insurance contract.
X. INSURANCE BROKER
This is the intermediate engaged solely in the services between the insurer and insured.
A person who is going to expand to other people about the work of insurance company.
XI. ASSURANCE CONTRACT
Applies to those contracts of insurance which guarantee (promises ) the payment of insurance of events which must happen e.g. death or retirement etc.
XII. DOUBLE INSURANCE
This is an insurance where by more than one policy is taken to cover the same risk but the insured cannot be recovered more than insured value of the property from his insurers.
XIII. RE- INSURANCE
It is a procedure under which an insurance company enters into a contract with another insurance company with assumption that the insurer solely can not compensate wholely insured property due to high value.
Advantages of re- insurance
i. It enables a wider nglish-swahili/distribution” target=”_blank”>distribution of risks.
ii. The insurer can contract to indemnity more risks.
iii. It stabilize incomes and loss over a long period of time.
iv. It makes possible for insurer to undertake to indemnity even risks involving very large amount of money.
IMPORTANCE OF INSURANCE
I. Continuity of the business- insurance provides compensation to the insured. in the event of loss, the business is able to continue.
II. Collateral security for credit – a life insurance policy may be used as a security to obtain loan(this because the loan will be paid to creditor even when the debtor death ).
III. Savings – insurance can be used as a form of savings by policy holders the saving can then be used in future.
IV. Create employment
It create opportunities of employment in the economy eg. managers, assessors,actuaries etc.
V. Surrender value
This is the amount that an insurance company is prepared to pay if the insured no longer wishes to continue with the insurance contract and had already paid some premium
VI. Credit facilities
Insurance companies advance loans to their policy holders for personal development.
VII. Economic growth due to revenue collected by government from differnt insurance companies.
PROCEDURES FOR TAKING OUT AN INSURANCE / STEPS TO TAKE INSURANCE
The following are steps involved in taking out an insurance;
I. The person wishes to be insured fill in a proposal form which constitute his application for insurance and is required to disclose all the material facts about the property he wants to be insured and state clearly the risks insured against.
II. In the receipt of the proposal form, the insurer’s agents calculate the premium . they may arrange to inspect the property before accepting the premium.
III. The insured pay the premium and be insured with a cover note which is a proof that the premium has been made and accepted by the insurer who now undertakes to indemnity the insured.
IV. Within 30 days of the issue of the cover note, the insurer issues the policy.
V. If the events insured against happen, the insured is required notify the insurer and fills in a claim form to claim compensation.
VI. The insurer now arrange the survey of the property to assess the extent of losses. on receipt of the survey report, the insurer pays due compensation to the insured.
PRINCIPLE OF INSURANCE (CANNONS )
1. Utmost good faith (uberima fides )
A person applied for insurance is required to disclose all relevant and materials facts about property being insured so as to help the insurance company assess its suitable for insurance and calculate the premium accurately.
If a person gives wrong information, insurance company has a right to refuse to pay any claim.
2. Insurance interest
This principle states that man/insured has to ensure those risks which affects him directly.This means man/insured has to ensure his property and not one’s property e.g. I can ensure my house against fire but not to ensure my friend’s house against fire.
NB
The principle of insurance interest and utmost good faith apply to all contracts of insurance I.e. assurance and insurance.
3. Indemnity
This principle states that insurance does not aim at benefiting a person, its object is to compensate a person for what he has lost.
4. Subrogation
This principle state that all salvage goods or stock will belong to the insurance company after the compensation of loss has been done.Insured has no right over his damaged property and can’t gain any thing.
5. Contribution
This principle states that if the property has been insured by more than one company e.g. three companies, the compensation will be made by all three companies in equal contributions.
Example
If I have a house and insured it for 300,000/= against five , in three different insurance companies then the house is completely destroyed by fire , each company will be pay 1/3 of the total loss
The insurance does not allow a policy to get a profit for a loss occurred by him/ her sometimes is known as double insurance
6. Proximate cause
The principle states that ” compensation will be made when the cause of damage to the insured was a result of insured risk
Example
If a person ensures his house against burning down by fire but unfortunately a house is burnt down by lighting , the insured would not be entitled to any compensation as the cause of loss is not directly related to the risk insured against.
INSURANCE IS NOT GAMBLING/DIFFERENCES BETWEEN INSURANCE AND GAMBLING
Many people think that insurance is the same as gambling because in both cases they find a number of people contributing amount and one person or a few person taking the lot of these are
| INSURANCE | GAMBLING |
| i. Insurance aims at helping an unfortunate person who has suffered a loss and therefore has gain. | Gambling aims of giving price to the winner the financial position of the winner improves after winning. |
| ii. The risk insured against may not happen. | The events speculated must happen to decide the winner. |
| iii. One must have on insurable interest in the property he/ she is insuring. | No such interest on gambling. |
| iv. It helps businessman and individuals. | It is the game of gambler people or street guys and doesn’t help trade. |
| v. Insurance is legal. | Is legal only in few countries in most countries is illegal. |
| vi. One never loss or gain in the insurance. | In gambling person either he losses or gains. |
edu.uptymez.com
TYPES OF INSURANCE
Insurance company in E. Africa offer mainly two classes of insurance namely
A. Life insurance (insurance of human life )
B. General insurance (insurance of properties )
GENERAL INSURANCE
This cover insurance of properties. A person can insurer any property he has an insurable interest e.g. fire insurance, accident insurance and marine insurance.
1. ACCIDENT INSURANCE
This policy provides for compensation of actual loss. accident insurance covers main categories
Person accident
Employers liability
Motor accident
a) Motor policies
These provide for claims to be made for a damage in partial or in total to a vehicle.
This policy covers impact of fire and theft for private vehicle, commercial vehicle and motorcycle.
b) Burglary policy insurance
− Is a policy which cover private house, house breaking and larceny(theft )
− This policy is issued to cover contents of private or business premises against breaking in and theft carried there in.
c) Fidelity policy (fidelity guarantee)
− These policies provide a compensation of the loss of money and goods embezzled by any of employees .
− It may cover certain employees only or may cover the whole staff of the concern
d) Third party insurance
It covers loss of the property of third parties or bodily injury to third parties i.e. drives, passengers .
Example if your car hits some one else a result of your negligence. This insurance will make good loss to that person but not your car.
Its compulsory to have third party insurance before a vehicle is allowed on the roads
e) Comprehensive policy
Under this policy, the insurance company covers all possible types of risks
NB a motor policy may be third part or comprehensive
f) Industrial injuries
This types of insure cover compensation to employee suffering injury arising from the conducted employment.
e.g. if an employee is injured while performing his duties, the employer is liable to pay compensation to the employee.
g) Bad debts insurance
It covers loss that a businessman can sustain for the failure of the debtor to settle their dues.
h) Personal accidents and sickness
These policies provide for compensation in the event of person accident involving injury to the person and temporary or permanent disablement of some parts of the body.This cover the following:
I. Persona accident only.
II. Personal accident and specified diseases.
III. Personal accident and any form of sickness for a specified terms of a year.
2. Fire insurance
This insures property against fire and acts of god like flood highlight , earthquake, riot, etc police of fire insurance are classified as follows.
KINDS OF FIRE POLICE
SPECIFIC POLICY
In this policy the insurer undertakes to indemnity the insured any loss or demand to property caused by fire up to a sum specified against that particular property in the policy
Example
If the sum insured is 100,000/= in case of loss or demand to property the insurer is liable to compensate any loss up to the sum of 100,000/= depending on the extend of the damage. If the damage 60,000/= this will be paid.
VALUE POLICY
In the policy the insurer undertakes to pay the insured the amount of value of the property declared in the policy in event of total loss, the insurer will have to pay this amount quite independent of the market value of property at the time of loss.
MAKING AN INSURANCE CLAIM
Reporting in case a loss or risk for which an insurance is covered by the policy occurs, the insured is required to report to the insurer within specified period of time
Filling in the claims form a claim form is issued by the insurer and the insured fills in the claim form, stating the full details of the loss.
Assessing the insurer filter the report and sends out an assessor who surveys the extent of the damage and makes a report.
Compensation the insured is compensated based on the report made by the assessor.
The following circumstance may prevent an insured person or institution from being compensated
− If he/she had had defaulted or some of the premium.
− If he/she insured has intentionally instigate or cause or the occurrence of the insured risk.
− If the loss suffer is not directly related to the insured risk.
− Property is not owned by insurer.
-If the insuared may not a report from a police to show as evidence that the events actually occured.