ZIMSEC O Level · Commerce · Form 4
Insurance protects people and businesses against financial loss from risks. Many pay small premiums into a pool; the few who suffer a loss are compensated.
Principles of insurance
- Utmost good faith (uberrimae fidei): give all true information.
- Insurable interest: you must stand to lose financially.
- Indemnity: you are restored to your position before the loss, not made better off.
- Contribution: if insured with several companies, each pays a share.
- Subrogation: after paying, the insurer takes over the rights to the damaged property.
- Proximate cause: the loss must be caused directly by the insured risk.
Types of insurance
Motor (third party is compulsory), fire, theft/burglary, goods in transit, fidelity guarantee (against dishonest employees), public liability, life assurance (whole life and endowment), medical aid, funeral cover.
Insurable and non-insurable risks
Insurable risks can be calculated (fire, theft). Non-insurable risks cannot (a fall in demand, bad management, changes in fashion).
Procedure
Proposal form → premium calculated → cover note → policy. To claim, fill in a claim form; an assessor may inspect the loss.
Exam tip: “Assurance” covers events that are certain (death); “insurance” covers events that may happen (fire).
Check yourself
- Which principle requires the insured to disclose all material facts?
- Give two examples of non-insurable risks.
- What is a premium?
Show answers
- Utmost good faith.
- Any two: fall in demand, changes in fashion, bad management, competition.
- The amount paid regularly to the insurer for cover.
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