Question 9 Answers
(a) (i) The average clause.
(ii) Average Clause limits the size of the compensation, which depends on the proportion of the true value of the asset paid up by the insured. For example, if a homeowner insures his/her home for half its true value, he/she will only be compensated a half of the value of any damages in the future.
(iii) A valuation should have been done before the renewal of the insurance contract to ascertain the true value of the house.
(b) The principle of ‘Insurable interest’ states that the person requesting insurance coverage must have a vested interest in what is being insured i.e. the insured would suffer loss if the event occurred. For example, someone is not allowed to insure his neighbour’s house.
The principle of contribution prevents an individual from insuring a particular asset with several insurance companies hoping to be compensated by all these companies.
The principle of ‘Utmost Good Faith’ states that the insured must be truthful concerning the information pertaining to the insurance policy contract.
(c) Insurance assists persons who suffer loss of items insured. It endeavours to put the insured back into the position they were before the loss occurred. Insurance provides a valuable service by providing protection to individuals and businesses. Without insurance the economy would be negatively impacted when businesses have to close down because of losses or when the economic activities of individuals are restricted by losses.