(a) What is credit?
(b) List and explain six principles of insurance.
Explanation
(a) Credit is a promise to pay at a future date for something of value received now with an agreed interest. / It is a postponement of payment for goods or services/usually with interest.
(b) Basic Principles of Insurance:
(i) Indemnity
(ii) Contribution
(iii) Subrogation
(iv) Proximate cause
(iv) Insurable interest
(vi) Uberimae fidei
(vii) Abandonment
(i) Indemnity: This principle states that the insured should be restored to former position in which he was before the occurrence of the loss.
(ii) Contribution: The principle of contribution provides that if an object is insured with more than one insurance company, the amount claimable from individual insurers will be limited to their individual ratable proportion of the loss.
(iii) Subrogation: Subrogation is the right which the insurance company has after compensating the insured to stand in the place of the insured and avail itself of the rights and remedies which the insured has against a third party who is responsible for the occurrence of the loss.
(iv) Proximate cause: This principle provides that there must be a close connection between the loss actually suffered and the risk for which an insurance policy has been taken before the insured is compensated or indemnified.
(iv) Insurable interest: Insurable interest provides that only the person who will suffer financial loss if the event to be insured against occurs, will be allowed to take out insurance.
(vi) Uberimae fidei: (Utmost good faith). This insurance principle provides that parties in an insurance contract must disclose all material facts to both parties or else the contract will be void.
(vii) Abandonment: This principle states that when the cost of repairing the insured property is higher than the actual cost of the object, the object will be abandoned and the insured will be compensated to the tune of the total loss while the object will be left with the insurer.