Explain the following insurance terms;
(a) proximate cause
(b) surrender value
(c) contribution
(d) utmost good faith
(e) premium
Explanation
Explanation of Insurance Terms:
(a) Proximate cause:
(i) This s a principle of insurance that requires a proof that the insured suffered a loss as a result of the direct risk insured against and not as a result of a chain of events not insured against before the insured is compensated/indemnified.
(ii) Where the loss suffered is not caused by the risk insured against, the insured has no compensation.
(b) Surrender Value:
(i) This is the amount payable by an assurance company to the assured if a life policy is discontinued before maturity.
(ii) The amount payable by the assurance company is the total premium paid by the assured less surrender/ administrative charges
(c) Contribution:
(i) This is a principle of insurance that requires insurance companies to come together to pay an insured person where the two insurance companies insured the same property involved in a loss.
(ii) This ensures that the insured will not claim from the two companies thus making a profit.
(d) Utmost Good Faith:
(i) This principle of insurance requires that -both parties in a contract of insurance must disclose to themselves all material facts that could influence both parties to enter into the contract or not.
(ii) Failure to disclose would render the contract void at the option of the truthful party.
(e) Premium:
(i) This is periodic or lump sum payment made by the insured to the insurer under an insurance contract.
(ii) The amount of the premium depends on the risk involved and the value of the insurance contract.