(a) Explain two factors that could reduce the amount of indemnity under an insurance-contract.
(b) A property owned by bal Ltd was covered by three insurers, A, B and C for the Sum of N150,000, N120,000 and N90,000 respectively. The insured suffered a loss of N60,000. Calculate the liability of each insurer.
Explanation
(a) Factors that could reduce the amount of indemnity under an insurance contract:
(i) .Sum insure: This is the Maximum liability of an insurer under a contract of insurance. The insurer will not pay more than t!e sum insured in the event of a loss.
(ii) Underinsured or Average: This is the ‘penalty for insured who insure.the subject matter of insurance fora sum below the real value.
(iii) Excess: This represents the amount the insure Will bear in each and every loss. This amount eventually reduces. what becomes payable by the insurer in tLc event of a loss.
(iv) Franchise: This is similar to excess and operates in the same manner except that if the amount payable by the insurer at the time of loss is more than-the fixed amount, the insurer pays all the. amount of the loss.
(v) Limit: This represents the maximum amount an insurer is prepared to pay in respect of.an article when there is a loss.
(vi) Deductible: This is a large excess which is mostly voluntary and operates in the same . manner as excess. The different is that in return for deductible, the insured is given .a premium discount or rebate.
(b) Sum Insured of A N150,000
Sum Insured of B N120,000
Sum Insured of C N90,000
Total sum insured in all insurance = N360,000
Amount of loss 66,000
Liability of Insurer A150000 x 60000 = 25000
360000 1
A Liability of Insurer B 120000 x 60000 = 20000
360000 1 Liability of Insurer C 90,000 x 60000 = 15000
360000 1