Property insurance

insurance for goods

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Insurance is a system in which the insurer, for a fee, generally agreed in advance, undertakes to reimburse the insured or provide services to the insured if certain accidental incidents cause losses during a specified period. Therefore, it is a method of dealing with risk. Its main function is to replace confidence with uncertainty about the economic value of losing events.

Insurance is largely based on the Law of Large Numbers. In large, homogeneous populations, the normal frequency of common events such as deaths and accidents can be estimated. Losses can be predicted with reasonable precision and this precision increases as the group size increases. From a theoretical point of view, it is possible to eliminate risk by choosing an infinitely large group.

From the insurer’s point of view, the insurance risk must meet the following requirements:

1. The elements to be insured must be sufficiently numerous and homogeneous so that the probable frequency and extent of losses can be calculated with precision.

2. The insured objects are not subject to simultaneous destruction. For example, if all buildings insured by a single insurer are in a flood-prone area and a flood occurs, the insurer’s losses can be ccatastrophic.

3. The potential damage must be accidental and beyond the control of the insured. If the insured could cause damage, the element of chance and predictability would be destroyed.

4. There must be a way to determine whether a loss has occurred and its magnitude. That is why insurance contracts state very clearly what events are about to happen, what constitutes a loss, and how it should be measured.

From the insured’s point of view, the insurance risk is a risk whose probability of loss is not high enough to require excessive premiums. What is “excessive” depends on individual circumstances, including the insured’s attitude to risk. At the same time, the potential losses must be severe enough to cause financial problems if they are not insured. Insurable risks include property damage as a result of fires, explosions, hurricanes, etc .; loss of life or health; and legal responsibility derived from the use of vehicles, occupation of buildings, work, or production. Unsecured risks include losses arising from changes in prices and conditions of competition in the market. Political risks like war or currency depreciation are not usually insured by individuals but can be insured by government agencies. Contracts can often be drafted in such a way that an “uninsured risk” can be turned into an “insured” risk by limiting losses, changing risk definitions, or other methods.

Types of insurance

Property insurance

Two main types of contracts, proprietary and commercial, were designed to ensure against damage from accidental destruction of property. These contracts (or forms) are generally divided into three or four parts: insurance contracts, identification of the insured property, terms and conditions, and exceptions.

Home insurance

Homeowner’s insurance covers physical or non-commercial property. Introduced in 1958, it gradually replaced the old method of insuring individual property as part of the “standard fire policy.”

Risk insurance

Homeowner’s policies, which come in various types, can be “all-risk” or “designated risk” coverage. All risk policies offer insurance against all risks other than those that are then excluded from the policy. The advantage of these contracts is that if the property is destroyed as a result of a hazard that is not specifically excluded, the insurance is good. Specific peril policies do not provide coverage unless the property is damaged by a peril specifically specified in the contract.

In addition to protecting the owner against loss due to destruction of property from hazards such as fire, lightning, theft, explosion, and hurricane, homeowners’ policies generally cover other types of risks that an owner faces, such as liability to others for injuries, benefits doctors for others. people and additional expenses that arise when the insured owner has to leave the premises after the insured risk occurs. Therefore, the homeowner’s policy involves many risks by nature and covers a wide range of risks that were previously covered by separate contracts.

Property coverage

Homeowner forms are designed to cover damage or loss not only to the owner’s home but also to structures (such as garages and fences), trees and shrubs, personal property (excluding certain items on the list), outdoor property free (such as jackpots), money and securities (subject to dollar restrictions), as well as losses from counterfeiting. They also cover waste disposal after loss, the cost of protecting the property from further loss, and loss of property removed from the premises for safety reasons after an insured hazard.

Restrictions on the refundable amount

Foreclosure on owner’s forms is limited to damages directly attributable to the occurrence of the insured risk. Losses caused by any intermediate source not insured by the policy are not covered. For example, if a flood or landslide, which is generally not considered a hazard, seriously damages a home that was later destroyed by fire, the owner’s recovery from the fire is limited to the value of the home already damaged by the flood. or the landslide.

Reimbursement on homeowner forms can be based on full replacement cost or actual cash value (ACV). Under the first, the owner does not receive a reduction in compensation for the property’s depreciation losses compared to its original value. This basis applies if the owner has taken coverage that is at least equal to a designated percentage, for example, 80 percent, of the property’s replacement value.

If the insured amount is less than 80 percent, a coinsurance clause is activated, the effect of which reduces the amount of compensation to the amount of the loss multiplied by the ratio between the amount insured and the amount equivalent to 80 percent of the cost. . property. However, the reduced consideration will not be less than the property’s “actual cash value”, defined as the total replacement cost less the depreciation allowance. up to the amount of the policy. For example, suppose a property is valued at $ 100,000 for a new property, is 20 percent impaired, the insurance is $ 60,000, and there is a loss of $ 10,000. The actual cash value of the loss is $ 8,000 ($ 10,000 less than 20 percent depreciation). The coinsurance clause will limit coverage to 6/8 damages or $ 7,500. However, since the actual monetary value of the loss is $ 8,000, this is the amount to be recovered.

Foreclosure on owner’s forms is also limited if more than one policy applies to the loss. For example, if two policies with equal limits are withdrawn, each contributes half of any insurance loss. Claims are also limited to the insured interest of the insured person. Therefore, if the owner has only half of the interest in the building, the compensation is limited to half of the insured loss. The co-owners had to secure their interests.

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