Insurance covers are mainly classified into two,
- Property (non-life) general insurance
- Life assurance
The term assurance is used in respect of life contracts. It is used to mean that life contracts are not contracts of indemnity as life cannot be indemnified i.e. put back to the same financial position he was in before the occurrence of loss.(life has no money value, no amount of money can give back a lost or injured life)
Life insurance (assurance) is entered the two parties in utmost good faith and the premiums payable in such life contracts depend on:
- Age: The higher the age the higher the premiums as the age factor increase the chances of occurrence of death.
- Health condition: A person with poor health i.e. sickly person pays higher premiums as opposed to one in good health.
- Exposure to health risks: The nature of a person’s occupation can make him susceptible to health problems and death.
Types of policies
- Whole life assurance-In whole life assurance, the assured pays regular premiums until he/she dies. The sum assured is payable to the beneficiaries upon the death of the assured.
–Whole life assurance covers disabilities due to illness or accidents i.e. if the insured is disabled during the life of the policy due to illness or accidents, the insurer will pay him/her for the income lost.
ii) Endownment policy/insurance
This is wherethe insured pays regular premiums over a specified period of time. The sum assured is payable either at the expiry of the period (maturity of policy) or on death of the insured, whichever comes first.
The insured, at expiry of policy is given the total sum assured to use for activities of his own choice.(ordinary endownment policy)
-Where the insured dies before maturity of contract, the beneficiaries are given these amounts.
Note; The assured person may be paid a certain percentage of the sum assured at intervals until the expiry of the policy according to the terms of contract. Such an arrangement is known as Anticipated Endownment policy.
Advantages of Endownment policies
- They are a form of saving the insured, for future investments
- Premiums are payable over a specified period of time which can be determined to suit his/her needs e.g. retirement time
- Where the assured lives and time policy matures, he receives the value of sum assured.
- Policy can be used as security for loans from financial institutions.
Differences Between a whole life policy and an Endownment policy
The insured here covers his life against death for a given time period e.g. 1yr, 5yrs e.t.c.
If the policyholder dies within this period, his/her dependants are compensated.
If the insured does not die within this specified period, there is no compensation.However, a renewal can be taken.
This policy is normally taken parents for their children’s future educational needs.
The policy gives details of when the payments are due.
v) Statutory schemes
The Government offers some types of insurance schemes which are aimed at improving/providing welfare to the members of the scheme such as medical services and retirement benefits.
A member and the employer contribute, at regular intervals, certain amounts of money towards the scheme.
- Widows and children pension scheme (W.C.P.S)
Characteristics of life Assurance
- It is a cover for life until death or for a specified period of time
- It may be a saving plan
- It is normally a long term contract and does not require an annual renewal
- It has a surrender value
- It has a maturity date when the assured is paid the sum assured bonuses and interests.
- A life assurance policy can be assigned to beneficiaries
- The policy can be any amount depending on the assureds’ financial ability to pay premiums
- The policy can be used as security for a loan
2.General insurance (property insurance)
This type of insurance covers any form of property against the risks of loss or damage. A person can insure any property he has an insurable interest in
General insurance is usually divided into:
- Fire insurance/department
- Accident insurance/department
- Marine insurance/department
- Accident insurance
This department covers all sorts of risks which occur accident and includes the following;
- Motor policies
-These provide compensation for partial or total loss to a vehicle if the loss results from an accident.
-The policy could either be third party or comprehensive.
–Third party policies cover all damages caused the vehicle to people and property other than the owner and his/her vehicle. This includes pedestrians, fare-paying passengers, cows, fences and other vehicles
In Kenya, a motor-vehicle owner is required law to have this policy before the vehicle is allowed on the roads. One can also take a third party, fire and theft policy.
Comprehensive policy covers damages caused not only to the third party but also to the vehicle itself and injuries suffered the owner. Comprehensive policies include full third party, fire, theft and malicious damage to the vehicle.
Personal accident policy
-These policies are issued insurance companies to protect the insured against personal accidents causing;
- Injury to the person
- Partial or total physical disability as a result of the injury
- Loss of income as a result of death
-If death occurs due to an accident, the insured’s beneficiaries are paid the total sum assured.
In case of a partial or total disability as a result of accident, the insured can be paid on regular periods, e.gmonthly as stipulated in the policy.
Compensation for injuries where one loses a part of his/her body can be done on a lumpsum basis.
The insured is also paid the value of hospital expenses incurred if hospitalized as a result of an accident.
Cash and / or Goods in Transit policies
These are policies that specifically provide cover for loss of cash and goods in transit between any two locations.
E.g. Goods and cash moved from business to the markets, from suppliers to business e.t.c
d) Burglary and Theft policies
These policies cover losses caused robbers and thieves
Burglary policies are enforceable only if the insured has met the specified safety and precautionary measures for protection of the insured items.
E.g.-How much money should be maintained in different kinds of safety boxes
-Positioning of each of the cash boxes is also an important precautionary measure.
NB: The control measures are aimed at reducing both the extent and probability of loss occurring
e) Fidelity Guarantee policies
These policies cover the employers against loss of money and/or goods caused their employees in the cause of duty.
-The losses may be as a result of embezzlement, fraud, arithmetical errors e.t.c
-The policies may cover specified employees or all the employees
7) Workmen’s compensation (Employer’s Accident liability)
These policies provide compensation for employees who suffer injuries in the course of carrying out their duties.
The employer insures his employee against industrial injuries i.e the employer is only liable for the compensation of workers who suffer injuries at work.
- f) Public liability
This insurance covers injury, damages or losses which the business or its employees cause to the public through accidents.
The insurer pays all claims from the public upto an agreed maximum
g) Bad debts
This policy covers firms against losses that might result from debtor’s failure to pay their debts.
This type of insurance covers ships and cargo against the risk of damage or destruction at the sea. The main risks sea vessels are exposed to include; fire, theft, collision with others, stormy weather, sinking e.t.c
Types of Marine Insurance policies
The marine insurance covers are classified as Hull, cargo, freight and ship owners’ liability.
- Marine Hull
This policy covers the body of the ship against loss or damage that might be caused sea perils.
Included here are any equipment, furniture or machinery on the ship.
A special type of marine hull is the part policy, which is for a specified period when the ship is loading, unloading or at service.
- Marine Cargo
This type of policy covers the cargo or goods carried the ship
The policy is taken the owners of the sea vessels to cover the cargo being transported. It has the following sub-divisions.
- Voyage policy-Here cargo and ship are insured for a specific voyage/journey. The policy terminates automatically once the ship reaches the destination.
- Time policy-Here insurance is taken to cover losses that may occur within a specified period of time, irrespective of the voyage taken
- Fleet policy-This covers a fleet of ships,i.e several ships belonging to one person, under one policy.
- Floating policy-This policy covers losses that may occur on a particular route, covering all the ships insured along that route for a specified period
- Mixed policy-This policy provides insurance for the ship and cargo on specified voyages and for a particular period of time. No compensation can be made if the ship was on a voyage different from the ones specified even if time has not expired
- Composite policy-This is where several insurance companies have insured one policy of a particular ship especially when the sum insured is too large to be adequately covered one insurer.
- Construction policy/builders policy-This covers risks that a ship is exposed to while it is either being constructed, tested or being delivered.
- Freight policy-This is an insurance cover taken the owner of the ship for compensation against failure to pay hiring charges a hirer of the ship.
- Third parties liability-This is an insurance policy taken the owner of the ship to cover claims that might arise from damage caused to other people’s property.
Description of marine losses
The following are some of the losses encountered in marine insurance.
This occurs where there is complete loss or damage to the ship and cargo insured. Total loss can be constructive or actual.
In Actual total loss, the claims are as a result of the ships and/or cargos complete destruction. It could also occur;
-When a ship and its cargo are so damaged that what is salvaged is of no market value to both the insurer and the insured.
-When a ship is missing for a considerable period of time enough to assume that it has sunk.
–Constructive total loss occurs when the ship and/or cargo are totally damaged but retrieved. It may also occur;
-Where a ship and its cargo are damaged but of market value. This could be as a result of decision to abandon the ship and cargo as the probability of total loss appears imminent.
-If the cost of preventing total loss may be higher than that of the ship and its cargo when retrieved e.g. many lives may be lost in the process of trying to prevent total loss.
- General average-This is a loss that occurs as a result of some of the cargo being thrown into the sea deliberately to save the ship and the rest of the cargo from sinking. The losses made are shared the ship owners and the cargo owners proportionately as the effort was in the interest of both.
- Particular average-This occurs where there is a partial but accidental loss to either the ship or the cargo. When this happens each of the affected party is soldy responsible for the loss that has occurred to his property. A claim can, however be made if the loss incurred amounts to more than 3% of the value insured.
Fire insurance-This type of insurance covers property damage or loss caused accidental fire. Cover is offered to domestic commercial and industrial premises, plant and machinery, equipment, furniture fittings stock e.t.c
-In order to claim for compensation as a result of loss fire, the following conditions must be fulfilled;
- Fire must be accidental
- Fire must be immediate cause of loss
- There must be actual fire.
There are several types of types of fire insurance policies. These include:
Consequential loss policy;(profit interruption policy)
This covers or compensates the insured for the loss of profit suffered when business operations have
It is offered to protect future earnings of an enterprice after fire damage.
- Sprinkler leakage policy-This provides cover against loss or damage caused to goods or premises accidental leakages from fire fighting sprinklers
- Fire and Related perils policy-This covers buildings which include factories, warehouses, shops, offices and their contents. The policy does not cover loss of profit arising from fire damage.