What are the 4 Key Elements of an Insurance Policy?

What are the 4 Key Elements of an Insurance Policy? is discussed in this article, with the key elements listed and explained.

Principles of insurance

What are the 4 Key Elements of an Insurance Policy?
What are the 4 Key Elements of an Insurance Policy? – Photo Source: https://study.com

Risk cannot be prevented or shunned as such the insurance company must set aside key elements that can serve as a guideline in any insurance coverage.

Read Also: What are the Key Players of Insurance Market in Nigeria

This article will discuss the four key elements of insurance policy which consist of definable risk, fortuitous event, insurable interest, risk shifting coupled with risk distribution.

1. Elementof Definable risk

The key factor in the elements of insurance is a risk. It is because the term risk is viewed as a definitional term that functions as a limit factor in statute and public policy.

As such this definition can be regarded as having a specified extension in the context of insurance, it is also proper to take note of the criterion of the property policy.

This creates and gives coverage in the event of certain damages such as fire outbreak, lightning, upsurge or explosion, windstorm or gale, smoke or burning, plane or vehicle damage, riot or civil tumult, destruction or vandalism, sprinkler leakage, sinkhole failure or collapse, and volcanic action which may lead to an eruption.

The incidence of the risk is a state of disorder to the insurer’s functioning and as such it must be seen from a mere reading of the policy or contract.

2. Element of Fortuity

Generally, this element has common defenses which suppose that the insured had an idea or ought to have been aware that the loss had previously occurred or was liable to occur to permit or merit certain types of defensive action to protect the interest of the insured.

Read Also: 8 Different Types of Insurance

The nonentity or unidentified element of an insurance policy can be best explained using three categories of defense:

I. The first defense

This defense is referred to as the known loss. This is a defense where an insurer will contend or claim that the loss had previously happened or taken place. He intends to inform the insured that the loss had already been placed before the policy was acquired or obtained.

ii. The second defense

This is when the insurer will declare a certain kind of developmental planning or groundwork due to the possibility of loss that may liable occur. If the loss is huge, the insurer may try to make the event appear inevitable.

iii. The third case

This is when the insurer will state or claim that the loss was current or a continuing issue when the insured obtained the insurance policy.

3. Element of Insurable Interest

This element clearly illustrates the key relationship between the insured and the property insured. It emphasizes that the item insured should be suitable such that if the item is damaged, it will affect the insured’s finances negatively. This explains that any insured item must be of good value or a valuable asset to the insured.

Read Also: 6 Highest Paying Insurance Companies in Nigeria

Furthermore, it has been observed that when the insured has no ownership interest in the insured item after purchasing an insurance policy, the weight of the item falls basically on the insurer.

The insured would ultimately have to prove or show a strong relationship with the subject of the insurance such that if the item is damaged, it would hurt the insured.

It will show the degree of importance of the item and demonstrate the insurable interest that the insured has for that item in question.

4. Elements of Risk Shifting and Risk Distribution

Every insurance policy must have some degree of risk shifting and risk distribution. Risk shifting is a frank or forthright concept that explains that the insured must hand over the economic or monetary problem regarding the loss of the item to the insurer.

On the other hand, Risk distribution starts with the risk born by an individual house possessor who does not have a property insurance policy.

Also, it is extremely implausible that the insured will have enough satisfactory resources to substitute for his house in the case where the property is damaged probably by an accidental occurrence.

Read Also: Top 20 Insurance Companies in Nigeria

Conclusively in any insurance policy, it is expected that these four elements must be available in all insurance transactions. If any element is ignored, the insurance policy is considered to be null and void.

Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like