(a) Explain each of the following insurance terms:
(i) consequential loss
(ii) cover note
(b) State four advantages of re-Insurance to a businessman
Explanation
(a)(i) Consequential loss is the loss on profit and rent which arises as a result of the destruction of insured property by fire.
(ii) A cover note refers to a temporary insurance cover, usually for 30 days given to the prospective insured who has completed the proposal form. From the date of the note, he will be held covered until a policy has been issued or the proposal is declined.
(b) The advantages of insurance to a businessman are:
(i) Insurance provides a ready means of compensation in case of damage to or loss of property, limb or life.
(ii) Risk protection: Insurance makes it possible for certain risks (insurable risks) to be taken off the shoulders of the businessman.
(iii) Insurance offers a businessman the opportunity to save for a rainy day (retirement benefits, annuity, etc) and through various endowment policies, insurance provides his dependants with relief in the event of his death.
(iv) Insurance provides a pool of funds for businessmen to draw from in times of need.
(v) Insurance encourages businessmen to undertake businesses that ordinarily would have been considered risky and untouchable.
(vi) Insurance encourages savings among businessmen.
(vii) Insurance policies can be used as collateral to borrow money from banks and other financial institutions.