Determination of proximate cause

The rule is that immediate and not the remote cause is to be regarded. The maxim is “sed
causa proxima non-remota spectatuture”, i.e., see the proximate cause and not the distant
cause.

 The real cause must be seen while payment of the loss. If the real cause of loss is
insured, the insurer is liable to compensate the loss; otherwise the insurer may not be
responsible for loss.
 The efficient cause of a loss is called the proximate cause of the loss. For the policy to
cover, the loss must have an insured peril as the proximate cause of the loss.
 The proximate cause is not necessarily the cause that was nearest to the damage, but is
rather the cause that was  actually responsible for loss; e.g. in marine insurance,
seawater.

I. If there is a single cause of the loss, the cause will be the proximate cause and further
if the peril (cause of loss) was insured, the insurer will have to indemnify the loss.
II. If there are concurrent causes, the insured perils and excepted perils have to be
segregated. The concurrent causes may be separable or inseparable. Separable causes
are those which canbe separated from each other. The loss occurred due to a particular
cause may be clearly known. In such a case, if any cause is excepted peril, the insurer
will have to pay up to the extent of loss which occurred due  to insured perils. If the
circumstances are such that the perils are inseparable, then the insurers are not liable
at all when there is exists any excepted peril

Events Covered Under Insurance Contracts

Most insurance contracts contain certain exclusions, such as for loss due to war, loss to
property of an extremely fragile character, and loss due to the deliberate action of the named
insured. Most property insurance contracts require the insured to notify the insurer of loss
as soon as practicable, and usually require that the insured prove the loss.
 Named Peril Versus All Risk.
Named Peril
Under this policy, only those perils specifically named in the policy will have coverage. If
the peril is not named or listed in the policy, it means it is not covered. The burden of
proof is on the insured

All Risks policy: Also called an open perils policy

Under this policy all losses are covered except those losses specifically excluded. “All risk”
coverage is generally preferable for insured. Greater burden of proof is placed on the
insurer to deny a claim.

Exclusion
Excluded Losses Most insurance contracts contain provisions excluding certain types of
losses even though the policy may cover the peril that causes these losses. For example, the
fire policy covers direct loss by fire, but excludes indirect loss by fire. Thus, the policy will
not cover loss of fixed charges or profits resulting from the fact that fire has caused an
interruption in business. Separate insurance is necessary for this protection.

Excluded Property A contract of insurance may be written to cover certain perils and losses
resulting from those perils, but it will be limited to certain types of property. For example, the
fire policy excludes fire losses to money, deeds, bills, bullion, and manuscripts. Unless it is
written to cover the contents, the fire policy on a building includes only integral parts of the
building and excludes all contents.

Excluded Locations The policy may restrict its coverage to certain geographical locations.
Relatively few property insurance contracts give complete worldwide protection. For
example automobile insurance may be limited to cover the auto while it is in Ethiopia. If the
car is, say, in Kenya coverage is suspended.

Deductible:
Is an amount to be subtracted from the total loss payment that otherwise would be payable
Applicability
A deductible is applied in property, health and auto insurance
A deductible is not applied in life and personal liability insurance
 Purposes
 A deductible eliminates small claims that are expensive to handle
 To reduce moral and moral hazard
 To reduce premium

Defining the insured All policies of insurance name at least one person who is to receive the
benefit of the coverage provided. That person is referred to as the named insured. In life
insurance he is often called the policyholder.

LIFE AND HEALTH INSURANCE

Life insurance is the method by which a group of people may cooperate to a meliorate the
loss resulting from the premature death of members of the group.

The insuring organization collects contribution from each member, invests these
contributions, guarantees both their safety and minimum interest return, and distributes
benefit to the estate of the members who die. provides compensation to specified individuals
or groups such as to family members or charities when the policy holder dies. Individuals can
purchase life insurance coverage individually from insurance companies.

The characteristics of Life insurance

Life insurance is a risk-pooling plan, an economic device through which the risk of premature
death is transferred from individual to the group.
 The event insured against is an eventual certainty, no one lives forever
 There is no possibility of partial loss in life insurance as there is in the case of
property and liability insurance
 Life insurance is not a contract of indemnity
Major types of life insurance
 Term life insurance
 Whole life insurance
 Endowment life insurance
 Annuities life insurance
Term life insurance is a contract that furnish life insurance protection for a limited number
of years, and the face valve of the policy being payable only if death occurs during the
stipulated term, and nothing being paid in case of survival. People may purchase term life
coverage for 1,5,10,20 60 or 65 years. This insurance scheme provides compensation to the
beneficiary if the insured dies within the stated period mentioned in the policy. If the insured
survives beyond the specified time limit in the policy, the policy will expire and there will be
no payment made by the insurer.
Whole life insurance provides for the payment of the face value upon the death of the
insured, regardless of when it may occur. Spreads the cost of insurance coverage over a
person’s entire life through a payment plan of regular, equal installments. Under whole life
insurance the insurer promises to pay the face amount when the insured dies.
There are two types of whole life insurance:
 Ordinary whole life insurance
 Limited payment whole life insurance
Ordinary whole life insurance
It is also called straight life and continuous premium whole life insurance.
 It provides lifetime protection to age 100 and the death claim is a certainty. If the
insured is still alive at the age of 100, the face amount of insurance is paid to the
policy owner at that time.
 Premiums do not increase from year to year but remain level through out the
premium paying period.
 Under this policy, premiums are to be paid at regular interval until the death of the
insured or until the achievement of a specified age limit, say 85 years.
Limited payment whole life insurance:
Under this principle, premiums are paid for a definite period, which is determined in advance
such as 20 years or until age 65. After the expiration of the specified time, the policy is said
to be paid up, which means that no more premiums are to be paid to keep the policy in force
until the time of death of the insured at which time compensation accounting the face value of
the initial policy is to be made to the insured’s beneficiary. Whole life insurance policy
provides permanent protection to the insured’s dependents in the case of death. Premium
under a limited payment policy are higher than an ordinary life policy, the cash value are
also higher.
Endowment Insurance:
An endowment policy pays the face amount of insurance if the insured dies within specific
period, if the insured survives to the end of the endowment period the face amount is paid to
the policy owner at that time.

Example: If Bekele age 35 purchased a 20 year endowment policy and died any time within
the 20 year period, the face amount would be paid to the beneficiary. If he survives to the
end of the period and the face amount is paid to him. Unlike the term insurance,
endowment insurance policy owner is paid the contract’s face amount at the end of the
protection period if the insured is still a live. The objective may be to pay living expenses
during retirement.
Annuities:
An annuity can be defined as a periodic payment to an individual that continues for a fixed
period or for the duration of a designated life or lives. The fundamental purpose of a life
annuity is to provide a life time income that cannot be outlived to an individual. An annuity
planned to liquidate a principal sum and provide protection against the loss of income
because of excessive longevity and exhaustion of one’s savings.
Modified Life Insurance
A modified life policy is a whole life policy in which premiums are lower for the first three to
five years and higher thereafter. The initial premiums is slightly higher than for term
insurance, but considerably lower than for an ordinary life policy issued at the same age.
Juvenile Insurance
Juvenile insurance:- refers to life insurance purchased by a parent or adult on the lives of
children younger than a certain age, such as age 14 or 15. Insurers generally require the child
to be at least one month old before he or she can be insured. Some insurers, however, will
insure a child as young as one day old.
Industrial Life Insurance
Industrial life insurance - (some called debit insurance) is a class of life insurance that is
issued in small amounts, and the premiums are payable weekly or monthly. In the past, the
premiums were collected at the insured's home by an agent of the company. In recent years,
industrial life insurance has also been called home service life insurance, reflecting the fact
that individual policies are serviced by agents who call at the policy owner's home to collect
the premiums.
 Group Life Insurance
Group life insurance is a type of insurance that provides life insurance on a group of people
in a single master contract.
 Underwriting Life Insurance

Underwriting is the process through which an insurance company evaluates the risk of a
potential client, and this process allows the company to set premiums and coverage specific
to the individual.

Literal/Plain Meaning: -
 signing & accepting risk liability under an insurance policy,
 guaranteeing payment in event of loss
Practical Meaning: -
 selection of risk and rating it properly
 Selection of risks based on information
 Decision whether to accept risks or not
 If so, on what terms/conditions & at what rate

Basic Functions of Underwriter

 Gather risk information
 Assess & evaluate
 Select
 Classify
 Rate
 Policy coverage
 (terms/conditions & exclusions)
 Retention and re-insurance

Duties of the Underwriters

 Coordination of underwriting tasks
 Maintain policies in force/renewals
 Customer visit & follow-up (risk data)
 Proper handling of underwriting Files & records
 Underwriting Report preparation
 Handling of alteration/cancellation
 Provide information to claim handlers
Basic Requirement for Underwriting
 Large number of similar risks (property, life, Liability)
 Insurable Interest
 Loss must not be imminent (about to happen) but accidental
  Insurable risk: Pure risks, not speculative
 Not catastrophic,
 Loss should be definite in time, place, cause and amount.
 Scope of cover should be legal & not against public interest.

Life insurance underwriting consists of both medical underwriting as well as non-

medical underwriting.

Medical underwriting is an insurance term referring to the use of medical or health status
information in the evaluation of an applicant for coverage (typically for life or health
insurance). As part of the underwriting process, health information may be used in making
two related decisions:
A. Whether to offer or deny coverage;
B. What premium rate to set for the policy.

To conduct medical underwriting, an insurer asks people who apply for coverage (typically
people applying for individual or family coverage) about pre-existing medical conditions.
Life insurance companies each have their own extensive policy and procedure manuals they
are supposed to follow in determining whether or not to issue an Individual Life insurance
policy, and in pricing that policy.

They include the applicant's answers to a series of questions such as:

A. Age
B. Sex
C. Height and weight
D. Health history (and often family health history -- parents and siblings)
E. Marital status and number of children
F. Occupation (some are hazardous, and increase the risk of death)
G. Smoking or tobacco use (this is an important factor, as smokers have shorter lives)
H. Alcohol (excessive drinking seriously hurts life expectancy),
I. Drug use
J. Certain hobbies (such as race car driving, hang-gliding, piloting non-commercial aircraft)
&
K. Foreign travel (certain foreign travel is risky).
 Why is Underwriting Important?
The main purposes of life insurance underwriting are:
A. To prevent individuals who have a higher than average probability of loss from obtaining
insurance at average rates,

B. To decide whether to offer or deny the coverage, and

C. To set the premium rate for the policy

Diseases that can make an individual uninsurable include serious conditions such as:
A. Cancer
B. Heart disease
C. Overweight and underweight
D. Diabetes
E. Blood pressure etc.

Health Insurance
Health insurance is defined as the types of insurance that provides indemnification for
expenditures and loss of income resulting from loss of health. The health insurance is
insurance against loss by sickness or bodily injury. The most important individual coverage
include the following
Medical Expense insurance: provides for the payment of the cost of medical care that results
from sickness and injury. Its benefit helps to meet the expense of physician, hospital, nursing
and related services, as well as medications and supplies.
E.g.
 Hospital insurance
 Surgical insurance
 Physician expense insurance
 Major medical insurance

Hospitalization Contract:- The hospitalization contract is intended to indemnify the insured

for necessary hospitalization expenses, including room and board in the hospital, laboratory
fees, nursing care, use of operating room, and certain medicines and supplies.
Hospitalization expense is usually written for a flat daily amount for a specified number of
days such as 30,120, or 365. The contract provides that costs upto the maximum benefit per
day (say 40 birr, 50 birr, 70 birr etc.) will be paid for the number of day specified, while the
insured or an eligible dependent is in the hospital. Typical contracts offered by insurance
companies, for example, may state that the insured will be indemnified up to “X birr per day”
for necessary hospitalization.

Exclusions under hospitalization contracts:

Like all insurance policies, hospitalization contracts offered by insurers are subject to
exclusions. The following exclusions are typical of hospitalization contracts:

 Expenses resulting from war or any act of war.

 Expenses resulting from self-inflicted injuries.
 Expenses payable under worker’s compensation or any occupational disease law.
 Expenses incurred while on active duty with the armed forces.
 Expenses incurred for purely cosmetic purposes.

Surgical Contract: - The surgical contract provides set allowances for different surgical
procedures performed by duly licensed physicians. In general, a schedule of operations is set
forth together with the maximum allowance for each operation. It reimburses the
policyholder according to a schedule that lists the amounts the policy will pay for a variety of
operations.

Regular Medical Contract: - The regular medical expense insurance pays part or all of a
physicians ordinary bills, such as his calls at the patient’s home or at a hospital or a patient’s
visit to his office. It is a contract of health insurance that covers physicians’ services other
than surgical procedures. Normally, regular medical insurance is written in conjunction with
other types of health insurance and is not written as a separate contract.

Major Medical Contract: - The major medical expense insurance provides protection against
the very large cost of a serious or long illness or injury. The major medical policy is most
appropriate for the large medical expenses that would be financially unaffordable for the
individual.
The contract is issued subject to substantial deductibles of different sorts and with a high
maximum limit. Since this kind of policy is designed to cover only serious illness or
accidents, a deductible is used to eliminate small claims. A major medical policy might have
a 5,000 birr maximum limit for any one accident or illness, have a 200 birr deductible for any
one illness, and contain an agreement to indemnify the insured for a specified percentage of
the bills, such as 80% over and above the amount of the birr deductible. This means the
insurance company pays 80% of the loss in excess of the deductible, and the insured pays the
20%.

Disability income insurance: provides periodic income payments to the insured while he or
she is unable to work because of sickness or injury. Coverage may be provided for disability
resulting from accidents only or for disability resulting from accidents or sickness.

The disability must be one that prevents the insured from carrying on the usual occupation.
Most policies continue payment of the benefits for only a specified maximum number of
years, but lifetime benefits are available on some contracts. However, under all loss of
income policies, the benefits are terminated as soon as the disability ends.

Certain types of accidents are excluded, for example, losses caused by war, suicide and
intentionally inflicted injuries, and injuries while in military service during wartime.