An Indemnity policy is an agreement mostly in property insurance by one party (the insurer) to make good a loss sustained by the other party (the insured). The principle ensures that the person who actually suffers the loss receives no more and no less than the value of the loss.
Once a policyholder suffers a loss as a matter of urgency, the following actions must be taken
Notify the insurance company at the earliest. The policy wording would usually stipulate that the insurer is notified of any incident which could give rise to a claim even if the insured does not intend to lodge a claim. This allows insurers or their representatives commence investigation into the loss in good time.
Late notification diminishes the possibility of insurers making any recovery from any negligent party and may result in the relevant claim substantiating document being lost.
Terms of an insurance contract would also state that the insured is to provide proof of loss and produce relevant documents to back up a claim (where possible). It would be unreasonable for instance for an insurer to request evidence from a policyholder who has just lost everything in an inferno.
An insured is also expected to cooperate fully with an insurer or their appointed representative after a loss. Though most insurers aim to settle a claim speedily, as custodians of the insurance fund on behalf of all policy holders, they are entitled to investigate every reported loss thoroughly.
The policyholder is expected (where possible) to safeguard the property after a loss. Where the safeguarding of property would expose the insured or anyone else to danger of any kind, common sense should prevail.
When the claim processing is complete, under indemnity policies insurers can opt to settle the claim in four different ways
Cash payment. This is usually the most adopted approach to settling an insurance claim. The insurance company issues a cheque for the agreed amount either in favour of the insured or his representative.
Replacement. This method is very popular with insurance companies in settling claims involving items of value like jewellery. This is also advantageous because of the speed at which such item can be replaced especially from the dealer sometimes at a discount.
Repair. Motor insurance claims would readily come to mind under this head. Insurance companies would refer claims to appointed repair shops once loss is approved for settlement. The insured in most cases only needs to pay the excess on the policy.
Reinstatement. This method is common in Fire Insurance claims and involves restoration of structure or building sometimes on a different site to erstwhile condition. Obviously disputes could arise as to whether condition of new structure is same as one being replaced. For this reason, this method is therefore not popular with insurers.
Ikenna Nwabueze, an associate member of the Chartered Institute of London is the founder of Insurance Discovery: http://insurancediscovery.blogspot.com/
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