Insurance is used to lessen risks and cover the financial losses should those risk events occur. Your business needs insurance to cover risks associated with your liabilities, assets and income.
Insurance does not change the law or reduce your fault. It simply shifts the onus of paying for any liability from you to the insurer.
Key principles of insurance
There are several basic principles of insurance to be aware of when arranging insurance for your business.
| Insurance principle | What it means to you |
|---|
Duty of disclosure |
- You owe the insurer a duty to disclose all material facts when you complete a proposal for insurance or are renewing or claiming under a policy. (A material fact is one that would affect a prudent insurer's decision about whether to offer you insurance and on what terms.)
- Failure to disclose material facts may allow the insurer either to refuse to insure you or offer you some form of insurance only to withdraw it when the failure becomes apparent.
|
Indemnity principle |
- To indemnify someone means to cover that person for their loss in a certain situation. Most types of insurance (except life assurance) are based on this principle. This means you can only recover the replacement value of your loss.
- Some policies use the stated value of an item as the basis for a claim while others use replacement value. Make sure you know what your policy says.
|
Written contracts |
- Under the Insurance Contracts Act 1984, all insurance contracts must be in writing.
- Where you arrange insurance over the telephone or in person, a cover note will usually be issued. There is a temporary undertaking (usually for a period of one month) that the insurer covers you as agreed, subject to payment of the premium.
|
Insurance agent |
- Insurance agents often work for a single insurance company and will usually only be able to provide insurance offered by that company or those their company represents.
- An agent's primary responsibility is to their company, not to you.
|
Insurance broker |
- A broker does not work for a particular company. A broker can therefore assess the best policy and company for your insurance.
- A broker is your agent, not the insurance company's agent. This means your interests should always be put before those of the insurer. This is useful when dealing with claims.
- Because a broker acts for you, a broker's fee will usually be charged for arranging the insurance.
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More information
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Types of business insurance
Arranging business insurance
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