Types of Insurance – Non-life

Insurance
Primary Types of Non-life Insurance
Non-life insurance contracts, like life insurance contracts, vary extensively. The particulars
of the coverage as described in this tutorial may not be applicable in your country. To
find out more about the types and features of non-life insurance in your country, refer to
the websites of the non-life insurance industry association or the non-life insurance
companies themselves.

Non-life insurance includes various classes of insurance. Let's look at some of the most
common types that account for the majority of the non-life insurance sold in many
countries:

• Automobile Insurance
• Home Insurance
• Liability Insurance
• Business Insurance

Do You Know? - Other Types of Non-life Insurance

There are various other types of non-life insurance, including:

• boat insurance
• dog bite liability
• flood insurance
• identity theft insurance
• mobile home insurance
• motorcycle insurance
• personal watercraft
• pet insurance
• private mortgage insurance
• tenant's insurance
• title insurance
• travel insurance
• special event insurance

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Automobile Insurance
Automobile insurance is insurance purchased for cars, trucks and other motor vehicles.
Its primary use is to provide protection against losses incurred as a result of traffic
accidents and against liability that could be incurred as a result of an accident. In most
jurisdictions, it is compulsory to have automobile insurance. In many countries, third-
party insurance is compulsory, while coverage against loss of, or damage to, the driver's
own vehicle is optional. Typically, automobile insurance provides property, liability and
medical coverage.

• Property coverage pays for damage to, or theft of, the vehicle.
• Liability coverage pays for the insured's legal responsibility to others for bodily
injury or property damage.
• Medical coverage pays for the cost of treating injuries, rehabilitation and
sometimes lost wages and other related expenses.

The amount of liability coverage provided varies from jurisdiction to jurisdiction.

Whatever the minimum, the insured can usually increase the coverage for an additional
charge.

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Home Insurance
Home insurance, also called homeowners' insurance, is the type of property insurance
that covers private homes. Home insurance combines various protections, including
protection against:

• damage occurring to the property and contents

• loss of use of the property (additional living expenses)
• loss of other personal possessions

Homeowners' insurance also includes liability insurance for accidents that may happen at
the home and covers liability or legal responsibility for injuries and property damage to
visitors.

Property insurance provides protection against various risks to property, such as fire,
theft and some weather damage. Standard homeowners' policies (may be referred to as
comprehensive policies) protect against most risks, except specific exclusions. Damages
resulting from acts of war are typically excluded. Homeowners can obtain additional
insurance against specifically excluded risks, for example floods and earthquakes.

When a homeowner borrows money in the form of a mortgage loan, lenders

typically require that the buyer purchase homeowners' insurance as a condition of the
loan in order to protect the bank if the home were to be damaged or destroyed.

Do You Know? - Tenant's Insurance

Tenant's insurance is a type of property insurance that provides protection for tenants of
rented properties. It typically includes two kinds of coverage.

• Basic liability coverage protects the policyholder for damage to the building by
the policyholder and/or visitors, whether the damage is to the rented unit or the
whole building.
• Contents coverage protects the tenant against loss due to theft of, or damage
to, personal belongings.

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Liability Insurance
Liability insurance covers the insured party against legal claims for injury, death or
damage to property of others that may arise in the course of carrying out occupational
or personal activities.

Many types of insurance include an aspect of liability coverage. For example, a

homeowners' insurance policy normally includes liability coverage that protects the
insured in the event of a claim brought by someone who is injured on the property.
Automobile insurance also includes an aspect of liability insurance that indemnifies
against the harm that an accident involving the insured automobile can cause to others'
lives, health or property.

The protection offered by liability insurance relates to:

• a legal defence in the event of a lawsuit commenced against the policyholder

• indemnification (payment on behalf of the insured) with respect to a settlement
or court verdict

Liability insurance typically will not cover the results of wilful or intentional acts by the
insured.

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Business Insurance
Businesses typically seek protection against various risks. Insurance coverage can be
tailored to the requirements of particular businesses, and many of the types of insurance
protection can be combined in a policy or a group of policies.

Commercial Property: Buildings and Contents

Commercial property insurance covers a business's buildings and contents – money and
securities, accounts receivable records, inventory, furniture, machinery, supplies and even
intangible assets, such as trademarks – when damage, theft or loss occur.

Some insurance companies offer property insurance by named risk, such as fire and
theft. Others offer policies that cover multiple or all risks. Most basic multiple-risk
policies include losses caused by fire and theft, but business owners can purchase
additional types of coverage if they need it.

Business Interruption

Damage to property can seriously disrupt operations and can lead to loss of income and
extra expenses. Business interruption insurance protects business owners against losses
resulting from a temporary shutdown because of fire or other insured peril. Generally,
the insurance covers lost net profits and additional expenses until the problems are dealt
with and the business is resumed.

Legal Expenses

The cost of legal action can place a considerable financial strain on a business. Legal
expenses insurance covers legal costs such as lawyers’ fees and expenses, the cost of
expert witnesses and court costs for lawsuits against the business.

Do You Know? - Risk Management

An effective risk management programme helps organisations to understand and
prepare for the risks they face before losses occur. An effective risk management
strategy provides the opportunity for better pricing on an organisation's insurance
premiums and reduces out-of-pocket costs, such as deductibles.

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Business Insurance (cont'd)
Some additional features of business insurance include the following.

Liability Insurance for Insurance

Operating a business creates legal responsibilities towards the business's employees, the
public and customers. Injury to employees and members of the public can result in the
business operator being legally liable to pay damages if the business or its employees
are found to have been responsible for the injuries.

For instance, businesses can obtain employers' liability insurance to protect

themselves against their legal liability for injury, disease or death sustained by employees
and arising from their employment. Also, firms can obtain public liability insurance to
cover their legal liability to pay damages to members of the public for death, bodily
injury or damage to their property that occurred as a result of the firms' activities. It also
covers legal fees and other related costs and expenses. Furthermore, businesses can
obtain protection against the loss of services of employees, whether permanent or
temporary, which can have a significant impact on the profitability of the business.

Comprehensive Policies

Larger companies typically purchase a commercial package policy or have the insurer
customise their policies to meet the special risks they face. Commercial multiple risks
policies combine property, boiler and machinery, crime and general liability coverage in
a single policy.

In many countries, small businesses purchase insurance through a business-owner's

policy (BOP), which bundles property and liability insurance into one policy. BOP
coverage includes property insurance for buildings and contents owned by the company,
and liability protection to cover the company's legal responsibility for the harm it may
cause to others.

Trade Credit Insurance

Trade credit insurance covers businesses against the risk of losses that can result from
the insolvency or default of their buyers. This class of insurance is particularly relevant to
businesses that are involved in the export trade.

Such insurance is an important tool in credit management and can provide a

replacement of working capital when bad debts and late payments hamper cash flows. In

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addition, credit insurers provide complementary services such as credit assessment and
collections management.

Do You Know? - Export Credit Agencies

Export credit agencies are established by national governments to assist domestic
exporters and investors in their international business dealings. They offer numerous
services, including financing, as well as various types of insurance protection, such as
accounts receivable, contract and political risk insurance.

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Review Question
Which of the following types of coverage are typically included in a standard
homeowners' insurance policy?

• Liability for injuries incurred while on the insured's property (Yes/No)

• Property damage caused by explosives from an invading army (Yes/No)

• Property damage resulting from fires set by vandals (Yes/No)

• Liability for additional living expenses incurred as a result of the insured property
being damaged (Yes/No)

• Damages to the insured property resulting directly from an earthquake (Yes/No)

In standard homeowners' policies, damages to the insured property resulting from most
risks are covered. However, certain risks are specifically excluded, for instance, natural
phenomena such as earthquakes, and acts of war.

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