Answer to Question #167404 in Management for Prabhdeep

Question

A.discuss in details the conditions of consequential loss policy? (Please answer in 200 to 250 words)

B.what is the purpose of consequential loss insurance?( please answer in 200 to 250 words in points)

Answer 1

Conditions for Consequential Loss Policy

A consequential loss policy refers to insurance that covers and compensation for the indirect adverse effects caused by the occurrence of the risk insured against. The policy requires the insurer to compensate the insured against the loss of an opportunity missed due to interruption brought about by the occurrence of the insured risk. For consequential compensation to be done, is a disruption of normal operation must be caused by indirect peril. This condition only allows compensation of indirect losses and disadvantages caused by the occurrence of the insured risk rather than the damage caused by the occurrence of the risk insured against. For instance, if a shop is insured against fire, and fire breaks out at some point, the policy does not allow compensation for the physical damage caused by a fire on the shop. However, it only covers the loss or any missed opportunity that is brought about by the inability of the shop to operate and make profits during occurrence and containment of the risk. The second condition of the policy is that compensation is only allowed for indirect adverse effects brought about by the occurrence of the risk insured against. For instance, if a business car is insured against accident and it is unfortunately stolen, the policy does not allow compensation of the lost profit brought about by the delay in the recovery process brought about by theft. In such a situation, compensation will only be done on the occurrence of an accident.

Purpose of Consequential Loss Insurance

Consequential loss insurance refers to insurance that covers the loss of profit that is brought about by the interruption of the production process in the event of the occurrence of the risk insured against and any other peril related to the latter. When a peril insured against like fire occurs, there will be several expenses insured in the process of remedying the situation like paying the auditor who makes the claim. Such losses are coverable by the consequential loss policy. Again, the gross profit loss that is brought about by the occurrence of the risk due to stoppage or slowed production process is also compensated by the insurance policy. The policy also covers all, the wages that are paid by the business during the time of interruption of the normal operation of the company. In the context of real estate management, in the event of the occurrence of the insured peril or any other risk associated with it, the rent that is missed during the period of interruption is compensated by the consequential loss insurance.