Question

(b) You are aged 20. Your friend Victor, an insurance agent, calls you today and recommends that you buy life insurance which can give you lifetime protection up to the age of 100. He tells you that you can either buy yearly renewable insurance or level-premium insurance.

For the yearly renewable insurance, you can renew the policy for successive one-year periods and physical examination is not required when the policy is renewed. But the premium will increase year by year.

For level-premium insurance, the premium will not increase from year to year and remain level throughout the premium-paying period. But of course, the premium is higher than the initial premiums of the yearly renewable insurance.

Required:

Evaluate the two types of insurance and justify which type you would buy.



(c) Why is it important to determine the proximate cause in an insurance contract?

Answer 1

(b). Yearly Renewable Insurance: This type of policy gives policyholders a quote for the year the coverage is bought. The premium in this type is quoted only for 1 year when it is bought. Premiums increase annually in order to cover increased risk with age. This type of insurance is also referred to as increasing premium term insurance or annual renewal term assurance. It is beneficial for young people as the premium is low and flexible. However,  if a policyholder renews for many years, they could end up paying more in premiums than if they'd bought a level term life or permanent life insurance policy.

Level-Premium Insurance: It is term life insurance for which the premiums are guaranteed to remain the same throughout the contract, while the amount of coverage provided increases. As a result, the coverage can be advantageous over time as a policyholder keeps paying the same amount but has access to increased benefit coverage as the policy matures. Premium payments often start at a higher level than policies with similar coverage but are ultimately worth more than competitors as policyholders experience increased coverage over time at no additional expense.

I would go for Level-Premium Insurance as it allows me better coverage than yearly renewable insurance. As my age increases, I would need that coverage and I will get it at no extra cost. Moreover, my earnings would also increase over time and I will be able to save more later in my life as a result of fixed insurance premiums.

(c). Proximate Cause is concerned with how the actual loss or damage happened to the insured party and whether it is a result of an insured peril. The principle of proximate cause revolves around the claims administration and diagnosing the playability of a claim on the question of perils covered by a policy. Any policy covers perils that are specified in the contract and others that are specifically not covered and some may still be neither included nor excluded (uninsured perils). When a number of perils get involved in a single incident difficult situations arise as some are insured, some are not, and some accepted. The principle of proximate cause has been established to solve such a cumbersome situation and to enable a claims manager to decide whether a claim is at all payable or not and if payable, then to what extent.