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In: Finance

Why is it necessary to discover the proximate cause of a loss? In your explanation, classify...

Why is it necessary to discover the proximate cause of a loss? In your explanation, classify the various perils that cause the loss to determine whether it is payable.

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Expert Solution

It is important to determine the proximate cause of loss because that determines whether the insurance company will reimburse for the damage for that. Proximate cause of loss means the loss means what was the reason behind the loss that occurred and whether that is insured in the insurance contract or the insurance company will not be paying for that. There are basically three types of perils, Natural perils, economic perils and human perils. Natural perils are like fire, earthquake, windstorm and if the proximate cause of loss is natural peril and that is in the insurance contract then the insurance claim is payable. Economic perils are like loss of income and they are only payable in certain cases where the in the case of loss of an individual income they are paid certain amount like disability insurance. Human perils are normally due to the act on any individual like crime, in these cases if the act was intentionally to increase the probability to occur loss then that is not payable.


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