Mr. Adebayo insured his life for ₦10,000,000. Upon his passing, the insurance company paid the full sum of ₦10,000,000 to his named beneficiary without attempting to assess the monetary value of his loss. Why does the principle of indemnity fail to apply to life assurance contracts?
- Human life cannot be assigned an exact monetary value, making life assurance a contract of contingency rather than financial restitution.Answer
- BLife assurance requires the beneficiary to prove exact financial loss before any claim can be settled.
- CThe insurer is required to deduct external support payments received by the beneficiary from the total sum assured.
- DThe policy benefit is calculated specifically to place the beneficiary in their exact pre-loss financial standing.
Answer
Human life cannot be assigned an exact monetary value, making life assurance a contract of contingency rather than financial restitution.
The principle of indemnity aims to return an insured party to their precise pre-loss financial standing. Because human life cannot be assigned an exact monetary value or replaced, life assurance is classified as a contract of contingency rather than indemnity. Consequently, the insurer pays the full pre-agreed sum upon death or maturity without calculating monetary loss.
Step-by-Step Solution
Key Concept
Exemption of Life Assurance from the Principle of Indemnity