It is an accepted fact that money is required to
run a business and to start a new business/venture. Banks and other financial
institutions supply the required amount of funds for the successful conduct /opening
of a business.
But how does the bank /financial institution
stand to benefit in this exercise more so if the business runs into a loss.?
Let us examine the interest of banks and financial institution:
Banks offer loans to the business with a
facility of repayment in instalments. Appropriate interest is charged for the
loan offered and so on.
Banks also insist on obtaining an insurance
policy for the property to safeguard their interest. If the business suffers a
loss due to unforeseen events the repayment capacity of the business owner shrinks
and the bank loses its chances of loan recovery due this unexpected loss. In
such cases insurance policies cover unforeseen losses for a premium and the
loss amount is paid by the policy.
Since the loan repayment of the bank is interrupted
and chances of loan recovery diminish, an agreed bank clause is attached to the
insurance policy, which covers the mortgaged assets.
The agreed bank clause safeguards the interest
of the bank, as any claim proceeds of the policy are first paid to the bank for
loan adjustment.
What does the Agreed Bank Clause state?
The agreed bank clause in an insurance policy states:
That upon any monies becoming payable under
this policy the same shall be paid by the Company to the Bank and such part of
any monies so paid as may relate to the interests of other parties insured
hereunder shall be received by the Bank as Agents for such other parties.
Once a loan is sanctioned by the bank or
financial institution (FI), the bank/FI insists on an insurance policy with an agreed
bank clause attached to it. The name of the bank/FI is added in the clause and the
property/business is mortgaged to the bank. Proper hypothecation is made and
the interest of the bank is protected when the unforeseen happens.
With hypothecation to bank through agreed bank
clause, any sums received by the policyholder from the insurance companies is
first adjusted with the bank loan and balance amount is paid to the
policyholder.
AGREED BANK CLAUSE
It is hereby declared and agreed:
a)
That upon any monies becoming payable under this policy the same shall be paid
by the Company to the Bank and such part of any monies so paid as may relate to
the interests of other parties insured hereunder shall be received by the Bank
as Agents for such other parties.
b) That the receipts of the Bank shall be
complete discharge of the Company therefor and shall be binding on all the
parties insured hereunder
c) That if and whenever any notice shall be
required to be given or other communication shall be required to be made by the
Company to the insured or any of them in any manner arising under or in
connection with this policy such notice or other communication shall be deemed
to have been sufficiently given or made if given or made to the Bank.
d)
That any adjustment, settlement, compromise or reference to arbitration in
connection with any dispute between the Company and the insured or any of them
arising under or in connection with this policy if made by the Bank shall be
valid and binding on all parties insured hereunder but not so as to impair
rights of the Bank to recover the full amount of any claim it may have on other
parties insured hereunder.
e)
That this insurance so far only as it relates to the interest of the Bank
therein shall not cease to attach to any of the insured property by reason of
operation of condition 3 of the Policy except where a breach of the condition
has been committed by the Bank or its duly authorised agents or servants and
this insurance shall not be invalidated by any act or omission on the part of
any other party insured hereunder whereby the risk is increased or by anything
being done to upon or any building hereby insured or any building in which the
goods insured under the policy are stored without the knowledge of the Bank
provided always that the Bank shall notify the Company of any change of
ownership or alterations or increase of hazards not permitted by this insurance
as soon as the same shall come to its knowledge and shall on demand pay to the
Company necessary additional premium from the time when such increase of risks
first took place.
f) It
is further agreed that whenever the Company shall pay the Bank any sum in
respect of loss or damage under this policy and shall claim that as to the
Mortgagor or owner no liability therefore existed, the Company shall become
legally subrogated to all the rights of the Bank to the extent of such payments
but not so as to impair the right of the Bank to recover the full amount of any
claim it may have on such Mortgagor or Owner or any other party or parties
insured hereunder or from any securities or funds available.
Important
points of the clause
Bank will act as an
agent where interests of more parties are involved
Banks will receive the
monies and issue a full and final discharge to the insurance company and this
is legally binding on all parties concerned
Any information
regarding the mortgaged property, if given to the bank is sufficient
Banks also means
financial institutions and where loan is obtained from financial institutions
the name of such financial institution shall appear in the agreed bank clause,
in the place of the bank
The interdependence of
the financial institutions is evident in any business activity. Banking and
insurance are the strong pillars for a business and act as a neat blanket for
innovation and protection.
We at Zen Insurance assist in a complete understanding of the various
insurance terms and conditions. Please contact us for assistance.
Disclaimer:
Zen Insurance is an IRDAI registered broker which facilitates quick &
accurate insurance broking services. We deal with only regulator approved
products of insurers. We do not underwrite the products.
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