Final answer:
The major portion of a boiler and machinery policy premium pays for inspections and examinations. These preventative measures help mitigate the risks of major breakdowns, thus maintaining the longevity and reliability of the equipment.
Step-by-step explanation:
The major portion of the premium for a boiler and machinery policy typically pays for inspections and examinations. Insurance policies, including those for boilers and machinery, often distinguish between different types of expenses covered by the premiums.
Maintenance and prevention strategies such as inspections and examinations are critical in identifying potential issues before they result in major breakdowns or accidents. These proactive measures are generally more cost-effective than covering damages after a failure, which also may lead to business interruption costs, and they help in prolonging the life of the boiler and machinery.
An insurance premium is a regular payment made to an insurance company, which in turn provides coverage for unexpected, significant financial damages as per the policy. This creates a pool of funds from which claims can be paid, helping to distribute the risk among all the policyholders.
Concerns like moral hazard indicate that when someone is insured, they may not take as many precautions to prevent an insurable event, knowing the insurer will cover the losses. This behavior is precisely why a significant portion of the premium goes towards inspections and examinations to mitigate such risks.