Ch 9- Reducing Financial Risks with Insurance Flashcards
What is insurance?
a person paying a fee to an insurance company in return for a promise to be compensated if a particular financial loss occurs.
What are the benefits of insurance?
⇒ Provides financial security
⇒ Savings can be enhanced
What are the types of insurance on assets and liabilities?
⇒ House insurance
⇒ Mortgage protection insurance
⇒ Motor insurance
What is house insurance?
Insurance that covers both the buildings and its contents in the event of a wide range of risks including fire, burglary and accidental damage
What is mortgage protection insurance?
Insurance that is required by all lenders before they will approve a mortgage to buy a house
What is motor insurance?
Insurance that covers drivers in the event of an accident.
What is the legal minimum insurance that all drivers must have? What does it cover?
Third party, fire and theft insurance covers the driver of any car you crash into, and your car if it is damaged by fire or stolen
What is a no-claims bonus?
a discount offered on premiums to customers who haven’t made any insurance claims during the previous year, or number of years
What are the types of insurance on health and life?
⇒ Health insurance
⇒ Personal accident
⇒ Life Assurance
What does health insurance cover?
the cost of private healthcare in the event of illness
What does personal accident insurance provide?
compensation if you have a serious accident.
What does Life assurance provide?
cover for something that will happen i.e. death
What are the two main types of life assurance?
⇒ Whole life assurance policies
⇒ Endowment life assurance policies
What do whole life assurance policies require?
the insured person to pay an annual premium for the rest of his/her life
What is endowment life assurance policies?
They pay out compensation when you reach a certain age, e.g. 60, or if you die before you reach that age, whichever comes first
What are the steps of taking out insurance?
- Contact an insurance company directly or else go through an insurance broker or agent
- Fill in a proposal form
- Risk is assessed and a premium is calculated
- Policy is issued
What is an insurance broker?
someone who works independently of insurance companies to help consumers to identify their insurable risks and give unbiased advice on the best insurance policy to buy and from which firm
What is an insurance agent?
people that work for one insurance company and only sell that companies policy’s
What is a proposal form?
an application form completed by the person applying for insurance cover.
What factors influence the size of premium?
⇒Level of risk involved
⇒Value of the item being insured
⇒Profit targets set by the insurance company
What are loadings?
extra charges added to motor premiums to take account of the different characteristics of the applicant
e.g. age of the driver
What is an insurance policy?
It sets out the full contract including the items covered, the value of the compensation available and the conditions attached.
What are the rules of insurance?
What happens if these rules are broken?
⇒Principle of Contribution
⇒Principle of Subrogation
⇒Principle of indemnity
⇒Average clause rule
⇒Utmost Good Faith
⇒Insurable interest
if breached, the company may not pay the compensation.
Explain principle of indemnity
You can not make a profit from an insurance claim. Insurance companies will only compensate for the actual financial loss suffered
What does the average clause rule state?
that because you are only insured for a fraction of what the item is worth, you only receive the same fraction of any compensation paid.
What is over-insurance?
It is when you insure an item for more than it is actually worth
What is under-insurance?
when you insure an item for less than it is actually worth.
How can an insurance company settle a claim?
⇒Pay cash compensation to the insured
⇒Replace the asset
⇒Repair where a partial loss or damage occurs to an asset
What is the principle of subrogation?
Insurance companies can sue whoever caused the loss
What is the principle of contribution?
Insurance companies will share the burden, if a risk is insured by two or more companies
What is insurable interest?
People can only insure something where they benefit from having the item and it would cost them money to replace it if it was robbed or stolen.
e.g. house
What is Utmost Good Faith?
The person who wants to take out the policy must give truthful information and disclose all relevant facts
