Chapter 17- Insurance

Question 1

What is insurance?

Answer 1

Insurance is financial protection that covers any loss that might happen E.G. burglary

Question 2

What is a premium?

Answer 2

A premium is the fee paid by the insured to the insurance company to cover a particular risk

Question 3

What is compensation?

Answer 3

Compensation is the payment made to an insured person if they suffer a loss or injury

Question 4

How does insurance work? (premiums and compensation)

Answer 4

The premiums collected are managed by the insurance company and used to pay compensation for any claims.
Any money not paid out as compensation is profit for the insurance company.

Question 5

Principles of insurance: Utmost good faith

Answer 5

A person is obliged to answer all questions truthfully when completing the proposal form and disclose all relevant facts.
If you lie you may not get compensated if you make a claim

Question 6

Utmost good faith: Example

Answer 6

If you are asked if you smoke you must be truthful when answering questions or you will not receive any compensation

Question 7

Principles of insurance: Insurable interest

Answer 7

You must gain (financially) by its existence and suffer (financially) by its loss

Question 8

Insurable interest: Example

Answer 8

You cannot insure your friend’s bike as if it gets stolen you will not be financially affected

Question 9

Principles of insurance: Indemnity

Answer 9

You cannot make a profit from insurance. The compensation you receive will only be equal to the current value of the item

Question 10

Indemnity: Example

Answer 10

If a watch is insured for €200 you cannot make a claim for €300 if it is stolen

Question 11

Principles of insurance: Subrogation

Answer 11

The insurance company has the right to seek compensation form the party that caused the loss/damage and take the damaged item for scrap value

Question 12

Subrogation: Example

Answer 12

An insurance company pays compensation to a business whose stock was destroyed by a fire caused by a negligent electrician.
The insurance company can sue the electrician for the amount of compensation it had to pay out. The insurance company can sell any remaining stock to recover some of its compensation

Question 13

Principles of insurance: Contribution

Answer 13

If you insure and item with more than one company, each insurance company will contribute/divide the compensation.
You will not benefit any more than if you were insured by one company

Question 14

TYPES OF PERSONAL INSURANCE: Life assurance

Answer 14

Assurance is protection against a risk that will happen E.G. death

Question 15

LIFE ASSURANCE: Whole life assurance

Answer 15

An agreed amount of money is paid to the person’s dependants when the individual dies

Question 16

LIFE ASSURANCE: Endowment assurance

Answer 16

An agreed amount of money is paid when the insured reaches a certain age or on the death of the person - whichever comes first

Question 17

TYPES OF PERSONAL INSURANCE: Motor Insurance

Answer 17

Motor insurance is required by law

Question 18

MOTOR INSURANCE: Third party insurance

Answer 18

Provides compensation to owners of property damaged by your car - it does not compensate for any damage to your car

Question 19

MOTOR INSURANCE: Third party fire and theft

Answer 19

Provides compensation to owners of property damaged by your car - it does not compensate for any damage to your car.
Car is also covered in case of a fire or if it is stolen

Question 20

MOTOR INSURANCE: Fully comprehensive

Answer 20

Provides compensation to all injured parties by your car and also compensation for any damage to your car.
Due to extra cover the premium is more expensive - but worth it

Question 21

MOTOR INSURANCE: Key terms

No Claims Bonus and Loading

Answer 21

NO CLAIMS BONUS : a discount on an insurance premium. It is a reward for not making any claims

LOADING : is an extra amount added to your premium due to added risk

Question 22

Home Insurance

Answer 22

This covers the house building in the case of fire, storm or flood damage.

Question 23

Home Contents Insurance

Answer 23

This covers the house contents in the case of fire, theft or flood damage.

Question 24

Health Insurance

Answer 24

This covers the cost of hospital care and medical bills in case of accident or illness.

Question 25

Travel Insurance

Answer 25

The covers the person on holiday in case of missing luggage, passports or cancelled flights.

Question 26

Mobile Insurance

Answer 26

This covers the person in case their phone is lost or stolen.

Question 27

Mortgage Protection Insurance

Answer 27

This is a type of life insurance policy that repays your mortgage if you die during the repayment term.

Question 28

Step one to taking out insurance:

Answer 28

SEEK QUOTE: shop around for the best quote/ price.

Question 29

Step two to taking out insurance:

Answer 29

COMPLETE PROPOSAL FORM: This is an application form to be completed when applying for insurance. You must tell the truth when filling in the proposal form. Items in proposal form include- age, address, gender, value of item.

Question 30

Step three to taking out insurance:

Answer 30

PAY PREMIUM: This is the fee paid for insurance.

Question 31

Step four to taking out insurance:

Answer 31

ISSUE POLICY: The insurance company will send you out your insurance policy. This is the contract of insurance. It is a document stating the details of: - risks covered - period covered - value of cover - condition of contract

Question 32

Actuary

Answer 32

This is the person who calculates premium (how much insurance you will pay)

Question 33

How does an actuary calculate a quote?

Answer 33

When calculating the quote the actuary will establish how risky or how likely it is for you to have an accident. The greater the risk, the higher the premium you must pay.

Question 34

Compensation

Answer 34

Is a reward (usually money) awarded to someone in recognition of loss, suffering or injury.

Question 35

Fully insured:

Answer 35

This means that you will be compensated for the full amount of the damage or loss caused.

Question 36

Over insured:

Answer 36

This means that you will only be compensated for the value of the damage or loss caused. You will not receive extra.

Question 37

Under-insured:

Answer 37

This means that you will only be compensated for a proportion of the damage or loss caused. In business this is called Average Clause.

Question 38

Average Clause:

Answer 38

Average clause is a condition included in insurance policies that limits the value of a claim if you are under-insured. It means you will only be compensated for the same proportion to which you are insured.

Question 39

Average Clause Formula

Answer 39

Average Clause= (Sum Insured / Actual Value) x Loss

Question 40

Insurable risk:

Answer 40

It must be possible to calculate the risk involved and there must be a likelihood of the risk not happening. E.G. burglary

Question 41

Non-insurable risk:

Answer 41

Chances of the risk/ loss happening are impossible to estimate. E.G. end of the world.