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Business Studies Grade 12 > Chapter 9: Insurance > Flashcards

Chapter 9: Insurance Flashcards

1
Q

mAssurance vs insurance

A
  • Assurance: covers risks that are certain, covers long-term risks like retirement
  • Insurance: covers possible risk, covers everyday risks that could have significant financial effects
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2
Q

Non-insurable risks

A
  • War: insurance companies believe it should be covered by government
  • Bad debt: Is insurable it’s just extremely expensive
  • Trading stock that becomes out of date due to changed fashion trends
  • Outdated machinery and technology
  • Unlawful action
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3
Q

General concepts

A
  • Indemnity
  • Security
  • Average clause
  • Excess
  • Proximate clause
  • Subrogation
  • Cession/cede the policy
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4
Q

Indemnity

A
  • The insured will be sufficiently compensated in the event of a risk that they will be in the same financial position after the risk than before it
  • Applicable to short-term insurance
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5
Q

Security

A
  • The financial security that is given to the insured and their beneficiaries in the case of death, retirement or disability
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6
Q

Average clause

A
  • Under-insured: the insured has not paid enough premium to cover the entire risk
  • Over-insured: the insured is paying premiums above the value of the asset, but can only claim for what the asset is worth
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7
Q

Excess

A
  • The rand amount or % of the loss that the insured has to pay
  • The amount the insurer is not paying
  • Could choose to have lower excess and higher premiums or lower premuims and higher excess
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8
Q

Proximate clause

A

Insurance will ensure that the risk happened for the reasons ensured and not for secondary reasons that do not align with the specific insurance policy

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9
Q

Subrogation

A

If insured claims from insurance for an accident, they cannot also claim from guilty party, the insurance company will claim from the guilty party

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10
Q

Cession or cede the policy

A

An endowment builds up money overtime so that if the insured may need it immediately, it can be signed over to a creditor as collateral in order to get the loan

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11
Q

Risk, peril, hazard

A
  • Risk: The likelihood of an event happening, premium is linked to this
  • Peril: the cause of the risk
  • The hazard: something that increases the risk(peril)
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12
Q

Premium

A

Monthly amount of payments made to insurer

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13
Q

Surrender value

A
  • Policies build up value over time, so if an insured wants to end the contract before its time, insurance company will determine its monetary value at that point
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14
Q

Paid-up value

A

The policy still exists but no premiums are paid and its value to adjusted to less than what it would have been had the insured kept paying

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15
Q

Re-insurance

A

When the insurance company cannot cover the full risk of a large insurance policy, they place a portion of the risk they cannot cover with a re-insurance company

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16
Q

Requirements of a valid insurance policy

A
  • Absolute good faith: Insured must disclose all relevant information that may affect the risk, if insured fails to be honest premiums will be null and void and they will no longer be covered
  • Contractual capacity: Person entering contract is of legal age and sound mind
  • Insurable interest: If the insured can prove they will sustain a loss if certain events take place
17
Q

Examples of insurable interest

A
  • Someone has insurable interest in their belongings
  • In their health and life (disabiliity or death)
  • A married person can have insurable interest in spouse
  • Business partners have it in the co-partners because they are joint and seperately liable for debts
  • A creditor has insurable interest in life of debtor because they owe them money
18
Q

Types of Insurance: Compulsary

A
  • UIF
  • COIDA
  • RAF
19
Q

Unemployment Insurance Fund claims

A
  • Provides short relief to people who are unemployed or are unable to work due to maternity leave or illness
  • Parental leave can be claimed if employee has been working at least 13 weeks, they may claim 66% of the income threshold benefit amount(R17 712) if they dont want paid leave
  • A father or someone in a same sex relationship can claim for 10 consecutive days
  • There’s adoptive leave that can be claimed if adopted child is younger than 2
  • Surrogate parents may also claim
20
Q

Unemployment Insurance Fund amounts

A
  • Employees and employer will pay 1% of gross income to contribute to UIF, business must pay it to SARS
  • Ceiling for determining contributions is R14 872
  • Ceiling use to determine benefits is R17 712
21
Q

UIF exemption

A
  • Employees who work less than 24hrs a month
  • Employees who earn on commission only
  • Employees of the National or Provincial governments
  • Civil servants and foreigners used to be exempted but not anymore
  • Domestic workers are also included if they are registered under Department of Labour
22
Q

UIF rules

A
  • UIF may only be claimed if it was contributed for 4 years or more
  • If someone lost their job or was retrenched they can claim for a maximum of 365 days
  • If a worker has not been to work in 7 days and isnt being paid by emloyer they can claim UIF
  • Any UIF benefits that are still owed to a deceased person will be given to their dependants
23
Q

Compensation for Occupational Injuries and Disease Act

A
  • Previously known as Workmen’s Compensation Fund
  • Can be claimed if employee gets injured, disabled or sick due to the work they do, if they die then dependants/beneficiaries can claim
  • Every employee registered with COIDA
  • Annual amount is paid according to the employees income and risk associated with work
  • Employer must minimised the risk of injury by ensuring safety procedures are in place and that all equipment is in good wokring condition
  • The amount that the worker will be paid is calculated as a % of their salary at that point
24
Q

COIDA claims

When can it be claimed and when can’t it be

A
  • Employee must notify employer of injury as soon as possible
  • Within 7 days, employer must send claim, medical report and other relevant documents to Compensation Commission
  • House workers in private service may not claim unless they are workers in guesthouses or hotels
  • Members of the South African Army and SAP may not claim COIDA because they have their own fund
  • Claim will be rejected if it was submitted 12 months or more after the injury
25
Q

Advantages of COIDA

A
  • Injured or disabled employees wil receive financial assistance on medical expenses
  • Better medical treatment means employees can return to work faster
26
Q

Disadvantage of COIDA

A

There are a lot of safety requirements that the business must adhere to that can end up being expensive and difficult to keep up with

27
Q

Road Accident Fund

A
  • Compulsory to all road users in SA
  • Paid out to people who get injured in motorvehicle accidents and pays for their rehabilitation and medical claims
  • Provides indemnity to the guilty party to that the injured or their family cannot claim from the guilty party
  • Contributions are included in the petrol/diesel price and are adapted by the government
28
Q

Non-compulsory insurance: long-term vs short-term

A

Short-term(Insurance on items):
* The more valuable the item the more expensive the premiums will be
* The higher the risk of the item getting damaged or stolen, the higher the premiums will be
Long-term(life insurance):
* The greater the amount of life insurance the insured wants to take out the higher the premiums
* If the person does a risky profession or has dangerous habits like smoking the premiums will be higher

29
Q

Business Insurance/Commercial insurance

A

Covers business from unforseen events like :
* Theft(shoplifting)
* Burgalry(forced entry)
* Public liability
* Damage from natural disaster
* Partial or total loss of income due to business not veinng able to function due to an unforseen circumstance

30
Q

Business/Commercial insurance: Fire

A
  • Content insurance: Items like machinery used in manufacturing or cash registers lose their value overtime so the business must ensure that they adapt the value of the equipment on the insurance policy, otherwise theyll be overinsured
  • Business must implement Iron Safe Clause to ensure important information and stock is kept safe from fires, Iron safe isnt really a physical place anymore because of internet
  • Fire damage to structure is usually covered by compulsory insurance from bank.
  • The more flammable something is the higher the premiums
  • The surroundings also impact the cost of the insurance
31
Q

Vehicle insurance

A
  • Fulle comprehensive insurance: In the event of a car accident the vehicle and other car will be repaired. In the event of a fire or theft the insured will have full indemnity
  • Third party fire and theft: paying for a fully comprehensive insurance on an old car is not viable, so if the old car causes damage to an expensive car the insured has to pay for the third party’s vehicle
32
Q

Insurance for money-in-transit

A
  • The business will insure any losses that may occur when the business is handling cash. They may completely avoid the risk and have a third party transfer the money
  • Fidelity insurance is when the business covers any potential financial loss from employees, if the business has one or two people handling the money they may insure the individuals specifically, but if it is many they will insure the specific position or work
33
Q

Advantages of short-term insurance

A
  • Indemnification
  • Peace of mind from not worrying about uncertainties
  • Sometimes you cannot buy a vehicle or house if you dont have insurance
  • Sometimes it is more affordable to pay for insurance than to pay for something cash
  • If you never claim, you may get cash back bonuses
34
Q

Disadvantages of short-term insurance

A
  • Can work out to be more expensive, especially if you dont ever claim
  • Insured has to make sure that the policy covers every single little thing they need in order to have complete peace of mind
  • Insurance companies usually look for every possible excuse not to pay out the claim because of how common insurance fraud is
35
Q

Advantages of long-term insurance

A
  • Life assurance ensures that beneficiaries can have a good standard of living after the insured has passed
  • Mortgage bonds usually have a life assurance incorporated so that if the insured passes the bond will be paid
  • It is a long-term investment which means the insured can make provisions for the future
  • Medical aid in an assurance that gives peace of mind knowing medical expenses are covered
  • Life insurance sector is highly regulated and secure and not risky
    *
36
Q

Disadvantages of long-term insurance

A
  • If proper research is not done and the insurance is not carefully selected it will be a waste of money
  • A lot of money is taken to pay for admin fees
  • It is possible to be over-insured on life insurance but most brokers do not mention this

Business Studies Grade 12 (9 decks)

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