Household and Business Management: Insurance and Tax Flashcards
Insurance
Insurance is the protection against something that might happen, e.g. car insurance for car crash or house insurance for your house going on fire
Assurance
Assurance is protection against something that will happen, e.g. life assurance because you will die
Premium
The amount of money each person pays into this fund is known as the premium
The INSURANCE PREMIUM will depend on:
- The degree of risk involved
- The potential sum of money involved.
- The administration costs of the premium.
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- No Claims Bonus
The degree of risk involved
Motor insurance companies have statistics that show that young, inexperienced drivers are more likely to be involved in car accidents than older drivers and therefore charge a higher premium.
The potential sum of money involved.
The amount of money that the insurance company may have to pay out in the event of a claim being made against them. The premium goes up in line with the amount of money you pay. E.G. A BMW will charge more for insurance than a Nissan Micra.
The administration costs of the premium.
People are employed in insurance. This cost is also spread out over insurance policies.
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Increase in the premium due to an extra risk in a particular situation. E.g. if you are a taxi driver you would pay a higher premium than an ordinary motorist because the taxi driver drives more often and is therefore more likely to have a crash/ A smokers premium would be higher for health insurance.
No Claims Bonus
Reduction in the standard premium if the insured person has not made a claim against the policy for a given period of time. It is like a reward with a reduction in the cost of the premium for not claiming with the insurance company. A common example would be not having a car accident over a period of time.
Insurance Broker
who sells insurance on behalf of many different insurance companies, and earn commission on the number of policies sold.
Insurance Agents
Some brokers are only tied to one insurance company, and so these would be called Insurance Agents.
Actuary
The Actuary is the name given to the person who calculates the Premiums and issues Quotes. They use analysis and statistics such as location, age, etc… before issuing a quote to the insured person.
Assessor
The Assessor is the name given to the person who calculates the compensation to be paid
Loss Adjuster
A Loss Adjuster may be used if the insured person is unhappy with the amount of compensation and they can look to adjust it.
Insurance Proposal Form
Insurance Proposal Form, which is the application form for insurance. You must be completely truthful when filling this out or your insurance will be void.
Policy
Once this has been received by the insurance company, you will receive your Policy document, which will state what is insured and the circumstances for making a claim.
Claim Form
A person needs to fill in a Claim Form when making a claim.
Policy Excess
The insured person must however be aware of Policy Excess, which states that the insured person would have to pay an excess amount before making a claim.
Utmost Good Faith
You must disclose all facts and tell the truth when applying for insurance. You must disclose all material facts, which are facts that even though they may not be asked, you must declare them as they could affect the premium.
Example: if you apply for health insurance and are a smoker, you must disclose this to the insurance company. Failure to do this may mean no compensation if you develop a related illness
Insurable Interest:
You are responsible for it. You benefit from its existence and suffer from its loss. I have an insurable interest on my own phone. I benefit from its existence and suffer from its loss. I do not have an insurable interest on my neighbour’s I-Phone.
Indemnity
The insured person cannot make a profit from insurance. You only get compensation for the value of the loss or damage suffered by the insured person. You must be put back into the original position before the loss occurred. (Relates to Average Clause also)
Contribution
The insurance company will split the compensation if you insure with more than one company.
Example: If I fully insure my car with two insurance companies, they will both give me half in compensation. Otherwise I would have made a profit from insurance, which I cannot do as part of Indemnity.
Subrogation
Once the insurance company fully pays out to the insured person, then all savage rights pass to the insurance company
Example: If your car is written off as a result of a crash, your insurance company fully indemnifies you (put you back in original position before loss occurred). The insurance company now has the right to sell off scraps from the car as otherwise you would have made a profit
Average Clause
The average clause is a condition included in insurance policies that limits the value of a claim if you are under-insured.
To calculate the average clause it is a Sum Insured/True Value x Loss.
Term Assurance
Pays out a lump sum if the agreed person dies before the end of the term
Whole Life Assurance
Pays a lump sum when the insured person dies
Endowment Insurance
Pays out a lump sum when the agreed person dies or reaches a certain age, but can be cashed in earlier. The longer this policy continues, the more money they will receive
Risk Management for a Household or Business
- Install security systems
- Training
- Insurance
- Regular Inspections
- Health and Safety
Bad debt insurance
Failure of individual debtors to pay amounts owed.
Burglary / theft insurance
Insurance for burglary/theft
Cash insurance
Insurance against money being stolen from firm.
Consequential loss insurance
Loss of profit from the occurrence of an insurable risk. E.g. fire on premises means closure affecting profits.
Employer’s liability insurance
Compensate employees for injuries suffered due to accidents at work.
Fidelity bond insurance
Insurance against theft of employees, e.g. stealing cash from the till.
Fire insurance
Insurance against fire
Goods in transit insurance
Insurance against goods damaged or stolen when they are being transferred.
Product liability insurance
Claims from customers arising from proper use of a firm’s product.
Public liability insurance
Claims made by the public for injuries incurred when on the firm’s premises.
Health Insurance
Insurance for medical bills and treatment when people are ill.
Life Assurance
Term Life/ Whole Life/ Endowment
Permanent Health
Provides income for the insured person if they become ill or disabled and are unable to provide for themselves long term.
Taxation
Taxation is the process of the government collecting money from individuals and businesses to pay for public services.
In Ireland, taxes are collected by the Revenue Commission on behalf of the government.
Revenue’s main aims are
- Collect taxes
- Collect duties on Imports
- Provide information on tax issues
Direct Taxes
Taxes on income
Indirect Taxes
Tax on expenditure
Progressive Tax
Higher rates for higher earners
Regressive Tax
Everybody pays the same regardless of income
PAYE
Employees pay income tax on their wages under the Pay as You Earn System.
Self- Assessment Income Tax
Tax paid by the self -employed
VAT
This is Value Added Tax and is the tax on goods and services when a consumer buys goods. The tax is collected by the business and paid to the government. At present the standard tax rate is 23 %
Motor Tax
Compulsory tax on car ownership paid to local Authority. In Meath it is the motor tax office in Navan.
Excise Duties
Tax on certain products such as alcohol and tobacco.
DIRT
This is Deposit Interest Retention Tax. When someone earns interest on money in the bank, the account holder pays this tax on that interest.
Capital Gains Tax
Tax if a person earns income from the sale of an asset such as shares or property (other than the home)
Capital Acquisition Tax
Tax paid of gifts and inheritance. The amount of tax you pay depends on who gave you the gift or inheritance and how much it is worth.
Form P12:
- Completed by the employee each year and then sent to the tax office.
- It details income earned in the past year and tax credits for the next year.
- Using the information the tax office updates the tax payer’s credits for the new tax year.
- The information is then given to the employer so they can calculate the correct amount of tax to be deducted.
- If the employee does not give the employer this document they will be taxed at an emergency rate- which is payable at a higher rate. The emergency tax can be claimed back at a later stage.
Form 12A
- It is filled in by the employee when they start working for the very first time.
- Send it to the revenue so the revenue can work out the tax credits and rate of tax they should be paying.
- If you don’t fill in the form when you start working you will pay emergency tax.
Form P60
- It is given by the employer to the employee at the end of the tax year.
- It contains pay earned and details of PAYE and PRSI paid by the employee in the tax year.
- The employee uses it to claim tax refunds and social welfare benefits.
Form P45
- It is given by the employer to the employee when they leave their job.
- It contains details of pay earned and PAYE and PRSI contributions paid by the employee during the tax year.
- The employee uses it to claim tax refunds and social welfare benefits.
Form P21
- Form that the revenue gives to an employee at the end of a tax year showing the difference between the tax paid and tax owed in the year.
- If the tax is overpaid, you will get a refund. If you underpay, you owe the tax office a cheque for the amount owed.
- The P21 is called the BALANCING STATEMENT for this reason.
Corporation Tax
This is tax paid on profits of a business. Corporation tax in Ireland is presently charged at 12.5 % and it is one of the main reasons why we attract multinational companies to Ireland. Low tax rates attract these companies to set up in Ireland. This boosts our own economy as jobs are created.
Value Added Tax
This is a tax businesses must add on to the price of goods and services they sell to the consumers
Commercial Rates
: Tax paid on the land/property owned by the business. They pay it to their local council every year. The amount paid is based on the value of the business premises.
Custom Duties
Taxes on goods imported by firms. These do not apply to imports from the European Union.
Capital Gains Tax
Similar to household, tax on money earned from sale of asset.
Motor Tax
Tax on vehicles, applies to business as well as household
PRSI
Employers must pay a percentage of the employee’s wages as their contribution to the cost of this insurance. Employers see this as an additional tax on them which increases the cost of employing staff.
