Insurance

Question 1

name the characteristics of something being an insurance

Answer 1

= IN case something happens
=These events may or may not take place
=If it happens the insured wants to be indemnified

Question 2

name the characteristics of something being an assurance

Answer 2

=As we are human beings.
All retire:
Able to maintain a decent standard of living.
=Death may come first
Risk of our loved ones being without income.

Question 3

what are the requirements of a valid insurance contract:

Answer 3

= absolute good faith
=insurable interest
= contractual capacity

Question 4

absolute good faith

Answer 4

This requires the insured to disclose all relevant information that may affect the risk.

Question 5

what happens If all questions are not answered honestly and accurately:

Answer 5

=the risk will not be covered
=all premiums paid to cover the risk will be lost
=no compensation will be received.

Question 6

Insurable interest

Answer 6

A person should be able to prove that he/she will sustain financial loss if a certain event takes place.

Question 7

what are examples of insurable interest:

Answer 7

=A person has insurable interest in his own assets (belongings).
=A person has an insurable interest in his/her own health
=A married person has insurable interest in the life of the spouse (husband/wife).
=Business partners have an insurable interest in the lives of co-partners (they are jointly and separately liable for the debts of the business).
=A creditor has an insurable interest in the life of his debtor (a person that owes him/her money).

Question 8

name the cases where A person has an insurable interest in his/her own health occurs

Answer 8

=becomes permanently or temporarily disabled
=Case of death → the family members should be looked after.

Question 9

contractual capacity

Answer 9

the person entering into the insurance contract is of legal age and sound mind. (Legal age in South Africa is 18 years of age)

Question 10

name Uninsurable risks

Answer 10

=War
=bad debt
=business risks
=If trading inventory becomes obsolete or outdated due to changes in fashion
=technology (you cannot take out insurance against machines becoming outdated → Option is leasing.
)
=Cannot take out insurance against committing an illegal act
=Risk due to climate change

Question 11

name the type of insurances

Answer 11

=Compulsory insurance
= non-Compulsory insurance

Question 12

name the types of Compulsory insurances

Answer 12

=Unemployment Insurance Fund (UIF)
=Compensation for Occupational Injuries and Diseases Act (COIDA)
=Road Accident Fund (RAF)

Question 13

name the types of non-Compulsory insurances

Answer 13

=Fire insurance
=General Business insurance or Commercial insurance
=Household insurance
=Vehicle insurance
=Money in transit insurance
=Fidelity insurance
=Crop insurance

Question 14

Compulsory insurance:

Answer 14

insurance that is enforceable by law

Question 15

Unemployment Insurance Fund (UIF)

Answer 15

=UIF gives short-term relief to workers when they are unemployed, or if they are unable to work because of maternity leave or illness.

=Provides relief to the dependents of a deceased employee → who has contributed to the fund.

=Both the employee and employer contributes →1 % of the gross salary.

=Employer is responsible for paying this amount to SARS.

Question 16

The following people are excluded from UIF insurance:

Answer 16

=Employees who work less than 24 hours a month
=Employees who earn commission only
=Civil servants and foreigners working in the country were previously excluded → Now some foreigners are covered by UIF.
=Domestic workers are INCLUDED in UIF but the employer must register with the Department of Labour.

Question 17

talk about the UIF payout/payment

Answer 17

=Maximum amount that will be paid to the unemployed worker is 58% of the monthly salary → provided he/she has already contributed for at least 4 years to UIF.
=The claim will not be paid for more than 238 days.
=For maternity leave the maximum number of days → can claim is 121 days.

Question 18

Compensation for Occupational Injuries and
Diseases Act (COIDA)

Answer 18

=Workmen’s’ Compensation Fund.

=If an employee is injured at work OR becomes sick or disabled a result of his/her job.

=The family or dependents of a breadwinner can claim → if he/she has died as a result of a work-related accident or disease.

Question 19

Steps that the Business must follow according to COIDA.

Answer 19

=Every employer registers with the Compensation Fund.
=Pays an annual fee (The fee is based on the employee’s earnings and the risks associated with that particular job.)
=The amount of compensation paid to an employee → calculated as a % of the salary that the employee was earning at the time.

Question 20

when will the claims not be paid??

Answer 20

=Privately employed domestic workers cannot claim→ but domestic workers employed by a hotel or guest house may claim.
=Members of the South African National Defence Force or South African Police Services → They have their own separate fund.
=If the employee is booked off for three days or less →due to the incident
=If the claim is older than 12 months from the date of the incident

Question 21

Road Accident Fund (RAF)

Answer 21

=Is compulsory insurance → covers all users of South African roads.
=Assists people injured in a motor vehicle accident → will pay for rehabilitation and medical claims.
=Provides indemnity to the person guilty of causing the accident → prevents the person injured → lodging a claim against the guilty party.

Question 22

The RAF will pay in the following instances:

Answer 22

=Any person injured in a motor vehicle accident, whether it is the driver, a passenger or a pedestrian
=The family of a deceased victim may also claim

*Contributions to the fund are included in the petrol/diesel price.

Question 23

name the types of Non-Compulsory Insurance:

Answer 23

=Fire insurance
=General Business insurance I Commercial insurance
=Household insurance
=Vehicle insurance
=Money in transit insurance
=Fidelity insurance
=Crop insurance

Question 24

elaborate on Fire insurance Non-Compulsory Insurance:

Answer 24

=Different insurance companies may offer short-term insurance policies that differ from one another.
=The insured pays a premium to the insurer to cover the risk of a specific event that may occur.

Question 25

Premiums will depend on:

Answer 25

=the personal needs
=the risk profile of the customer
=the value of the assets that are insured.

Question 26

Fire insurance:

Answer 26

=Fire damage to the structure of a house or building is usually included in the insurance made compulsory by banks, when they finance a bond for the building.
=Fire causing damage to a vehicle will be included in the vehicle insurance.
=The content of the house or building will be covered against fire by the householder’s insurance.

Question 27

insure your home

Answer 27

=Comprehensive cover: Comprehensive cover for your household contents in the event of a fire;
=Excess: Standard excess for vehicles and buildings, no excess for house contents damaged as a result of a fire.
=SOS Services: Six free SOS services to all personal lines
=The more flammable a product → thatch roof → the higher the risk → therefore the higher the premium.
=The nature of the surrounding buildings → house or business → next to a garage selling petrol → a high risk → a high premium payable.

Question 28

General Business insurance I Commercial insurance

Answer 28

Important decisions the entrepreneur/manager to protect the business from losses caused by unforeseen circumstances.

Question 29

These circumstances may include:

Answer 29

=theft (shoplifting)
=burglary (forced entry)
=public liability (if a customer slips on a wet floor while in the shop (called liability insurance)
=damages from fire or elements of nature.

= Insurance contracts relating to insurance for inventory (trading stock) will include an ‘iron safe clause’.

Question 30

Iron safe clause:

Answer 30

=Past → records of the business’s stock on hand in a safe that is fireproof.
=Today → back-up record off-site due to technology.

Question 31

Partial loss of income

Answer 31

Partial loss of income if the business cannot operate while repairs are being done → covered in a Commercial insurance policy.

Question 32

C) Household insurance(these are the things that can be insured)

Answer 32

=Includes all types of assets
=assets may range
=Liability insurance
=If the insured has visitor’s,Their belongings may also be covered if provision was made for it in the policy.

Question 33

Liability insurance (included as part of the household insurance)

Answer 33

Will cover the home owner against losses or injuries sustained by people visiting or working on the premises

Question 34

Assets may range from:

Answer 34

=Furniture, electrical items, clothing, toys, sports equipment, and tools to gardening equipment.

Question 35

D) Vehicle insurance

Answer 35

When we talk about vehicle insurance, we normally distinguish between two options:
=1) Fully comprehensive:
=Third-party, fire and theft:

Question 36

1) Fully comprehensive:

Answer 36

=Means the insured’s car and the other vehicle will be repaired in the case of an accident.
=Damaged caused by fire will be covered OR if the car is stolen the insured will be indemnified
=Expensive sound systems, laptops and other expensive items must be specified separately → to be covered by the insurance policy.

Question 37

Third-party, fire and theft:

Answer 37

The older the vehicle, the less the value. If a vehicle is relatively old, it may not be financially viable to continue paying fully comprehensive insurance, because the chances are the insurance company will write off the vehicle if it is damaged and not payout a decent value. In such as case, if the driver (of the old vehicle) is to blame for an accident that
caused damage to another very expensive car, at the very least, the damage to the other car (third party) should be paid by his/her insurance company. This type of insurance also pays out if the car is stolen or damaged in a fire.

Question 38

E) Money in transit insurance

Answer 38

=To cover any potential losses → may occur between the business and the bank.
=Some businesses prefer not to take this risk and will outsource the transportation of the money to a third party → Coin Security company → which will definitely have this type of insurance

Question 39

F) Fidelity insurance

Answer 39

=To protect the business against financial losses caused by dishonest employees .
=If there are only one or two people in the business handling money or working with finances, the policy may be taken out to cover individual employees (their names are specified on the policy).
=If a large number of staff members need to be covered, a floating
policy may be taken out where specific positions (jobs), rather than individual people are covered.

Question 40

G) Crop insurance

Answer 40

Aimed specifically at farmers and is taken out to cover risks that may arise from their income-generating assets.

Question 41

Risks that are covered may include:

Answer 41

=Drought
=heat waves
=floods
=hail
=frost & fire

Question 42

Risks that are covered may include:

Answer 42

=Drought
=heat waves
=floods
=hail
=frost & fire
=Additional insurance on livestock may also be added.

Question 43

General Concepts Relating to Insurance:

Answer 43

=imdemnification
=security
=average clause
=excess
=Subrogation
=Cession or to cede (sign over) the policy

Question 44

Indemnification

Answer 44

=Should the insured asset be damaged or
destroyed, the insured will be adequately
compensated for any loss.
=Insured will be put in the same financial position as before the event took place.
=Indemnification refers to short-term insurance.

Question 45

Security

Answer 45

=Refer to long-term Assurance.
=The aim is to provide financial security to the insured
=The Group Life Cover policy that the employee belongs to at work provides security to the family in the form of Life Assurance.
=Premiums on Group Life Cover are usually lower than normal life assurance policies.

Question 46

The aim is to provide financial security to the insured when:

Answer 46

=He/she retires
=To the insured’s dependents when he/she dies

Question 47

Average clause

Answer 47

Is applied if the asset was not insured for the correct value.

Question 48

Under-insured

Answer 48

=The insured has not been paying a premium that is sufficient to cover the full risk.

An example:
=The value of an asset is R10 000
=Only insured for R6 000 (60% of the risk was insured
=A fire → damage is R2 000
=Only 60% of the damage will be paid out → R1 200

Question 49

Over-insurance (we use the principle of Reinstatement )

Answer 49

Where the asset is insured for more than the current value.
The monthly premium higher than what is necessary.
Vehicles are often over-insured → value of the car diminishes on a yearly basis → need to adjust your policy.

Question 50

Excess

Answer 50

=Rand amount or % of the loss / claim specified by the policy that is the responsibility of the insured to pay.
=The excess amount can be low, but then monthly premiums will be higher.
=Or, if the insured is prepared to pay a high excess, the monthly premiums may be lower.

Question 51

Proximate cause

Answer 51

If a person claims from the insurance company for a loss suffered, the insurance company will make sure that the loss suffered was as a result of the event that was insured and not a secondary event.

Question 52

Subrogation

Answer 52

=Subrogation relates to the principle of indemnity.
=The insured is not allowed to make a profit from insurance, means every loss may only be claimed once

Question 53

Cession or to cede (sign over) the policy

Answer 53

=An endowment policy builds up a cash worth over time (every month when the premium is paid).
=Should an immediate need arise by the insured for the money, the policy may be signed over to a creditor as collateral in order to get the loan.

Question 54

Advantages of INsurance:

Answer 54

=The insured can transfer some of the risks to the insurance company which then provides the insured indemnification against a large number of risks. e.g. fire.
=Peace of mind, not having to worry about uncertainties.
=In some cases a person cannot buy a car / house, unless there is insurance to cover the risk for the bank while it finances the asset.
=Cash back bonuses from some insurers if no claims are made.
=It may be cheaper to pay for insurance rather than paying the expense if the event takes place. Think, for example, of buying a new car and within a month it is stolen or written off. One premium has been paid and the car is replaced.

Question 55

Disadvantages of INsurance:

Answer 55

=Insurance can work out to be expensive, especially if the insured never claims.
=The insured has to check that the insurance he/she requires covers all the circumstances/events for which it is needed to ensure complete peace of mind.
=Insurers often look for every excuse possible not to pay a claim.

Question 55

Disadvantages of INsurance:

Answer 55

=Insurance can work out to be expensive, especially if the insured never claims.
=The insured has to check that the insurance he/she requires covers all the circumstances/events for which it is needed to ensure complete peace of mind.
=Insurers often look for every excuse possible not to pay a claim.

Question 56

Advantages of ASsurance :

Answer 56

=Life assurance ensures that dependents can continue to enjoy a good standard of living in the case of the insured becoming disabled or in the case of death.
=Mortgage loans usually have a life assurance policy linked to it . This settles the outstanding amount on the bond if the bondholder or spouse dies and provides peace of mind to the family.
=Life assurance is a long-term investment that allows the insured to make provision for future events after the date of the policy maturing, e.g. tertiary education for children or retirement.
=Medical aid is a form of assurance that gives the insured peace of mind knowing health expenses will be covered.
=Policies can be ceded to obtain a loan if the insured is in urgent need of money.
=Retirement annuities offer tax benefits.

Question 57

Disadvantages of ASsurance:

Answer 57

=There are a wide variety of policies available and the right one has to be chosen for the specific individual, or else it may be a waste of money.
=There are laws put in place that specify the maximum allowable sum to be paid out in certain circumstances. Unfortunately brokers often do not mention this to clients.
=A relatively large portion of the monthly premium paid may be taken by the Life Assurer for administration and handling fees. If the insured is not aware of this upfront, he/she may have expectations of capital growth that may not be met.