Insurance Flashcards
Define insurance?
It is a contract between an insurer and the insured for a specified premium - insurer bears financial risk.
What is an Insurance contract?
An agreement whereby the insurer undertakes to indemnify the insured in the event of a specified loss in exchange for a premium.
Explain Indemnify.
To compensate the insured in the event of a loss or damage.
What is Insurable interest?
It is the interest that the insured stands to lose if there are losses or damages. - The Insured must prove that he/she will suffer a financial loss if the insured object is damaged/lost/ceases to exist.
What is the RAF/RABS?
This fund pays compensation when a person is disabled/injured in a road accident (or to dependents, if killed)
What is UIF?
Provides benefits to workers who are now unemployed for retrenchment.
Employees contribute 1% of their basic wage to UIF.
Compensation for Occupational Injuries and Diseases (COIDA)
Insurance compensates workers financially for disability that may arise because of accidents while performing duties in the workplace.
Non-compulsory insurance?
Transfers the risk of something happening onto the insurance company.
These risks include theft, damaged cars, damaged buildings, etc.
Explain the concept of Over insurance
Over insurance is when the item is insured for more than the actual market value.
Businesses will not receive a pay-out larger than the value of the loss at market value and this means that the extra money paid for the premiums will not be paid out to the insurer if there is a claim for a loss.
Explain Under insurance
The property/asset is insured for less than the current/actual value of the property/assets. If a business is insured for an amount that is under the actual market value of goods or service, the insured/business will only be paid out for the amount that the goods/assets are insured for. (the insurer usually applies the average clause to calculate the amount of money that must be compensated to the insured if the goods/assets are under insured.)
What is the average clause?
A stipulation set by the insurer which is applicable when property/goods is under insured/insured for less than its market value.
The insurer will pay for insured loss/damages in proportion to the insured value. This means that the insured is responsible for a part of the risk that is not insured.
Explain Reinstatement
It is a stipulation whereby the insurer may replace lost/damaged property/goods instead of reimbursing the insured.
(This stipulation is applicable when property/goods are over insured.)
What is Excess?
It is an amount that the insured agrees to pay in the event of a claim.
Explain the difference between the insurance and assurance
INSURANCE
* Based on the principle of indemnity
* The insured transfers the cost of potential loss to the insurer at a premium
* It covers a specified event that may occur
* Applicable to short term insurance
ASSURANCE
* Based on the principle of security/certainty
* The insurer undertakes to pay an agreed sum of money after a certain period has expired/on the death of the insured person, whichever occurred first
* Specified event is certain, but the time of the event is uncertain
* Applicable to long term insurance
Advise businesses on indemnification/indemnity as a principle of insurance
- It transfers the risk from businesses to insurance companies.
- Transfer of risk is subject to the terms and conditions of the insurance contract.
- Protects businesses against theft/loss of stock and/or damages caused by natural disasters such as floods/storm damage.
- Businesses will be compensated for insurable losses, such as the destruction of property through fire.
- Business’ assets such as vehicles /equipment /buildings need to be insured against damage and/or theft.
- Businesses are protected against the loss of earnings, such as strikes by employees which may result in losses worth millions.
- Protects businesses against dishonest employees.
