Insurance Flashcards
What is insurance?
This is a promise of financial compensation in the possible event of future losses, in exchange for a periodic payment (premium). E.g fire insurance
What is assurance?
This is a promise of financial compensation following an event that will happen. E.g death
Explain 4 principles of insurance.
1) Indemnity - the business or person who suffered a loss should be put back into the same financial position they were in before the loss. The insured business or person shouldn’t be better off or worse off than before the loss and there shouldn’t be any profit making from the compensation.
2) Subrogation- If a person or business make a claim to get compensation to replace a damaged item, the ownership is now passed onto the insurance company after they have paid to replace it.
3) Utmost Good Faith- the insurer and the insured has a legal obligation to be truthful in the declaration they made. They have a duty to disclose all relevant information and there shouldn’t be any misrepresentations.
4) Pool of risks- Many persons or businesses pay a premium to a pool of funds that will be used by the insurance company to compensate an insured in the event that a loss is incurred. If all the insured suffer a loss at the same time that is when the problem arises.
What are 2 benefits of insurance ?
1) Beneficiaries will receive compensation
2) The family will not suffer financial burdens.
What are 2 life insurance policies
1) Whole life policy- this policy provides payment after the death of the insured to their beneficiaries who would have been identified in the contract.
2) Endowment policy- this policy provides payment to the insured after a given amount of years example retirement or after they have died. ( which ever comes first for them)
What are 3 Non- life insurance pertaining to business?
1) Worker’s compensation- to provide for employees injured on the job: medical benefits, wage compensation
2) Fidelity insurance- this covers theft or loss due to fraud by the business’s own employees.
3) Goods in transit Insurance- this covers the loss or damage of goods whilst they were being transported.
