Insurance Chapter 12 Flashcards
What is Risk management?
A planned approach to minimising the risk that a business / household is exposed to.
Give Examples of Risk Management techniques
Security Measures e.g installing a security alarm
Proper Training
Insurance e.g house and contents insurance
Explain insurance and how it works
Financial protection from risks.
Businesses and households pay a fee (premium) to an insurance company every year.
If anything happens to them or their assets, the company pays them money as compensation for the value of what they have lost.
Name the five principles of insurance.
Utmost Good Faith Insurable Interest Indemnity Contribution Subrogation
Explain Utmost Good Faith with example
When filling in the proposal form for insurance, person must tell truth.
Any material information that may affect the insurance cover and premium must be disclosed.
Ex:Penalty points on your driving licence.
Explain Insurable interest with example
A person can only insure something they own.
Must have legal relationship with item
You must benefit from its existence and suffer from its loss.
Ex: can insure your own car but you not your neighbour’s car.
Explain indemnity
You cannot make a profit from insurance.
Compensation received is equal to value of item lost.
Insurance company will only pay out what the item is worth, not how much it is insured for.
No point over or under insuring asset
In case of under insuring- average clause
Ex: Old car cannot claim for how much a new car would cost
What is average clause
Rule used to calculate compensation is an item is under insured
What is the formula for average clause
Value of Claim × (Amount The Item Is Insured For/How Much The Item Is Worth)
Explain contribution
If you insure an item with more than one insurance company, then they will split the cost of the compensation between them.
Each pays fraction of compensation in ratio of amount you insured with each
This ties in with Indemnity
What is the formula for contribution
Value of Claim × (Amount The Item Is Insured For With This Insurer/Total Amounts Insured With All Insurers)
Explain subrogation
Once claim is made, ownership of damaged item is transferred to the insurance company.
They own the right to seek compensation from person who caused the damage.
Also entitled to any scrap or salvage value from the asset.
Ex: If bicycle was destroyed in accident worth 300 and you got 300 you cannot sell wreckage as you would make a profit
Explain claim from
This is the form filled out by someone who is making a claim on their insurance policy.
Sets out details of asset, damage how it happened, compensation etc
Insurance decided if any how much to pay out
Explain insurance policy
The legal document (contract) a person receives from the insurance company when insurance has been taken out.
Legal contract
Sets out risks covered and not covered and premium
Explain proposal form
Is the application form that a person fills in when they are applying for insurance
Asks questions to answered truthfully
Uses answers to decide what risk the person is and if they should insure them
What does the amount charged for an insurance premium depend on?
Level of Risk – a loading charge may apply Value of the Item Amount of Claims Being Made Profit Margin of the Insurance Company Government Taxes
Explain insurance broker
A person who sells insurance policies on behalf of several insurance companies
Explain exclusions
These are specific items or risks that are not insured and are excluded from the insurance policy
Explain policy excess
The amount of each claim an insured person must pay e.g the first €500 of a claim
Explain loading
An extra charge added to the basic premium if there is an increased risk.
Explain actuary
The person responsible for calculating the insurance premium.
Explain assessor
The person who investigates an insurance claim and calculates the compensation to be paid.
Explain Fidelity Guarantee Insurance for a business
Protects business against losses it may suffer due to illegal or dishonest activities of its employees
Covers dishonest fraudulent activities of employee who abuses his position of trust
Covers: employees stealing, embezzling money or providing information to others to steal from business
Explain Public Liability Insurance for a business
Protects against claims made by public who may be injured or have their property damaged on the business premises
Also protects business if claims for business visits member of public house ex: salesperson
Explain Product Liability Insurance for a business
Protects against claims made by individuals who are injured by a product of the company
Covers damages caused by manufacturing defect in product, a design flaw and defective warnings or instructions
Also if not properly labelled
Explain Buildings and Contents Insurance for a business
A business may insure any buildings and their contents against accidents like fire, theft and flooding
Explain Motor Insurance for a business
By law, all motor vehicles must be insured- If has cars, lorries or vans
Insurance protects if the business’s vehicle does damage or injury
Types: Third Party, Third Party Fire and Theft and Fully Comprehensive
Explain Employer’s Liability Insurance for a business
Protects businesses against claims made by employees if they are injured while at work
Also if employee is made ill at work at fault of employer
insurance pay compensation
Explain Theft Insurance for a business
This compensates businesses against losses incurred when stock or other items are stolen from the company
Insurance pays compensation for value of that stolen
Explain Plate Glass Insurance for a business
The insurance company pays compensation to the business if their windows are damaged
Insurance pays compensation to have them fixed/replaced
What is the importance of insurance to a business?
Business Survival
Risk Management
Improved Cash Flow
Legal Obligations
Explain Health Insurance for a household
This insurance helps to cover the financial impact of injury or serious illness
Pays private medical bills if they become badly ill
Explain life assurance for a household
Protects people dependent on insured person financially
Provides compensation to family members of the insured when they die or when the insured person reaches a certain age.
Two types- whole life policies and endowment policies.
Explain buildings and contents insurance for a household
A family may take out insurance against the risk of fire, theft or damage to their home and belongings
Insurance will pay to have house rebuilt if destroyed/damaged
Covers Contents damaged or stolen
Explain motor insurance for a household
All vehicles must be insured by law
If family has car it must be insured
Company pays for damage or injury cause by family’s car
Types: Third Party, Third party fire and theft, comprehensive
Explain mortgage protection insurance for a household
This insurance policy helps a household to pay its mortgage repayments if they cannot pay due to ill health, redundancy or death
Helps until they can afford to pay it again
What are the similarities between household insurance and business insurance?
Risk Management
Legal Requirements- motor insurance. Offence not to have , must have valid insurance disk on windscreen
Completion of Proposal Forms- Must obey Utmost good faith
Filling Out Claim Form When Seeking Compensation- Both make claims
What are the differences between household insurance and business insurance?
Scale of Potential Losses
Different Types of Risk and Insurance Cover- Business face many more risks concerning employees, public
Different Premiums- Are bigger and have more valuable asset in business- Greater value item higher premium
Business Expense
How does the risk impact the insurance premium
Greater risk- higher premium
Sometimes add a loading (extra charge) for higher risk people
This charge covers higher risk
Ex:inexperienced drivers more likely to crash or smokers for life assurance
How does the value of the item impact the insurance premium
The valuable the asset the higher the premium
Will have to pay out more money if expensive asset is stolen/damaged
How does the claims impact the insurance premium
More insurance company pays out in claims- higher the premium to cover costs
Ex: Increase house insurance premiums following severe winter of 2010/11- damages
Ex: rising cost of healthcare
How does the profit impact the insurance premium
Insurance company charges higher premium to make more profit
Must charge premium to make decent profit
Premiums must exceed amount paid out in claims
How does the government tax impact the insurance premium
Government adds tax to the premium
This increases the cost for consumer
Explain Third party motor insurance
Insurance company pays only for the damage or injury cause to another person and his property
Explain Third party, fire and theft motor insurance
Insurance company pays compensation for any damage or injury caused to a third party and his property or if business’s vehicle is stolen or burned out
Explain comprehensive motor insurance
Insurance company pays compensation for damage or injury caused to business’s vehicle and to the person driving it and any third party and his property
Explain business survival as a reason that insurance is important for a business
Having insurance means business will not be ended by some catastrophe (ex: factory burning)
Insurance company give owner the money to rebuild business
They can start again
Explain risk management as a reason that insurance is important for a business
Insurance helps business lower it’s risk
Return for an annual premium insurance company agrees to compensate them for value of losses they sustain
Explain improved cash flow as a reason that insurance is important for a business
Paying relatively small premium every year is a lot easier than having to pay out large sum of money to pay for unexpected crisis
