Insurance Unit 4

Question 1

Define Insurance

Answer 1

Financial protection against a possible loss that may or may not happen

Question 2

Define Risk Management and outline the steps in risk management

Answer 2

A planned approach to minimising risks to which the company is exposed

Steps:

1. Identify all risks that the business might experience e.g fire, negligence
2. What could cause the loss?
3. What is the likelihood of the loss happening?
4. Calculate the various methods of protecting the business
5. Take out insurance on the risk

Question 3

Outline 2 risk reducing methods in a business

Answer 3

Cease activities that could cause the loss

Educate and train employees

Question 4

Name the 7 principals of insurance

Answer 4

1. Insurable Interest
2. Utmost Good Faith
3. Indemnity
4. Subrogation
5. Contribution
6. Average Clause
7. Proximate Clause

Question 5

Outline Insurable Interest

Answer 5

The policy holder must benefit from the existence of the object and suffer from its loss, loss must be financial
It is not necessary to own the asset to have Insurable interest
Emotional attachment is not enough to establish Insurable interest, must be a legal relationship

Question 6

Outline Utmost Good Faith (Uberrima Fidei)

Answer 6

The insured must give truthful information and disclose all material facts on the proposal form
Material Fact: a piece of information that helps the insurance company assess the risk
If a material fact is deliberately omitted the contract can be declared void

Question 7

Outline Indemnity

Answer 7

The insurance company guarantees the person taking insurance to compensate a loss cannot make a profit from insurance
Compensation is only for the actual loss, usually cost of replacement

Question 8

Outline Subrogation

Answer 8

Taking over by one party from another the right to take legal action
After paying compensation the insurance company is entitled to take over property left
It also takes over rights to sue any party responsible for damage

Question 9

Outline Contribution

Answer 9

If a person insures the same property/items with different insurance companies, then each will only pay a proportion of the claim

Question 10

Outline Average Clause

Answer 10

This applies to a partial loss when you are under insured

The insured will only be compensated for a proportional amount of the loss

Question 11

Outline Proximate Clause

Answer 11

An insurance is not liable for any loss under an insurance contract unless the proximate cause of the event was the risk injured against
E.g Theft isn’t covered under fire

Question 12

Define Re-Insurance

Answer 12

When the risk is considered too large to be insured by one insurance company, so they spread the risk over a number of companies e.g Shipping, aviation

Question 13

Define Loading in relation to insurance

Answer 13

Cost of insurance is directly related to the risk being insured against, the higher the risk the higher the cost of insurance
E.g Young people more likely to have a car accident, therefore their premiums are more expensive

Question 14

Name the 4 types of compensation

Answer 14

Cash

Re-instalment/rebuilt

Repair

Replace the asset

Question 15

Cover Note

Answer 15

Temporary document issued by insurance company as proof of existence until full contract is ready

Question 16

Define Insurance Policy

Answer 16

Outlines the full insurance contract including items covered, value of compensation, any conditions

Question 17

Name the 3 ways to make an insurance claim

Answer 17

Report to Gardai

Report to insurance company

Complete claim form

Question 18

Define Claim Form

Answer 18

Document that must be completed describing what happened and stating the amount of loss suffered

Question 19

Define Insurance Assessor

Answer 19

An employee of the insurance company who will calculate the value of the compensation resulting from the damage

Question 20

Define Proposal Form

Answer 20

Application form completed by the person applying for insurance

Question 21

Define exposure unit

Answer 21

Item being insured such as a premises

Question 22

Define No claims bonus

Answer 22

Discount offered on premiums to customers who have made no insurance claims during the previous year

Question 23

Outline similarities between insurance for Households and Businesses

Answer 23

Both households and businesses must:

Identify risks facing them

Take all steps to minimise risks

Shop around to get the policies which best suit their needs

Question 24

Outline the differences between insurance for a Household and a Business

Answer 24

Business face a wider range of risks than households

They also suffer greater losses than households

Business must protect their staff against risk of unemployment arising from accidental damage or fire

Question 25

Outline the types of insurance for a business

Answer 25

Fire: Insures stock and premises being destroyed by fire, also covers water damage, consequential loss and loss of profits

Employers Liability: Insured against employee injury on premises

Public Liability: Protection against members of the public getting injured on premises

Motor Insurance: Insured against consequences of a motor accident, compulsory under the Road Traffic Act 1933

Cash in Transit: Insurance against money on its way to be lodged in the bank being stolen

Fidelity Guarantee: Insured against embezzlement of revenue by employees

Question 26

Outline the types of insurance for Households

Answer 26

Mortgage Protection: Compulsory for people taking out a mortgage, provides full repayment of balance due on mortgage in the event of the death of the mortgage holder

Health: Advised to take out health insurance e.g VHI or LAYA

Life Assurance: The exception to principle of indemnity, it provides:
Financial protection for the family in event of an untimely death
Savings for any special purpose e.g retirement

Motor: If the household owns a car, then at least Third Party insurance should be taken out