REASONS FOR BUYING INSURANCE

Question 1

What will an individual base their decision on when deciding whether or not to purchase insurance?

Answer 1

• Their attitude to the potential risk.
• Whether insurance for the risk is a legal requirement.
• The price they are prepared to pay for the peace of mind insurance provides.
• Whether they feel they have a choice about insuring the risk.

Question 2

What does buying insurance provide for the insured?

Answer 2

Financial security + peace of mind.

Question 3

Example of insurance transferring the risk of financial loss?

Answer 3

For people travelling abroad, there is security in knowing that you are covered for the costs of having to return home early due to illness, or through having your medical costs covered whilst you are in a foreign country.

Question 4

What are the 5 main benefits of insurance?

Answer 4

• Improved cash flow
• Expansion of business
• Improved loss control
• Premiums can be invested
• Social benefits

Question 5

Improved cash flow?

Answer 5

Money does not have to be kept in reserve for potential losses, which frees up capital and therefore improves cash flow.

Question 6

Expansion of business?

Answer 6

Companies have more confidence to invest, innovate and expand their business.

Question 7

Improved loss control?

Answer 7

Insurers have an interest in reducing the frequency and severity of losses, not only to enhance their own profitability but also to contribute to a general reduction in the economic waste which follows a loss.

Question 8

Premiums invested?

Answer 8

Premiums can be invested to earn interest. Money is held until claims have to be paid. This creates a ‘premium reserve’.

Question 9

Social benefits ( Job protection)

Answer 9

Most commercial insurance policies will offer a business interruption element which covers wages and the loss of trading income during a period of business interruption and recovery.