Topic 10 - Dealing With Unexpected Events Flashcards
What financial product is designed to protect people from financial losses associated with unexpected events?
Insurance policies
What are the four different types of insurance?
- general insurance
- life cover
- health insurance
- pension policies
What are examples of general insurance?(5)
Motor,
building,
home contents,
travel
and pet policies
What is life cover?
Designed to protect other people from the financial consequences of someone’s death
What is health insurance?
Used to protect people against the financial loss of being too unwell to work or being diagnosed with a critical illness
What do pension policies do?
Enable people to save for their retirement
What are 2 examples of unexpected events that has a positive impact on finances?
- Win the lottery
- Win on a prize draw
What are 5 examples of unexpected events having a negative impact on finances?
- made redundant
- covid
- damage to car due to vandalism/ accident
- damage to home flooding
- separations / divorce
What is a premium?
The price of an insurance policy
What is the premium based on? (5)
- how likely an event is to happen
- sum insured
- the term (how long)
- voluntary excess
- how the premium is paid - as one payment or monthly stallmentd
What is the sum insured?
The amount of money needed to put things right if the event happens
E.g. to replace a bike that has been stolen
What is the term?
the length of time that the policy will be in force
What is voluntary access?
The amount of money the policyholder will pay towards repairs or replacement
How do insurance companies monitor the probability of an event happening?
It is based on previous statistics. The premium is higher when more likely to happen.
- e.g. how likely a driver is to have an accident
- those holding motor insurance make claims when necessary.
- when no claims are made a no claims discount may be received.
What is the tax on insurance called? And what is it?
Most general insurance premiums are subject to insurance premium tax.
- 10% for most premiums
- 20% for travel insurance
The cost of the tax is included in the policyholders premium
What can make insurance void?
Entering misleading information when providing information to the insurance provider
What must a policyholder check that the insurance they have bought:
- covers the events the policyholder wants to insure against
- will pay sufficient compensation if the event occurs
What degree of motor insurance must all motorists have?
Third party insurance
What is 3rd party insurance?
Insurance that covers any damages to other people or property
What are the 3 main types of motor insurance?
- third party
- third party, fire and theft motor insurance
- comprehensive motor insurance
What does third party motor insurance cover the cost of? (4)
- Injuries to other people including passengers
- damage to other peoples property
- accidents caused by passengers
- damage caused by a caravan or trailer while attached to the car
What does third party, fire and theft motor insurance cover the cost off?
- all third party items
- repairs or replacement of the drivers car if it is damaged or destroyed in a fire or is stolen
What is comprehensive motor insurance usually cover? (5)
- all third party fire and theft items.
- accidental damage to the drivers car
- a personal accident benefit
- a sum of money paid on the death of the driver or for specific types of permanent disablement that the driver sustains in an accident
- medical expenses related to an accident (up to a stated limit)
- loss or damage to personal possessions in the car (up to a stated limit)
What should be considered when choosing motor insurance?
- what they can afford
- how much it would cost to make repairs to or replace their car
- whether or not their personal possessions are covered by another insurance policy
What is pay as you go motor insurance?
For those who don’t drive often it can reduce the cost of insurance.
- sometimes monitored using a black box
What does a black box device in a car monitor? (5)
- # of miles drivendriving habits in terms of:
- speed
- type of road travelling on
- The time at which the journey is made
- how the driver is braking and cornering
The insurance company tracks this and charged based on these factors
5 ways to reduce the cost of motor insurance?
- pay a higher voluntary excess
- fit an alarm or immobiliser
- pay the premium in one payment to avoid direct debit monthly payments
- drive a car with a smaller engines
- build up no claims discount
What is the voluntary excess?
This is the amount of money the policyholder pays towards the costs of a claim
What does building insurance cover?
The cost of repairing or rebuilding a property if it is damaged or destroyed.
Policyholders may pay an extra premium for accidental damage caused?
What does content insurance cover?
Belongings kept in the home that people can take with them when they move.
What are 3 other types of insurance?
- pet
- travel
- mobile phone
What is pet insurance?
Covers the cost of vet bills in case a pet needs treatment
What is travel insurance?
- Covers the cost of medical treatment,
- replacing luggage or belongings that are lost or stolen or damaged abroad.
- cost of delays to a journey, having to stay in a hotel for extra nights
What is mobile phone insurance?
Covers loss or damage to mobile phones.
- sometimes covered under home contents policy
How can one revise their budget in the case of an unexpected event?
- reducing the amount spent on socialising
- cutting back on coffees or lunches bought in cafes or restaurants
- delaying spending on clothes, DVDs or games
How can one prepare by saving in the case of an unexpected event?
- saving in an instant access account such as an ISA
What are 4 possibilities that people can undergo when receiving unexpected income?
- save it
- pay back borrowing
- spend it
- create an emergency fund
