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Insurance - Junior Cert Business Studies
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Why do people Insure things?
• People insure things that are valuable to them and that would cost a lot of money to replace if they were stolen or damaged in some way
Insurance is a way of protecting ourselves financially by arranging for the payment of a sum of money in the event of loss or injury occuring.
Definition
Cover all possible risk Be enough to cover the loss that might
occur e.g. if a house is worth €100,000 it should be insured for €100,000, and not for less
Adequate Insurance should
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Example of Motor Insurance Not everyone’s car will be stolen or damaged
so the money paid to the insurance company is used to pay a small % of people whose cars are stolen or damaged
This is known as the Pooling of risk
How can Insurance companies afford to pay out large amounts of money to people who have suffered a loss ?
Pooling of Risk
Providers of Insurance
1. Calculate the value of the item you wish to insure
2. Contact an insurance company
3. Complete the proposal form
Steps involved in taking out Insurance
4. When the insurance company accepts the proposal for insurance, you must pay the premium.
5. Within a couple of weeks, the insurance company will send the insurance policy and certificate of insurance to you.
Personal Home Life Motor Vehicle
Types of Insurance
By law every person who drives a car must have insurance.
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Motor Vehicle Insurance
Motor Vehicle InsuranceThird party, fire and theft
Compensates the insured in the case of the car going on fire or being stolen
Comprehensive This gives third party, fire and theft cover, as well as accidental damage, which gives compensation for damage to the motorist’s own car
If you have no accidents or claims made during the year, you will receive a discount on your premium for the next year. This is known as a no claims bonus
No claims Bonus
House Insurance Covers the house against damage by fire or break in. It is very important that the insurance cover is adequate
House Contents This gives compensation if household contents are stolen or damaged, e.g. furniture, clothes etc
All Risks All risk insurance gives wider cover than that given by house contents insurance.
Property
Medical insurance This covers the cost of doctors and hospitals in time of illness. E.g. VHI and Aviva
PRSI The State insurance covers people who are out of work through illness or unemployment
Holiday Insurance This gives compensation in the event o a holiday having to be cancelled, a person becoming ill on holiday or goods being stolen while on holiday
Personal
Whole Life Assurance
This guarantees to pay an agreed sum of open to the dependents when the insured person dies
Temporary life (Term) Assurance
Provides cover for an agreed period of time, e.g. up to 65
Endowment Assurance
to pay an agreed sum on the death of the insured person, or on the insured person reaching a certain age, whichever comes first
Life
Assurance differs from insurance in two ways:
1. In insurance there is the possibility of the event happening, whereas in life assurance, there is a certainty that a person or reach a certain age
2. Insurance is taking out on an annual basis whereas life assurance is taking out over a definite number of years
1. Insurable Interest:People can only insure something where they benefit from having the item and it would cost you money to replace it if it was robbed or stolen, e.g. Your house
Your House Neighbours House
The rules of insurance (NB)
2. Utmost good faith: Answer all questions truthfully and provide all relevant information to the insurance company. E.g. Insurance company may refuse to pay a claim for a house fire, because it was not told that the roof was thatched.
3.Indemnity: This rule states you should not make a profit from insurance.
4. The principle of Contribution: If a risk is insured by two or more insurance companies, any compensation payable will be shared between the companies. Eg. Camera stolen on holidays. – house and holiday insurance policy.
5. The principle of Subrogation: Insurers, who pay out full compensation for an item which they have insured, are entitled to take possession of the item and sue a third party. subrogation – linked to indemnity.
Average Clause: Besides the five principles there is another important rule in insurance, called the average clause. This states that if something is insured for only a proportion of its value, for example, half of its value, the insurer is only liable for the same proportion of the loss, i.e. half, when a claim is made.
There may be a legal requirement to do so. E.g. PRSI, Motor Insurance.
Insurance may be required as a condition for getting a loan.
To protect against the risk of serous financial loss.
To give the insured person peace of mind.
Importance of Insurance
Non-Insurable Risks
1. Loss of profit due to sudden increases in the cost of production
2. Loss of profit due to strikes3. Loss of profit due to changes in consumers’
tastes and fashions4. Loss of profit due to the entry of new rival firms
into the industry5. Loss of profit due to the adverse effects of new
legislation6. Loss of profit due to adverse effects of
international trade agreements before the trade agreement
7. Loss of profit due to bad management
Install security devices Security Procedures Training Staff Maintenance of Car Careful Driving
Risk management
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Insurance Scam
Important words in chapterInsurance broker Utmost good faith
Days of Grace Indemnity
Proposal form Subrogation
Premium Contribution
Insurance policy Non insurable risk
Cover note Exclusion clause
Renewal notice Policy Excess
Insurable interest Surrender Value
Comprehensive motor insurance
False Economy
Certificate of insurance Insurer
No claims bonus Assessor
Actuary Loadings
You never know when you will need insurance!!!!