IAS

• Zero-coupon bond


  A bond where the sole return is the payment of the nominal value on maturity
• Zero-coupon yield curve


  A plot of redemption yields against term to redemption for (usually hypothetical)zero-coupon bonds.
• Egs of personal finance activities

  Earning a salary, spending funds, saving for unanticipated events, borrowing for large purchases, budgeting, investing long term, protection against uncertain or undesirable events
• Risk


  Uncertain outcome where at least one possible outcome is negative
• Managing risks

  Evaluate the risks you are exposed to and decide how to manage it
• Ways to manage risk

  Avoid the risk, reduce the risk, transfer the risk, accept the risk
• Reduce the risk


  The probability of the risk happening or the financial consequence/impact
• Transfer the risk


  Enter into an agreement where another party accepts the risk for a fee. We can't transfer all the risk, we are still responsible for covering some of the loss
• Accept the risk


  Deal with the consequences, chances of event are small, or a reward (eg in shares- we accept the risk of price volatility for higher returns)
• Personal finance activities 


  Income and expenses, borrowing, saving and investing, protection
• Protection


  Insurance for risks too large for the individual or household to carry
• Income and expenses

  Money a person earns and uses to support themselves = can be saved for the future or spent on current needs
• Examples of income 


  Salaries, investments, pensions
• Borrowing 


  Formal, informal and long or short term. Purchasing large items, business funds and unexpected costs
• Saving and investing 


  Saving: smaller, short term goals-emergencies, quick access and value won't drop.
• The financial life cycle 


  Childhood > teens/early 20s > early career > raising a family > approaching retirement > retirement
• Childhood


  Supported by parents, no income
• Childhood financial needs

  Piggybank, savings account
• Teens/early 20s


  Study, parents support, part time job
• Teens/20s financial needs

  Savings account, need financial education (accounts, credits, budgets)
• Early career 


  Full time job, partner/dependants, out of family home, student debt, support family, retirement
• Early career financial needs

  Transaction account, loan, property insurance, med aid, retirement fund
• Raising a family


  Partner and children, moderate income, high debt, support parents, not much to invest
• Raising a family financial needs

  Transaction account, loans, life and property insurance, med aid, education savings, retirement, emergencies
• Approaching retirement


  Debts reduce, work income will need to be replaced.
• Approaching retirement financial needs 


  Transaction account, loans, insurance, med aid, estate planning
• Retirement 


  Reduced income-risk running out of money.
• Retirement financial needs 


  Transaction account, property insurance, med aid, estate planning, insurance against living too long
• How is risk transferred: If a breadwinner passes away, there are financial implications for those whowere dependent on that person to provide for them financially

  The life insurer willpay out a certain amount of money on an individual’s death to theirdependants. This pay-out can be used to protect a person’s dependants fromhardship arising from his/her untimely death by providing funds which can beused in a variety of ways e.g. funds for the children’s school fees, to coverliving expenses previously covered by the breadwinner or even to pay off any
• How is risk transferred: Individuals who have retired and who do not work anymore face the risk that they can live longer than they planned for and thereby outlive their savings


  In exchange for paying a lump sum to a life insurer when an individual retires,the insurer will guarantee to pay them a regular income for as long as they arealive, thereby providing financial protection from living longer thananticipated.
• What are the differences between general and life insurance

  In contrast to life insurance, general insurance contracts have a much shorter term. There can also be multiple claims under a policy, which is not normally the case under a life insurance policy. A person can only die once, but you can potentially damage your car several times during the term of the policy. Furthermore, whereas the benefit under a life insurance policy is known, the claim amount under a general insurance policy will vary, e.g. in the case of a car accident, the claim payable depends on the extent of the damage.
• Claim


  it is common to refer to payments made under general insurance policies as claims, rather than benefit payments.
• What happens when short term cover from general insurance is needed for a longer period of time

  Rather than having to reissue a new contract every time thecontract term ends, the policyholder would usually have the option to renew theircontract, i.e. cover continues to be provided if the policyholder continues to pay thepremiums. The premium however is reviewed at the renewal date and a revisedpremium becomes payable.
• The business of a general insurance company that we will consider, for now, can broadly be split into two categories

  Property damage and liabilities
• Movable property

  The contents of a house
• property damage


  These policies provide cover to the policyholder on the loss or damage of property. This can include buildings e.g. a house or office, cars, boats or planes as well as the contents of a house. The contents are referred to as movable property
• Liability insurance


  Liability insurance provides protection where the policyholder is required topay compensation to another party due to negligence
• Motor third party


  The owner of a motor vehicle will be able to claim ifhe/she is liable to a third party due to death, injuryor property damage caused by their driving
• Employer liability 


  The insurance policy covers damages that an employer may have to pay if he/she is sued due to death, injury or illness of an employee because of an accident while at work
• Public liability

  The insurance covers damages that the policyholder(typically a business owner) may have to pay for an incident at their business premises or relating to their business resulting in injury or damage