Insurance

• Insurance is a written promise from an insurance company to put the insured back into the same or similar financial position as before the loss occured
• An insurance broker is someone who will compare the price of insurance with a few different insurance companies and get the best price for the consumer.
• Comprehensive car insurance


  covers the insured for loss, theft or damage to thier vehicle and covers for accidental damage to another person's vehicle
• Third party car insurance


  covers the consumer for damage to another person's vehicle or property but not damage to their own car
• Third party, fire and theft car insurance


  covers the consumer for damage to another person's vehicle or property but not damage to their own car. It also covers the insured if their car is stolen or destroyed by a fire
• Benefits and Drawbacks of Insurance


  • Benefits/Rewards/Advantages:

  1. Compensation: Insurance protects the consumer by providing them with money (compensation) to replace/repair any damaged property and puts them back into the same or similar financial position as before the loss occurred.

  2. Regular income: Insurance policies such as income protection allows the household to continue to pay their bills even when someone in the household is sick and unable to work.

  3. Employment: Insurance companies provide a lot of people with employment.

  Drawbacks/Challenges/Disadvantages:

  1. High costs: Insurance premiums can be a very large expense for the household. Also, if the risk does not occur or they never claim on their insurance, they do not get a refund.

  2. Non-insurable risks: Not all risks can be insured against. For example, you cannot insure yourself against failing your exams or an entrepreneur cannot insure themselves against their business failing. These are known as non-insurable risks.

  3. Fraud: Insurance fraud occurs when people do not tell the truth when taking out insurance or claim compensation to which they are not entitled. This causes the price of insurance to increase for everyone.
• Premium


  The price paid for insurance
• Calculating Insurance Premiums


  Premium = basic premium + loadings - reductions
• Loading


  An amount added by the insurance company to the premium because there is a greater risk of a loss occurring
• Reduction


  An amount taken away by the insurance company from the premium because there is less risk of the loss occurring
• No claims bonus


  A discount offered by insurance companies to the insured as a reward for not having previously claimed on their policy
• Compensation


  The money paid to the insured by the insurance company in the event of a loss occurring
• Principles of Insurance


  • Indemnity
  • Utmost good faith
  • Insurable interest
  • Subrogation
  • Contribution
• Indemnity


  The insured person cannot make a profit from insurance
• Utmost good faith


  The insured person must tell the truth when filling out the proposal form and claim form, and update the insurance policy if there are any changes in circumstance
• Insurable interest


  The insured person must gain by the existence of the item and suffer financially from its loss
• Subrogation


  The right of ownership of the insured item passes from the insured to the insurance company once the compensation has been claimed
• Contribution


  Where the item is insured with more than one insurance company, the two insurance companies will divide the cost of the claim between them (they will each contribute to the compensation)