1) Insurance concepts

• Non-compulsory insurance

  • Refers to insurance where insured has option of insuring against certain risks that may or may not occur.
  • Decision to insure an asset/ risk, lies solely with the insurer and is not influenced by government.
• Over-insurance

  • Occurs when assets/ risks are insured for more than its market value by insured.
  • Insurer can choose to reinstate the insured.
• Under-insurance

  • Occurs when items/ assets are insured for less than its market value.
  • Insured will be compensated partly for losses/ damages, in the event of a claim.
• Average clause

  • Stipulation set by the insurer which is applicable when property/ goods is insured for less than its market value.
  • Insurer will pay for insured loss in proportion to the insured value.
• Reinstatement

  • Stipulation whereby the insurer may replace lost property instead of reimbursing the insured.
  • Stipulation is applicable when property are over insured.
  • Insured may therefore not make a profit from a risk insured against.
• Excess

  • Is amount that the insured agrees to pay should they claim for losses.
  • Not paid out to the insured when a claim is settled.
  • Amount of the excess is stipulated in insurance policy.
• Average clause calculations

  The formula used to calculate the average clause amount:

  • The insured amount is divided by the market value of the insured item and multiplied by the total/ amount of the damages/ loss.

  Formula:

  • Amount insured/ value of the insured item x amount of damage/loss =
• Under-insurance and over-insurance

  Over-insurance

  • The insured insures assets/ possessions for more than the market value.
  • The insurer will replace/ repair the damages incurred by the insured.

  Under-insurance

  • The insured insures assets/ possessions for less than the market value.
  • The insurer will pay the insured cash for damages or losses incurred.
• Insurance and assurance

  Insurance

  • Based on the principle of indemnity.
  • It covers a specified event that may occur.
  • Applicable to short-term insurance

  Examples

  • Theft
  • Burglary
  • Fire
• Insurance and assurance

  Assurance

  • Based on the principle of security/ certainty.
  • Specified event is a certainty, but the time of the event is uncertain.
  • Applicable to long-term insurance

  Examples

  • Life insurance
  • Endowment policy
  • Retirement annuities
• Short-term and long-term insurance

  Short-term insurance

  • Property insurance
  • Theft
  • Burglary
  • Fire
• Short-term and long-term insurance

  Long-term insurance

  • Endowment policy
  • Life cover policy/ Life insurance
  • Retirement annuity/ Pension fund/ Provident fund
  • Funeral insurance