FIN533 Chapter 5: Risk Management and Life Insurance

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What is the primary purpose of an insurance company?

To assume financial responsibility for losses from an insured risk

What is the concept of insurance based on?

A large group of people paying premiums into a fund to help those who suffer a hardship

What is the term for the financial interest that a person has in the subject matter of an insurance policy?

Insurable interest

What is the primary benefit of purchasing an insurance policy?

Protection against possible financial loss and peace of mind Signup and view all the answers

What is the term for the periodic payment made by a policyholder to an insurance company?

Insurance premium Signup and view all the answers

What is the primary purpose of an insurance pool?

To help those who suffer a hardship from an insured risk Signup and view all the answers

What is the primary purpose of paying premium payments in life insurance?

To receive a lump sum known as a death benefit after death Signup and view all the answers

What is the main difference between general insurance and life insurance?

General insurance is a non-life insurance product, while life insurance covers life Signup and view all the answers

What is the typical duration of a general insurance policy?

One year Signup and view all the answers

What is the main benefit of having a whole life insurance policy?

It provides life-long protection with a savings plan Signup and view all the answers

What is the primary reason for having life insurance according to the text?

To ensure that immediate family has some financial support after the insured demise Signup and view all the answers

What is the main difference between term insurance and endowment insurance?

Term insurance is for a limited period, while endowment insurance is for life Signup and view all the answers

What is the primary purpose of an annuity contract?

To protect and grow your money, and then provide a stream of income during retirement Signup and view all the answers

What happens to an annuity when you're ready to start receiving retirement income?

It is turned into a steady stream of income payments Signup and view all the answers

What is the main benefit of having a medical and health insurance policy?

It ensures that you don't have to worry about the cost of seeking treatment during emergencies Signup and view all the answers

What type of insurance policy is designed to provide an income stream while undergoing treatment?

Hospital income insurance Signup and view all the answers

What is a common feature of medical and health insurance policies?

Certain exclusions, just like other insurance policies Signup and view all the answers

What is the primary difference between an annuity and a medical and health insurance policy?

An annuity provides a stream of income during retirement, while a medical and health insurance policy provides coverage for medical expenses Signup and view all the answers

What type of damages is covered by a motor insurance policy?

Third party bodily injury and death, third party property loss or damage Signup and view all the answers

What is the time period for which death and total permanent disablement are covered after the occurrence of the accident?

365 days Signup and view all the answers

What is the condition for reimbursement of a lost passport?

The loss must be reported to the police within 24 hours Signup and view all the answers

What is covered under hospitalization and medical expenses in travel insurance?

Hospitalization, hospital or surgical expenses, outpatient medical expenses, and daily allowances up to a maximum number of days Signup and view all the answers

What is the purpose of repatriation in travel insurance?

To return the remains of the insured to their home country Signup and view all the answers

What type of loss is covered under accidental loss or damage to your baggage?

Accidental loss or damage to your baggage, clothing, personal effects, and even money Signup and view all the answers

What is the primary reason for reimbursement of expenses incurred due to loss of travel or accommodation?

Cancellation of the journey Signup and view all the answers

What is the maximum time period for which daily payments can be made in case of hijacking?

More than 12 hours Signup and view all the answers

Which of the following is NOT an exclusion in Travel Insurance?

Earthquake Signup and view all the answers

What is the principle of Takaful based on?

Islamic law Signup and view all the answers

What is the role of policyholders in Takaful?

They cooperate among themselves for their common good Signup and view all the answers

What is the benefit of the community pooling system in Takaful?

Losses are divided and liabilities spread Signup and view all the answers

Study Notes

Insurance Planning: An Introduction

Insurance is protection against possible financial loss, giving you peace of mind
Insurance company assumes financial responsibility for losses from an insured risk in exchange for a premium paid periodically

Concept of Insurance

Large group of people pay premiums into a fund (insurance pool)
When someone in the group suffers a hardship, they receive an amount of money from the fund to help ease the hardship

Principles of Insurance

Insurable interest: the person who purchases the insurance has an interest in the subject matter of the insurance
In exchange for premium payments, the insurance company pays a lump sum (death benefit) to beneficiaries after death

Types of Insurance Cover

Life insurance: covers the life of an insured
General insurance: does not cover the life of an insured (non-life insurance product)
Types of general insurance products:
- Commercial Lines (for businesses/corporations)
- Personal Lines (for the public)

Reasons for Having Life Insurance

Ensure financial support for immediate family after demise
Finance children’s education
Have a savings plan for the future
Ensure extra income is available
Income tax relief

Basic Types of Life Insurance Policy

Term insurance: protection for a limited period only
Whole life insurance: life-long protection with a fixed maturity
Endowment insurance: combines protection with a savings plan

Annuity or Pension Plan Insurance

A contract between you and an insurance company
Protects and grows your money, providing a stream of income during retirement
How it works:
- Purchase an annuity by making a payment to an insurance company
- Annuity grows over time
- Receive a steady stream of income payments in retirement

General Insurance

Medical & Health Insurance
Personal Accident Insurance
Travel Insurance
Motor Insurance
Fire/House Owner/House Holder Insurance

Medical and Health Insurance

Covers the cost of private medical treatment
Ensures no worry about the cost of seeking treatment during emergencies
Provides an income stream while undergoing treatment
Types of policies:
- Hospitalization and surgical insurance
- Dread disease, or critical illness insurance
- Disability income insurance
- Hospital income insurance

Travel Insurance

Covers accidents to the insured and losses arising from a journey by air, sea, or land
Coverage includes:
- Death and permanent disablement
- Loss of luggage
- Hospitalization and medical expenses
- Repatriation
- Curtailment
- Hijacking
Exclusions include:
- War risks
- Suicide and insanity
- AIDS
- Provoke murder or assault
- Childbirth or miscarriage
- Hazardous sports

Takaful

An Islamic insurance concept based on cooperative or mutual insurance
Principles of Takaful:
- Policyholders cooperate among themselves for their common good
- Every policyholder pays their subscription to help those that need assistance
- Losses are divided and liabilities spread according to the community pooling system
- Uncertainty is eliminated in respect of subscription and compensation

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