Introduction to Insurance Principles

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Questions and Answers

What is the main purpose of insurance?

To profit from investments

To make predictions about the future

To manage financial portfolios

To provide a written agreement for compensation when a loss occurs (correct)

An insured person must profit financially from the loss of an insured item.

False

What does the principle of utmost good faith require from the insured?

The insured must disclose all material facts when applying for insurance.

Health insurance protects against personal illness or injury by paying compensation for ______.

medical bills Signup and view all the answers

What is the main purpose of life assurance?

To protect the financial dependents of the insured person Signup and view all the answers

Match the following types of insurance with their main focus:

Health Insurance = Compensation for medical bills House and Contents Insurance = Protection against property damage Motor Insurance = Coverage for car accidents Gadget Insurance = Protection for electronic devices Signup and view all the answers

A no claims bonus rewards the insured for making claims.

False Signup and view all the answers

Which of the following principles states that rights to recover losses transfer to the insurance company after compensation?

Subrogation Signup and view all the answers

What is the purpose of an insurance proposal form?

To provide relevant details of the risk for calculating the premium. Signup and view all the answers

The amount paid to the insurer to cover risks is called a _____

premium Signup and view all the answers

Mortgage Protection Insurance is designed to pay the mortgage payments in the event of redundancy or death.

True Signup and view all the answers

Match the following terms with their definitions:

Compensation = Money received after a successful claim Policy excess = Part of compensation not paid by the insurer Underinsured = Not fully insured for the value of the policy Claim form = Document to assess the validity of a claim Signup and view all the answers

If two insurance companies are involved, the pay-out is divided proportionally according to a principle called ______.

contribution Signup and view all the answers

Which of the following factors does NOT impact the size of an insurance premium?

Color of the item Signup and view all the answers

Taking regular exercise can help reduce your insurance premium by lowering risk.

True Signup and view all the answers

What does it mean to be underinsured?

To have failed to insure for the full value of the policy. Signup and view all the answers

Study Notes

Insurance

Insurance is an agreement between an insurance company and an individual where the company agrees to pay for a loss or injury.
Insurer is the name for the insurance company.
Insured is the person or entity who has the insurance policy.

Principles of Insurance

Utmost good faith: The individual must disclose all relevant information when applying for insurance; this includes any past accidents or criminal history that could influence the risk.
Insurable interest: The individual must have a legitimate financial interest in the subject of the insurance; you cannot insure your neighbour's car because you do not benefit from its existence or suffer loss from its destruction.
Indemnity: An individual cannot profit from an insurance claim; you can only receive compensation equal to the loss you have suffered.
Subrogation: The insurance company has the right to recover losses from the party responsible for the damage after they have compensated the insured.
Contribution: If multiple insurance companies are involved, they will each pay their proportional share of the claim based on the premiums paid.

Types of Insurance

Health insurance: Compensates for medical expenses incurred due to illness or injury.
House and contents insurance: Protects against damage to a house and its contents from events like fire, flood, theft or storms.
Motor insurance: Protects against losses or damage related to car accidents. It is a legal requirement in most countries.
Mortgage protection insurance: Protects against the loss of a home due to financial hardships such as redundancy, illness, or death. The insurance company pays the mortgage payments.
Gadget insurance: Protects against loss or damage of electronic devices.

Insurance vs. Assurance

Insurance: Protects against potential future losses or damages.
Life assurance: Protects the financial well-being of dependents in the event of the insured person's death.
Term life assurance: Covers the insured for a specific period of time.
Whole life assurance: Provides coverage for the entire lifetime of the insured.

Jobs in the Insurance Industry

Underwriter: Assesses risk and determines the cost of insurance policies.
Claims handler: Investigates and processes insurance claims.
Insurance broker: Advises customers on insurance products and helps them choose the best options.

Getting Insurance

Insurance proposal form: Document completed by the applicant providing details about the risk and desired coverage.
Insurance policy: Contract outlining the terms and conditions of the insurance coverage between the insured and the insurer.
Premium: The fee paid by the insured to the insurer for the coverage.
No claims bonus: Discount offered for each year the insured does not make a claim.
Compensation: Money paid to the insured by the insurer after a successful claim.
Claim form: Document detailing the incident used to assess the validity of a claim.
Policy excess: Amount of compensation not paid by the insurer; it reduces the number of small claims.

Factors Impacting Insurance Premiums

Level of risk: Higher risk, higher premiums (e.g., a young driver with a history of speeding tickets has a higher risk of being in an accident).
Value of the item: Higher value, higher premiums (e.g. a more expensive car will cost more to insure).
Number of previous claims: More claims, higher risk, higher premiums.

Reducing Risk to Reduce Premiums

Install smoke and fire alarms in your home.
Install an intruder alarm in your home and car.
Don't smoke.
Exercise regularly to remain healthy.
Drive responsibly, wear seatbelts, and get your car serviced regularly.

Underinsured

Underinsured: The insured has not insured for the full value of the insured property. If a claim exceeds the coverage amount, the insured will experience financial losses.

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Description

Explore the basic concepts and principles of insurance, including the roles of the insurer and insured. Understand key principles such as utmost good faith, insurable interest, indemnity, and subrogation. This quiz will test your knowledge on these essential aspects of insurance.