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Questions and Answers
What is the main purpose of insurance?
What is the main purpose of insurance?
An insured person must profit financially from the loss of an insured item.
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?
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 ______.
Health insurance protects against personal illness or injury by paying compensation for ______.
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What is the main purpose of life assurance?
What is the main purpose of life assurance?
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Match the following types of insurance with their main focus:
Match the following types of insurance with their main focus:
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A no claims bonus rewards the insured for making claims.
A no claims bonus rewards the insured for making claims.
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Which of the following principles states that rights to recover losses transfer to the insurance company after compensation?
Which of the following principles states that rights to recover losses transfer to the insurance company after compensation?
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What is the purpose of an insurance proposal form?
What is the purpose of an insurance proposal form?
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The amount paid to the insurer to cover risks is called a _____
The amount paid to the insurer to cover risks is called a _____
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Mortgage Protection Insurance is designed to pay the mortgage payments in the event of redundancy or death.
Mortgage Protection Insurance is designed to pay the mortgage payments in the event of redundancy or death.
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Match the following terms with their definitions:
Match the following terms with their definitions:
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If two insurance companies are involved, the pay-out is divided proportionally according to a principle called ______.
If two insurance companies are involved, the pay-out is divided proportionally according to a principle called ______.
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Which of the following factors does NOT impact the size of an insurance premium?
Which of the following factors does NOT impact the size of an insurance premium?
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Taking regular exercise can help reduce your insurance premium by lowering risk.
Taking regular exercise can help reduce your insurance premium by lowering risk.
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What does it mean to be underinsured?
What does it mean to be underinsured?
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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.