Insurance PDF

**[Insurance]** Insurance -- the [pooling of risk] made possible by frequent and periodic payment of [premium]s to a company that promises to restore an asset to its original condition in the event of an asset to its original condition in the event of an accident or loss. We could say also, *[insur...

**[Insurance]** Insurance -- the [pooling of risk] made possible by frequent and periodic payment of [premium]s to a company that promises to restore an asset to its original condition in the event of an asset to its original condition in the event of an accident or loss. We could say also, *[insurance deals with compensation for loss or property in events such as fire, hurricanes and motor vehicle accidents]*. OR **[Insurance]** -- the provision of guaranteed financial protection for one's property, health etc. in the form of payment of compensation in the event of loss, damage etc.; obtained by making a regular payment (the [premium]). Insurance can be said to be a contract between the insurer and the insured, where the insurer undertakes to pay the insured a fixed amount in exchange for a fixed sum (premium), on the happening of losses incurred by the insured. **Note**: **[Assurance]** -- a special [type of insurance] taken out on a person's life, which promises a monetary payment to the family of the insured in the event of his disablement or death. OR Assurance -- the kind of insurance that [covers a risk that is bound or known to happen], e.g. death, in the case of life assurance, whereby financial compensation is paid out to the assured person's heir; or we can say, when the insured person passes away. So based on **page 135 of required text**, assurance is based on certainty, while insurance is based on probability (the chances of something happening). **[Principles of Insurance/Insurance contracts/Insurance policies:]** - **Risk** -- (in insurance): the likelihood of an event occurring. It is also the thing or person being insured. - **Pooling of risk** -- a provision from a fund gathered by a large group of people's contribution to members who are to be compensated for their loss. - Premium -- this is a regular payment (monthly, quarterly, or annually)that the insured party or beneficiary pays to the insurance company or the amount the policy-holder will have to pay to the insurance company - **Indemnity** -- security from loss or damage; compensation for loss or injury so as to return the injured party to their original position or state. Or, the sum of money paid in compensation for loss or injury. (Restitution, amends, damages, indemnification, redress, etc). [This policy puts back the insured in their original position prior to the loss.] The policy is not to allow the insured to make or maximize a profit but ONLY to compensate for damages. NOTE: Indemnity policy does NOT apply to **life assurance** and **personal accident assurance**. Simply put, the principle of indemnity states that you cannot compensate the \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. - Claim -- An **[insurance claim]** is a formal request to an **insurance** company asking for a payment based on the terms of the **insurance** policy - **Insurance policy** --is a legal contract and is considered a specialty contract between the insurer and the **insured**, known as the policyholder, which determines the claims which the insurer is legally required to pay. - **Insurable interest** -- the principle of insurance argues that people who benefit from insurance in the event of a loss (of life or property) are somehow [connected to the loss]. In short, they must have an interest in the insured item or property. To have an insurable interest also means that the insured must be in the position to suffer loss or damage if and when the event happens. **[OR,]** Insurable interest means that as an insured/policy holder, you will only suffer financial loss if [the asset(s) insured mattered to you financially], like your home or car or business, because you would be affected if something happened to them, due to the fact that you are connected to the loss. [The insurable interest rule or concept ensures that people don't take out insurance on things they have no connection to]. That is, people only buy insurance for things that affect them personally or financially. THREE Criteria for insurable interest that must be met are: a. There must be something cable of being insured -- a property or an asset of some sort must be present b. The property must be the subject matter of the insured -- the insured must have claim on the property c. The insured must have a certain relationship to the subject matter (for example, the relationship must be legally recognized) - **Subrogation --** this principle states that the insurance company (insurer) who paid for damages for any loss suffered by the insured party can be reimbursed, financially compensated or make claims from the offending party (third party) or one at fault, who is legally responsible for the accident or loss of assets (goods, vehicle, machines, etc). Therefore, the rights to the stock are therefore subrogated (credited) to the insurance company, and the compensation has taken the place of the stock. (See page 137 -- Ashok Kumar vs ABC Insurance). So, if someone damages your property, your insurer may cover your costs and then try to recover that money from the person (third party) who caused the damage. This process helps keep insurance costs lower by holding the responsible party financially accountable. - **Proximate cause --** in insurance, this is **the main reason behind a loss or damage of an asset**. It is the event that directly caused the loss and helps insurers decide if the policy should cover it. That is, the insurance company will ask, what is the main cause of the [damage], is this kind of loss covered by the insurance policy the insured signed up for? See page 137 for side notes. - **Contribution** -- this is when multiple insurance policies cover the same risk for the same insured. If a loss happens, each insurer shares the cost of the claim rather than one insurance company paying the full amount. This way, all the insurers (insurance companies) contribute a fair share based on how much coverage each policy provides, ensuring the policyholder (insured) does not get paid more than once for the actual loss. Simply put, each insurer shares the cost of the claim rather than one insurance company paying the full amount. - **Utmost good faith** -- as it applies to insurance, it refers to the principle that at the outset both the insured and the insurer must disclose all relevant facts affecting the risk, the premium, and the nature and extent of the policy. Any form of *misrepresentation* (fraud) violates the principle of *utmost good faith* and may void the contract. - Broker -- a business man who buys or sells for another in exchange for a commission \[A fee for services rendered based on a percentage of an amount received, collected or agreed to be paid (as distinguished from a salary)\] - **Life assurance** -- this gives protection against loss caused by death. Life assurance consists of **whole-life policies**, payable on the death of the insured, and **endowment policies**, which pay out upon the death or at a fixed date, and can be surrendered for cash. [] [There are THREE main types of Life Assurance policy: (See page139 of text)] 1. Term policy 2. Whole-life policy 3. Endowment policy a. Whole-life policy -- is a fixed sum payable on the death of the insured. That is *[premium]* must be paid as long as the assured person is alive. Whole-life assurance provides *[cover]* for the lifetime of the insured, and also usually requires them to pay premiums throughout their life. This kind of policy is mainly aimed at ensuring the future financial well-being of the insured's family. Whole-life policy can be with or without profits. b. Endowment -- where a sum is payable after a number of years or on the death of the insured, whichever occurs first; or where premiums must be paid for a specified period of time (e.g. on retirement). [Endowment policies can also be with or without profits.] Endowment polices are the most expensive form of life assurance (because they provide the greatest *[cover])* - With-profits policy -- this increases the sum assured by a proportion of the profits the insurer (insurance company) has made by investing the premiums paid. Here, the insured is entitled to a share of profit made by the company. The premium for the with-profits policy is higher than the premium for a without profit policy. Or, we could say, the policy holder (the insured) will receive a small share of the company's profits, once the shareholders have received a minimum dividend on their investment. - Without-profits policy -- also known as a non-profit policy, is a type of life assurance where the policyholder receives only the guaranteed sum, which is a fixed amount, and is only received by the insured party when the policy ends or it you pass away. - ***[Life Insurance]*** -- this means if you were to die, your love ones would receive money that would pay funeral costs, monthly bills and living expenses; any outstanding debts including medical bills, credit cards mortgage and assist in future needs: Education, spouse, retirement, etc. Insurer (the insurance company) -- a financial institution that sells insurance. - ***[Business insurance]*** -- this covers the type of risk that may result in a loss of buildings and equipment by fire or flood or damage done. This insurance covers this type of risk and is of great benefit to a company and its customers. - Insured (the policy-holder) -- a person whose interests are protected by an insurance policy. - Sum insured -- the maximum amount of compensation payable [] **[Benefits of insurance:]** a. It protects manufacturers and businesspeople against personal risks such as accidents at the plant, fire, burglary and so on. b. It protects exporters and shippers against the hazards of the sea, or damage or loss of cargo. c. It protects householders against such risks as loss of property due to fire, flood, hurricane, and so on. It also provides them with protection against a penniless old age. d. It is a source of capital for business and householders, e.g. mortgages or loans to companies e. It creates an estate to be passed on to relatives at death **[Types of Insurance Polices:]** a. **Life assurance policy --** b. **Life insurance** c. **Business insurance (**Fire, Burglary, Fidelity guarantee, Employer's liability, etc...**.)** See page 149 (Ivan) [] **[The Branches of Insurance/Types of Insurance:]** 1. Life assurance (whole life policy and endowment policy) 2. Life Insurance 3. Third-party insurance 4. Comprehensive policy 5. Fidelity guarantee policy 6. Marine insurance 7. Industrial insurance 8. National insurance scheme **[CXC Syllabus Question:]** "How does insurance facilitates trade?" Insurance companies are an aid to trade in that they: - Compensate for loses to cargo (goods carried by a large vehicle) and vessels - Provide certainty where uncertainty exists, therefore encouraging trade - Ensure that traders are more likely to send goods across long distances, since insurance provides some reassurance against losses or damages that may occur in transit. - Lower the many risks associated with business trading