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Insurance&

Assurance

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Learning Targets

What is Insurance?

Who buys Insurance?

Why do we need Insurance?

Non-Insurable Risks

Principles of Insurance?

Types of Insurance

Applying for Insurance

Calculating Insurance Premiums

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Insurance Assurance

• Protection against something that might happen

• Protection against something that will happen

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Insurance Policy

A contract you make with an insurance company where, in return for a fee (Premium), the insurance company will compensate the insured for any loss/damage

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How does Insurance work?

Large no. of people who share the same risk

Pay premium into insurance company fund

Fund Distributed as

Compensation Admin Costs Profit

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Premium

Premium is the fee paid to the insurance company for cover

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Excess Clause

The insured is responsible (liable) for

paying a part of the damage or loss that is incurred. The insurance

company will compensate the rest

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Premium amount…

1. Degree of risk involved The degree of risk The premium

2. The potential amount of money involved

High compensation High Premium

3. Admin Costs.

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in Premium

Loading: Increase in the standard premium due to an extra risk

E.G. A male under the age of 25 with a provisional licence

A house located in an area that is prone to flooding

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in Premium

• No claims bonus: is a reduction in premium if insured person has not made a claim in given period of time

OR

• House Insurance lower if owners have alarm

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Compensation

• The money you get when you make a claim on your insurance policy

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RISK

Insurable Risk Non Insurable Risk

Things that can be insured Things that can not be insured against

E.G House Insurance E.G Cant insure against failing an exam

Car Insurance Personal accident for a bungee jump Medical Insurance Items that are worthless

Loss/Damage caused by natural

disaster e.g Earthquake.

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Non Insurable Risks

An insurance company will not offer insurance if..

1. Unable to calculate probability of risk happening

2. Not enough people seeking similar insurance

3. Potential pay out would bankrupt insurance company

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Example: Christchurch New Zealand 2011

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http://www.guardian.co.uk/uk/canoe

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People in Insurance

The insurer: The Insurance Company

The Insured: The person buying insurance

Broker: Gives advice to customer and sells him/ her insurance

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Actuary: Calculates the premium

Loss Adjuster/ Assessor: Calculates the value of the loss

People in Insurance

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Principals of Insurance

1. Insurable Interest: In orderto insure something youmust benefit from its existence and suffer from itsloss

E.G You can insure your house but not your neighbours house

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2. Utmost good faith

• You must tell all relevant information when filling out an application for insurance.

• Eg. If you have an illness you must tell the ins. co. as they may want to charge a higher premium or not insure you at all.

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3. Indemnity

• You cannot make a profit from

insurance.

• There is no point in insuring your house for more than it is worth as the ins. co. will only compensate you for the actual

value of the house.

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4. Contribution

• If a risk is insured with two insurance companies each will pay half of the compensation.

• Eg: A house insured with two ins. co.’s. for €1,000,000

• Both will give ??

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5. Subrogation

Don’t blame me its his

fault!

• Passes the legal right of the insured over to the insurer to claim from a third party who caused the loss.

• Eg. Sony TV causes house to go on fire. Ins. co. pays compensation to insured and then seeks their own compensation from sony.

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Insurance Documents

• Proposal Form: This is the form you fill in when you are applying for insurance cover.

• Policy: Contract of insurance Gives full detail of coverMust be kept safely

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Cover Note: Temporary PolicyUsed while waiting for actual policy

Certificate of Insurance: Proof of Insurance E.G Car insurance

disc

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Types of Household Insurances

PRSIPay Related Social Insurance

Statutory deduction from wages

You will receive an income if you are out of work due to illness, disability, maternity leave

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Medical Insurance

• In case you get sick or need an operation

• Eg: VHI

• Voluntary Health Insurance

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Personal Accident Insurance

• Covers people who are injured due to an accident.

• Lump sum payment for loss of finger, sight, hearing etc.

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Income Protection Insurance

• Provides an income in case you can’t work due to illness.

• Will provide you with a higher income than PRSI only.

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Travel Insurance

• Provides you with health care if you get sick on holidays.

• If you have wallet/ passport stolen

• Miss connecting flight

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Loan Repayment protection Insurance

• This covers loan repayments if you are unable to pay due to accident/ illness/death

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Motor Insurance *

Third Party, fire and theft: This is the minimum insurance that a driver must have on a car. The policy does not cover you the driver or damage done to your vehicle. It only covers damage to third party. i.e someone you crash into or injure

Fully Comprehensive: This covers you and third party. More expensive.

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Steps in making a claim

Contact guards and Ins. Co

Obtain estimate of items lost/ stolen

Fill out claim form

Talk to assessor agree on compensation

Life Assurance

• Not compulsory

• 3 types

• Term Policy

• Whole life assurance

• Endowment assurance

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Term Policy

• Pays out a lump sum of o money if the insured person dies before agreed date.

• Money paid to next of kin

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Whole Life Assurance

• Life of the person is insured.

• On the death of this person a lump sum is paid to relative/ friend

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Endowment Policy

• Type of savings scheme

• Awarded a lump sum after agreed no. of years (maturity date)

• Insured pays monthly contributions (usually over 10 year period)

• Can be ‘cashed in’ before agreed date, called surrender value

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Calculating Insurance Premiums

The O’ Neill Family want to insure their house valued at €300 000 and there contents that are worth €50 000 They receive the following quote:

Insurance Premium

House €20 per €10000

Contents €4 per €1000

House alarm 10% Discount

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Solution

House: €300 000 ________ X €20 = €600 €1 0000

Contents: €50 000 _________ X €4= €200

€1000

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Total Gross Insurance Premium = €800

€ 800 @ 10% = €80

Total Net Premium Insurance = €720

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Example 2

Michael wants to insure his new ’12 car valued €14000. He wants fully comprehensive insurance.He receives the following quote: Insurance Premium

Car €40 per €1000

Loading for 8 penalty points

40%

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Solution

Car: €14 000 ________ X €40 = €560 €1 000

€560 @ 40% = €224

Total Net cost of Insurance Premium €784

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Example 3

Ciara wants to buy life assurance. Her insuranceBroker forwarded her the following quote from anInsurance company.

Insurance Premium

Basic €650

Loading: Scuba diver

20%

Discount: Non-smoker

10%

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Solution

Basic Premium: €650+ loading for scuba diving

(€650 @20%) €130 €780

-Discount for non-smoker(€650 @10%)

€65Total Net Premium

€715

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Average Clause

A condition included in the insurance policy that limits the value of a claim if you are under – insured

Formula:

Average clause = Sum insured X Loss

True value

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Example

• Tom bought a house that is valued at €400000. He decides to insure it to the value of €200000.

• In the event of fire damage to the house of €50000, how much compensation will be paid out?

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Solution

200000 X 50000 = €25000400000

Average clause = Sum insured X Loss

True value

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Questions: Average Clause

1. A motorbike is crashed and completely distroyed. It was insured for €1800, but the insurance company estimates that its true value before the accident was €2600.

2. A house fire ruins a carpet valued at €750. The house contents were insured for €3000. However the insurance company estimates that the true value of the contents before the fire was €6000

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