Household Insurance. Distinguish between Insurance Protection against a loss you hope will not...

Household Insurance

Distinguish between Insurance Protection against

a loss you hope will not happen.

Eg. car accident.

Assurance Protection against

a loss you know will happen.

Eg. death.

Two reasons for adequate insurance You must cover all possible risks. Eg. In household insurance: fire,

theft, flood and accidental damage.

You must insure enough to cover full amount of loss.

Eg. If your house is worth €200,00 you must insure it for that value.

The basis for insurance is sharing the risk.

Large number of

small premiumsInsurance pool/fund

Ins. co. expenses

Ins. co. profit

Compensation

Distinguish between Insurable risk Things that can

be insured. Eg. Houshold

insurance; fire theft, damage.

Personal accident for a farmer.

Non-insurable risk Things that cannot

be insured against. Eg. Damage to car

used in crash testing.

Personal accident for a bungee jumper.

Insurance Terms Exclusion Clause: Situations that cannot be insured. Eg. Household insurance: A house situated near a river that

is known to flood every year.

Insurance Terms Policy Excess/Excess Clause:

The insured person may have to pay the first €100 of the compensation themselves.

This is to reduce the number of small claims being made.

To make people more careful.

Insurance Terms Proximate Cause:

What is the exact cause of the loss.

Eg. was it fire or theft or flood? ie. what actually happened? This helps the insurer decide if

compensation is due.

Insurance Terms Compensation:

Is the money you get when you make a claim.

Principles of insurance Insurable Interest Utmost Good Faith Indemnity Contribution Subrogation

Insurable Interest In order to insure something you

must benefit from its existence & suffer from its loss.

Eg. You can insure your own house but you cannot insure your neighbours’s house.

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.

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.

Contribution If a risk is insured with two

insurance companies each will pay half of the compensation.

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

Both will give ?? €500 each.

Subrogation Passes the legal right of the

insured over to the insurer to claim from a third party who caused the loss.

Eg. Whirlpool oven causes house to go on fire. Ins. co. pays compensation to insured and then seeks their own compensation from whirlpool.

Average Clause Related to underinsurance and partial

loss.

If you only insure an item for a fraction of the value, you only get the same fraction compensation.

Formula

SUM INSURED x CLAIM = COMPENSATION

ACTUAL VALUE

EXAMPLE 1. Mary insured her house for

€200,000. The market value is €250,000. A fire causes €10,000 worth of

damage. How much compensation will she

receive???

Solution 1

200,000 x 10,000 = 8,000 250,000

Documents used in insurance

Proposal Form

Application form for insurance

Policy

Contract of insurance Gives full details of cover Must be filled away safely

Cover Note

Temporary policy Used in car insurance, while

you are waiting for insuracne disc

Certificate of Insurance

Proof of insurance

Claim Form

Form you fill out when a loss occurrs and you want compensation

People in insurance Broker

Gives advice on insurance Sells insurance on behalf of

lots of companies. Eg:

Agent

Sell insurance for only one co.

Eg: FBD, Quinn Direct……..

Actuary

Calculates insurance premiums

Loss Adjuster

Calculates the value of the loss

Works for the insurance co.

Loss Assessor

Calculates the value of the loss

Represents the insured

Steps involved in taking out insurance

1. Decide what risks you want covered. (ask a broker)

2. Fill out proposal form. (ugf)

3. Pay your premium.

4. File your policy in a safe place.

Steps involved in making a claim.

1. Contact guards & ins. co.

2. Obtain estimates of lost/stolen items.

3. Fill out claim form. (ugf)

4. Talk to assessor and agree on compenstaion.

Terms relating to premium calculation

Premium The cost of insurance Money you pay to be

insured The higher the risk the

higher the premium

Risk Effect Things that cause premiums to

be high or low

Eg: In car insurance No car accidents = lower

premium Under 25 male = higher

premium

Loading Extra premium for higher

risk

Eg: A smoker will have a higher premium for life assurance than a non smoker

Discount Money taken off premium

for a lower risk

Eg: In house insurance you get a discount for having an alarm

No Claims Bonus In car insurance you get a

discount if you do not claim for any accidents the previous year

It encourages people not to claim for small amounts

Renewal Date The date you must have

your premium paid by.

Eg : 1/10/08

Days of Grace You may be given a few

extra days to pay your premium

Not allowed in motor insurance

Premium Calculation Questions

Types of Personal Insurance

PRSI Pay Related Social Insurance.

Statutory Deduction from you salary.

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

Medical Insurance In case you get sick or need

an operation

Eg: VHI Voluntary Health Insurance

Personal Accident Covers people who are

injured due to an accident.

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

Salary Protection Provides an income in case

you can’t work due to illness.

Will provide you with a higher income than PRSI only.

Pension Plan

Provides you with lump sum and income for your retirement.

Holiday Insurance Provides you with health

care if you get sick on holidays.

Risk Effects for Personal Insurance

Loading Older, smoker, risky job

Discount Younger, non-smoker, low risk job