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Insurance

Part 3

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Aim of Lesson

• To learn the Principles of Insurance.

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Insurable Interest

• This means you can only insure something, if they benefit from its existence and will suffer if it ceases to exist. For example you can insure your own bicycle , but not your friend’s bicycle.

• In the same way you can take out Assurance on your wife’s life, but not that of your neighbour.

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Utmost Good Faith(Uberrimae Fidei)

• It is assumed by the Insurance company that the facts you disclose on a Proposal Form are accurate.

• However, if the loss occurs they will check the facts and if inaccurate details have been given they will not compensate you.

• Failure by the insured to reveal certain details to the insurance company that affect the risk may make the insurance invalid. For example that the house is made of wood rather than concrete.

• For example for vehicle insurance if you said you were 25 and were in fact only 18. When you had an accident they would ask for your birth certificate and you would get no compensation.

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Indemnity

• This means the insured cannot make a profit from an insurance claim.

• If you have a four year old bicycle and it is stolen, the insurance company will only give you the current value of the bicycle not the cost of the bicycle when it was new.

• It your vehicle is in an accident and damaged beyond repair, but the wreck is worth something for example the engine could be sold the insurance company will take this into consideration when giving the compensation.

• With life assurance one may be financially better of, but it is only to compensate you for the loss suffered.

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Subrogation

• This means the insurance company has the legal right to claim compensation from any other party that caused the accident.

• For example vehicle A hits B, which as a result hits C. C will claim of B’s insurance company, but that insurance company has the right to claim from A’s insurance company, as it was A that really caused the damage to C.

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Contribution

• There is no advantage insuring the same risk with two companies, because the insurance companies compare notes and each will only contribute half the damage, if each were covering the risk for the same amount.

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Principles of Insurance

• Insurable Interest

• Utmost Good Faith

• Indemnity

• Subrogation

• Contribution

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Average Clause

• If an item is underinsured and the insured risk occurs then the insured will only get a proportion of the damage that occurs.

• For example a house worth €400,000, is insured for €300,000 and a fire occurs in the kitchen causing €100,000 damage. As the house is only insured for ¾ of its value. The insured will only get ¾ of the damage. That is €75, 000.

• The average clause applies, when a partial loss occurs and the risk is underinsured.

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Proximate Cause

• Compensation will only be paid, if the risk that is covered in the policy occurs,

• For example, if the insurance policy states that the house is covered for fire and theft and it is totally or partially destroyed by a flood no compensation will be paid.

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Making a claim

• Normal procedure is a phone call to the insurance company giving policy number and details of the claim.

• The insurance company will then issue a claims form. This form needs to be completed accurately and will normally have to include quotations for the repairs to the damage done.

• If the claim is substantial the insurance company will send out an Assessor to decide on the amount of the compensation.

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Compensation

• Cash. This is the most popular method.

• Replacement

• Repair

• Reinstatement.

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Selling insurance

• Broker. Sells for more than one company and in in general aims to get the best deal for his client. Difficulty of some companies paying greater commission and the may choose those companies

• Agent. Just sells for one company.

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How the insurance industry helps the country:

• Offers peace of mind. For example people can leave their homes and people build factories etc.

• Creates a lot of jobs.

• Insurance companies own a lot of property in our cities and towns. As they invest their finances in these so that they can sell them if they receive a lot of claims.

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Insurance The End

Discuss:

Is Insurance a necessary evil????

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