Why do people Insure things?

• People insure things that are valuable to them and that would cost a lot of money to replace if they were stolen or damaged in some way

Insurance is a way of protecting ourselves financially by arranging for the payment of a sum of money in the event of loss or injury occuring.

Definition

Cover all possible risk Be enough to cover the loss that might

occur e.g. if a house is worth €100,000 it should be insured for €100,000, and not for less

Adequate Insurance should

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Example of Motor Insurance Not everyone’s car will be stolen or damaged

so the money paid to the insurance company is used to pay a small % of people whose cars are stolen or damaged

This is known as the Pooling of risk

How can Insurance companies afford to pay out large amounts of money to people who have suffered a loss ?

Pooling of Risk

Providers of Insurance

1. Calculate the value of the item you wish to insure

2. Contact an insurance company

3. Complete the proposal form

Steps involved in taking out Insurance

4. When the insurance company accepts the proposal for insurance, you must pay the premium.

5. Within a couple of weeks, the insurance company will send the insurance policy and certificate of insurance to you.

Personal Home Life Motor Vehicle

Types of Insurance

By law every person who drives a car must have insurance.

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Motor Vehicle Insurance

Motor Vehicle InsuranceThird party, fire and theft

Compensates the insured in the case of the car going on fire or being stolen

Comprehensive This gives third party, fire and theft cover, as well as accidental damage, which gives compensation for damage to the motorist’s own car

If you have no accidents or claims made during the year, you will receive a discount on your premium for the next year. This is known as a no claims bonus

No claims Bonus

House Insurance Covers the house against damage by fire or break in. It is very important that the insurance cover is adequate

House Contents This gives compensation if household contents are stolen or damaged, e.g. furniture, clothes etc

All Risks All risk insurance gives wider cover than that given by house contents insurance.

Property

Medical insurance This covers the cost of doctors and hospitals in time of illness. E.g. VHI and Aviva

PRSI The State insurance covers people who are out of work through illness or unemployment

Holiday Insurance This gives compensation in the event o a holiday having to be cancelled, a person becoming ill on holiday or goods being stolen while on holiday

Personal

Whole Life Assurance

This guarantees to pay an agreed sum of open to the dependents when the insured person dies

Temporary life (Term) Assurance

Provides cover for an agreed period of time, e.g. up to 65

Endowment Assurance

to pay an agreed sum on the death of the insured person, or on the insured person reaching a certain age, whichever comes first

Life

Assurance differs from insurance in two ways:

1. In insurance there is the possibility of the event happening, whereas in life assurance, there is a certainty that a person or reach a certain age

2. Insurance is taking out on an annual basis whereas life assurance is taking out over a definite number of years

1. Insurable Interest:People can only insure something where they benefit from having the item and it would cost you money to replace it if it was robbed or stolen, e.g. Your house

Your House Neighbours House

The rules of insurance (NB)

2. Utmost good faith: Answer all questions truthfully and provide all relevant information to the insurance company. E.g. Insurance company may refuse to pay a claim for a house fire, because it was not told that the roof was thatched.

3.Indemnity: This rule states you should not make a profit from insurance.

4. The principle of Contribution: If a risk is insured by two or more insurance companies, any compensation payable will be shared between the companies. Eg. Camera stolen on holidays. – house and holiday insurance policy.

5. The principle of Subrogation: Insurers, who pay out full compensation for an item which they have insured, are entitled to take possession of the item and sue a third party. subrogation – linked to indemnity.

Average Clause: Besides the five principles there is another important rule in insurance, called the average clause. This states that if something is insured for only a proportion of its value, for example, half of its value, the insurer is only liable for the same proportion of the loss, i.e. half, when a claim is made.

There may be a legal requirement to do so. E.g. PRSI, Motor Insurance.

Insurance may be required as a condition for getting a loan.

To protect against the risk of serous financial loss.

To give the insured person peace of mind.

Importance of Insurance

Non-Insurable Risks

1. Loss of profit due to sudden increases in the cost of production

2. Loss of profit due to strikes3. Loss of profit due to changes in consumers’

tastes and fashions4. Loss of profit due to the entry of new rival firms

into the industry5. Loss of profit due to the adverse effects of new

legislation6. Loss of profit due to adverse effects of

international trade agreements before the trade agreement

7. Loss of profit due to bad management

Install security devices Security Procedures Training Staff Maintenance of Car Careful Driving

Risk management

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Insurance Scam

Important words in chapterInsurance broker Utmost good faith

Days of Grace Indemnity

Proposal form Subrogation

Premium Contribution

Insurance policy Non insurable risk

Cover note Exclusion clause

Renewal notice Policy Excess

Insurable interest Surrender Value

Comprehensive motor insurance

False Economy

Certificate of insurance Insurer

No claims bonus Assessor

Actuary Loadings

You never know when you will need insurance!!!!