Insurance for Individuals, Households and Businesses
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What is Insurance?

Insurance is a service people can purchase that compensates them for a financial loss. In return for payment of a premium an insurance company promises to pay compensation should a financial loss occur.

Risks are insurable when

  • The person taking out insurance gains from its existence and suffers from its loss

  • The loss is accidental

  • The risk is one of many similar risk being insured

  • The possible loss is not so big that it would ruin the insurance company

Principles of Insurance
Insurance is governed by three principles:

  • Insurable interest:

    A person who wishes to take out insurance must gain from the existence of what is being insured and suffer from its loss.
  • Utmost good faith:

    A person applying for insurance must always answer all questions asked truthfully. Failure to do so can make the insurance cover null and void (worthless).
  • Indemnity:

    An insured person cannot gain from insurance i.e. insurance can at best put an insured person in the same financial position as they were prior to a loss occurring.

 

The principle of indemnity has two sub-principles:

Principle of contribution: Should the same risk be insured by two or more insurance companies, the compensation must be shared out between them.

Principle of subrogation: It always follows that once an insurance company pays out compensation it becomes the owner of the item insured.

Types of Insurance
The main types of insurance cover taken out by households include:
  • Personal insurance
  • Property insurance
  • Life insurance/assurance
  • Motor insurance

The main types of insurance cover taken out by businesses include:

  • Fire insurance
  • Theft insurance
  • Product liability
  • Employer’s liability
  • Public liability
  • Motor insurance

When taking out insurance a person completes a proposal form and when making a claim for compensation a person completes a claims form.

An actuary calculates the premium to be paid for insurance. When a person makes a claim for compensation an assessor calculates the compensation to be paid.

Loadings (factors that increase the risks insured) increase the size of the insurance premium whereas deductions (factors that reduce the risk insured) decrease the size of the insurance premium.


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