INSURANCE
SHORT TERM INSURANCE: IN case something happens (e.g., fire, theft, floods).
These are things that could or could not happen. The insured wants to be
INdemnified (be placed in the same financial position as before the
incident).
LONG TERM INSURANCE: Assurance. Something that will definitely happen
(e.g., retire, die).
NON-INSURABLE RISK:
War. It is a risk that must be prevented by the government. Insurance
firms hesitant to insure other political risks so govt + South African
Insurance Association founded SASRIA Ltd (SA Special Risk Insurance
Association).
Bed debt.
Business risks. Things like price changes due to timelapse between good
ordered and goods received.
Trading stock. Becomes out of date due to fashion changes.
Technology changes. Rapid and regular improvements. Can’t take
insurances on it aging or be outmoded. Leasing can ensure you don’t
have to have old technology.
Unlawful action. Can’t make a policy for speeding fines.
Some natural disasters in certain areas.
CONCEPTS:
Indemnity = gives insured peace of mind to know that if the insured
experiences a lot of damages or is destroyed, the insured will be sufficiently
compensated for losses. No losses or profit will be made from this. For short
term.
Security = Financial security at retirement or to dependants when they die.
For long term. Group life policy which an employee can belong to gives
security to the family in the form of long-term insurance. Premiums on group
life cover is lower than life insurance policies as it is a ‘bulk discount’.
Average clause = principle applied if asset is not insured for the correct value.
Under-insured: the insured has not continuously paid the premium that
is sufficient to cover the full risk. This means it is not indemnified. E.g., an
asset is R10 000, but the asset was only insured at R6 000, then only 60%
of the risk is insured so if the item was damaged and amounted to
R2 000, then you will only get R1 200 (60%).
Over-insured: where the asset is insured against more than its present
value. The insured is paying a higher premium than necessary. If
damage is caused, only the value of the asset gets paid out as the
, insured cannot make a profit. This can occur when values deteriorate
like cars.
Excess = amount of % of the loss/claim that the insured needs to pay. It is not
covered by the policy. If excess is low, monthly payments will be high and
vice versa.
Proximate cause = the loss suffered was a result of the vent that was insured
and not a secondary event.
If person claims for a loss suffered, the company will ensure that the loss was
due to the cause that was insured (the real cause) and not some secondary
event. E.g., if someone has household contents insurance and items are
insured then insurance will pay for the loss. But if someone doesn’t have car
insurance and so lies that the car was at home when it was stolen, then they
cannot claim.
Subrogation = if insured person claims from insurance company they cannot
claim from the guilty party. The right to claim form the guilty party is given to
the insurance company. Often in car insurance. Principle of indemnity
Cession or to cede the policy = an endowment policy that builds up cash
worth over time so if an issue arises, the policy can be signed over to a
creditor as collateral in order to get a loan.
REQUIREMENTS OF A VALID INSURANCE CONTRACT:
Absolute good faith:
- Utmost honesty
- Insured must disclose all information that may affect the risk.
- If not answered properly the policy will be null and void.
Insurable interest:
- A person has insurable interest if it can be proved that they will sustain
financial loss if a certain event takes pace.
- Stuff you can insure.
- On belongings, health, marriage, businesses or as a creditor.
Contractual capacity:
- Person entering into insurance contract is legal age and sound mind.
You must be 18.
TYPES OF INSURANCE:
COMPULSORY
Unemployment Insurance Fund (UIF):
Gives short-term relief to workers when they are unemployed, or unable
to work due to maternity or illness.
SHORT TERM INSURANCE: IN case something happens (e.g., fire, theft, floods).
These are things that could or could not happen. The insured wants to be
INdemnified (be placed in the same financial position as before the
incident).
LONG TERM INSURANCE: Assurance. Something that will definitely happen
(e.g., retire, die).
NON-INSURABLE RISK:
War. It is a risk that must be prevented by the government. Insurance
firms hesitant to insure other political risks so govt + South African
Insurance Association founded SASRIA Ltd (SA Special Risk Insurance
Association).
Bed debt.
Business risks. Things like price changes due to timelapse between good
ordered and goods received.
Trading stock. Becomes out of date due to fashion changes.
Technology changes. Rapid and regular improvements. Can’t take
insurances on it aging or be outmoded. Leasing can ensure you don’t
have to have old technology.
Unlawful action. Can’t make a policy for speeding fines.
Some natural disasters in certain areas.
CONCEPTS:
Indemnity = gives insured peace of mind to know that if the insured
experiences a lot of damages or is destroyed, the insured will be sufficiently
compensated for losses. No losses or profit will be made from this. For short
term.
Security = Financial security at retirement or to dependants when they die.
For long term. Group life policy which an employee can belong to gives
security to the family in the form of long-term insurance. Premiums on group
life cover is lower than life insurance policies as it is a ‘bulk discount’.
Average clause = principle applied if asset is not insured for the correct value.
Under-insured: the insured has not continuously paid the premium that
is sufficient to cover the full risk. This means it is not indemnified. E.g., an
asset is R10 000, but the asset was only insured at R6 000, then only 60%
of the risk is insured so if the item was damaged and amounted to
R2 000, then you will only get R1 200 (60%).
Over-insured: where the asset is insured against more than its present
value. The insured is paying a higher premium than necessary. If
damage is caused, only the value of the asset gets paid out as the
, insured cannot make a profit. This can occur when values deteriorate
like cars.
Excess = amount of % of the loss/claim that the insured needs to pay. It is not
covered by the policy. If excess is low, monthly payments will be high and
vice versa.
Proximate cause = the loss suffered was a result of the vent that was insured
and not a secondary event.
If person claims for a loss suffered, the company will ensure that the loss was
due to the cause that was insured (the real cause) and not some secondary
event. E.g., if someone has household contents insurance and items are
insured then insurance will pay for the loss. But if someone doesn’t have car
insurance and so lies that the car was at home when it was stolen, then they
cannot claim.
Subrogation = if insured person claims from insurance company they cannot
claim from the guilty party. The right to claim form the guilty party is given to
the insurance company. Often in car insurance. Principle of indemnity
Cession or to cede the policy = an endowment policy that builds up cash
worth over time so if an issue arises, the policy can be signed over to a
creditor as collateral in order to get a loan.
REQUIREMENTS OF A VALID INSURANCE CONTRACT:
Absolute good faith:
- Utmost honesty
- Insured must disclose all information that may affect the risk.
- If not answered properly the policy will be null and void.
Insurable interest:
- A person has insurable interest if it can be proved that they will sustain
financial loss if a certain event takes pace.
- Stuff you can insure.
- On belongings, health, marriage, businesses or as a creditor.
Contractual capacity:
- Person entering into insurance contract is legal age and sound mind.
You must be 18.
TYPES OF INSURANCE:
COMPULSORY
Unemployment Insurance Fund (UIF):
Gives short-term relief to workers when they are unemployed, or unable
to work due to maternity or illness.
