Insurance - PERSONAL FINANCE - Lecture 9 notes

Module: Personal Finance


Lecture 9 – Insurance




Introduction
 Life assurance and income protection are important elements of financial
planning
 Some insurance is a legal requirement
 Some insurance policies are a very good idea – it’s something to fall back on
 Some insurance policies are not good value for money
 It’s a necessary evil in some areas – it’s like a tax
 Examples: car insurance, building insurance


Insurance
 A protection against possible loss
 You are ensuring yourself against what can happen


Key Insurance Terms
 Risks  exposure to something that could potentially be dangerous; risks
does not necessarily mean it’s a negative thing as you can take calculated
risks; risks can sometimes further you; uncertainty and lack of predictability.
 Peril  cause of a possible loss i.e. fire
 Hazard  what could make the situation risky; increase the likelihood of loss
through some peril

Insurance companies will consider the above three


Types of Risks
Pure Risks = accidental and unintentional risks for which the nature and financial
cost of the loss can be predicted e.g. personal risk

Speculative Risks = carries a chance of either gain or loss e.g. gambling, start a
small business


Risk Management Methods T.A.R.A or 4Ts
Example: Car Ownership