Self-Study Notes
Created by Chantelle. B
Chapter 9 – Insurance
Why should a business have insurance? Importance in a supermarket?
Insurance:
IN case something happens (fire, theft, flood)
Advantages of insurance:
- Insured can transfer risks to insurance company provides indemnification
- Peace of mind about uncertainties
- Some cannot buy a car, house unless there’s insurance to cover
- Cash back bonuses if no claims are made
- Cheaper to pay for insurance than paying expense of event
Disadvantages of insurance:
- Expensive if never claimed (why some now offer money back after certain time)
- Insured must check insurance covers al possible events ---> needs peace of mind
- Insurers look for excuses to not claim (many commit fraud by claiming for losses not
suffered ---> why premiums keep increasing)
Assurance:
AS sure as we are humans on Earth (death)
Advantages of assurance:
- Ensures dependents continue good standard of living
- Mortgage loans have life insurance policy ---> settles outstanding amount on bond if
bondholder/ spouse dies (provides peace for family)
- Long term investment allows insured to make provision for future events after date
of policy maturing (e.g. tertiary education or retirement)
- Medical aid is a form of assurance (brings peace of mind knowing health expenses
are covered)
- Life assurance sector is highly regulated (allows insured to save money long term)
- Policies can be ceded to obtain loan if insured need money urgently
Disadvantages of assurance:
- Proper research undertaken to ensure its not a waste of money (look at your
options)
- Law specifies maximum allowable sum to be paid out in circumstances ---> but
brokers don’t mention this to clients
- Large portion of monthly premium taken for administration and fees ---> if unaware,
may have expectations of capital growth that won’t be met
, Self-Study Notes
Created by Chantelle. B
1. Insurable and non- insurance risks
Some risks are uninsurable, and some are too expensive to insure
War:
- Should be managed by government (should be prevented)
Bad Debt:
- There’s insurance available, but is unaffordable
Price fluctuations due to time intervals:
- Between time goods are ordered and time received
- Business may decide to hedge against risks
Trading inventory becomes obsolete/ outdated due to changes in fashion:
- Not insurable
Technology:
- Changes are rapid
- Constant improvements to machinery and production processes
- Leasing is and option to prevent being stuck with outdated equipment
No one can take out insurance against illegal acts:
- E.g. cant take out insurance policy against penalty imposed for traffic offence
Climate Change/ Natural Disasters:
- Becoming bigger risk
- Sanlam identified Langebaan, Certain areas of Southern Cape and areas around Vaal
Dam as becoming too risky to insure.
Created by Chantelle. B
Chapter 9 – Insurance
Why should a business have insurance? Importance in a supermarket?
Insurance:
IN case something happens (fire, theft, flood)
Advantages of insurance:
- Insured can transfer risks to insurance company provides indemnification
- Peace of mind about uncertainties
- Some cannot buy a car, house unless there’s insurance to cover
- Cash back bonuses if no claims are made
- Cheaper to pay for insurance than paying expense of event
Disadvantages of insurance:
- Expensive if never claimed (why some now offer money back after certain time)
- Insured must check insurance covers al possible events ---> needs peace of mind
- Insurers look for excuses to not claim (many commit fraud by claiming for losses not
suffered ---> why premiums keep increasing)
Assurance:
AS sure as we are humans on Earth (death)
Advantages of assurance:
- Ensures dependents continue good standard of living
- Mortgage loans have life insurance policy ---> settles outstanding amount on bond if
bondholder/ spouse dies (provides peace for family)
- Long term investment allows insured to make provision for future events after date
of policy maturing (e.g. tertiary education or retirement)
- Medical aid is a form of assurance (brings peace of mind knowing health expenses
are covered)
- Life assurance sector is highly regulated (allows insured to save money long term)
- Policies can be ceded to obtain loan if insured need money urgently
Disadvantages of assurance:
- Proper research undertaken to ensure its not a waste of money (look at your
options)
- Law specifies maximum allowable sum to be paid out in circumstances ---> but
brokers don’t mention this to clients
- Large portion of monthly premium taken for administration and fees ---> if unaware,
may have expectations of capital growth that won’t be met
, Self-Study Notes
Created by Chantelle. B
1. Insurable and non- insurance risks
Some risks are uninsurable, and some are too expensive to insure
War:
- Should be managed by government (should be prevented)
Bad Debt:
- There’s insurance available, but is unaffordable
Price fluctuations due to time intervals:
- Between time goods are ordered and time received
- Business may decide to hedge against risks
Trading inventory becomes obsolete/ outdated due to changes in fashion:
- Not insurable
Technology:
- Changes are rapid
- Constant improvements to machinery and production processes
- Leasing is and option to prevent being stuck with outdated equipment
No one can take out insurance against illegal acts:
- E.g. cant take out insurance policy against penalty imposed for traffic offence
Climate Change/ Natural Disasters:
- Becoming bigger risk
- Sanlam identified Langebaan, Certain areas of Southern Cape and areas around Vaal
Dam as becoming too risky to insure.
