UNIT 10: INVESTMENT – INSURANCE • The insurer will pay for insured loss or
damage in proportion to its insured value.
• The insured will be personally liable for the
part of the risk not covered by the insurer.
Insurance concepts
Averaging clause/Average clause
The meaning of insurance calculations
There are two parties involved in all insurance The insured has the responsibility to insure
contracts – the insurer and the insured. The insured items at their full market value. If any
insured enters into an insurance contract with insured item is insured for less than their
the insurer and makes regular payments, known market value, the insurer will apply the average
as premiums, to the insurer. The insurer clause to determine the amount of money that
undertakes to indemnify the insured against will be paid in the event of a claim by the
possible losses specified in the insurance insured.
contract.
The insurance industry is a fairly sophisticated
legal entity. It is important that both the insured
and the insurer are familiar with the legal
requirements and the jargon used to express
Reinstatement
certain events within the industry. Let's look at
some of the common concepts that form part of • This is a provision whereby the insurer may
the common language of the insurance industry. replace lost or damaged property or goods
instead of compensating the insured in cash.
• This provision applies when the insured items
Non-compulsory insurance
are overinsured.
• Refers to insurance where the insured has the
• Damage to insured items will be compensated
option to insure against certain risks that may
by repairing or replacing the item instead of
or may not occur.
making a cash payment to the insured.
• The decision to insure an asset or risk lies
• The cash payment will not exceed the market
solely with the insurer and is not influenced by
value of the insured's insured items.
the government.
Overinsurance
Copayment
• This occurs when assets or risks are insured
by the insured for more than their market value. • Excess represents an amount that is deducted
from the damages before a claim is settled.
• The insurer may prefer to repair/repair the
damaged asset rather than pay out the amount • Excess is an amount that the insured agrees
of damage. to contribute out of his own pocket towards the
compensation for the damage suffered.
• In the event of a claim, the compensation will
not exceed the market value of the damaged • Copayments keep insurance premiums lower
item/asset. and discourage fraud.
Underinsurance • Excess payment prevents the insured from
claiming for minor damages.
• Occurs when items or assets are insured for
less than their market value. • The amount or value of the excess is
stipulated in the insurance policy.
• The insured will be partially compensated for
losses or damage suffered.
Avery clause/Average clause
• A provision set by the insurer that applies
when property or goods are underinsured.
, • Money in transit annuities
• Theft • Life insurance
The difference between underinsurance • Burglary • Pension Fund or
and overinsurance • Fire Provident Fund
• Funeral insurance
Overinsurance Underinsurance • Health insurance/
• The insured insures • The insured insures Medical insurance
assets or possessions assets or possessions
for more than the for less than market
market value. value. THE PRINCIPLES OF INSURANCE
• The insurer will • The insurer will
apply the apply the average Indemnity/Indemnity
reinstatement clause clause if the insured • This usually applies to short-term insurance,
to compensate for files a claim for losses
as the insured is compensated for a
losses incurred. or damages.
• Compensation by • The insured will be specified/proven damage or loss.
the insurer will not partially or
• Insurer agrees to compensate the insured for
exceed the market proportionally
value of the items compensated for damages or losses specified in the insurance
damaged or lost. damage or losses contract, in exchange for premiums that the
incurred. insured pays to the insurer.
• The insurer will • The insurer will pay
replace or repair the the insured cash for • Protects the insured against the specified
damage or loss damage or losses event that may occur.
suffered by the suffered.
insured. • Payments from the insurer will only be made:
- if there is proof that the specified event
occurred, or
The difference between insurance
- if the insured can prove the amount of
and assurance the loss or damage.
Insurance Insurance Security Statement/Security
• Based on the • Based on the
principle of principle of security • Applies to long-term insurance where the
indemnity/indemnity. statement/certainty. insurer undertakes to pay out an agreed
• The insured • The insurer amount in the event of loss of life.
transfers the cost of undertakes to pay an
potential loss to the agreed sum of money • A predetermined amount will be paid out
insurer at a premium. after a certain period when the insured reaches a predetermined
of time has elapsed age/or is injured as a result of a predetermined
or upon the death of event.
the insured person,
whichever occurs • Intended to provide financial security to the
first. insured upon retirement or to the dependents of
• It covers a specific • Specified event is a the insured upon death
event that may occur. certainty, but the
time of the event is Best regards
uncertain.
• Applies to short- • Applies to long-term • The insured must be honest in providing
term insurance. insurance. details when entering into an insurance
Examples Examples contract.
• Property insurance • Life insurance •
• Cash in transit Retirement annuities • Both the insurer and insured must disclose all
• Theft relevant facts.
• Burglary
• Fire • Insured must disclose everything that may
affect the extent of the risk.
The difference between short-term and Insurable interest
long-term insurance
• The insured must prove that a financial loss
Short-term Long-term will be suffered if the insured item is lost,
insurance insurance damaged or ceases to exist.
• Property insurance • Retirement
damage in proportion to its insured value.
• The insured will be personally liable for the
part of the risk not covered by the insurer.
Insurance concepts
Averaging clause/Average clause
The meaning of insurance calculations
There are two parties involved in all insurance The insured has the responsibility to insure
contracts – the insurer and the insured. The insured items at their full market value. If any
insured enters into an insurance contract with insured item is insured for less than their
the insurer and makes regular payments, known market value, the insurer will apply the average
as premiums, to the insurer. The insurer clause to determine the amount of money that
undertakes to indemnify the insured against will be paid in the event of a claim by the
possible losses specified in the insurance insured.
contract.
The insurance industry is a fairly sophisticated
legal entity. It is important that both the insured
and the insurer are familiar with the legal
requirements and the jargon used to express
Reinstatement
certain events within the industry. Let's look at
some of the common concepts that form part of • This is a provision whereby the insurer may
the common language of the insurance industry. replace lost or damaged property or goods
instead of compensating the insured in cash.
• This provision applies when the insured items
Non-compulsory insurance
are overinsured.
• Refers to insurance where the insured has the
• Damage to insured items will be compensated
option to insure against certain risks that may
by repairing or replacing the item instead of
or may not occur.
making a cash payment to the insured.
• The decision to insure an asset or risk lies
• The cash payment will not exceed the market
solely with the insurer and is not influenced by
value of the insured's insured items.
the government.
Overinsurance
Copayment
• This occurs when assets or risks are insured
by the insured for more than their market value. • Excess represents an amount that is deducted
from the damages before a claim is settled.
• The insurer may prefer to repair/repair the
damaged asset rather than pay out the amount • Excess is an amount that the insured agrees
of damage. to contribute out of his own pocket towards the
compensation for the damage suffered.
• In the event of a claim, the compensation will
not exceed the market value of the damaged • Copayments keep insurance premiums lower
item/asset. and discourage fraud.
Underinsurance • Excess payment prevents the insured from
claiming for minor damages.
• Occurs when items or assets are insured for
less than their market value. • The amount or value of the excess is
stipulated in the insurance policy.
• The insured will be partially compensated for
losses or damage suffered.
Avery clause/Average clause
• A provision set by the insurer that applies
when property or goods are underinsured.
, • Money in transit annuities
• Theft • Life insurance
The difference between underinsurance • Burglary • Pension Fund or
and overinsurance • Fire Provident Fund
• Funeral insurance
Overinsurance Underinsurance • Health insurance/
• The insured insures • The insured insures Medical insurance
assets or possessions assets or possessions
for more than the for less than market
market value. value. THE PRINCIPLES OF INSURANCE
• The insurer will • The insurer will
apply the apply the average Indemnity/Indemnity
reinstatement clause clause if the insured • This usually applies to short-term insurance,
to compensate for files a claim for losses
as the insured is compensated for a
losses incurred. or damages.
• Compensation by • The insured will be specified/proven damage or loss.
the insurer will not partially or
• Insurer agrees to compensate the insured for
exceed the market proportionally
value of the items compensated for damages or losses specified in the insurance
damaged or lost. damage or losses contract, in exchange for premiums that the
incurred. insured pays to the insurer.
• The insurer will • The insurer will pay
replace or repair the the insured cash for • Protects the insured against the specified
damage or loss damage or losses event that may occur.
suffered by the suffered.
insured. • Payments from the insurer will only be made:
- if there is proof that the specified event
occurred, or
The difference between insurance
- if the insured can prove the amount of
and assurance the loss or damage.
Insurance Insurance Security Statement/Security
• Based on the • Based on the
principle of principle of security • Applies to long-term insurance where the
indemnity/indemnity. statement/certainty. insurer undertakes to pay out an agreed
• The insured • The insurer amount in the event of loss of life.
transfers the cost of undertakes to pay an
potential loss to the agreed sum of money • A predetermined amount will be paid out
insurer at a premium. after a certain period when the insured reaches a predetermined
of time has elapsed age/or is injured as a result of a predetermined
or upon the death of event.
the insured person,
whichever occurs • Intended to provide financial security to the
first. insured upon retirement or to the dependents of
• It covers a specific • Specified event is a the insured upon death
event that may occur. certainty, but the
time of the event is Best regards
uncertain.
• Applies to short- • Applies to long-term • The insured must be honest in providing
term insurance. insurance. details when entering into an insurance
Examples Examples contract.
• Property insurance • Life insurance •
• Cash in transit Retirement annuities • Both the insurer and insured must disclose all
• Theft relevant facts.
• Burglary
• Fire • Insured must disclose everything that may
affect the extent of the risk.
The difference between short-term and Insurable interest
long-term insurance
• The insured must prove that a financial loss
Short-term Long-term will be suffered if the insured item is lost,
insurance insurance damaged or ceases to exist.
• Property insurance • Retirement
