Insurance

What is insurance?
Insurance is based on the idea of sharing
risk
Ins. co. expenses
Large number
of
small premiums

Insurance
pool/fund

Ins. co. profit

Compensation

Principles of insurance

Insurable Interest
Utmost Good Faith
Indemnity
Contribution
Subrogation

Indemnity

You cannot make a profit from

insurance.

There is no point in insuring

your house for more than it is
worth as the ins. co. will only
compensate you for the actual
value of the house.

Insurable Interest

In order to insure something you

must benefit from its existence
& suffer from its loss.

Eg. You can insure your own

house but you cannot insure
your neighbourss house.

Subrogation

Passes the legal right of the

insured over to the insurer to
claim from a third party who
caused the loss.

Eg. Whirlpool oven causes

house to go on fire. Ins. co.
pays compensation to insured
and then seeks their own
compensation from whirlpool.

Contribution

If a risk is insured with two

insurance companies each will
pay half of the compensation.
Eg: A ring insured with two
ins. co.s. for 1,000
Both will give ??
500 each.

Utmost Good Faith

You must tell all relevant

information when filling out
an application for insurance.

Eg. If you have an illness

you must tell the ins. co. as
they may want to charge a
higher premium or not
insure you at all.

Distinguish between

Insurance
Protection against
a loss you hope
will not happen.

Eg. car accident.

Assurance
Protection against
a loss you know
will happen.
Eg. death.

Insurance Broker

If you require insurance you may go

directly to an insurance company or a
broker. He or she is an agent for several
insurance companies and will advise
you on which policy will suit you best.
A small commission called brokerage is
charged for this service.

Applying for Insurance or

Assurance
1.
2.

3.

4.

Fill out a proposal form

If the application is accepted
an actuary will assess the
degree of risk and decide
the size of the premium.
The insurance company will
usually issue a cover note
on receipt of the premium
The insurance company will
issue the insurance policy

Proposal Form

Application form for insurance

Cover Note

Temporary policy
Used in car insurance, while
you are waiting for insurance
disc

Insurance Policy

Contract of insurance
Gives full details of cover
Must be filled away safely

Certificate of Insurance

Proof of insurance

Premium

The cost of insurance

Money you pay to be
insured
The higher the risk the
higher the premium

Actuary

An actuary is a statistician who

calculates insurance premiums
based on the degree of risk
involved.

Distinguish between

Insurable risk
Things that can be
insured.
Eg.
Houshold
insurance; fire
theft, damage.
Personal accident
for a farmer.

Non-insurable risk
Things that cannot
be insured against.
Eg.
Damage to car
used in crash
testing.
Personal accident
for a bungee
jumper.

Steps involved in making a

claim. Contact guards & insurance
1.

2.

3.
4.

5.

company.
Obtain estimated value of what is
being claimed.
Fill out claim form.
The insurance company will then
send out a loss adjuster or
assessor to calculate the value of
the loss .
If your policy covers the claim you
will be compensated by the
insurance company.

Insurance Terms Related

with making a claim.

Claim Form

Form you fill out when a

loss occurrs and you want
compensation

Compensation:

Is the money you get when you

make a claim.

Assessor

The assessor is hired by the insurance

company to make sure the claims made are
covered by the terms of the policy and to
investigate the cause of the loss or damage.

Loss Adjuster

These are independent investigators who

become involved when there may be a
disagreement between the insured and the
insurance company. The loss adjuster acts as
a negotiator between both parties.

Household Insurance
Household insurance policies are
normally classified under 4
headings:
1.Personal insurance
2.Property Insurance
3.Life assurance
4.Motor insurance

Types of Personal
Insurance

1. PRSI

Pay Related Social Insurance.

Statutory Deduction from you

salary.

You will receive an income if you

are out of work due to illness,
disabiity, maternity leave

2. Medical Insurance

In case you get sick or need

an operation

Eg: VHI
Voluntary Health Insurance

3. Personal Accident

Covers people who are

injured due to an accident.

Lump sum payment for loss

of finger, sight, hearing etc.

4.Salary Protection

Provides an income in case

you cant work due to
illness.

Will provide you with a

higher income than PRSI
only.

5.Holiday Insurance

Provides you with health

care if you get sick on
holidays.

6. Loan Repayment
protection

This will cover your loan

repayment if you are
unable to pay due to
accident, illness, death or
redundancy

Types of Property
Insurance

1. Buildings Insurance
This covers damage to the
structure of the house and to
permanent or unmoveable
fixtures.

2. Contents Insurance
This covers damage to or the
theft of moveable items.

3. All risks insurance

This covers the loss of, theft
of, or accidental damage to
items outside your home as
well as inside it.

Insurance Terms related to

property insurance policies

Exclusion Clauses point out the

occasions when the insurance
company will not pay out on the
policy e.g Acts of God
Excess clauses state that the value
of the risk being incurred by the
insured, e.g the first 400 on any
claim

Types of Life Assurance

1. Term
Assurance(Temporary
Insurance)
This is used to cover a certain period of time and is
very often used to cover a period of a loan e.g a
mortgage. If the insured dies before repaying the
total amount due on the mortgage then the
insurance company will pay the outstanding
amount. This protects the dependants from having
to pay back a loan after an income earner has died.

2. A whole life policy

This pays out a lump sum of money
when a person dies. The money is paid
to the next-of-kin or somebody
nominated by the insured person. It
carries a bigger premium than a term
policy because the insurance company

Endowment Assurance

Under an endowment assurance policy the insured agrees

to pay a premium for a certain number of years, e.g. up
to the age of 65, in return for an agreed lump sum. If the
insured dies before the age of 65, his/her dependents
receive the lump sum. If still alive at the age of 65, the
insured receives the money.
If the insured wishes to stop paying the premiums on an
endowment assurance policy he/she may cash it in for a
sum of money less than the agreed amount. This amount
is known as surrender value of the policy. The longer
the insured continues to pay the premium the greater the
surrender value.

Types of Motor Insurance

This is the only type of insurance you must

have by law.

Third Party Fire and Theft

This is the most basic insurance a person can

have.
The insurance company will only cover the
cost of the car if it is stolen or goes on fire. If
an accident takes place that is your fault the
insurance will only cover the other car
involved. (also known as third party)

Fully Comprehensive

This is the most common type of

insurance.
Everyone involved in a car accident is
given compensation.
This also covers the car in the case of
fire or burglary.

Increases and decreases

in standard premiums

Risk Effect

Things that cause premiums to

be high or low

Loading

Extra premium for higher

risk

Eg: A smoker will have a

higher premium for life
assurance than a non
smoker

Discount

Money taken off premium

for a lower risk

Eg: In house insurance you

get a discount for having an
alarm

No Claims Bonus

In car insurance you get a

discount if you do not claim
for any accidents the
previous year

It encourages people not to

claim for small amounts

Calculating Premiums

Rules for Calculating

Premiums

Question 1
Life Assurance
Jim Doyle, a fireman, wants to take out a life assurance policy
on himself for 120,000 and has completed a proposal form
which he received from JC Insurances Ltd. Jim is a smoker
and will be 39 on his next birthday. The basic yearly cost of
the policy is 3 for every 1000 insured. There is a loading of
6% for people aged over 30, a loading of 1% for smokers and a
loading of 5% for dangerous occupations.
Calculate the premium Jim Doyle will pay.

Question 2
Home Insurance
Mona and Philip Kearney wish to insure their house and
contents and have received the following quotation from Jubilee
Insurances Ltd.:
Building insurance 2 per 1000 value and contents insurance
3 per 1000 value. There is a discount of 10% of basic
premium for homes with an alarm and a further 5% for areas
covered by Neighbourhood Watch.
The Kearneys wish to insure their house for 290,000 and their
contents for 60,000. They qualify for both discounts.

Question 3
Motor Insurance
The following list of charges relate to On The Road Insurance Ltd., a specialist in motor
insurance.
1.
Basic Premium is 50 per 1000 value
2.
Comprehensive cover is 150 extra
3.
Drivers under 25 years of age have a 20% loading
4.
There is a 5% discount for cars fitted with an alarm/immobiliser
5.
No claims bonus is offered at 10% discount per year up to a max of 5 years
Deirdre O Connor wants to take out comprehensive insurance on her car. She is 21 years old
and is entitled to one years no claims bonus. Her car is valued at 5,500 and is fitted with an
alarm.
Calculate her premium.

Calculating the
Compensation

Over-Insurance
Example:

Maria Walsh has her house insured for 390,000 although the market value
of the house is only 350,000. Calculate the amount of compensation
payable if:
(a) 10,000 worth of damage is suffered.
(b) The house is totally destroyed
Solution:

Under Insurance-(Common
Exam Question)
If an item is under-insured, i.e. insured for less
than it is worth, the insurance company will use
the average-clause to calculate the amount
of compensation to be paid. The formula is:

Example:
John Murphy purchased a car for 20,000 and insured it for
15,000. Two weeks later, John crashed his car and caused
5000 worth of damage to the car. Calculate the amount of
compensation to which John is entitled. (Assume the car is
worth 20,000.)
Solution: