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  1. 1. Insurance &AssuranceMs OBrien Chanel College
  2. 2. Learning TargetsWhat is Insurance?Who buys Insurance?Why do we needInsurance?Non-Insurable RisksPrinciples of Insurance?Types of InsuranceApplying for InsuranceCalculating InsurancePremiums Ms OBrien Chanel College
  3. 3. Insurance Assurance• Protection against • Protection against something that something that will might happen happen Ms OBrien Chanel College
  4. 4. Insurance PolicyA contract you make with aninsurance company where, in returnfor a fee (Premium), the insurancecompany will compensate the insuredfor any loss/damage Ms OBrien Chanel College
  5. 5. How does Insurance work? Large no. of people who share the same risk Pay premium into insurance company fund Fund Distributed asCompensation Admin Costs Profit Ms OBrien Chanel College
  6. 6. Premium Premium is the fee paid to the insurance company for cover Ms OBrien Chanel College
  7. 7. Excess Clause The insured is responsible (liable) for paying a part of the damage or loss that is incurred. The insurance company will compensate the rest Ms OBrien Chanel College
  8. 8. Premium amount…1. Degree of risk involved The degree of risk The premium4. The potential amount of money involved High compensation High Premium3. Admin Costs. Ms OBrien Chanel College
  9. 9. in PremiumLoading: Increase in thestandard premium due to anextra riskE.G.A male under the age of 25 with a provisional licenceA house located in an area that is prone to flooding Ms OBrien Chanel College
  10. 10. in Premium• No claims bonus: is a reduction in premium if insured person has not made a claim in given period of time OR• House Insurance lower if owners have alarm Ms OBrien Chanel College
  11. 11. Compensation• The money you get when you make a claim on your insurance policy Ms OBrien Chanel College
  12. 12. RISKInsurable Risk Non Insurable Risk Things that can be insured Things that can not be insured against E.G House Insurance E.G Cant insure against failing an exam Car Insurance Personal accident for a bungee jump Medical Insurance Items that are worthless Loss/Damage caused by natural disaster e.g Earthquake. Ms OBrien Chanel College
  13. 13. Non Insurable RisksAn insurance company will not offer insurance if..3. Unable to calculate probability of risk happening2. Not enough people seeking similar insurance3. Potential pay out would bankrupt insurance company Ms OBrien Chanel College
  14. 14. Example: Christchurch New Zealand 2011 Ms OBrien Chanel College
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  18. 18. People in InsuranceThe insurer: The Insurance CompanyThe Insured: The person buying insuranceBroker: Gives advice to customer and sells him/ her insurance Ms OBrien Chanel College
  19. 19. People in InsuranceActuary: Calculates the premiumLoss Adjuster/ Assessor: Calculates the value of the loss Ms OBrien Chanel College
  20. 20. Principals of Insurance• Insurable Interest: In orderto insure something youmust benefit from itsexistence and suffer from itslossE.G You can insure your housebut not your neighbours house Ms OBrien Chanel College
  21. 21. 2. 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. Ms OBrien Chanel College
  22. 22. 3. Indemnity• You cannot make a profit from insurance.• There is no point in insuring your house for more than it isworth as the ins. co. will only compensate you for the actual value of the house. Ms OBrien Chanel College
  23. 23. 4. Contribution• If a risk is insured with two insurance companies each will pay half of the compensation.• Eg: A house insured with two ins. co.’s. for €1,000,000• Both will give ?? Ms OBrien Chanel College
  24. 24. 5. Subrogation• Passes the legal right of Don’t blame me its his the insured over to the fault! insurer to claim from a third party who caused the loss.• Eg. Sony TV causes house to go on fire. Ins. co. pays compensation to insured and then seeks their own compensation from sony. Ms OBrien Chanel College
  25. 25. Insurance Documents• Proposal Form: This is the form you fill in when you are applying for insurance cover.• Policy: Contract of insurance Gives full detail of cover Must be kept safely Ms OBrien Chanel College
  26. 26. Cover Note: Temporary Policy Used while waiting for actual policyCertificate of Insurance: Proof of Insurance E.G Car insurance disc Ms OBrien Chanel College
  27. 27. Types of Household Insurances PRSIPay Related Social InsuranceStatutory deduction from wagesYou will receive an income if you are outof work due to illness, disability,maternity leave Ms OBrien Chanel College
  28. 28. Medical Insurance• In case you get sick or need an operation• Eg: VHI• Voluntary Health Insurance Ms OBrien Chanel College
  29. 29. Personal Accident Insurance• Covers people who are injured due to an accident.• Lump sum payment for loss of finger, sight, hearing etc. Ms OBrien Chanel College
  30. 30. Income Protection Insurance• Provides an income in case you can’t work due to illness.• Will provide you with a higher income than PRSI only. Ms OBrien Chanel College
  31. 31. Travel Insurance• Provides you with health care if you get sick on holidays.• If you have wallet/ passport stolen• Miss connecting flight Ms OBrien Chanel College
  32. 32. Loan Repayment protection Insurance• This covers loan repayments if you are unable to pay due to accident/ illness/death Ms OBrien Chanel College
  33. 33. Motor Insurance * Third Party, fire and theft: This is the minimum insurance that a driver must have on a car. The policy does not cover you the driver or damage done to your vehicle. It only covers damage to third party. i.e someone you crash into or injure Fully Comprehensive: This covers you and third party. More expensive. Ms OBrien Chanel College
  34. 34. Steps in making a claim Talk to assessor agree on compensation Fill out claim form Obtain estimate of items lost/ stolenContact guards and Ins. Co Ms OBrien Chanel College
  35. 35. Life Assurance• Not compulsory• 3 types• Term Policy• Whole life assurance• Endowment assurance College Ms OBrien Chanel
  36. 36. Term Policy• Pays out a lump sum of o money if the insured person dies before agreed date.• Money paid to next of kin Ms OBrien Chanel College
  37. 37. Whole Life Assurance• Life of the person is insured.• On the death of this person a lump sum is paid to relative/ friend Ms OBrien Chanel College
  38. 38. Endowment Policy• Type of savings scheme• Awarded a lump sum after agreed no. of years (maturity date)• Insured pays monthly contributions (usually over 10 year period)• Can be ‘cashed in’ before agreed date, called surrender value Ms OBrien Chanel College
  39. 39. Calculating Insurance PremiumsThe O’ Neill Family want toinsure their house valued at€300 000 and there contentsthat are worth €50 000They receive the followingquote:Insurance PremiumHouse €20 per €10000Contents €4 per €1000House alarm 10%OBrien Chanel College Ms Discount
  40. 40. SolutionHouse: €300 000 ________ X €20 = €600 €1 0000Contents: €50 000 _________ X €4= €200 €1000 Ms OBrien Chanel College
  41. 41. Total Gross Insurance Premium = €800€ 800 @ 10% = €80Total Net Premium Insurance = €720 Ms OBrien Chanel College
  42. 42. Example 2Michael wants to insure his new’12 car valued €14000. He wantsfully comprehensive insurance.He receives the following quote: Insurance Premium Car €40 per €1000 Loading for 8 40% penalty points Ms OBrien Chanel College
  43. 43. SolutionCar: €14 000 ________ X €40 = €560 €1 000€560 @ 40% = €224Total Net cost of Insurance Premium €784 Ms OBrien Chanel College
  44. 44. Example 3Ciara wants to buy lifeassurance. Her insuranceBroker forwarded her thefollowing quote from anInsurance company.Insurance PremiumBasic €650Loading: 20%Scuba diverDiscount: 10%Non-smoker Ms OBrien Chanel College
  45. 45. SolutionBasic Premium: €650+ loading for scuba diving (€650 @20%) €130 €780-Discount for non-smoker (€650 @10%) €65 Total Net Premium €715 Ms OBrien Chanel College
  46. 46. Average ClauseA condition included in the insurancepolicy that limits the value of a claimif you are under – insuredFormula:Average clause = Sum insured X Loss True value Ms OBrien Chanel College
  47. 47. Example• Tom bought a house that is valued at €400000. He decides to insure it to the value of €200000.• In the event of fire damage to the house of €50000, how much compensation will be paid out? Ms OBrien Chanel College
  48. 48. SolutionAverage clause = Sum insured X Loss True value200000 X 50000 = €25000400000 Ms OBrien Chanel College
  49. 49. Questions: Average Clause1. A motorbike is crashed and completely distroyed. It was insured for €1800, but the insurance company estimates that its true value before the accident was €2600.2. A house fire ruins a carpet valued at €750. The house contents were insured for €3000. However the insurance company estimates that the true value of the contents before the fire was €6000 Ms OBrien Chanel College
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