10. Dealing With Unexpected Events Flashcards
1
Q
What is general insurance?
A
Includes motor, buildings, home contents, travel and pet policies
2
Q
What is life cover?
A
Designed to protect other people from the financial consequences of someone’s death
3
Q
What is health insurance?
A
Used to protect people against the financial loss of being too unwell to work or being diagnosed with a critical illness
4
Q
What are pension policies?
A
Enable people to save for their retirement
5
Q
What are the features of insurance?
A
- insurance policies protec against financial consequences of events that may occur such as fire, theft or accident
- Motor insurance is a legal requirement for drivers
- for other insurance policies individual make decisions as to whether they think the risk of something happening makes it worthwhile paying for the cost of protection
6
Q
What are premiums?
A
The price of an insurance policy
7
Q
What are premiums based on?
A
- how likely an event is to occur
- the amount of money needed to put things right if the event happens - sum insured
- term of policy - length of time policy will be in force
- voluntary excess - the amount of money the policyholder will pay towards repairs or replacements
- how the premium is payed e.g. monthly instalments
8
Q
How do insurance companies work out the probability of an event happening?
A
- based on statistics
- the premium is higher when the event is more likely to happen
9
Q
What is no claims discount?
A
- those holding motor insurance who do not make a claim build up their no claims discount for each year they do not claim
- there is also protected no claims discount - can make a small number of claims without losing their discount
10
Q
What is premium tax?
A
- most general insurance premiums are subject to insurance premium tax
- 10% for most premiums
- 20% for travel insurance
- the cost of tax is included in the policyholders premium
11
Q
What is the importance of providing full information when applying for a premium?
A
- insurers use the information provided to set the premium
- if people enter misleading information it may make their insurance void
- 2013 -> Consumer Insurance Act - made insurers responsible for asking all required information
12
Q
What are policy documents?
A
- when the insurance premium is paid policyholders receive a certificate and a policy document
- policy document details what is covered by the insurance policy + terms and conditions
13
Q
What should policyholders check that their insurance includes?
A
- covers the events the policyholder wants to insure against
- will pay sufficient compensation if the event occurs
14
Q
Claims?
A
- if any of the events covered by the insurance policy occur the policyholder can make a claim to the insurance company
- the company assess each claim and only pay out if the policyholder is covered
15
Q
What is Third party motor insurance?
A
- the road traffic act 1998 made it compulsory for all motorists to have at least a 3rd party motor insurance
- in the event of an accident and the driver (policyholder) causes injury to another person or damages their car or property (third party) the insurance covers that person (third party) but not the driver
16
Q
Typers of motor insurance
A
- third party —> covers a third party
- third party, fire and theft —> covers a third and also the policyholders from fire and theft
- comprehensive motor insurance -> fully covered e.g. includes accidental damage to the drivers car
17
Q
Third party motor insurance
A
- cheapest
- covers injuries to other people, including passengers
- damage to others property
- accidents caused by passengers
- damaged caused by attached caravan
18
Q
Third party, fire and theft motor insurance
A
- all third party items
- repairs to or replacement of the drivers car if it is damage or destroy by fire or stolen
19
Q
Comprehensive motor insurance
A
- all third party and fire and theft items
- accidental damage to the drivers car
- personal accident benefit - a sum of money paid on the death of the driver or for specific types of disablement
- medical expenses related to accident
- loss of or damage to personal possessions in the car (up to a limit)
20
Q
What do motorists need to consider when choosing a motor insurance?
A
- what they can afford
- how much it would cost to make repairs to or replace the car
- whether or not their personal possessions are covered by another insurance policy
21
Q
What is pay as you go insurance?
A
- insurance for people who do not drive often
- they can use a black box with a GPS tracking device which monitors the distance travelled and speed
22
Q
Ways to reduce the cost of motor insurance
A
- pay a higher voluntary excess - this is the amount of money the policyholder pays towards the costs of a claim
- fit an alarm or immobiliser
- pay the premium in one payment to avoid charges on direct debit monthly payments
- drive a car with a smaller engine
- build up no claims discount
23
Q
Buildings and home contents insurance
A
- covers the cost of repairing or rebuilding a property
- lenders (mortgage providers) insist the homeowner takes out building insurance
- content insurance - covers belongings kept in the persons home
24
Q
Other types of insurance?
A
- pet —> covers cost of vet bills
- travel —> can cover hotel bills if the tourist has to stay for longer, medical treatment on holiday, cost of replacing luggage or belongings that are lost etc.
- mobile phone - covers loss + damage to phone
25
Revising budgets?
- cuttings back on unnecessary expenses in response to having to pay an unexpected bill (e.g. boiler repair)
- can only be done if the unexpected expenditure is affordable for the person
26
Savings for unexpected events
- savings in an instant access account such as an ISA
- it is advisable to hold enough savings to pay for essential and mandatory expenses for 3 months
- this is just in case something happens that means the individual loses their job or other unforeseen event
27
Borrowing for unexpected expenses
- sometimes a person can’t afford the costs by changing their budget and they don’t have enough in their savings
- credit cards can be used for emergency mandatory/ essential spending
28
Repaying debts
- pay day loans charge high rates of interest and so ideally are avoided
- if it required it is vital the borrowers repay the loan as soon as possible
29
Benefits
- the government can help with unexpected events that means people are unable to afford living expenses
- there are unemployment, disability or incapacity benefits
- the government can also help people on low incomes with bills such as funeral expenses, fuel costs or the costs of emergency housing after a fire
30
Unexpected income
- unexpected increase income, perhaps from a new job or a one off payment (inheritance)
- decide what to do with it: save it?, pay back borrowing?, spend it?, create emergency fund?
31
Extra income on emergency funds
- people can use the extra income to make sure they have savings they can access instantly in an emergency
32
Extra income on repaying debt?
- once emergency fund is in place people should repay outstanding debt - starting with their most expensive borrowing
- the most expensive borrowing products are usually credit cards or store cards, followed by overdrafts and loans
33
Extra income on savings
- once debt is payed people can consider saving - cash ISA allowance for a year
- if people already have sufficient instant access savings, they can consider long term savings accounts with higher returns
34
Unexpected income spending
- may decide to spend it on assets that will lower living costs
- e.g. replacing an old, unreliable car with a newer one that is likely to need fewer repairs
