Insurance (incomplete) Flashcards
(56 cards)
1
Q
What is insurance vs assurance?
A
Insurance:
- in case something happens
- In order to manage the risk in case the event does occur, the insured wants to be indemnified
- short term
- covers actual loss of physical or mesaurable things
- loss of inventory
- only pays out if insured claims
Assurance:
- something that will definitely happen (e.g. retirement, death)
- manage the risk of our loved ones being without an income in the case if death
- manage the risk of being unable to maintain a decent standard of living after retirement
- long term
- covers loss of human assets and expenses
- e.g. life cover, disability, dread disease, and savings products
2
Q
Meaning of indemnified?
A
placed in the same financial position before the incident
3
Q
Insurance is _____ term, while assurance is ______ term.
A
short ; long
4
Q
What are the advantages of insurance?
A
- insured can transfer some of the risks to the insurance company which the provides indemnification against a large number of risks, such as theft/natural disasters/fire
- peace of mind - don’t have to worry about uncertainties
- a person cannot buy a house or car unless there is insurance to cover the risk for the bank while it finances the asset
- cash back bonuses from some insurers if no claims are made
- may be cheaper to pay insurance than the expenses if the event takes place.
5
Q
What are the disadvantages of insurance?
A
- can work out to be expensive, specially if the insured never claims
- Some insurers now offer bonuses - get some money back after a number of claim free years
- Insured (THE BUSINESS) has to check that the insurance required covers all the circumstance/ events from which it is needed (read terms & conditions very carefully) to ensure complete peace of mind
- Insurers often look for every excuse not to pay the claim, because so many people commit fraud for claiming losses that weren’t suffered, which contributes to general insurance premiums increases
6
Q
Advantages of assurance?
A
- Life assurance ensures that dependents can continue to enjoy a good standard of living in the case of the insured becoming disabled or in the case of death
- Mortgage loans have life assurance policies to settle outstanding amount on the bond. If the bondholder or spouse dies and provides peace of mind to the family
- Life assurance is a long term investment that allows the insured to make provision for future events after the date of the policy maturing
- Medical aid is a form of assurance - gives the insured peace of mind knowing health expenses will be covered
- Life assurance sector in SA is highly regulated. This allows the insured to save money via a secured long term vehicle rather than make risky decisions for short term gains.
- Policies can be ceded to obtain a loan if the insured is in urgent need of money
- Retirement annuities offer tax benefits
7
Q
Disadvantages of assurance?
A
- Proper research needs to be undertaken before life assurance is taken out - right one must be chosen for a specific individual or else it will be a waste of money
- People think you cannot over insure on life cover. According to the law, there are certain conditions where there is a maximum amount in certain circumstances. Brokers do not always mention this to clients
- A large portion of monthly premium paid may be taken by the Life Assurer for administration and handling fees. If the insured is not aware of this upfront, they may have the expectations of capital growth not being met
8
Q
What are some uninsurable risks?
A
- War and associated risks
- Bad debt debtors (owe the business money) cannot pay back their debt
- Price fluctuations due to time intervals (INFLATION)
- Obsolete trading inventory
- Technology changes
- Illegal act
- Natural disasters in areas affected by Climate Change
9
Q
Discuss war and associated risks as an uninsurable risk.
A
This is a risk that should be managed by the Government and should be prevented
10
Q
Discuss bad debt debtors as an uninsurable risk.
A
There is insurance available for bad debt, but it is almost unaffordable
11
Q
Discuss price fluctuations due to time intervals (AKA inflation) as an uninsurable risk.
A
- Time intervals = time between when the goods are ordered and the time they are received
- Not covered by means of a traditional insurance policy
- Business may decide to hedge against these risks
12
Q
Discuss Obsolete trading inventory as an uninsurable risk.
A
Becomes outdated due to changes in fashion.
13
Q
Discuss technology changes as an uninsurable risk.
A
- They are quite rapid
- Improvements to machinery and production processes is constantly occurring
- Leasing is an option that can help prevent being stuck with outdated equipment
14
Q
Discuss illegal acts as an uninsurable risk.
A
No one can take out insurance against committing an illegal act
15
Q
Discuss natural disasters in areas affected by Climate Change as an uninsurable risk.
A
Can insure against this risk but it is too high in some areas
16
Q
What are the types of insurance?
A
- Compulsory (Business has to pay)
- Non-compulsory (Voluntary)
17
Q
What falls under compulsory insurance?
A
- UIF (Unemployment Insurance Fund)
- COIDA (Compensation for Occupational Injuries and Diseases Act)
- RAF (Road Accident Fund)
18
Q
What falls under non-compulsory insurance?
A
- Fire insurance
- General Business / commercial insurance
- Vehicle insurance
- Money in transit insurance
- Fidelity insurance
- Crop insurance
- Liability Insurance
19
Q
How does the UIF insurance fund work for businesses?
A
- Compulsory for the business
- Gives short term relief to workers when they are unemployed, and unable to work because of maternity leave, illness (e.g. COVID)
- Provides relief to the dependents of a deceased employee who has contributed to the fund
20
Q
Who is included and excluded in the UIF insurance fund?
A
- Following people are excluded from UIF Insurance
–> Employees who work for less than 24 hours a month
–> Employees who earn commission only e.g. estate agents, cars sales
–> Civil servants Government employee and foreigners were previously excluded - Employees on learner-ships are also included
- Domestic workers are included in UIF
–> Employer must ensure that they are registered with the Department of Labour
21
Q
What contributions are made to the UIF by employer and employee? What is the limit per month?
A
- Contributions made by employer and employee
–> 1% of the gross salary is deducted from employee’s salary
–> 1% paid by the employer
–> Employer is responsible for making payments to SARS South Africa Revenue Services
–> Limit is R177,12 per month
22
Q
What is the maximum amount paid to an unemployed worker?
A
- 66% of monthly salary for Maternity benefits (max days is 121 days for maternity leave)
- 58% of the monthly salary (unemployed or ill)
- …Provided they have contributed for at least 4 years to UIF
- Claim will not be paid for more than 365 days
- If a worker is not at work for 7 days due to illness, they can claim from UIF
- Any UIF benefits still owed to a person when they die, will not be stopped and will be paid to their dependents
23
Q
How does an employer claim from COIDA?
A
- Employee must inform employer ASAP of the injury or illness as a result of the job … including staff transport
- Employer has 7 days to send the claim, medical report and other relevant documents to the Compensation Commissioner
24
Q
COIDA was previously known as…?
A
Worker’s Compensation Act
25
A person is entitled to claim from COIDA if..?
- injured at work
- Becomes sick at work e.g COVID
- Becomes disabled at work
26
What can dependents do if their breadwinner dies?
Families or dependents of the bread winner are entitled to claim from COIDA if the employee has died - but only due to a work-related accident or disease
27
What is a compensation fund?
- Every employer registers with a Compensation Fund
--> Pays an annual fee based on the employee's earnings (the employee does NOT contribute to COIDA) and the risks associated with the job.
--> Amount of compensation paid to an employee is calculated as a percentage of the salary that the employee was earning at the time
28
COIDA claims do not apply to...
- Privately employed domestic workers (domestic workers employed by a hotel or guest may claim)
- Members of the South African National Defence Force of - South African Police Services, secret service are not covered (they have their own separate fund)
- If the employee is booked off for three days or less due to the incident, the fund will not pay Labour Relations Act (LRA) standard sick leave
- If the claim is older than 12 months from the date of the incident or when the diagnosis was made
29
Advantages of COIDA?
- Employee that is injured or gets sick as a result of the job, will receive financial assistance for medical fees increases motivation
- Better medical care for employees means that they will most likely return to work sooner
- This is good for business increases productivity
30
Disadvantages of COIDA?
- A number for safety requirements employers have to implement
- Prescribed by law
- Difficult to claim
- Costly
31
What is the RAF?
- Road Accident Fund
- Covers all users of South African Roads
- Assists people injured in motor vehicle accidents
- Will pay for rehabilitation and medical claims
- RAF provides indemnity to the person guilty of causing the accident
- Prevents the person injured, or their family from lodging a claim against the guilty party
32
RAF will pay in what instances?
RAF will pay in the following instances:
- Any person injured in a motor vehicle accident
- Whether it's the driver, a passenger or a pedestrian
- Family of a deceased victim may also claim
- Contributions to the fund are included in the petrol/diesel price that this continually increases due
to the increase in the price crude oil which is exported
33
Discuss non-compulsory insurance.
Different insurance companies may offer short term insurance policies that differ from one another
* When insurance is taken out, the insured pays a premium to the insurer
* Covers the risk of a specified events that may occur
* Premiums for these insurance policies will depend on
* The personal needs
Risk profile of the customer
Value of the assets to be insured
34
Discuss fire insurance.
* Insuring against fire, usually forms part of other insurance policies
* Fire damage to the structure of a building or house
* Usually included in the insurance made compulsory by banks
* When they finance a bond for the building
* Fire causing damage to a vehicle Delivery Trucks
* Included in the vehicle insurance policy
* Contents of a house or building
* Covered by the householder's insurance
* The more flammable a product, the higher the risk, the higher the premium
EG: thatch roof, inventory such as wood/paper/gas
* Nature of the surrounding buildings
Next to a petrol station = higher risk = higher premiums payable
35
What is commercial insurance?
* One of the most important decisions for an entrepreneur or manager to make
* Protect the business from suffering losses caused by unforeseen circumstances
* Circumstances include
-> Theft (shoplifting!!)
-> Burglary (forced entry)
-> Public liability (customer slips on the wet floor and is injured) business indemnifies itself from public liability by warning the customer at the entrance of the store
-> Damages from fire or element of nature
36
What is the Iron Safe Clause?
* Included in insurance contracts relating to insurance for inventory
* Requires the insured to keep a record of stock on hand in a safe that is fireproof (cannot be destroyed by fire)
* It is no longer required to keep back-up records in a fireproof safe on the premises
-> Technology enables stock records to be kept off site
* Business has to be aware that in extreme circumstances there may be a total or partial loss of income
-> If the business cannot operate while repairs are being done
-> This loss of income can also be covered in a Commercial Insurance Policy
37
Describe fully comprehensive vehicle insurance.
* The insured's car and the other vehicle are repaired in the case of an accident
* Damage caused by fire
* Car is stolen
* Insured is indemnified
* Important to remember that expensive items must be specified separately
-> Avoid these assets not being covered by the insurance policy
* Insurers can work out a tailor made solution to cover the individual needs of the insured
38
Describe third party, fire and theft vehicle insurance
* The older the vehicle the less value
* If a vehicle is relatively old, it may not be financially viable to pay for fully comprehensive insurance
-> Insurance company may write off the vehicle if it is damaged and not pay a decent value
* Car theft
* Fire
* Drivers under 25 are classified as high risk
-> Insurance premiums are expensive
39
Describe Money in Transit insurance (under vehicle insurance)
* Taken out if the business handles a lot of cash
* Cover any potential losses that may occur between the business and the bank
* Some businesses prefer to take this risk
* Will outsource the transporting of the money to a third party
* EG: Coin Security Company
* Definitely have this type of insurance
40
Describe Fidelity insurance.
* Taken out to protect the business against financial losses caused by dishonest employees
-> Theft or money fraud may be covered
* If there are only one or two employees working with money in a business
* Policy may be taken out to cover individual employees
* Their names are specified on the policy
* Floating policy
* If there are a large number of staff members that need to be covered
* Specific job positions, not people are covered
41
What insurance is aimed specifically at farmers?
Crop Insurance
42
Describe crop insurance
* Aimed specifically at farmers (e.g. cotton farmers in Newcastle in KZN)
* Taken out to cover risks that may arise from their income-generating assets
* Insurance on livestock may be added
Risks that are covered:
* Drought
* Heat waves
* Floods
* Hail
* Frost
* Fire
43
What is liability insurance?
* Links to commercial/business insurance
* Covers a person who becomes liable for losses caused by negligence * A customer slips on a wet floor and falls, and sustains an injury while in the shop
* Included as part of household insurance
-> Cover the home owner against losses or injuries sustained by people visiting or working on the premises
--> EG: dog biting the domestic workeri
44
Give examples of Non-compulsory insurance.
Fire insurance
Commercial insurance
Vehicle insurance
Money in transit insurance
Fidelity insurance
Crop insurance
Liability insurance
45
Requirements of a valid insurance contract?
• Absolute good faith
• Insurable interest
• Contractual capacity
46
Give detail on Absolute Good Faith as a requirement of a valid insurance contract.
• Utmost honesty
• Requires the insured to disclose all relevant information that may affect the risk e.g. gas
• If all questions are not answered honestly and accurately, the risk will not be covered
• The policy will be declared null and void
• All premiums paid to cover the risk will be lost and no compensation will be received
47
Give detail on insurable interest as a requirement of a valid insurance contract.
* A person has insurable interest if it can be proven that they will sustain a financial loss if a certain event takes place
* Examples of insurable interest:
-> In their own assets (belongings) (Business Assets e.g. delivery vehicles, tills)
48
Give detail on contractual capacity as a requirement of a valid insurance contract.
* The person entering into the insurance contract is of legal age and sound mind
* Legal age in SA is 18 years of age
* Indemnification
* Provides the insured with the peace of mind of knowing
-> Should the insured asset be damaged or destroyed
-> Insured will be adequately compensated for any loss. Adequately in this case = put in the same financial position as before the event took place
* Insured will not suffer a loss
* Insured will not or may not make a profit out of the insurance
* Indemnification refers to short term INsurance
49
What are the insurance concepts?
Security
Over insurance
Excess
50
Describe security as an insurance concept.
• Security is applicable for long term Assurance
• Aim is to provide financial security to the insured when they retire
-> Or to the insured's dependents when they die or in the event of disability
• Group Life Cover policy
->When the employee belongs to at work
-> Provides security to the family in the form of Life Assurance
-> Premiums are usually lower than normal life assurance policies
—> A large number of employees take out the same cover
—> Concept of bulk discounts
51
What is the Average Clause?
* Applied if the asset was not insured for the correct value
* Under insured
-> Insured has not been paying a premium that is sufficient to cover the full risk
-> Premium is calculated by looking at the value of the asset and other risk factors
-> If the monthly premium has been too low, the full value of the loss will not be indemnified
52
What is over insurance?
* The asset is insured for more than the current value
* The insured will pay a monthly premium higher than what is necessary
* If a loss is suffered to the asset, only the value of the asset will be paid out by the insurer
-> Indemnification = not allowed to make a profit from insurance
• Vehicles are often over insured
-> The value of the car diminished each year
-> People do not adjust their polices to insure it for the lower value
-> If the car is stolen, the value of the car, not the insurance contract will be paid out
53
What is the formula for under insuring? NB
Insured amount / actual value x inventory destroyed
54
What do you use the under insurance formula for?
To calculate whether you’re over or under insured.
55
Describe excess as an insurance concept.
• The Rand amount or % of the loss / claim specified by the policy that is the responsibility of the insured to pay
* Amount on each claim that is not covered by the policy
• Excess amount can be low
-> Monthly premiums will be higher
• If the insured is prepared to pay a high excess, the monthly premiums may be lower
56
Describe the proximate clause as an insurance concept.
* If a person claims for a loss suffered, the insurance company will make sure that the loss suffered was as a result of the event that was insured (proximate cause of the loss) and not a secondary event
* EG: Claiming on inventory destroyed in a fire ...There is a fire in Checkers, inventory is destroyed as well as shelving and fridges due to NOT the fire, but the water from the fire extinguishers
