INSURANCE

WHAT IS INSURANCE?
Think about working on a job that is so risky that
you could be harmed?
What about being in a situation in
which you are susceptible to the loss
of property?
 Even Worse, what if something you
dread happens to you?

BURGLARY!!!!!!!!!
It would be good to know that if these
or other things of this nature happen
to you, you can be able to be
RESTORED TO YOUR ORIGINAL
POSITION. (THE POSITION THAT YOU
WERE IN BEFORE THE LOSS).
 INSURANCE TO THE RESCUE!!!!
That is what insurance is all about. Not to make
you any better or worse than you were
BEFORE the loss but to restore you to your
ORIGNAL POSITION!!!

This is actually called the PRINCIPLE OF

INDEMNITY (Restoring the insured to their
original position).
 So What Is Insurance?
Insurance is an agreement between an
insurance company and someone who wants
financial protection in which compensation
will be paid if a particular loss occurs.
 Class Activity
In the definition you just looked at for Insurance,
define the following terms in your notebooks
(based on page of your textbook):

• Insurer
• Insured
• indemnity
 Benefits of Insurance
• It protects manufacturers and businesspeople
against personal risks such as accidents at the
plant, fire, burglary and so on.

• It protects exporters and shippers against the

hazards of the sea or damage or loss of cargo.

• It protects householders against such risks as loss

of property due to fire, flood, hurricane and so
on. It also provides protection against a penniless
old age.
 Benefits of Insurance
• It is the form of saving and investment, for
example in the case of endowment policies.

• It creates an estate to be passed on to

relatives at death.
TERMS RELATING TO INSURANCE
 You Now Have A Basic Idea Of
Insurance, Have You Ever Heard Of
The Term Assurance?
Assurance is not the same as Insurance.
Remember insurance refers to the providing of
coverage for an event that MIGHT HAPPEN.
Assurance provides coverage for an event that
WILL HAPPEN (example death).
Insurable Risks and Non-Insurable Risks
• Insurable risks are those risks that can be
assessed in value, example fire, hurricanes,
accidents and so on.

• Uninsurable or Non-insurable risks are risks

that cannot be assessed in value. A good
example of this is a business failing to
anticipate market demand correctly.
Insurance Premium – What is that?

- When the insurance company has

received the proposal from the
person wishing to take out
insurance, the underwriters of the
insurance company will work out
how much they will charge to
cover the risk being insured. This
charge is called the PREMIUM.
 Want To Be An Actuary?
The insurance specialist statistician who
calculates the premium based on the degree
of risk is called an ACTUARY!
 INSURANCE POLICY
This is a contractual agreement between the insurer and
the insured which shows what has been agreed by
both parties. It is very important to read the policy, in
spite of how difficult it may be to read it.

Parts of the Policy includes:

• Certificate of insurance
• Cover note
• Endorsement
• Renewal Notice
 Class Exercise

Describe each part of the INSURANCE POLICY

listed on the previous slide.
 PRINCIPLES OF INSURANCE
1. Pooling of Risks
2. Utmost Good Faith
3. Insurable Interest
4. Proximate Cause
5. Indemnity
6. Subrogation
7. Contribution
8. Average Clause
 1. POOLING OF RISKS

What is Pooling of Risks In Insurance?

Insurance is based on the pooling of risks;

people make contributions to a common fund
which can be used for the losses suffered by
unfortunate members.
 2. Utmost Good Faith
This principle states that the insured must give
all relevant information about the thing being
insured. For example if one is seeking car
insurance one may have to disclose if one is
guilty of any motoring offenses. Another
example is those seeking life insurance could
be asked also if they have any chronic
illnesses. This way premiums can be assess
accurately.
 3. INSURABLE INTEREST
This principle states that one must be in a position
to suffer loss or damage before he can insure
against such. In other words the individual must
directly be concerned with the property or
person to be insured and be able to suffer
genuine loss in the event of destruction or death.
No one can insure anything unless he has a
personal or direct interest in it, example you may
insure your house but not somebody else’s, even
though theirs may pose a danger to yours.
 4. PROXIMATE CAUSE
Whenever there is a loss or damage, the insurance
company will only pay out claims if the event was
included in the terms of the policy. In addition, it
will also cover damages incurred which are not
directly related to the terms of the policy, but are
closely related to the event.
Example they will pay for the house damaged by
fire. A damage that may be incurred but not
directly related to the fire would be the firemen
having to break into the house to fight the fire.
 4. PROXIMATE CAUSE (Cont’d)

Any damage that is not closely related to the

original event will not be covered. It must
be directly related to the terms of the policy
– the loss must be what was insured against.
Example if a person insures his house
against fire ONLY but it is destroyed by
flood, then he cannot expect compensation
from the insurance company.
 5. INDEMNITY
Indemnity means that no one can make a profit
out of his/her loss. The idea is to restore the
person to where he or she was before the
loss.
Again, this principle states that under no
circumstance should anyone be making a
profit in case of a loss but should be restored
to original position before the loss.
 6. SUBROGATION
Subrogation is an aspect of Indemnity and
means that the insurer takes the place of the
insured. If your car was completely wrecked in
an accident, the insurance company would
compensate you but they would keep the
wreck. If this was not done, you could sell the
wreck and profit from it.
 7. CONTRIBUTION
This principle prevents persons from insuring
with several insurance companies in order to
make a profit. For example if Tim insures with
insurance companies A, B and C, this principle
prevents him from collecting fully from all
three companies. All three companies would
“contribute” towards the settlement of his
claim.
 8. AVERAGE CLAUSE
In the event that an individual insures his
property for LESS than the market value (this
is called underinsurance) and the property is
then lost or destroyed, compensation will be
restricted to a percentage of the underinsured
value. For example if a house which was
valued at $100 000 was insured for $80 000
(that is its 80% insured) in the event of a total
loss, compensation would be restricted to
80%.
 TYPES OF INSURANCE
There are FOUR broad types of INSURANCE:

1. LIFE INSURANCE
2. MARINE INSURANCE
3. FIRE INSURANCE
4. ACCIDENT INSURANCE
 LIFE INSURANCE
This type of insurance is referred to as
“Assurance” rather than “Insurance”.
So its LIFE ASSURANCE!
(Do you remember the difference between
assurance and insurance?)

There are two types of LIFE ASSURANCE:

1. Whole Life Policies
2. Endowment
 Life Assurance
• Whole Life Policies
The insured himself cannot be compensated, however
when he dies, his dependent will benefit.
• Endowment
in this type of policy, a fixed sum is paid on a
specified date or at the death of the insured
(whichever comes first). If the policy matures
before the death of the insured, the lump sum
will be paid to him. If he dies before the policy
matures, the money is paid over to his
beneficiaries.
 MARINE INSURANCE
This covers loss and damages to ships and their cargoes.
1. Hull Insurance – covers damages to the vessel and all
its machinery and equipment.
2. Cargo Insurance – covers the goods that are being
carried.
3. Freight Insurance – covers the possibility that the
shipper does not pay the transport or freight charges
to ship
4. Ship Owner’s Insurance – covers the possibility that the
ship owner may encounter collision with other vessels,
injury to crew members or passengers and pollution of
the beaches.
 FIRE INSURANCE

This covers fire risks and may be combined with

other risks such as theft, storm, flood and
lightning.
 ACCIDENT INSURANCE
All insurance not contained in the previous three categories is
included under accident insurance. It covers a wide range
of policies and the following are main examples:

1. Motor
2. Personal accident and sickness
3. Liability
4. Property
5. Credit
6. Fidelity
7. Insurance for business
 Motor
All vehicles on public roads are required to have a
certain minimal level of insurance to ensure that
drivers can meet their liability for injury to others.
Four types of motor vehicle insurance are:
1. Minimum legal cover: for injuries to third parties on
public roads only. (A third party includes all others
excluding the insurer and the insured).

2. Third Party cover: this is the same as above but

providing compensation for property and legal fees
of third party.
 Motor cont.

3. Third Party, fire and theft: this is same as # 2

above, plus cover for theft of vehicle and for
damage caused by fire.
4. Comprehensive: includes # 3 above and also
covers damage to the insured’s vehicle,
personal injury to the driver and loss of or
damage to personal possessions in vehicle.
 Personal Accidents and Sickness
These are policies which can be taken out
against death or disabilities in special
circumstances, for example during holidays,
flights and so on.
 Liability
This type of insurance policy covers the risk of liability for
the injury or death of someone else. There are two
main forms:

1. Employer’s liability – this covers the employer’s legal

liability for the safety of each employee.

2. Public Liability – this covers the liability of individuals

and businesses for members of the public visiting their
premises who encounter injury caused by the
businesses negligence.
 Property
Property insurance covers a wide variety of
items; from goods in transit or in store to
buildings or contents.

It applies to both the business person and the

private householder.
 Credit
This covers losses resulting from bad debts, for
example the failure of customers to pay for
goods obtained on credit.
 Fidelity
Fidelity insurance is used particularly by
businesses to protect against loss by fraud and
stealing by employees.
 Insurance For Business
The types of insurance cover, business people
might consider taking out would be as follows:

• Employer’s liability
• Public liability
• Damage to premises
• Stock damage
• Theft, burglary
Insurance For Business
• Motor fleet (coverage that a company
buys to cover all of its vehicles).

• Bad debts

• Product liability (covers the manufacturer's or

seller's liability for losses or injuries to a buyer,
user or bystander caused by a defect or
malfunction of the product, and, in some
instances, a defective design or a failure to warn.
 Insurance For Business cont.
• Consequential loss or business
interruption (provides coverage for loss
of earnings of a business following fire or
some other specific damage. Losses
covered can be wages, rent and so on.
 Answer the following
1. Name the four broad categories of insurance.

2. The word freight is often used to refer to the

cargo a ship is carrying. So, what is the
difference between freight insurance and
cargo insurance?
Label each type of insurance on the right
using the options on the left.
HOW DOES INSURANCE FACILITATE
TRADE?
 HOW DOES INSURANCE FACILITATE
TRADE?
• Insurance companies encourage industry and
facilitates trade by taking on many of the risks
of firms.

• Traders would not send goods across so many

miles from one country to another if they
were not assured that they would be
compensated for losses sustained in transit.
 HOW DOES INSURANCE FACILITATE
TRADE?
• Insurance companies provide a source of
capital, since they are institutional investors.

• Insurance companies are also involved in real

estate, providing buildings, offices, plazas and
shopping centres, thus helping in the
development of the construction and other
related industries.
THE
END