Sekolah Menengah Paragon (JGAJ003)

Paragon Education Sdn. Bhd. (1065913-H)

No 3, Jalan Mutiara Utama, Taman Perindustrian Plentong, Mukim Plentong,
81750 Johor Bahru, Johor. Tel: +607-3619696 Fax: +607-3619700

Name : ______________________ Class : Form 5.1

Subject : Mathematics Date : __ / __ / 2021
Topic : 009 - Consumer Mathematics: Teacher’s Name : Tan Jun You
Insurance

3.1 Risk and Insurance Coverage

The loss you incur Why can’t I receive

is RM5 500. The full compensation?
insurance company
will pay RM5 300.
The balance of
RM200 will be borne
by you.

There are several provisions in the insurance contract that may cause the policyholder to receive
compensation less than the actual loss and hence have to bear part of the loss. Amongst these
provisions are deductible and co-insurance, which is also known as joint insurance.

Deductible is a an amount that must be borne by the policyholder before they can make a claim
from the insurance company. Deductible is commonly found in the contract of property insurance,
medical and health insurance and motor insurance. This provision is not in the life insurance and
personal liability insurance.

Co-insurance is the cost sharing of the loss between the insurance

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company and the policyholder.
(i) Clause is a part
For the co-insurance clause in property insurance, the of a written legal
policyholder is required to insure his property at a certain amount document.
based on the percentage of co-insurance determined by the insurance (ii) The insurable value of
company from the insurable value of the property. If this co- property is the actual
insurance provision is not met, the policyholder will have to bear value of assets, the
cost of replacement
some of the losses together with the insurance company. of the property or any
other value stated in
Therefore, if the policyholder wishes to recover full the valuation clause
compensation for the partial loss incurred, he must insure the of insurance policy.
property in accordance with his co-insurance provisions.

Amount of required insurance

= Percentage of co-insurance × Insurable value of property

Form 5 Mathematics 1 Mathematics, SMP2021

 Example 4
Madam Suhaila has purchased motor insurance for her car with a deductible provision of
RM300. During the insurance coverage period, Madam Suhaila suffered three accidents. The
losses suffered in March, July and August were RM2 800, RM250 and RM400 respectively.
State whether Madam Suhaila can make a claim for the losses suffered. If yes, state the
amount of compensation that can be claimed for each loss.
The amount of the loss exceeds the
Solution: deductible amount. Hence, a claim
can be made.
Amount of
Loss Can make a Amount of compensation
Month compensation = RM2 800 – RM300
(RM) claim?
(RM) = RM2 500

March 2 800 Yes 2 500

The amount of the loss is less than
July 250 No None the deductible amount. Hence, a
claim cannot be made for this loss.
August 400 Yes 100

The amount of the loss exceeds the deductible amount. Hence, a claim
can be made. Amount of compensation = RM400 – RM300 = RM100

In motor insurance, the policyholder is responsible for a compulsory deductible of

RM400 if the insured vehicle is driven by an individual who is not named in the policy, who
is named in the policy but is under 21 years old, and who is the holder of a provisional (L)
driving licence or the holder of a full driving licence of less than 2 years. Other deductibles
are at the discretion of the insurance company.

Example 5
Cher Lin has a medical insurance policy with a deductible of RM30 000 per year with
an annual limit of RM300 000. In the first year of her insured period, Cher Lin had been
hospitalised for appendix surgery and the treatment cost was RM8 000. In the following year,
Cher Lin underwent heart surgery and the treatment cost was RM210 000. State the amount
borne by Cher Lin and the amount paid by the insurance company for the first and the
second year of her insurance period.
Solution:
First year:
Treatment cost = RM8 000 The treatment cost is less than the deductible amount.

Amount borne by Cher Lin = RM8 000

Second year:
Treatment cost = RM210 000 The treatment cost is more than the deductible amount.

Amount covered by Cher Lin = RM30 000

Amount paid by the insurance company
= RM210 000 – RM30 000 Treatment cost – deductible
= RM180 000

Form 5 Mathematics 2 Mathematics, SMP2021

 1 If the insured value = amount of required insurance
Amount of compensation
= Amount of loss – Deductible
where the amount of loss < the amount of insurance purchased.

2 If the insured value , amount of required insurance

Amount of compensation
Amount of insurance
=
1 purchased
Amount of required
insurance
2 × 1  Amount
of loss 2
– (Deductible)

3 Suffered a total loss With deductible provision

Amount of compensation and co-insurance in
insurance policy, the
= 1 Amountpurchased 2
of insurance – (Deductible) premium becomes lower.

Example 6
Encik Ismail wants to buy fire insurance for his house. The insurable value of the house is
RM350 000. The fire insurance policy he wants to buy has a co-insurance provision to insure
80% of its insurable value and a deductible of RM2 000.
(a) Calculate the amount of insurance required by Encik Ismail for the house.
(b) Encik Ismail’s house caught on fire and the amount of loss is RM25 000. Calculate the
amount of compensation that Encik Ismail will receive if he insures his house
(i) at the amount of required insurance,
(ii) at a sum of RM150 000. Hence, calculate the co-insurance penalty.
(c) Encik Ismail’s house suffered a total loss. If he insured his house at a sum of RM200 000,
calculate the amount compensation he will receive.
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Solution:
80 The amount that
(a) Amount of required insurance = × RM350 000
100 policyholders bear on the
= RM280 000 partial loss incurred as a
result of not meeting the
(b) (i) Amount of compensation = RM25 000 – RM2 000 co-insurance provision is
= RM23 000 known as the co-insurance
penalty.
(ii) RM150 000 , RM280 000. The sum insured is less
than the amount of required insurance.
RM150 000
Amount of compensation = × RM25 000 – RM2 000
RM280 000
= RM13 392.86 – RM2 000
Co-insurance penalty is
= RM11 392.86 equivalent to 46.4% of the
Co-insurance penalty = RM25 000 – RM13 392.86 total loss
= RM11 607.14
Amount of loss borne by Encik Ismail
(c) Amount of compensation = RM200 000 – RM2 000 = RM350 000 – RM198 000
= RM198 000 = RM152 000

If the policyholder insures his property with a higher amount than the amount of
required insurance under the co-insurance provision, the compensation calculated using the
co-insurance formula will exceed the amount of actual loss incurred. However, the insurance
company will only pay the compensation not exceeding the amount of actual loss and the
maximum payment for a loss will be equal to the total face value of the insurance purchased
by the policyholder.
Form 5 Mathematics 3
2 Mathematics, SMP2021
 Example 7
Madam Chen has a major medical insurance policy with a The deductible provision
deductible provision of RM500 and a 75/25 co-insurance must be met by the
percentage participation clause in her policy. Calculate the cost policyholder before she
borne by the insurance company and Madam Chen herself if can receive the benefits
of the insurance she has
the medical cost covered by her policy is RM20 600.
purchased.
Solution:
Medical cost after deductible
= RM20 600 – RM500
= RM20 100
The difference between
The cost borne by the insurance company deductible and
75 co-insurance:
= × RM20 100
100 • Deductible is an amount
= RM15 075 the policyholders must
pay in advance
The cost borne by Madam Chen regardless of the amount
25 of eligible benefits.
= × RM20 100 + RM500 Deductible
100 • Co-insurance is a cost
sharing where the
= RM5 525
policyholders borne
Guidelines to choose your best insurance: a certain percentage
of the loss with the
Understand the scope insurance company.
Find out the total of the coverage, the
coverage needed. terms and conditions
of the policy.
Compare the premium
Avoid unnecessary
rates and insurance
coverage.
benefits.

Example 8
Jesnita wants to buy a medical insurance policy for herself. She compares the benefits o f the
policy plans from two different insurance companies, XX and YY.
Insurance
XX YY
company
(RM) (RM)
Benefit
Overall annual limit 50 000 50 000
Hospital room and board 160 200
(maximum 365 days per annum) (maximum 200 days per annum)
Intensive care unit As charged 400
(maximum 90 days per annum) (maximum 90 days per annum)
Daily government 100 50
hospital cash allowance (maximum 365 days per annum) (maximum 200 days per annum)
Annual premium 506.02 637.02
Based on the table, which insurance policy plan is better for Jesnita? Justify your answer.
Solution:
The XX policy plan is better because even though both provide the same overall annual limit
of RM50 000, the annual premium for XX is lower than YY. Besides, the benefits offered are
better in terms of coverage period, which is whole year-round for hospital room and board,
and daily government hospital cash allowance. In addition, there is no coverage limit for
intensive care unit because the compensation is paid according to the amount charged to the
policyholder, unlike YY which has a limit of RM400 for the same coverage period.

Form 5 Mathematics 4 Mathematics, SMP2021