Professional Documents
Culture Documents
Business & a
Household:
Insurance
Unit 4
Risk Management
Def: A planned approach used by
businesses and households to deal with
risks that can affect them. It involves
identifying possible risks (fire, theft etc)
and calculating the cost of protecting
themselves against these risks
Ways to Minimise Risk
Install security • Security risks can be reduced by installing alarms,
systems CCTV cameras and motion-sensor lights
After doing a risk assessment, businesses and individuals can take out
cover to protect against these possible losses. In return for a fee
(premium) from the insurance company they receive protection in the
form of compensation for any loss suffered
Insurance Terms (The Forms)
• Proposal form: the form you fill in when
applying for insurance. Has to be filled out
truthfully by the person looking for insurance
• The insurer: the firm that the insurance policy is taken out with e.g
Axa, Alliance, Chill, GloHealth etc.
• Insurance premium: the fee paid for insurance incl. the basic fee plus
any loadings or discounts that apply. Calculated by an actuary.
Depends on the level of risk
Insurance Terms (Other Terms)
• Policy excess: the cost not covered by insurance. The amount of each
claim which the insured party must pay e.g. €200 excess on a €1,000
claim. Insured pays €200, insurer pays €800
Insurance company
When your premium
not including cover
has an extra cost
for a more high risk
because there is a
items to lower their
The insured will get higher risk involved
costs
less _______ if their
car is stolen but they
were partially
responsible as they
didn’t lock it
Match the correct term to the example
Insurance company
When your premium
not including cover
Compensation has an extra cost
for a more high risk
because there is a
items to lower their
The insured will get higher risk involved
costs
less _______ if their
car is stolen but they
Exclusions were partially Loading
responsible as they
didn’t lock it
Fun Facts
Gene Simmons
insured his
tongue for $1m
• Linked to indemnity
• Might happen if someone tries to claim from multiple insurance
companies
• Any compensation paid will be split between them in proportion of
the value insured with each
• Ensures the insured cannot make a profit
Principle 4: Contribution
Formula used to calculate how much compensation each company will
pay the claimant:
E.g. my car goes on fire and my insurance company pays. I cannot go and
sue BMW now or else I am profiting. The insurance company can though.
My car is crashed and written off. The insurance company pays. I cannot
sell the it for scrap or else I am profiting. The insurance company can
though.
Insurance Premium Calculations
• Actuaries calculated premiums based on a number of factors:
• The more likely the risk is to occur, the higher the premium.
Risk The actuary uses statistics when calculating the risks
• The amount paid out by insurance firms in the past
Claims will affect the level of the premium
• The higher the value of the item, the higher the
Value premium
• These increase the cost of insurance premiums as
Loadings they add extra risk to the policy
• The person seeking insurance can reduce the
Discounts premium by taking steps to reduce the risk
Insurance Premium Calculations
Calculate the premium they’ll have to pay for a new policy with O’Dowd ltd.
Calculating Insurance Premiums
Ross and Sarah want to insure their house and it’s contents. The homes
rebuild value is €600,000 and it’s contents are 25% of this amount. They
have an monitored alarmWork it out
and no by doing:
previous claims.
Basic premium
This is the quote they got from O’Dowd Insurance Ltd
+
Buildings: €1.40 per €1,000 valuation
Loadings
Contents: €4.10-per €1,000 valuation
Discounts
Loadings: Dublin address 10%, previous claims 8%
Discounts: No previous=claims 2%, alarm system 9%
Premium due
Calculate the premium they’ll have to pay for a new policy with O’Dowd ltd.
We do:
Basic
premium
+
Loadings
-
Discounts
=
Premium due
Calculating Insurance Premiums
Jane and Karl want to insure their Carlow house and it’s contents. The homes
rebuild value is €355,000 and it’s contents are 18% of this amount. They have
an monitored alarm and 1 previous claim for a burglary.
This is the quote they got from Smyth Insurance Ltd
Buildings: €1.60 per €1,000 valuation
Contents: €2.90 per €1,000 valuation
Loadings: Dublin address 10%, previous claims 7%
Discounts: No previous claims 3%, alarm system 6%
Calculate the premium they’ll have to pay for a new policy with Smyth ltd
We do:
Basic
premium
+
Loadings
-
Discounts
=
Premium due
Calculating Insurance Premiums
Matt and Ciara want to insure their Galway City apartment and it’s contents.
The homes rebuild value is €120,000 and it’s contents are 22% of this
amount. They have a monitored alarm, security cameras and no previous
claims.
This is the quote they got from Tracey Insurance Ltd
Buildings: €1.80 per €1,000 valuation
Contents: €3.10 per €1,000 valuation
Loadings: City address 8%, previous claims 5%
Discounts: No previous claims 6%, alarm system 4%, security cameras 2%
Calculate the premium they’ll have to pay for a new policy with Tracey Ltd.
We do:
Basic
premium
+
Loadings
-
Discounts
=
Premium due
Insurance
Summary
Types of Insurance
Similarities Between Household & Business Insurance
Similarities Between Household & Business Insurance
Motor Insurance
There are 3 types of motor insurance cover:
Mortgage protection
Income protection
Travel
Identity theft
Life assurance
Common Insurance Policies for Households
• Health insurance: protects against cost of hospital fees and day-to-
day medical expenses e.g. VHI, Laya Healthcare
• Mortgage protection: covers cost of mortgage repayments if
household can’t pay e.g. sick/redundancy. Often essential in order to
get a mortgage.
• Income protection: covers loss of money to a household if main
earner can’t work for a short period/permanently. E.g. 75% of salary
Common Insurance Policies for Households
• Travel insurance: covers risk such as missed flights, lost luggage, lost
passports, cancellation costs due to emergencies
• Identity theft: covers loss due to identity being stolen e.g. bank
account emptied, lost wages/salaries etc.
• Personal accident insurance: covers loss is a person has a serious
accident. People who rely on their body/parts of often have this cover
Daniel Craig’s body
Michael Flatley
was insured for
insured his legs for
America Ferrera €6.6m when filming
€34.5m
insured her smile Casino Royale Tom Jones’ chest
for $7m after hair is insured for
signing with $3.5m
Aquafresh
Life Assurance
Assurance insures you against something that will certainly happen
e.g. death
Public liability
Employer’s liability
Key personnel
Fidelity guarantee
Consequential loss
Cash in transit
Plate glass
Common Insurance Policies for Businesses
Product liability: covers costs of customers who claim they got injured/sick from
using your product/service e.g. food poisoning
Public liability: covers costs of customers who claim they got injured on the
business premises e.g. slipped on a wet floor
Key personnel: covers the cost if a key worker leaves the business e.g.
recruitment costs to replace them and train someone new
Common Insurance Policies for Businesses
Consequential loss: covers against a loss that happens due to another risk
happening e.g. shop goes on fire – covers lost profits while it’s closed.
Cash in transit: covers against the theft of cash while off the premises e.g. on the
way to the bank. Essential for high cash sale businesses e.g. nail salon
Plate glass: covers a business against their big shop windows being broken or
damaged
2 Forms
Both truthfully complete insurance proposal and claim forms.
3 Risk Management
Both identify risks and take steps to manage risk, e.g. installing smoke alarms and CCTV
cameras to deter burglars.
4 Review Policies
Both regularly review their policies to ensure that the value of items insured is accurate.
Differences Between Household & Business
Insurance
Differences
1 Risks
Businesses are exposed to more risks than households. A business usually has to take out
more insurance policies than a household, e.g. plate glass and employer’s liability.
2 Premiums
Businesses tend to pay higher premiums than households.
3 PRSI
Households pay PRSI on their own earned income as employees. Businesses must pay PRSI
for all its employees.
4 Business Expenses
Insurance costs are a business expense and can be used to reduce the firm’s tax liability.
The Importance of Insurance
Cost saving The cost of the premium is usually less than the cost incurred if
the risk happens.
Legal Some types of insurance, e.g. motor insurance, are required by
requirements law. Failure to pay such policies can result in fines.
Risk Insurance helps households and businesses to reduce their risk
management as they must carry out a risk assessment before taking out
insurance.
Survival Allows businesses to cope with difficult or unexpected situations
and may prevent them from closing.
Safety People/companies will generally improve safety in order to avoid
higher insurance premiums e.g. install a security alarm
Key Terms
• risk management • insurance agent
• insurance • insurance broker
• proposal form • principles of insurance
• claim form • insurable interest
• insured • utmost good faith
• insurer • average clause
• premium • contribution
• loading • subrogation
• actuary • material facts
• assessor • indemnity
• loss adjuster • property insurance
Key Terms
• contents insurance • employer’s liability insurance
• motor insurance • key personnel insurance
• PRSI • fidelity guarantee insurance
• health insurance • consequential loss insurance
• mortgage protection insurance • cash in transit insurance
• income protection insurance • plate glass insurance
• personal accident insurance
• travel insurance
• life assurance
• product liability insurance
• public liability insurance
Past Exam Questions (Ordinary Level)
Past Exam Questions (Ordinary Level)
Past Exam Questions (Higher Level)
Past Exam Questions (Higher Level)