Chapter 9: Insurance for Households and Individuals

Chapter 9

Learning intentions
In this chapter you will learn to:
› Explain what insurance is
› Outline the principles of insurance
› Determine the types of household/personal insurance that
you may need at different times
› Identify jobs in the insurance industry
› Identify the costs, benefits and risks associated with both
insurance and non-insurance
› Complete insurance documentation
› Calculate a premium.

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What is insurance?

Insurance offers protection against possible loss and tries to put

the insured person back in the same financial position they were
in before the loss occurred.
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What is insurance?

An insurance policy sets out details of the types of losses covered

and the amount of compensation to be paid.
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What is insurance?

Compensation is a financial payment made to an insured person

if they suffer an insured loss.
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What is insurance?

A premium is the amount paid by the insured person to an insurer

in return for providing insurance cover for a particular risk.
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Principles of insurance
All insurance is based on the following five basic rules or principles:

Insurable interest

Utmost good faith

Indemnity

Subrogation

Contribution

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Insurable interest

To insure something, you must benefit from its existence and suffer
(financially) from its loss.
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Utmost good faith

You must answer all questions truthfully and reveal all relevant
information when completing a proposal form or claim form.
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Utmost good faith

A material fact is anything that is likely to change the decision

to grant insurance or to affect the level of premium charged.
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Indemnity

The insured person should not profit from insurance. Insurance

exists to put the insured person back in the same financial position
as they were in before suffering the loss, not a better one.
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Subrogation

Once an insurance company has paid compensation for any

insured item, the right of ownership of that item passes to the
insurance company.
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Subrogation

An insurance write-off means that the cost of repairing the damaged

item is greater than the item’s replacement value.
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Contribution

Where the same risk is insured with more than one insurer, they will
divide the cost of the claim between them.
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Types of household and personal insurance

Motor insurance is compulsory in Ireland. This means that it is

required by law and it is a criminal offence to drive without insurance.
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Motor insurance
Type of motor insurance What it covers
Third party Injury to another person or damage to another
person’s car or property caused by the insured
driver. It does not cover the policyholder or
their vehicle

Third party, fire and theft As per third party, plus compensation for the
insured person if their vehicle catches fire or is
stolen
Comprehensive This benefits all parties and vehicles that suffer
loss or injury in an incident, including the
insured person and their vehicle

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Who’s who?

› The first party is the person who takes out the insurance.
› The second party is the insurance company the first party is
insured with.
› The third party is any person or item that suffers a loss caused
by the first party.
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Types of household and personal insurance

A no-claims bonus is a discount on an insurance premium. It

rewards the insured party for not making any claims on the policy.
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Types of household and personal insurance

Loading is an extra amount added to the basic premium to cover

increased risk.
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Home insurance (buildings cover)

This covers the building in the event of fire, flood, storm or

accidental damage. It provides compensation if the structure of
the building is damaged.
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Home insurance (contents cover)

This covers all the contents of the house from accidental damage
such as fire, flood, burst pipes, etc.
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Personal accident insurance

The insured person is covered in the event of an accident,

for example falling and breaking your tooth.
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Health insurance

In the event of serious illness or accident, health insurance covers

the cost of hospital care and some medical bills.
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Critical illness cover

This cover pays out a tax-free lump sum if you are medically diagnosed
with one of the serious illnesses or disabilities that your policy covers.
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Holiday/travel insurance

If something unfortunate happens to the insured person while they

are on holiday or travelling, they will be covered
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Mortgage protection insurance

In the event of the death of the insured during a mortgage repayment

term, this type of life insurance policy repays their mortgage.
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Payment protection insurance (PPI)

Your repayments on a loan for a certain period of time will be

covered with PPI if you suffer from an accident, illness, death
or compulsory redundancy.
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Income/salary protection insurance

If you have to take time off work or lose your employment due to
disability, illness or injury, this insurance will pay part of your income.
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Mobile phone insurance

You can take out insurance in case your mobile phone is lost or stolen.
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Pay Related Social Insurance (PRSI)

By law, all employees must pay employee PRSI. It entitles the worker to
illness, disability, maternity or jobseeker’s benefit, should they require
them. This payment is deducted at source by employers.
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Life assurance

A life assurance policy pays out when the insured person dies,
not if they die.
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Life assurance
There are three main types of life assurance cover:
› Whole-life policy: Pays compensation on the death of the
insured person.
› Term policy: For a fixed time period – usually the duration of a
loan or mortgage.
› Endowment policy: Pays a guaranteed amount on a specified
date or, if it occurs sooner, on the death of the insured person.

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Jobs in the insurance industry

• A broker helps households and individuals to get
Insurance the insurance that best fits their needs and their
broker budget.

• An agent sells policies on behalf of only one

Agent insurance company.

• An actuary is employed by the insurance company

Actuary to decide on the premium that should be charged.

• A loss adjuster will investigate a claim for compensation

Loss adjuster on behalf of the insurance company and decide if the
claim is covered by the insurance policy.

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Taking out insurance

Before you can take out insurance, you must
complete a proposal form.
This is an application form that should be
filled out by the person seeking insurance
cover.

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Taking out insurance

The policy excess is the amount the insured person must pay for
any loss or damage to the insured item. The insurance company
pays the rest.
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Taking out insurance

Exclusions are specific items or risks that are not insured.

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Making a claim
The insurance company will ask
you to complete a claim form.
This is a standard form from the
insurance company that the
insured must complete when
seeking compensation for a loss.
The claim form requires details of
how the loss occurred and the
amount being claimed.

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Average clause

The average clause applies in the case of underinsurance and partial

loss, based on the principle of indemnity.
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Average clause

Underinsurance means that the insured item has not been insured
for its full replacement value.
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Renewing an insurance policy

Insurers will send a renewal notice when your policy is due for
renewal. At that time, it is always worth shopping around for a
new deal, as you may be able to get the insurance more cheaply
from another company.
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What are the benefits of insurance?

› The compensation received allows policy holders to replace or
repair items that have been damaged or stolen.
› While insurance has an obvious financial cost, many are willing
to pay it because it protects them from the financial
uncertainty of loss.
› Salary protection and critical illness cover can help protect
household income.
› Life assurance gives families financial security in the event of
sudden or unexpected death.

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Is insurance really necessary?

If you drive a motor vehicle, you are required by law to have

insurance, but most other types of insurance are optional and may
not be necessary.
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Can all risks be insured?

Some risks are uninsurable. In general, it is not possible to insure a risk

where the insurer cannot work out the chances of a loss occurring.
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Recap and review

Can you?
› Explain what insurance is?
› Outline the principles of insurance?
› Determine the types of household/personal insurance that
you may need at different times?
› Identify jobs in the insurance industry?
› Identify the costs, benefits and risks associated with both
insurance and non-insurance?
› Complete insurance documentation?
› Calculate a premium?

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