Insurance
Insurance
Insurance is a form of agreement between an insurance company and private individuals and/or organizations.
In exchange for a payment of a sum of money (premium), the private individuals and/or organizations are guaranteed compensation for losses to them resulting from certain risks like fire, burglary, flood, accident, etc
Purpose of Insurance
Every business will faced some risks like fire, burglary, flood, accident, etc therefore by having insurance, the business can protect themselves from these kind of risks
Insurance principles:
Indemnity
Its means that someone seeking to take out insurance should not be able to gain profit from a loss incurred
Insurable interest
This principle stops private individuals and organizations from trying to gain from insurance and other people’s misfortune
E.g. A business man who insures his shop against fire, where he believe that if his shop catches fire, he’ll suffer losses therefore a person who don’t have their own property cannot take out insurance to cover that property
Utmost good faith
This means that both parties in the contract must act with utmost good faith (honesty) towards one another during the negotiations before an insurance contract is agreed and in the handling of claims afterwards
Therefore the person who taking the insurance have to give correct and up to date information
Insurable risk
Some risks can be measured based on statistical records
Therefore insurance companies can offer such an insurance as they can calculate the cost of the risk
Examples: fire, personal accident, motor accident, theft and burglary
In exchange for a payment of a sum of money (premium), the private individuals and/or organizations are guaranteed compensation for losses to them resulting from certain risks like fire, burglary, flood, accident, etc
Purpose of Insurance
Every business will faced some risks like fire, burglary, flood, accident, etc therefore by having insurance, the business can protect themselves from these kind of risks
Insurance principles:
Indemnity
Its means that someone seeking to take out insurance should not be able to gain profit from a loss incurred
Insurable interest
This principle stops private individuals and organizations from trying to gain from insurance and other people’s misfortune
E.g. A business man who insures his shop against fire, where he believe that if his shop catches fire, he’ll suffer losses therefore a person who don’t have their own property cannot take out insurance to cover that property
Utmost good faith
This means that both parties in the contract must act with utmost good faith (honesty) towards one another during the negotiations before an insurance contract is agreed and in the handling of claims afterwards
Therefore the person who taking the insurance have to give correct and up to date information
Insurable risk
Some risks can be measured based on statistical records
Therefore insurance companies can offer such an insurance as they can calculate the cost of the risk
Examples: fire, personal accident, motor accident, theft and burglary
Non – insurable risk
Certain risk cannot be insured against because they cannot be measured based on past experiences
Examples: Poor management or war
Certain risk cannot be insured against because they cannot be measured based on past experiences
Examples: Poor management or war
Types of insurance
Some of the common types of insurance are shown below:
Marine insurance covers both ships and goods against the dangers at sea. These dangers include fire, theft of goods, piracy, capture, size of detention by governments, bad weather and collision. It also covers freight and owners’ liability
Aviation insurance covers losses or damages to aircrafts, accidents to aircrafts accidents and public liability to both people and cargo sent through the aircrafts
Fire insurance
Fire insurance covers domestic as well as business premises and their contents.
The premium charged depends on various factors state in proposal form. The factors include information on the value of the building, types of materials used in the construction of the premises, source of electricity, the contents in the premises, fire fighting facilities and types of buildings surrounding the premises. The information requires also includes the record of insured to see if the insured has made any previous claim on fire insurance.
Motor insurance
The two common types of motor insurance policy are comprehensive motor policy and third party policy. Comprehensive motor policy provides coverage against bodily and property damages to the insured and the third party. It also covers loss of vehicle due to theft and fire. Third party motor policy covers bodily and property damages to the third party
Premium to be charged will depend on various factors based on information disclosed in the proposal form. The information to be disclosed include type of vehicle, sum to be insured, age and driving experience of driver, driving, record of driver and driver’s occupation
Accident insurance
This type of insurance covers risks not provided under fire, life, marine and motor insurance.
This insurance includes
- Professional indemnity taken by professionals like lawyers, architects, engineers, doctors and dentists. This covers claim against professional negligence, errors and omission made during the performance of their profession
- Public liability for any claim made by members of the public for loss, damage to properties or injuries from negligence of the insured and their employees
- Personal liability taken by individuals to cover against any claim by a third party who suffers losses, damages to property or injuries arising from negligence of the insured for example accident due to a slippery floor or being bitten by a pet animals
Air Travel Insurance
Air travel insurance covers:
1. Cost of hospitalization and medical bills, up to a certain agreed amount, should the insured fall sick while on holiday overseas
2. Loss of luggage or money during the holiday
3. Cancellation charge if the insured falls ills and is not able to travel, after paying for the trip
4. Cancellation of holiday trip due to strikes, bad weather and transport breakdown
Burglary and theft insurance
This covers the insured against loss of content due to burglary and theft in the residence or property. The insured needs to disclose the contents to be insured against and their value in the proposal form
Fidelity guarantee insurance
This covers the insured against the loss of money arising out of misdeed of their employees who occupy positions of trust.
Life Assurance
The basis of life assurance is to insure a person for a sum of money
Whole life policies
For some whole life policies, the sum assured is paid to a nominated beneficiary or beneficiaries. If the insured decides to surrender the whole life policy before his or her death, the insurance company will calculate the amount to be pack to the insured. This is known as the surrender value. This value will be calculated based on the number of years the policy has been in existence and the amount of bonus (profit) it has accunlated over the years of its existence. Premium for this type of life policy is lower than the endowment policy
Endowment policies
Endowment policies are more like savings policies which provide a higher yeid (bonus). An insured can take up this policy which will cover the insured over a fixed period of time. The insured will received an agreed amount of sum assured at the end of the maturity (e.g. 15 or 20 years). If the insured dies before the maturity, the nominated beneficiary or beneficiaries will receive the sum assured. Premium for this type of life policy is higher than the whole life policy. An example of an endowment policy is the educational insurance.
Term policies
Term policies are life policies covering the insured for insured for a fixed number of years. There will not be any bonus or profits added to the sum assured upon maturity of the policy. If the insured dies, the insurance company will pay his beneficiaries the sum assured at the time of his death. If the insured surrenders his policies, he will not get anything out of this type of policy. Term policy offers the cheapest premium of high sum assured coverage. Other forms of term policies include the decreasing term policy. As the term gets nearer to its maturity date, the sum assured also reduces. However, the premium paid remains constant
Riders
Riders are basic personal accident and disablement insurance benefits added on to the main policy. If an insured buys any of the above life policies, he can enjoy the additional rider benefits when he pays a small additional amount of money to the original perium. As the name applies, the riders actually ride on the original policy to give the insured a wider range of coverage
Mortgage loan insurance
If a homebuyer is taking a loan to pay for the property, he is also required to take up an insurance policy known as the mortgage loan insurance. As the home or property is pledge as a mortgage to the bank or financial institution, he is required to take out insurance to cover his mortgage in the event of the home owner’s debt. The insurance will relief the surviving dependent of payment of the loan debt. Usually the homebuyer will required to make up fire insurance for his home as well
Premiums for life assurance
Factors affecting for life assurance
Factors affecting the premium for life assurance are shown below
1. The sum assured
2. The type of policy
3. The age and gender of the insured
4. The occupation and occupational hazards of the insured
5. The heath status of the insured
6. The medical history of family members, including parents and siblings
Educational insurance
Education insurance is basically an endowment policy. They are bought when the child is young with intention of helping the child pay for his or her education (usually university education) when the policy matures years later
Cover Note
Function of cover note:
Example
A man insure his property which worth only $8,000 for $11,000. He I not allowed to do this because
Example: a man insurer his property which is worth $13,000 for $7,000. He hopes to save on premium payment. He’ll not benefit from this because
Contents of the insurance policy
Some of the common types of insurance are shown below:
- Marine insurance and aviation insurance
- Fire insurance
- Motor insurance
- Accident insurance
- Workmen’s compensation
- Air travel insurance
- Burglary and theft insurance
- Fidelity guarantee insurance
- Life assurance
- Educational insurance
Marine insurance covers both ships and goods against the dangers at sea. These dangers include fire, theft of goods, piracy, capture, size of detention by governments, bad weather and collision. It also covers freight and owners’ liability
Aviation insurance covers losses or damages to aircrafts, accidents to aircrafts accidents and public liability to both people and cargo sent through the aircrafts
Fire insurance
Fire insurance covers domestic as well as business premises and their contents.
The premium charged depends on various factors state in proposal form. The factors include information on the value of the building, types of materials used in the construction of the premises, source of electricity, the contents in the premises, fire fighting facilities and types of buildings surrounding the premises. The information requires also includes the record of insured to see if the insured has made any previous claim on fire insurance.
Motor insurance
The two common types of motor insurance policy are comprehensive motor policy and third party policy. Comprehensive motor policy provides coverage against bodily and property damages to the insured and the third party. It also covers loss of vehicle due to theft and fire. Third party motor policy covers bodily and property damages to the third party
Premium to be charged will depend on various factors based on information disclosed in the proposal form. The information to be disclosed include type of vehicle, sum to be insured, age and driving experience of driver, driving, record of driver and driver’s occupation
Accident insurance
This type of insurance covers risks not provided under fire, life, marine and motor insurance.
This insurance includes
- Insurance of liability
- Professional indemnity taken by professionals like lawyers, architects, engineers, doctors and dentists. This covers claim against professional negligence, errors and omission made during the performance of their profession
- Public liability for any claim made by members of the public for loss, damage to properties or injuries from negligence of the insured and their employees
- Personal liability taken by individuals to cover against any claim by a third party who suffers losses, damages to property or injuries arising from negligence of the insured for example accident due to a slippery floor or being bitten by a pet animals
- Insurance of property
- Personal accident insurance
- Workmen’s compensation
Air Travel Insurance
Air travel insurance covers:
1. Cost of hospitalization and medical bills, up to a certain agreed amount, should the insured fall sick while on holiday overseas
2. Loss of luggage or money during the holiday
3. Cancellation charge if the insured falls ills and is not able to travel, after paying for the trip
4. Cancellation of holiday trip due to strikes, bad weather and transport breakdown
Burglary and theft insurance
This covers the insured against loss of content due to burglary and theft in the residence or property. The insured needs to disclose the contents to be insured against and their value in the proposal form
Fidelity guarantee insurance
This covers the insured against the loss of money arising out of misdeed of their employees who occupy positions of trust.
Life Assurance
The basis of life assurance is to insure a person for a sum of money
Whole life policies
For some whole life policies, the sum assured is paid to a nominated beneficiary or beneficiaries. If the insured decides to surrender the whole life policy before his or her death, the insurance company will calculate the amount to be pack to the insured. This is known as the surrender value. This value will be calculated based on the number of years the policy has been in existence and the amount of bonus (profit) it has accunlated over the years of its existence. Premium for this type of life policy is lower than the endowment policy
Endowment policies
Endowment policies are more like savings policies which provide a higher yeid (bonus). An insured can take up this policy which will cover the insured over a fixed period of time. The insured will received an agreed amount of sum assured at the end of the maturity (e.g. 15 or 20 years). If the insured dies before the maturity, the nominated beneficiary or beneficiaries will receive the sum assured. Premium for this type of life policy is higher than the whole life policy. An example of an endowment policy is the educational insurance.
Term policies
Term policies are life policies covering the insured for insured for a fixed number of years. There will not be any bonus or profits added to the sum assured upon maturity of the policy. If the insured dies, the insurance company will pay his beneficiaries the sum assured at the time of his death. If the insured surrenders his policies, he will not get anything out of this type of policy. Term policy offers the cheapest premium of high sum assured coverage. Other forms of term policies include the decreasing term policy. As the term gets nearer to its maturity date, the sum assured also reduces. However, the premium paid remains constant
Riders
Riders are basic personal accident and disablement insurance benefits added on to the main policy. If an insured buys any of the above life policies, he can enjoy the additional rider benefits when he pays a small additional amount of money to the original perium. As the name applies, the riders actually ride on the original policy to give the insured a wider range of coverage
Mortgage loan insurance
If a homebuyer is taking a loan to pay for the property, he is also required to take up an insurance policy known as the mortgage loan insurance. As the home or property is pledge as a mortgage to the bank or financial institution, he is required to take out insurance to cover his mortgage in the event of the home owner’s debt. The insurance will relief the surviving dependent of payment of the loan debt. Usually the homebuyer will required to make up fire insurance for his home as well
Premiums for life assurance
Factors affecting for life assurance
Factors affecting the premium for life assurance are shown below
1. The sum assured
2. The type of policy
3. The age and gender of the insured
4. The occupation and occupational hazards of the insured
5. The heath status of the insured
6. The medical history of family members, including parents and siblings
Educational insurance
Education insurance is basically an endowment policy. They are bought when the child is young with intention of helping the child pay for his or her education (usually university education) when the policy matures years later
Cover Note
Function of cover note:
- Evidence of insurance contract between proposer and insurer company
- Temporary cover for a limited period until insurance policy can be issued
Example
A man insure his property which worth only $8,000 for $11,000. He I not allowed to do this because
- He had to pay a “higher premium” than necessary
- He cannot claim $11,000 as he can only claimed $8,00 since maximum compensation is only $8,000. An insurance is a contract of indemnity
- He can’t over-inflate/ or over claim the value of his property as insurance is a contract of utmost good faith
Example: a man insurer his property which is worth $13,000 for $7,000. He hopes to save on premium payment. He’ll not benefit from this because
- He will not fully protect his property and if his property damaged he will only able to claim $7,000
- 2. He should not deflate/ understated his propriety value since insurance is a contract of utmost good faith
Contents of the insurance policy
- Name of insurance company i.e. Takaful Sdh Bhd
- The policy number
- Name and address of the insured
- Extend of obligation, types of losse covered under the policy and period of cover
- Details of property covered
- Premium to be paid
- Signature of otters of insurance company
- Exclusion: events which will not be covered by insurance company
- Actual legal contract or written agreement between proposer and insurer
- Original copy of insurance policy has to be submitted when making a claim on the insurance company