This document contains summaries made from " Consumo business studies textbook" which summarizes the difference between short-term and long-term insurance, the different types of insurance, the general concepts regarding insurance as well as the requirements required for a valid insurance contra...
- The difference between short-term and long-term life insurance:
➢ Short term insurance is IN case something happens.
➢ Long term insurance is for something that is bound to happen
like death.
➢ By taking insurance a monthly premium is paid by the insured to
pass the risk on to the insurer.
- Non-insurable risk:
o War.
o Bad debt.
o Business risks.
o Trading stock.
o Technology changes.
o Unlawful action.
o Climate change.
• General concepts regarding insurance:
➢ Indemnity:
▪ Gives the insured peace of mind to know that, if the insured experiences a
lot of damages or is destroyed, the insured will be sufficiently compensated
for any losses.
➢ Security:
▪ Is applicable when reference is made to long-term insurance.
▪ The purpose is to give financial security.
➢ Average clause:
▪ The principle of the Awery-clause is applied when the asset is not insured
for the correct value.
▪ If the asset is under-insured, the insured had not paid continuously a
premium that is sufficient to cover the full risk.
▪ Over insured refers to a situation where the asset is insured against more
than its present value. This means that the insured will pay a higher
premium than necessary.
, • Concept regarding insurance:
➢ Excess:
▪ Excess is the Rand amount or % of the loss/claim as stipulated by the policy that
determines what the insured needs to pay.
➢ Proximate cause:
▪ If a person claims from an insurance company for a loss suffered, the company
will ensure that the loss was due to the cause that was insured.
➢ Subrogation:
▪ If the insured person had claimed from the insurance company for an incident
that has happened, he/she cannot claim from the guilty party who caused the
loss as well, the right to claim from the guilty party is given to the insurance
company that could claim from the guilty party; this applies mainly to car
insurance.
➢ Cession or to cede the policy:
▪ An endowment policy builds up a cash worth over time.
▪ Should an immediate need arise by the insured for the money, the policy may be
signed over to a creditor as a collateral in order to get the loan.
• Requirements of a valid insurance contract:
✓ Absolute good faith:
- Known as utmost honesty and requires the insured to disclose all relevant
information that may affect the risk.
- If all questions are not answered honestly and accurately, the risk will not be
covered and the policy will be declared null and void.
✓ Insurable interest:
- A person has insurable interest if it can be proved that they will sustain a
financial loss if a certain event takes place.
- Examples of insurable interest:
❖ A person has insurable interest in his own assets.
❖ A creditor has an insurable interest in the life of his debtor.
❖ A married person has insurable interest in the life of the spouse.
✓ Contractual capacity:
- Means the person entering into the insurance contract is of legal age and
sound mind.
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