Insurance Notes for Households and Business

Insurance is
• Protection against a loss which might or might not happen.
• If the loss/risk does happen the insured will get compensation.

Premium is
• The fee you pay to get insurance cover.
• The higher the risk of the loss happening the higher the premium )fee you are
charged).
• Eg: Young Male drivers are charged more for car insurance than older Lady drivers.

Proposal Form is
• The form you must fill out to get insurance.
• You must fill it out truthfully and give all relevant details.
• The principle of Utmost Good Faith applies – if you lie you will not be compensated if
the loss happens.

Actuary
Will examine your proposal form and assess the risk involved and then decide how much
premium you should pay. The higher the risk the higher the premium.

Insurance Policy
• Is the document you receive when you enter into a contract with the insurance
company and take out insurance. This shows all the things that are and are not
covered by your insurance
• Eg: In a travel insurance policy, you may not get compensation if your flights/holiday
is cancelled because of an Act of God (this would be excluded = exclusion clause
shows things not covered in your insurance policy)

Cover Note
May come before your insurance policy to say you are temporarily covered by Insurance.

How does Insurance Work?

• Lots of people pay premiums, an example is car insurance, all the money give is
“pooled” together by the Insurance company.
• However only a small few people will claim compensation and this pool of money will
pay out to them
• The pool of money is also used to pay the expenses of the insurance company and
leave them with profit
Insurance Broker v Insurance Agent
• Insurance Broker does not work for one company and will get you the best insurance
quote from many different places and give you advise on which to go for. They shop
around for you and you pay them commission for this.
Eg: Culleton Insurance Brokers
• An Insurance Agent works for one Insurance company and will only quote you on the
insurance they offer
Eg: FBD or Hibernian

The steps involved in taking out Insurance are?

1. Calculate the value of the item being insured
2. Ensure you have an insurable interest in it (ie: gain from its existence and suffer
financially from its loss)
3. Contact insurance company or broker
4. Complete the proposal form with UTMOST GOOD FAITH
5. The actuary will calculate the risk and decide on the amount of the amount of the
premium you must pay
6. Pay the premium
7. You will receive your Insurance policy and your certificate of Insurance. You might
receive a cover note until these are ready.
8. At the end of the year to remind you, your insurance is due for next year you will
receive a renewal notice. Sometimes you get some extra days called days of grace
where you are still covered by your old insurance policy.

Types of insurances a business will have:

Types of insurances

Insurable Risk is something (like all of the above) that you can take out insurance to protect
yourself against

Non Insurable Risks are risks that you CANNOT take out insurance to protect yourself
against
Example: Loss of profits due to fall in demand for G/S, Some Acts of God like earthquakes,
Loss of profits due to change in the law
The Rules of Insurance

1. Insurable Interest
Before taking out insurance (and filling out the proposal form) you must have insurable
interest in the item. You must gain by its existence and suffer financially by its loss.
Eg: You can insure your own car, but you cannot insure some one else’s car as you do not
have an insurable interest in it. You will not suffer financially by its loss.

2. Utmost Good Faith

When filling out the proposal form you must fill it out truthfully and give all correct and
relevant details. You cannot lie accidentally or deliberately
Eg: When taking out Life Assurance you must give details of any previous illnesses

3. Indemnity
• This applies when you are claiming compensation
• You cannot make a profit from insurance. Your compensation should put you back in the
same
position as before the damage/loss happened.
• Eg: Car is insured for €25,000 but only worth €15,000 after 3 years then in the event of a
claim,
the insurance co will only pay out €15,000.

4. Contribution
• Applies when claiming compensation and you are insured with more than one insurance
company
• They will each “contribute” towards the compensation but not more than the value of the
item (because you cannot make a profit)
• Example: Golf Clubs €500 stolen from boot of car and are insured on Car Insurance and
House insurance – you cannot claim €500 from each company instead they will both
contribute towards the compensation maybe €300 from one company and €200 from the
other.

5. Subrogation
• After the compensation is paid the insurance company has the right to
o Sue whoever caused your accident to recoup some costs
o Sell the damaged item for scrap

When Calculating a Premium the insurance Company/Actuary will consider

1. The risk involved – the higher the risk the higher the premium
2. The value of the item – the higher the value of the item the higher the premium
3. Any previous claims – these will increase the premium
 4. Loadings – things that make the policy more risk eg: like a dangerous hobby for
personal accident insurance
5. Deductions – things that you get discounts for that will reduce your premium eg: like
an alarm for house insurance, avoiding smoking/drinking for life policy
If a loss occurs then an Assessor will decide on the compensation– they will
• Check loss actually happened
• Check you were actually insured for the loss (make sure it was not part of an
exclusion clause that was not covered)
• Ensure the claim form is filled out correctly
• Decide how much if any compensation has to be paid.

Policy Excess – this is the amount of the compensation which the insured person has to
pay. Example suppose loss is €5000 and the policy excess is €300, then the insured person
pays the €300 and the Insurance company pay €4700 in compensation

Partially insured
Average Clause – this happens if you are under- insured and there is a partial loss, then you
only get partial compensation.

Example: House is valued at €200,000 but is only insured for €150,000. If a fire causes
€40,000 damage – How much compensation will be paid?
Only partly insured ie: €150,000 = 3 covered so only get 3⁄4 compensation €200,000 4
3⁄4 x €40,000 = €30,000 compensation only

Over Insured – if you are over insured, then you are paying too much of a premium and you
will not be paid more compensation in the event of a loss as you cannot make a profit.

Example: many people bought houses during the boom that are not worth as much now so
they should adjust the value they insure them for. Example house was worth €400,000 but
only worth €250,000 now, so no point insuring it for more than €250,000.

Exclusion Clause – shows the items in the Insurance policy which are not covered by
insurance Eg: Perhaps injury due to doing a sky dive may not be included

Policy Excess – shows the amount of the compensation which the insured has to pay for
themselves. Eg: If policy excess is €300 and the compensation to be received is €10,000,
then the insured will only receive €10,000 – 300 = €9,700