• Insurance is a written agreement between and individual and an insurance company. It states that the insurance company (the insurer) will pay compensation to the individual (the insured) if that person suffers a loss.
• A proposal form is the application form for insurance. The applicant must truthfully answer questions about themselves and the thing they want to insure.
• The fee paid by the insured for insurance is called a premium.
• The insurance policy is the insurance contract between the insurer and the insured. It contains the details of the insurance agreement.
• The certificate of insurance proves that an insurance policy exists between the insurer and the insured.
• The different types of household insurance are grouped under four main headings: home insurance, life assurance, car insurance and personal insurance.
• There are five principles (rules) of insurance, which protect the insurance company: insurable interest, indemnity, utmost good faith, subrogation and contribution.
• Risk refers to how likely it is that the event being insured against will take place, meaning the insurer will have to pay out money.
• The person who assesses the risk and calculates premiums for an insurance company is called an actuary.
• A loading is an amount added to the basic premium due to risk. The higher the risk, the higher the cost of insurance.
• A no claims bonus is a discount received for not making a claim on car insurance. This is deducted from the premium cost.
• Summary of calculations: Total premium = basic premium + loadings – discounts
Average clause = Amount insured Actual value × Loss
Taking stock A
Go to page 80 of your Activities and Accounts Book to check what you have learned in chapter 11.
