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Chapter 10 - Investments and insurance (Assurance (Types of assurance…
Chapter 10 - Investments and insurance
Insurance
Requirements for a valid insurance contract
Good faith
Insured must disclose all relevant information that may affect risk
Insurable interest
Person/object form basis of contract
Examples of insurable interest:
Partners in lives of co-partners
Creditor in life of debtor
Married person in life of spouse
Person in his own property
person in his own health and death
Insured able to prove financial loss if object is destroyed
Additional requirements
Intention to bind
Executable - reasonable conditions
Contractual capacity - legal age and sound mind
Obligation - both parties clear about what to expect
Legally binding - able to sue
Communication of intent - be specific
Insurance
Contract of utmost good faith between the insurance company and the individual or business
Insurance company promises to compensate the insured for any insured loss that may occur
Taken out to cover potential losses
Premium is based on the insurable interest and the risk involved
Covers short-term risk
Assurance
Types of assurance
Term assurance - Valid for a specific period / term - usually taken out during a debt period
Endowment - pays out after a specific time period
Life assurance - cover for the loss of a life
Retirement annuity - provide an income on reaching retirement age
Disability cover
Trauma cover / dreaded disease - covers a list of serious illnesses
Funeral cover
Advantages
Life assurance policies could be ceded to bank as security
Life assurance protects creditors
Life assurance provides security to families
Assurance provides security by making provision for payment of medical / hospital expenses
Gives compensation in event of unemployment / accidents
Assurance
Covers long-term risks
Policy holder is the person who takes out the policy
Taken out as a cover for a risk that is certain (loss of life)
The beneficiary is the person the policy will pay out to
Compulsory insurance
COIDA (compensation for occupational injuries and disease act
Provides for employee and family if he cant work
Pay for mediacal expenses and loss of earnings
Employer takes out compensation on behalf of employee
Not for military staff, SAPF, domestic workers, casual workers
Paid annually and is based on the employee earnings and the risks associated with the profession
RAF (road accident fund)
If you suffer loss due to injuries you can claim
Contribution made by levy on fuel - R1,98 per liter
Innocent people in accidents are covered
Loss of income limite to max R160 000 per year
UIF (unemployment insurance fund)
When worker was retrenched due to economic circumstances
2% of salary - 1% employer and 1% employee
Covers employees against loss of income
Max R148,72
Domestic workers also pay
Pregnant woman - 17 weeks or 121 days
Excluded from UIF
Employees who only earn commission
Civil servants
Foreigners are now covered
Max 58% of monthly salary - only if contributed to UIF for 4 years
Employees that work for less than 24 hours in a month
Risks
Non-insurable
Losses caused by war, nuclear weapons and radiation
Illegal activities or activities that are against public interest
Normal operational risks
Change in fashion
Improvements in technology, machinery and production processes
Inflationary factors
Losses from bad debts
Inventory that becomes outdated
Insurable
Fire insurance
Vehicle insurance
All weather insurance - covered by homeowners and household policies
Money in transit - covers cash in transit to the bank
Fidelity insurance - Covers losses sustained due to dishonesty of employees
Liability insurance - covers a person who incurs losses due to negligence or defects in property
Crop insurance - taken out by farmers
Group life cover - business ensures workers for an amount equal to its annual salary multiplied by a factor
Loss of income - for an entrepreneur
Insurance
Advantages
Peace of mind - dont worry about uncertainties
Cant buy a vehicle / property without insurance
Indemnification puts business back in same position as before the event
Can receive cash back bonus if not claimed
Protects business against insurable losses
Cheaper to pay for insurance than paying the expense if an event takes place
Disadvantages
Insured must make sure that they are covered in all circumstances
Insurers often look for every excuse not to pay out for claims
Can be expensive, if the insured does not claim