Please enable JavaScript.
Coggle requires JavaScript to display documents.
CHAPTER 5 RISK…
CHAPTER 5 RISK MANAGEMENT AND LIFE INSURANCE
What is insurance?
Insurance is protection against possible financial loss; it gives you peace of mind
Types of Risk
Risk
is uncertainty or lack of predictability, such as the loss that a person or property covered by insurance faces.
Peril
is the cause of a possible loss, such as fire, windstorms, explosions, robbery, accidents, and premature death.
Hazard
increases the likelihood of a loss, such as defective house wiring.
Pure Risk
The most common risks are classified as personal risks, property risks, and liability risks.
Speculative Risk.
Chance of either loss or gain, such as starting a small business or gambling.
Risk Management Methods
Risk Management
is an organized strategy for protecting assets and people.
Risk Avoidance
Risk Reduction
Risk Assumption
Risk Shifting
Planning An Insurance Program
Step 1: Set insurance goals
Insurance goals should define what to do to cover the basic risks present in your life
Step 2: Develop a plan to reach your goals
Understand and use resources available.
Step 3: Put Your plan into action
Obtain financial and personal resources, budget them, and use them to reach risk management goals.
Step 4: Check your results
Evaluate your insurance plan periodically (2 to 3 years).
CONCEPT OF INSURANCE
Risk Transfer:
The insured shifts the financial burden of potential loss (e.g. accident, ilness, theft) to the insurer.
Risk Pooling:
Premiums from many policyholders are pooled, allowing the few who suffer losses to be compensated from the shared fund
Certainty over Uncertainty:
Helps individuals and businesses replace unpredictable smaller expenses (premiums)
FAMILY MAINTENANCE FUND
The size of fund will reflect the level of living we would like to see maintained or an amount at least enough to eliminate the need for major financial adjustment
Needs Salary Approach
The needs approach takes into account a variety of expenses, including:
Funeral costs
Legal fees
Estate taxes
Business buyout costs
TYPES OF INSURANCE COVER
LIFE INSURANCE
Life insurance is a contract between you and an insurance company.
GENERAL INSURANCE
General insurance is an insurance product that does not cover the life of an insured or is commonly known as a non-life insurance product.
REASONS FOR HAVING LIFE INSURANCE
To finance children's education
To ensure that an extra income available
Income tax relief
Basic Types of Life Insurance Policy
1) Term insurance
This offers insurance protection for a limited period only
2) Whole life insurance
This offer life-long protection and premiums are paid throughout our life
3) Endowment insurance
This combines protection with a savngs plan. It has a fixed maturity which are 15, 20, 30 up to 65 years
General Insurance
Medical & Health Insurance
covers hospital treatment costs, surgery, and critical illness.
Personal Accident Insurance
provides compensation for death or disability caused by accidents.
Travel Insurance
covers accidents, loss of baggage, passport, and medical treatment while traveling.
Motor Insurance
mandatory under the Road Transport Act 1987 (Act cover, Third Party, Comprehensive)
Fire/House/Owner/House Holder Insurance
protects the house/building and its contents
Principles of Takaful
Policyholders cooperate among themselves for their common good.
Every policyholder pays his subscription to help those that need assistance.
Term Insurance
Term life insurance only covers you for a set timeframe – this could vary from a 5, 10, 20, or even 30-year period depending on the term that you choose.
Types of Endowment Plan Insurance
Traditional with profit:
Returns are based on bonus profits from the basic sum assured and a maturity/terminal bonus.
Traditional non-profit:
A lump sum payment payable only upon death, total permanent disability.
Unit-linked:
Endowment premiums are invested in a unit trust and returns are based on the UT performance.
Annuity or Pension Plan Insurance
An annuity is a contract between you and an insurance company.
It is designed to protect and grow your money, and then provide a stream of income during your retirement.
TAKAFUL
Takaful is an Islamic insurance concept which is based on Islamic banking transactions (muammalat) by observing the rules and regulations of Islamic law.
Concept of Takaful
Takaful Act 1984, Section 2 defines takaful as:
‘A scheme based on brotherhood, solidarity and mutual assistance which provides for mutual financial aids and assistance to the participants in case of need whereby the participants mutually agree to contribute for that purpose’
Benefits of Takaful
Provide peace of mind to individuals as compensation and/or outstanding liabilities will be covered upon untimely death or total disability
Security of inheriting properties by the dependents or heirs
TAKAFUL Vs CONVENTIONAL INSURANCE
Takaful:
based on mutual assistance, Shariah-compliant, free from riba/gharar/maisir, risk-sharing concept.
Conventional Insurance:
commercially based, contains elements of riba/gharar/maisir, risk-transfer concept.
Resolution of Scholars
Conventional insurance is strictly not allowed for Muslims as agreed upon by most contemporary scholars because it contains the following elements:
Al-Gharar (Uncertainty)
Al-Maisir (Gambling)
Riba (Interest)
USEFUL INFORMATION WHEN BUYING AN INSURANCE POLICY
Be sure to buy from a company through an authorised agent
Shop around for rates
Understand the scope of cover, terms and conditions of the policy
PRINCIPLES OF INSURANCE
Insurable interest
Utmost good faith
Contract of indemnity
Contribution
Subrogation
Proximate Cause
Multiple Salary Approach
This approach has the goal of replacing the annual salary stream of a bread winner for a certain number of years, or until the children are raised and the spouse is financially stable and retired.
Takaful Products
Family Products
General Products