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CHAPTER 5 (RISK MANAGEMENT AND LIFE INSURANCE) - Coggle Diagram
CHAPTER 5 (RISK MANAGEMENT AND LIFE INSURANCE)
INTRODUCTION: WHAT IS INSURANCE?
Insurance is protection against possible financial loss, it gives you peace of mind
An insurance company, or insurer, is a risk-sharing firm that assumes financial responsibility for losses from an insured risk
CONCEPT OF INSURANCE
RISK TRANSFER
the insured shifts the financial burden of potential loss such as accident, illness, 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 large losses with predictable smaller expenses (premiums)
TYPE OF RISK:
RISK - uncertainty or lack of predictability, such as the loss that a person or property covered by insurance faces
PERIL - 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 wiringNCEV
PURE RISK - only loss is possible, insurable such as accidents, illness
SPECULATIVE RISK - an result in gain or loss, not insurable like gambling, business venture
RISK MANAGEMENT METHODS
REDUCTION - lower the chance or impact such as seat belts, alarms, healthy lifestyle
ASSUMPTION - accept risk and cover it yourself (self-insurance)
AVOIDANCE - eliminate the risk like don't smoke or don't drive
:SHIFTING - transfer the risk to an insurer by paying a premium and deductible
EXAMPLE OF RISK AND RISK MANAGEMENT STRATEGIES
PLANNING AN INSURANCE PROGRAM
STEP 2: develop a plan to reach your goals
STEP 3: put your plan into action
STEP 1: set insurance goals
STEP 4: check your results
PRINCIPLES OF INSURANCE
INDEMNITY
restores you to the same financial position before the loss
CONTRIBUTION
if multiple insures, they share the payout
UTMOST GOOD FAITH
must disclose all important information honestly
SUBROGATION
insurer can claim back losses from third party responsible
INSURABLE INTERNET
must have financial interest in what is insured
PROXIMATE CAUSE
the nearest cause of loss is considered for claim
LIFE INSURANCE
PURPOSE - provides protection and financial support for family after death
FAMILY MAINTENANCE FUND - ensures dependents maintain their lifestyle
APPROACHES
MULTIPLE SALARY - coverage = 5-15 times annual income
NEEDS APPROACH - covers funeral, debts, childcare, education, emergency funds
BASIC TYPES OF LIFE INSURANCE POLICY
TERM INSURANCE - Covers fixed time (5-30 years), cheaper but temporary
WHOLE LIFE INSURANCE - Covers entire life, more expensive but guaranteed
ANNUITY / PENSION PLAN - Provides steady income during retirement
ENDOWMENT PLAN - Insurance + savings, lump sum at maturity
GENERAL INSURANCE
MEDICAL & HEALTH INSURANCE
Medical card allows private hospital treatment
Exclusions: pre-existing conditions, waiting period
Covers hospital bills, surgery, critical illness, disability
PERSONAL ACCIDENT INSURANCE
Exclusions: war, suicide, extreme sports
Covers accidental death, disability, hospital expenses
PROPERTY INSURANCE (FIRE, HOUSE, OWNER, HOUSEHOLDER)
Exclusions: landslip, riot (can buy add-ons)
Protects against fire, theft, disasters
MOTOR INSURANCE
Third Party, Fire & Theft: adds own car protection for fire/theft
Third Party: protects others but not own car
Comprehensive: widest cover including own car damage
Act Cover: minimum legal cover
TRAVEL INSURANCE
Cover death, disability, lost luggage, medical emergencies, hijacking
Exclusions: war, AIDS, hazardous sports, miscarriage
REASONS FOR HAVING LIFE INSURANCE
to finance children's education
income tax relief
to have a saving plan for the future
TAKAFUL (Islamic Insurance)
FREE FROM: Riba (interest), Gharar (uncertainty), Maysir (gambling)
BENEFITS: Provides peace of mind, protects heirs, settles outstanding loans
HOW IT WORKS: Participants donate (tabarru') into a pool to help each other
DIFFERENCE FROM CONVENTIONAL
TAKAFUL - Risk sharingm Shairah-compliant investments
CONVENTIONAL - Risk transfer, may involve interest and uncertainty
CONCEPT: Based on Shariah law, cooperation, and mutual help
TAKAFUL VS CONVENTIONAL INSURANCE
TIPS FOR BUYING INSURANCE
Read and understand coverage, terms, and exclusions
Avoid unnecessary add-ons that increase cost
Compare prices and policies
Buy only from authorised agents
Choose a policy that suits your personal needs and goals
