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CHAPTER 5 RISK MANAGEMENT & LIFE INSURANCE - Coggle Diagram
CHAPTER 5
RISK MANAGEMENT & LIFE INSURANCE
Introduction to Insurance
Definition
Protection against possible financial loss
Peace of mind for the insured
How It Works?
Policyholder pays premium
Insurer shares risk and pays for covered losses
Types of Risk
Peril – cause of loss (fire, theft, accident)
Hazard – increases chance of loss (defective wiring)
Pure Risk – only loss, no gain (death, illness) → insurable
Speculative Risk – loss or gain (gambling, business) → not insurable
Categories – personal, property, liability
Risk Management
Definition
Organised plan to protect assets & people
Methods
Risk Avoidance
Risk Reduction (seat belt, smoke alarm)
Risk Assumption (self-insurance)
Risk Shifting (transfer to insurer, pay deductible)
Insurance Program Steps
Set goals (cover main risks)
Plan (choose products, resources)
Take action (buy, budget)
Review (every 2–3 years)
Principles of Insurance
Utmost Good Faith – disclose all facts
Contract of Indemnity – restore to pre-loss position
Contribution – share loss with other insurers
Subrogation – insurer recovers from third party
Proximate Cause – nearest cause determines liability
Insurable Interest – financial stake in item
Life Insurance Planning
Family Maintenance Fund - maintain lifestyle for dependents
Multiple Salary Approach – 5–15× annual income
Needs Approach – cover debts, funeral, mortgage, education
Types of Insurance Cover
Life Insurance – lump sum to beneficiaries at death
General Insurance – non-life (property, motor, travel, etc.)
Life Insurance Policies
Term Insurance – covers fixed years, cheaper, no payout after term
Whole Life – lifetime cover, fixed premium, cash value
Endowment Plan – mix of savings + cover, lump sum at maturity
Annuity / Pension – pay insurer, receive regular retirement income
Basic Life Insurance Policy
Team Insurance
Covers fixed years, cheaper, no payout after term ends
Whole Life
covers lifetime, fixed premium, has cash value
Endowment Plan
mix of savings + cover, lump sum at maturity
Annuity / Pension
Pay insurer, receive regular income at retirement
Medical & Health Insurance
Cover private medical treatment, hospital bills
Main policies
Hospitalization, surgical, critical illness, disability, hospital income
Exclusions
Pre-existing illness, waiting period, certain conditions
Medical Card
More choices of hospitals & quicker admission
Property Insurance
Fire policy
Building & contents, fire & lightning
(can add perils)
House Owner Policy
Full building cover, must insure for rebuild value
House Holder Policy
contents & personal items, injury cover
Motor Insurance ( Mandatory in Malaysia)
Act cover
minimum legal liability
Third party
injury & damage to others
Third Party, Fire & theft
damage to own car by fire/theft
Comprehensive
widest cover, includes own car accidents
Travel Insurance
Covers accident, disability, death during travel
Loss of luggage, passport, trip cancellation, medical bills, repatriation
Esclusions
war, suicide, childbirth, risky sports, quarantine seizures
Takaful (Islamic Insurance)
Based on mutual help & Shariah law
Tabarru’
participants contribute to common pool
Risk sharing, no riba (interest), no gharar (uncertainty), no maisir (gambling)
Participants may share in profit/surplus
Takaful vs Conventional
Takaful
cooperative, Shariah compliant, risk shared
Conventional
commercial, risk transferred, may involve riba/uncertainty
Malaysian Fatwa: conventional life insurance is haram
. Buying Insurance
Tips
Understand terms, avoid unnecessary add-ons
Use authorised agent & licensed company
Compare rates & benefits
Ensure policy fits personal needs