TERM: 2nd TERM
SUBJECT: BUSINESS STUDIES
CLASS: JSS 2
Insurance is a legal contract that protects people from the financial costs that result from loss of life, loss of health, lawsuits, or property damage. Insurance provides a means for individuals and societies to cope with some of the risks faced in everyday life. People purchase contracts of insurance, called policies, from a variety of insurance organizations.
Insurance makes up part of the broader financial services industry. Almost everyone living in modern, industrialized countries buys insurance. For instance, laws in most states require people who own a car to buy insurance before driving it on public roads. Lenders require anyone who finances the purchase of a home or car with borrowed money to insure that property. Business partners take out life insurance on each other to make sure the business will succeed even if one of the partners dies.
IMPORTANCE OF INSURANCE
Insurance benefits society by allowing individuals to share the risks faced by many people. But it also serves many other important economic and societal functions. Because insurance is available and affordable, banks can make loans with the assurance that the loan’s collateral (property that can be taken as payment if a loan goes unpaid) is covered against damage. This increased availability of credit helps people buy homes and cars. Insurance also provides the capital that communities need to quickly rebuild and recover economically from natural disasters, such as tornadoes or hurricanes.
Insurance itself has become a significant economic force in most industrialized countries. Employers buy insurance to cover their employees against work-related injuries and health problems. Businesses also insure their property, including technology used in production, against damage and theft. Because it makes business operations safer, insurance encourages businesses to make economic transactions, which benefits the economies of countries. In addition, millions of people work for insurance companies and related businesses.
TYPES OF INSURANCE POLICIES
VEHICLE INSURANCE:Automobile insurance protects against damage to a policyholder’s car and most liabilities that could arise from operating that car. Most U.S. states allow drivers to satisfy their financial responsibility for the costs of auto accidents by obtaining insurance in three categories of liability coverage: (1) for injury to any one person, (2) for injury to two or more people, and (3) for damage to another person’s property. An increasing number of states are requiring drivers to obtain auto insurance by law.
Fire Insurance, insurance obtained by owners of homes and commercial properties to provide reimbursement in case of losses resulting from fire. Such insurance is supplied in exchange for the payment of a premium.
Some business firms, however, are self-insurers; that is, they set aside funds to be used exclusively for indemnifying losses resulting from fire.
In fire insurance the premium rates are of two kinds: class rates and schedule rates. Dwellings are largely class rated; that is, they are grouped into fairly homogeneous categories according to the type of occupancy, type of construction, and type of community fire protection. A uniform rate is applied to all risks in the same category. Commercial and industrial properties, which vary greatly in respect to degree of hazard, are usually schedule rated. In schedule rating the individual physical characteristics of each risk are appraised according to a schedule of charges and credits. The elements considered in the rating include occupancy, construction, internal protection, community fire protection, and exposure from neighboring buildings.
BUGLARY INSURANCE: Residence burglary and outside theft insurance, offering the broadest coverage ever obtainable in this line, has proved very attractive in the past year. Its popularity is expected to continue despite an expected premium rate increase soon after the first of the year. The broad form money and securities policy also gained considerable favor and is serving a useful purpose.
Marine Insurance, insurance that generally applies to the risk associated with the transportation of goods.Over time, marine insurance has become a mixture of broad property coverages, divided between land risks (inland marine) and sea risks (ocean marine).
Inland marine insurance covers domestic risks associated with some element of transportation. It has been broadened to include perils incidental to transportation of property and now deals mostly with personal and commercial property of a mobile nature. Its most familiar form is the personal articles “floater,” which offers an opportunity to insure many valuables, such as jewellery, furs, silverware, and fine arts, in a single policy.
Ocean marine insurance is broken into three basic types: hull (involving loss or damage to the ship); cargo (involving loss or damage to cargoes); and protection and indemnity (involving liability of ship-owners to others).
Hull insurance affords protection to owners of all types of ships for loss or damage to their waterborne property. Typical perils insured against are stranding, sinking, fire, and collision. The hull policy offers an unusual coverage under its collision clause, which provides liability insurance for loss or damage to the other vessel involved in a collision, as well as to its cargo.
Cargo insurance is available for shippers of goods moving by sea or air in international trade. The terms of insurance can be specific (for example, loss or damage resulting from sinking or fire) or “all risk” and can be underwritten for a single transaction (special policy) or on an open-ended contract (open cargo policy) for the international trader. The open cargo policy is the most common form used and usually covers the cargo “warehouse to warehouse,” thus including exposure to those risks that are associated with land transportation as well.
When a ship is imperilled at sea because of fire, storm, or other danger, all efforts must be made to keep the ship afloat. Such efforts often cause damage to portions of the ship or cargo. To prevent inequity, each owner assumes a share of the property damaged or lost as a result of actions taken to save the ship. This method of apportioning losses is known as general averaging.
Life assurance:Life assurance, assumption by an insuring organization of the risk of death of a policyholder. Unlike loss in insurance on property, loss in life assurance is certain to occur and is total. The element of uncertainty is when death will occur. Mortality is subject to the laws of probability, however, and life-assurance premiums can be calculated from mortality tables, which indicate the average number of people in each age and gender group that will die each year. A person trained to make such calculations, known as an actuary, determines the amount of premiums to be collected yearly from each group in order for the principal (the premiums) and its earned interest to equal the benefits to be paid to the policyholders' beneficiaries. The principal payment required annually constitutes the net premium. A loading charge to cover company expenses and contingencies is added to the net premium, yielding the total, or gross premium, which the insured pays.
Types of life insurance: Life assurance may be classified in a variety of ways. A classification depending primarily on the manner in which the premium is collected comprises regular ordinary, debit, and group life insurance.
Regular ordinary insurance can be further classified into
Debit life insurance can be classified into debit ordinary and industrial. Life insurance may also be classified as participating and nonparticipating, depending on whether or not the policyholder shares in the savings or the profits of the insurer.
PENSION: It is a sum of money paid regularly to a person who no longer works because of age or a length of year of service. It is a regular payment made to a person on retirement for the remainder of his or her life. Such money is meant to sustain such an individual.
HEALTH: National health scheme insurance is a contributory health insurance scheme meant for providing medical attention to the contributors which include individual, employee and the government
BENEFITS OF INSURANCE:
Macmillan JSS 2 Business Studies by Awoyokun A.A et’al pg 37-43.
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