Business Studies Grade 12 - Chapter 10: Investment: Insurance

Flashcards covering definitions and concepts of investment insurance, comparing compulsory and non-compulsory types, and explaining insurance principles and calculations like the average clause.

Insurance

A contract between a person, business, or the insured requiring insurance cover and the insurance company or insurer bearing the financial risk.

Insurance Contract

An agreement whereby the insurer undertakes to indemnify the insured in the event of a specified loss in exchange for a premium.

Compulsory Insurance

Insurance required by law, such as the Unemployment Insurance Fund (UIF).

Non-compulsory Insurance

Optional insurance against specified losses that may or may not occur, where the decision to insure lies solely with the business or individual.

Under-insurance

This occurs when an individual or business insures assets for an amount that is less than the market value of the assets.

Over-insurance

This occurs when an individual or business insures assets for an amount that is more than the market value of the assets.

Market Value

The amount of money at which an asset or possession can be sold.

Insured Value

The amount of money agreed to by the insured and insurer to insure assets or the life of a person when the contract is signed.

Book Value

The purchase price of an asset, less depreciation.

Premium

The payment made by the insured to the insurer to be covered in the event of losses or damages.

Average Clause

A stipulation applicable when property is under-insured; the insurer pays for losses in proportion to the insured value using the formula: $\frac{\text{Amount insured}}{\text{Market value}} \times \text{Amount of damages/loss}$.

Reinstatement

A stipulation whereby the insurer may replace lost or damaged property instead of reimbursing the insured with cash; typically applies when assets are over-insured.

Excess

A portion of the insurance claim that the insured must pay towards the cost of replacing or repairing goods; it discourages fraudulent or minor claims.

Assurance

Based on the principle of security/certainty, it applies to long-term insurance where the insurer undertakes to pay an agreed sum of money after a certain period or upon death.

Indemnification/Indemnity

A principle of short-term insurance where the insurer agrees to compensate the insured for proven harm or loss to place them in the same financial position as before the occurrence.

Security/Certainty

A principle of long-term insurance where a predetermined amount is paid out when the insured reaches a specific age or a predetermined event occurs.

Utmost Good Faith

The requirement that both the insurer and the insured must be honest and disclose all relevant facts that may affect the extent of the risk.

Insurable Interest

The requirement that the insured must prove they will suffer a financial loss if the insured object is damaged, lost, or ceases to exist.

Insurable Risks

Risks that insurance companies are willing to cover because they can decide on the likelihood of the event occurring.

Non-insurable Risks

Risks that insurance companies do not cover because the risks are too high or the profitability cannot be calculated (e.g., nuclear war or changes in fashion).

Unemployment Insurance Fund (UIF)

A compulsory fund established to provide short-term financial aid to workers who become unemployed or are unable to work due to illness, maternity, or adoption.

UIF Contribution Rates

The employer pays a levy of $2\%$ of the employee's salary to SARS, consisting of $1\%$ contributed by the employee and $1\%$ contributed by the business.

Road Accident Fund (RAF)

A compulsory insurance funded by a levy on fuel that compensates road users injured in accidents caused by the negligence of others.

Compensation for Occupational Injuries and Diseases (COIDA)

A compulsory fund that compensates workers for disability, injuries, or diseases sustained while performing duties in the workplace.