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IGCSE COMMERCE Chapter 7.1 PDF

This document discusses key concepts in insurance. It defines insurance as an arrangement where a company guarantees compensation for specified losses in exchange for premium payments. It lists common types of insurance like life, health, property, and vehicle insurance. The purposes of insurance are risk reduction, compensation, financial protection, and business confidence. Key principles of insurance include insurable interest, utmost good faith, indemnity, contribution, and subrogation. The document also defines insurable risk, over-insurance, and under-insurance.

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Tahmid Raihan
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287 views

IGCSE COMMERCE Chapter 7.1 PDF

This document discusses key concepts in insurance. It defines insurance as an arrangement where a company guarantees compensation for specified losses in exchange for premium payments. It lists common types of insurance like life, health, property, and vehicle insurance. The purposes of insurance are risk reduction, compensation, financial protection, and business confidence. Key principles of insurance include insurable interest, utmost good faith, indemnity, contribution, and subrogation. The document also defines insurable risk, over-insurance, and under-insurance.

Uploaded by

Tahmid Raihan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 7.

CHAPTER 7.1
INSURANCE

LECTURER: N. NEWAZ KARIM. ACCA AFFILIATE


Chapter 7.1

WHAT IS INSURANCE?

Insurance is an arrangement by which a company or the state undertakes to provide a guarantee of


compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

TYPES OF INSURANCE?

- Life insurance
- Health insurance
- Travel insurance
- Property insurance
- Vehicle insurance
- Marine insurance
- Fire insurance
- Theft
- Credit Insurance, etc.

PURPOSES OF INSURANCE?

1. Risk reduction
2. Compensation
3. Financial protection
4. Business confidence
5. Investment

PRINCIPLES OR DOCTRINES OF INSURANCE?

1. Insurable Interest: One cannot insure someone else’s property. Which means one can only insure
those things in which he/she has ownership of.

2. Utmost good faith: It means that the person who is seeking insurance will disclose all relevant facts
relating to the thing being insured truthfully when filling out the proposal form. Failure to provide
truthful information will make the insurance policy void. This is applicable in all insurance contracts.

3. Indemnity: This means a person is restored to the former position that he/she was in before the loss
incurred. This applies to all the insurance contracts except for LIFE INSURANCE. It won’t be possible
to restore life!

4. Contribution: This applies where a person has insured identical risks on the same property
proportionately with several insurance companies. The amount of loss is shared between the
insurance companies. This is known as the 1st Corollary.

LECTURER: N. NEWAZ KARIM. ACCA AFFILIATE


Chapter 7.1
5. Subrogation: This means that when the insurance company has paid out the claims, it subrogates or
steps into the place of the insured and inherits all his rights and remedies against third parties. This
is known as the 2nd Corollary.

THE DOCTRINE OF PROXIMATE CAUSE

This applies to all insurance contracts. This means that the insured will only be compensated if his loss
was caused directly by the risk he has insured against. If the loss was caused by any risk not covered in
the policy, then no claim can be made.

THE NATURE OF INSURANCE

Insurance is a pooling of risk which enables individuals or businesses to share risk. There are many risks
in the businesses which might result in severe losses. Those who wish to insure against the loss, must
pay a charge (premium) to the insurance company.

Therefore, any loss will be compensated by the insurance company. The amount of compensation will
be just enough to indemnify or restore the insured to the former position he was in immediately before
the loss.

WHAT IS INSURABLE RISK?

This is the risk whose chances of occurring can mathematically or statistically calculated using data.Eg.
Car accidents, theft.

Non-insurable risk is the one which cannot be calculated. Eg. Earthquake, War

WHAT IS OVER-INSURANCE?

This happens when a person insures his property with a value more than the actual worth is known as
over-insurance.

WHAT IS UNDER-INSURANCE?

This happens when a person insures his property with a value less than the actual worth is known as
under-insurance.

THANK YOU!

LECTURER: N. NEWAZ KARIM. ACCA AFFILIATE


Chapter 7.1

QUESTION PRACTICE

1. Define the Doctrine of Proximate Cause


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2. Define the nature of Insurance?

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3. Define insurable risk


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4. What is utmost good faith in insurance?


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LECTURER: N. NEWAZ KARIM. ACCA AFFILIATE

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