Unit 9 Insurance - 1/17/2012 Learning Outcomes Explain the...

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1/17/2012 1 Unit 9 Insurance Learning Outcomes Explain the risk management process and how insurance policies work Identify common features in life and general insurance policies, such as cover, wording, exclusions, limitations, premium, taxation, and claim requirements Assess a person’s needs of different insurance policies Estimate the value of cover required 2 Australian Average Expected Age of Death for Adults between 25-65 years old (ABS) 3 74.0 76.0 78.0 80.0 82.0 84.0 86.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Male Female Life Expectancy and Value of Future Income • Australia now second in life expectancy stakes http://www.theage.com.au/national/australia-now- second-in-life-expectancy-stakes-20080624- 2w6h.html • ABS Life Expectancy Statistics http://www.abs.gov.au/AUSSTATS/abs@.nsf/Det ailsPage/3302.02010?OpenDocument Risk Management Process • Identification of risks • Quantification of risks • Strategies for handling the risks — 1. Reduce or eliminate the risk 2. Provide financing to meet the consequence 3. Transfer: INSURANCE • Insurance company diversify the risk across the insured • Premium/cost/price relates to expected loss • Implement the program • Review the program 5 Sources of Risks • Life insurance – Premature death – Loss of income due to temporary sickness or injuries • Health insurance – Medical bills • General insurance – Properties such as homes, cars, boats etc
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1/17/2012 2 Life Insurance • Life insurance provides cover against the risks of premature death and disability. • Death and disability are not very predictable events. • Principal causes of death – Heart attack – Cancer – Accidents 7 Immediate Consequences of Death • Funeral and associated expenses • Final medical expenses • Mortgages • Other debts • Emergency funds • Taxes 8 Consequences of Death or Disability on Dependants It is necessary to establish: • Who would be affected by premature death or disability? • The degree of dependency will depend on the income/productivity lost. • Needs change over the life of an individual. The different stages of a person’s life and the needs that arise for their dependants at each of those stages must be considered. 9 How Much to Insure? • If the amount calculated is not adequate then it is the client’s family that will suffer the consequences • The sums produced can be high and may result in the client being inclined to dismiss the amount as being excessive 10 The Multiple Approach • To arrive at the multiple an investment interest rate at an achievable level is selected. • The rate is divided by 100 and rounded up. – If 7 per cent was seen to be a reasonable rate then
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This note was uploaded on 01/25/2012 for the course FINS 5510 taught by Professor Kingsleyfong during the Three '11 term at University of New South Wales.

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Unit 9 Insurance - 1/17/2012 Learning Outcomes Explain the...

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