Image credit moneychoice.org

Image credit moneychoice.org

ZIMSEC O Level Commerce Notes: Insurance: Introduction,basic concepts and importance of insurance

  • Insurance is the pooling of risks.
  • 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.

Importance of insurance

  • It covers against a financial loss which may or may not happen resulting from an insurable risk such as theft, fire or an accident.

Basic concepts in insurance

Pooling of risks

  • Many people join an insurance company and
  • pay premiums into a a common pool or fund.
  • At regular intervals.
  • When a loss occurs to one of these people:
  • the insurer takes money from the pool of premiums and
  • uses this money to compensate the unfortunate member leaving the profit for the insurer.
  • The remainder of the pool is invested.
  • The burden of the loss is thus shared amongst the members.

InsurableĀ risks.

  • Have past consistent records e.g. fire, theft or accidents.
  • Can be assessed.
  • And the probabilities of these events occurring is calculated.
  • A fair premium is fixed.
  • To cover claims that may arise.
  • And earn profit for the insurer.

Non insurable risks

  • These have inconsistent records e.g. bad management and losses occurring due to the outbreak of war.
  • Cannot be assessed accurately.
  • Their probabilities cannot be calculated.
  • A fair premium for these cannot be calculated.
  • They cannot thus be insured.

Premium

  • Payment is made by the insured to the insurer.
  • In return for an insurance cover.
  • Determined by the type of risk e.g.
  • the greater the risk the higher the premiums.
  • Based on past records.
  • Determined by the number of people insuring against a certain risk i.e. the lower the number of people insuring against that risk the less the premium.
  • Determined by the value of the property.
  • Determined by the probability of the loss occurring or size of the risk involved.
  • Determined by the profits made by the insurer.

Actuaries

  • Collect statistics of risks.
  • Analyse these statistics .
  • Assesses risks.
  • Calculate probabilities of risks.
  • Fix fair premium to be paid.

To access more topics go to the Commerce Notes page.


Quick NetOne, Telecel, Africom, And Econet Airtime Recharge

If anything goes wrong, click here to enter your query.