Certificate in Financial Studies – Unit 1 (FCIS)

Topic 10 – Dealing with Unexpected Events – 100% Sheet

Insurance Policies Premiums Providing full information Claims

Insurance policies are financial products The price of an insurance policy is called Insurers use the information provided by If any of the events covered by the
designed to protect people from the the premium. The premium is based on: people on their application forms to set insurance policy occur, the policyholder
financial losses associated with how likely an event is to occur; the premium for the insurance policy. It can make a claim to the insurance
unexpected events. These are the 4 main the amount of money needed to put is therefore very important that this company. The insurer’s claims
types of insurance: things right if the event happens (to information is accurate. If someone department will assess the details of the
replace a bicycle that has been stolen, enters misleading information on an claim to determine whether or not the
1) General Insurance for instance), known as the sum insured; application form the insurance policy will policyholder is covered and how much
the length of time that the policy will be be void and the insurer will refuse any the insurer will pay.
Includes motor, buildings, home contents, in force, known as the term; claims made on it. For example, Miranda
travel, and pet policies. the amount of money the policyholder has bought travel insurance to cover her Motor Insurance
will pay towards repairs or replacement, holiday to the USA. When she completed
2) Life Cover known as the voluntary excess; and the application form she did not disclose The Road Traffic Act 1988 makes it
how the premium is paid – that is, as one that she has epilepsy. If she suffers a compulsory for people who drive to have
Designed to protect other people from the at least third-party motor insurance. If
financial consequences of someone’s payment or in monthly instalments. seizure while on her holiday, her
Insurance companies work out the risk of insurance policy will not cover her the driver causes injury to another
death. person (a ‘third party’), or damages their
an event happening based on statistics, medical expenses because her epilepsy
for example how likely it is that a is a pre-existing condition that the car and other property in an accident,
3) Health Insurance particular car driver will have a car insurance company needed to know third-party insurance
Used to protect people against the accident. To calculate the risk, insurance about before it accepted her risk. covers that person. It does not cover
financial loss of being too unwell to work or companies require detailed information In April 2013 the Consumer Insurance injury to the driver or damage to their
being diagnosed with a critical illness. from the person applying to buy the (Disclosure and Representations) Act car. People who are caught driving
insurance. People who have insurance 2012 came into force. without insurance cover can be fined
build up a no claims discount for each £200 and given six penalty points on
4) Pension Policies their driving licence. If the case goes to
year they do not make a claim. For Policy Documents
Enable people to save for their retirement. court they can be fined up to an
example a one-year no claims discount
on a motor policy can range When people have paid the insurance additional £5,000 and disqualified from
Key Features of Insurance between 27% and 57.5% depending on premium they receive a policy document driving. The police can also remove
the insurance company. The higher the and a certificate of insurance. The policy and, in some cases, destroy their car.
Insurance policies offer protection against
number of years that someone has not document details what is covered by the
the financial consequences of events that
made a claim, the higher the no claims insurance policy and the terms and Types of Motor Insurance
might occur, for example, fire, theft or
discount will be and so the lower the conditions for policyholders making a
accident. Insurance is a financial product third-party, fire and theft; or
premium charged. Insurers typically offer claim. It is very important that
that is provided by specialist companies comprehensive motor insurance.
a maximum no claims discount on motor policyholders check that the insurance
called insurers and is covered by the Third-party motor insurance usually
policies of between 60% and 70% for they have bought:
Financial Ombudsman Service. Drivers are covers the cost of:
four or more years of no claims, although covers the events the policyholder wants
legally required to take out motor injuries to other people, including
some insurers offer a 90% discount for to insure against; and
insurance; people buy other forms of passengers (for example, their medical
five years or more of no claims. will pay sufficient compensation if the
insurance if they think the risk of costs);
event occurs.
something happening makes it damage to other people’s property;
The ‘sum insured’ is either a set amount
worthwhile paying the cost of the accidents caused by passengers; and
of money or is described as ‘new for old’
protection. damage caused by a caravan or trailer
(the insurer will pay for a new item) or
replacement cost (the insurer will pay while attached to the car.
the value of an item with similar wear
and tear).
Pay-as-you-go insurance
Types of Motor Insurance - Continued People who do not drive very often can Pet Insurance
reduce the costs of insurance by
 Certificate in Financial Studies – Unit 1 (FCIS)

Topic 10 – Dealing with Unexpected Events – 100% Sheet

Third-party, fire and theft motor choosing a pay-as-you-go policy. The This covers the cost of vet bills in case a Borrowing
insurance usually covers the cost of: insurer fits a telematic GPS tracking pet needs treatment.
Sometimes people find that they have to
all the third-party items listed above; and device, sometimes called a ‘black box’,
pay an unexpected expense but are not
repairs to or replacement of the driver’s to the car. This device records the Travel Insurance covered by insurance, they cannot afford
car if it is damaged or destroyed in a fire number of miles driven and driving
This covers people for the costs of the costs by changing their budget and
or is stolen. habits in terms of speed, the type of
medical treatment when on holiday, and they do not have enough in savings to
Comprehensive motor insurance road the car is travelling on, the time at
the cost of replacing luggage or pay for it. At this point people will
usually covers: which the journey is made, and how the
belongings that are lost, stolen or consider whether or not to borrow. This
all third-party and fire and theft items driver is braking and cornering. This
damaged. These policies often cover the decision should be based on how much
listed above; information is transmitted to the insurer
costs of delays to a journey, too, for money they need and how much they
accidental damage to the driver’s car; via satellite. The insurer uses the
example the cost of having to stay in a can afford to repay. Budgets are a key
a personal accident benefit: a sum of information to charge a per-mile cost
hotel for extra nights. tool in identifying a realistic repayment
money paid on the death of the driver or which is based on how safely the driver
that someone can afford to pay every
for specific types of permanent is driving, when they drive and how long
month.
disablement that the driver (and their journeys are.
sometimes their spouse or family member) Mobile Phone Insurance
sustains in an accident; This covers loss or damage to mobile Benefits
Fronting
medical expenses related to an accident, phones. People need to be careful not to The government can help with
up to a stated limit; and Fronting means having an older or more overinsure their mobile phone as it may unexpected events that mean people are
loss of or damage to personal possessions experienced driver – usually a parent – already be covered under their home unable to afford their living expenses.
in the car, up to a stated limit. claim they're the main user of the car contents policy.
that's mostly driven by a young person,
or other high-risk motorist, to reduce the Dealing with unexpected income
Considerations when choosing motor
cost of car insurance Revising Budgets
insurance 1) Emergency Fund
When choosing which motor insurance Another way in which people can deal
Buildings and Home Contents People can use the extra income to
product to buy, motorists need to consider: with unexpected expenses is to pay make sure they have savings they can
what they can afford; Buildings insurance covers the cost of them from current income by revising access instantly in an emergency.
how much it would cost to make repairs to repairing or rebuilding a property if it is their budget. This will not always be an
or replace their car; and damaged or destroyed, for example in a option; it depends on the scale of the 2) Repaying Debt
whether or not their personal possessions fire or by subsidence. Policyholders may unexpected expense compared Once the emergency fund is in place,
are covered by another insurance be able to add accidental damage for an with the allowance for discretionary people should consider repaying
policy. The terms and conditions of policies extra premium, to cover risks such as a expenditure in the budget. outstanding debt, starting with their
vary, so it is important that people read car hitting the property. If people are most expensive borrowing.
the details of what is covered before renting a property, the buildings Saving
choosing a specific insurance product. 3) Saving
insurance will be paid for by the
Some premiums are quoted with standard People can also prepare for unexpected Once debt has been repaid, people can
landlord. People who own a property or
‘extra’ services, such as cover for legal expenses by saving in an instant access consider saving, for example by using
are buying it will need enough buildings
costs, for example. Comprehensive motor account such as an ISA. The Money their cash ISA allowance for the year.
insurance to cover the cost of rebuilding
cover tends to be more expensive than Advice Service suggests having enough
the property if necessary. Spending
thirdparty, fire and theft. Different in emergency funds to pay mandatory
providers have different pricing structures. and essential expenses for three months When people have repaid expensive
(MAS, no date). debt and saved some of their
unexpected
income, they may decide to spend on
assets that will lower their living costs.