Investment – Insurance Business Studies Grade 12 Study Notes

Investment – Insurance Grade 12 Business Studies Study Notes, Examination Guide Scope, Lessons, Activities and Questions and Answers for Business Studies Grade 12. Learners will be able to learn, as well as practicing answering common exam questions through interactive content, including questions and answers

Topics under Investment – Insurance

• Compulsory Insurance
• Road Accident Fund (RAF)
• Unemployment Insurance Fund (UIF)
• Non-compulsory Insurance
• Assurance
• Retirement Annuities
• Comparing Insurance and Assurance
• Under-Insurance and over-insurance
• Importance of Insurance to Businesses
• Principles of Insurance

Term 3: Investment – Insurance

Insurance plays a critical role in mitigating risks and safeguarding businesses from potential losses. Let’s summarise the differences between insurance and assurance, insurable and non-insurable risks, the advantages and principles of insurance, insurance concepts, compulsory and non-compulsory insurance, and types of benefits paid out by the Unemployment Insurance Fund (UIF).

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Insurance vs. Assurance

Insurance and assurance are often confused, but they serve different purposes.

• Insurance protects against unforeseen events, such as accidents or natural disasters, and offers financial compensation in case of loss. Examples include property insurance, health insurance, and car insurance.
• Assurance is designed to provide financial support upon the occurrence of a certain event, such as death or retirement. Examples include life assurance and pension plans.

Insurable and Non-insurable Risks

Insurable risks are those that can be covered by an insurance policy, such as property damage, theft, or personal injury. Non-insurable risks are risks that cannot be covered by insurance, often due to their unpredictability or the lack of data to calculate premiums.

Examples include changes in market demand, fluctuations in exchange rates, and damage caused by war or nuclear accidents.

Advantages of Insurance for Businesses

Insurance offers several advantages for businesses, including:

1. Financial protection: Insurance compensates businesses for losses, helping them recover from unforeseen events.
2. Risk management: Insurance helps businesses manage risks by transferring them to insurance companies.
3. Legal compliance: Insurance can be a legal requirement for businesses, ensuring compliance with laws and regulations.
4. Business continuity: Insurance enables businesses to continue operating despite setbacks or losses.

Principles of Insurance for Businesses

The principles of insurance for businesses include:

1. Utmost good faith: Both parties, the insurer and the insured, must act in good faith, disclosing all relevant information.
2. Indemnity: Insurance aims to restore the insured to their financial position before the loss occurred.
3. Insurable interest: The insured must have a financial interest in the insured item or event.
4. Proximate cause: Compensation is only provided for losses directly caused by the insured risk.

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Insurance Concepts

Some essential insurance concepts include:

1. Underinsurance: When the insured value is less than the actual value of the item, resulting in partial compensation.
2. Overinsurance: When the insured value is more than the actual value of the item, potentially leading to moral hazards.
3. Average clause: A clause that reduces the claim amount if the insured item is underinsured.
4. Reinstatement: Restoring the insured item to its pre-loss condition.
5. Excess: The amount the insured must pay before the insurer covers the remaining claim.

Compulsory and Non-compulsory Insurance

Compulsory insurance is legally required for businesses, such as Unemployment Insurance Fund (UIF), Road Accident Fund (RAF), and Compensation for Occupational Injuries and Diseases Act (COIDA) insurance.

Non-compulsory insurance is optional and includes property insurance, liability insurance, and business interruption insurance.

Types of Compulsory Insurance

Compulsory insurance for businesses includes:

1. UIF: Provides financial assistance to workers who become unemployed or are unable to work due to illness or maternity leave.
2. RAF: Compensates victims of road accidents caused by negligent drivers.
3. COIDA: Provides compensation for employees who suffer occupational injuries or diseases.

UIF Benefits

The UIF provides various benefits, including:

1. Unemployment benefits: Financial support for workers who have become unemployed.
2. Illness benefits: Compensation for workers unable to work due to illness.
3. Maternity benefits: Financial assistance for workers on maternity leave.