WEEK/TERM: THIRD TERM/WEEK 2
CLASS: JSS 2
SUBJECT: Business Studies
REFERENCE: Spectrum Business Studies for Jss 2
Business involves risk taking. The business premises can be destroyed by fire. Goods in warehouse can be destroyed by flood or fire. Vehicles can be involved in accidents resulting in damages to the vehicles, and loss of life. All these are examples of some of the risks involved in running a business. Steps may be taken to guard against these risks. In spite of the steps taken, the risks will still be there. This is why insurance becomes necessary. Insurance is the transfer of risks of loss of life or property from one person to another.
Notes for the pupils:
MEANING OF INSURANCE
Insurance is the transfer of risks of loss of life or property from one person (called insured) to another person (called insurer), in return for fixed regular advance payments from the insured to the insurer. The payment made is called insurance premium and the insurer to whom the premium is paid is called insurance company.
PRINCIPLES ON WHICH INSURANCE CONTRACTS ARE BASED
Insurance contracts are based on five principles without which, the contract becomes invalid.
- Insurable Interest: This means that the insured must be the one to benefit financially from the insured property
- Utmost Good Faith: This principle states that a person who takes out an insurance policy must disclose all material facts that will enable the insurance company to assess the extent of risk involved and determine the premium to be charged.
- Indemnity: This is a principle whereby the insurance company undertakes to pay the insured for losses incurred as a result of the event.
- Subrogation: This principle applies where a third party is held responsible for the occurrence of the event on which the insurance company has made payment.
- Proximate Cause: According to this principle, the cause of the loss or damage must be closely connected with the risk insured against. Thus, losses due to age, ordinary wear and tear, etc. cannot be covered.
TYPES OF INSURANCE ARE LISTED BELOW FROM A TO G:
- Vehicle Insurance: There are two types of vehicle insurance. One of these is comprehensive insurance and the other, third party insurance. Comprehensive insurance covers all risks to which the vehicle may be exposed. While third party insurance protects against accidents caused to other roads users or other people’s property by the vehicle owner. The third party insurance policy is compulsory for every motor vehicle owner.
(b) Fire Insurance: This type of insurance is taken against fire outbreaks in the factories, warehouses where goods are stored etc.
(c) Burglary Insurance: This is taken against burglary. This type of insurance will enable the businessman to recover the value of the items burgled.
(d) Marine Insurance: This is a kind of insurance against risks involved when goods are carried by sea.
(e) Life Assurance: There are two types of life assurance policies. One of these is whole life assurance and the other, endowment assurance policy. Whole life assurance policy is taken by an individual to cover his lifetime. The sum assured is payable to his dependents only when he dies. While endowment assurance policy is a fixed term policy in which a lump sum is paid to the assured at the end of the fixed term or to his family if he dies before then.
(f) Pension Insurance: A pension fund is a type of insurance where an employee contributes part of his or her current income to an insurance company with the aim to build a fund for his or her retirement.
(g) Health Insurance: This is a type of insurance where the insured pays a certain rate (premium) each month to a health insurance company. In return, when the insured is sick, injured or have medical conditions, the insurance company pays the medical or surgical expenses.
- What is insurance?
- Name and explain three types of insurance.
- A fixed regular advance payment from the insured to the insurer is called………..
- Mention and explain five types of insurance.
- Differentiate between the insured and the insurer.