Insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.
An insurer is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy.
The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate (indemnify the insured in the case of a financial (personal) loss).
The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.
This puts protection at the top of the PRISM priority order of needs. It is the number one priority for every individual and family to protect themselves against death, accident, sickness or disability.
Life cover pays out on the death of the insured person and there are various types of life cover, including term cover and whole of life.
- The sum assured is guaranteed throughout the term selected.
- It is normally the cheapest and simplest type of life assurance.
Flexible or Whole of Life Plans:
- The original sum assured can be maintained throughout life.
- The premiums and the sum assured can be varied to suit the requirements of the policyholder.
- Most plans offer guaranteed increase options annually and for specific events e.g. the birth of a child.
- There may be a cash value on surrender.
- For terms of 10 years or less, these plans can be cheaper than term assurance over the same period.
Income protection policies are designed to provide a monthly benefit to replace earnings lost as a result of long term accident, sickness or disability. There is a choice of deferred benefit periods of 4, 8, 13, 26, and 52 weeks, which means that the benefits will not be paid until the end of this period (waiting period). The choice of deferred period depends on whether you will receive sickness benefit from your employer, state benefits &/or benefits from any existing policies and whether you have savings as a means of paying for your bills over a short term period. The benefit can be level or increasing and the plan can run until retirement.
There is a maximum benefit provided by an income protection policy, and this is normally 75% of your earnings less State benefits which are assumed to be approximately £5,000 a year. The actual maximum benefit available depends on the provider’s terms and conditions however most providers adopt the same maximum benefit calculation.
Critical illness provides a lump sum payment if you are diagnosed with and survive (usually for 28 days) one of a number of serious illnesses covered by the policy.
These illnesses include:
- most malignant types of cancer
- heart attack
- kidney failure
- multiple sclerosis
- major organ transplant
This type of plan can be useful to complement income replacement schemes, because, as long as you meet the conditions for a claim, it can provide a lump sum which can be used to repay all or part of your mortgage for example.
private medical insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals.
By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement.
The benefit is administered by a central organization such as a government agency, private business, or not-for-profit entity.
General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance. It is called property and casualty insurance in the U.S. and Non-Life Insurance in Continental Europe.
In the UK, General insurance is broadly divided into three areas: personal lines, commercial lines and London market .
The London market insures large commercial risks such as supermarkets, football players and other very specific risks. It consists of a number of insurers, reinsurers, [P&I Clubs], brokers and other companies that are typically physically located in the City of London. The Lloyd’s of London is a big participant in this market.
The London Market also participates in personal lines and commercial lines, domestic and foreign, through reinsurance.
Commercial lines products are usually designed for relatively small legal entities. These would include workers’ comp (employers liability), public liability, product liability, commercial fleet and other general insurance products sold in a relatively standard fashion to many organisations. There are many companies that supply comprehensive commercial insurance packages for a wide range of different industries, including shops, restaurants and hotels.
Personal lines products are designed to be sold in large quantities. This would include autos (private car), homeowners (household), pet insurance, creditor insurance and others.
Financial Relationships do not provide direct advice in this area but are happy to arrange a call from one of our partner firms if required.