Taking an Insurance Cover - Assignment Example

Insurance and Risk Planning Name Institution Date PART A Question 1 Property expenses Property expenses include; mortgage payments 28,700, rates 2,000 and car running expenses 3,000 and these expenses are likely to expose Michael and Mary to potential losses such as although the properties may appreciate in value such as the car and the house the value of the appreciation is not tangible and cannot contribute to the expenses being incurred by the couple and their children. Other property losses may arise from damages to the property the couple owns. These damages may be as a result of natural catastrophes such as earthquakes, hurricanes, floods and volcano eruptions among others (Vaughan, 1997). Damages as a result of human mistakes may include fires, electrical mishaps, lack of knowledge in handling the property, lack of proper expertise by the contractors of the property such as the house and accidents among others. The couple is also exposed to potential personal losses which are subject to the personal expenses they incur such as household expenses, utilities expenses and annual holiday expenses. Liability losses are losses that the couple or their business may face if a third party is injured within the boundaries of their properties. It helps the couple or their business in case of negligence on their part either to a member of the public, an employee, the owners or their children among others. Liability losses occur when a member of the public has been harmed within the premises of the couple, if the couple as the administrators of the business makes any errors that may make the business incur any extra costs and if the couple is affected by pollutants that have been released into the atmosphere among others. Question 2 If any one of the couple were to die we have been told the living expenses for the family of Mary and Michael would reduce by 25% however, if the situation is an accident of Michael the living expenses will increase by $20,000 per annum and also given that Michael is practically the family’s bread winner although Mary is also a partner he does most of the work at their organic health food store. Michael’s accident will increase the family’s personal exposure because Mary will have to suffer an extra burden of taking care of her husband alongside her two children. The extra expenses may force the family to cut down on their usual expenses as well as the lifestyle they are accustomed to be able to accommodate the extra medical and special care expenses (Schindler, 1994). Question 3 Michael and Mary have options that could help them counter the personal risk exposures they have been subjected to and these include taking insurance covers and also setting money aside in their bank accounts also known as money for precautionary transactions among others. These precautionary expenses may be as a result of accidents in the family and death among others. Insurance Insurance refers to the process of transferring the possibility of a loss from one party, an insurance company (insurer) to another party (the insured). Taking an insurance cover is the best option to counter risks of personal loss exposure. These personal loss exposures may include; premature death of a couple in a family, accidents or long term or terminal illnesses and extra medical expenses among others. Benefits of taking an Insurance Cover The insurance that one has signed a contract with will assume the responsibilities of all or part of the losses or risks that are in the contract although for a premium. Insurance can also be a savings scheme for the insured party. This occurs when the insured party deposits specific amounts of money for a specific period of time and can withdraw the amount after it has matured with an interest therefore the money saved can help the insured party during rainy days such as loss of employment among others (Barron’s Insurance Dictionary, 2014). Question 4 There are a number of insurance products that can be used to help Mary and Michael deal with risk exposure and these include; vehicle or auto insurance, health insurance, accident covers, unemployment cover, casualty cover, life insurance, burial insurance, property insurance, credit insurance, travel insurance and tuition insurance among others. An auto insurance cover or a vehicle insurance cover is important to Mary and Michael because they own a vehicle and the insurance cover will help the couple against any financial losses or in the event of any unfortunate incidences such as road accidents that could result in injuries or even loss of the vehicle through theft (Schindler, 1994). A medical cover will help the couple to cover medical costs such as dental treatments among other ailments. A disability cover will offer financial assistance to the couple especially Michael in the event of an accident in their store that could lead to a disabling injury o if any of the couple suffers a disease that could result in a disability. A casualty cover protects the family from any injuries sustained within their properties that is at home or at the work place. Life insurance will be helpful to the family after the passing of one or both of the couple because the cover will provide financial compensation to the remaining members of the family, the life cover may also cater for some or the entire funeral expenses of the insured party. A life insurance cover can also serve as a saving program for the insured. A burial insurance will help the family cater for funeral expenses in the event of the death of a loved one. The family owns properties and therefore a property cover will offer protection against risks of fire, theft or burglary and natural calamities among others. Also having properties may incline the couple to take a liability cover in the event of harm inflicted on third parties on their premises or harm coming to others because of their mistakes or negligence. Other insurance products that may be relevant to the couple may be tuition cover and also travel insurance. The family seems to be fond of taking annual vacations and therefore travel insurance will protect them against losses they may incur in foreign regions such as medical expenses or loss of their personal belongings after being stolen from them among others. A tuition cover will ensure that in the event of loss of income both of their children will be able to continue with their education, it also allows the couple to take their children to expensive schools with no fear of withdrawal of their children from these institutions (Brown, 1993). Question 5 The couple can counter the issue of paying high insurance premiums periodically by taking insurance covers for events that are sufficient to cover current costs and benefits as well as for their future. Therefore they should seek professional advice before taking any insurance cover. They should take covers and pay premiums for events (that is losses and expenses) that they are likely to face. PART B Question 1 The mandate to have people with pre existing medical conditions pay the same terms as those with no pre existing medical conditions will result in higher premiums because some pre existing medical conditions may be very expensive to care for and if the president demands that insurance companies charge lower premiums then patients with expensive medical conditions will not receive proper care. Therefore, to ensure proper care for both parties the insurance companies will have to increase the premiums to ensure that patients will get quality medical care whether their conditions are serious or not. Although insurance involves the pooling of funds from different people, it will not be sufficient to cater for patients that require expensive medical treatments on a regular basis because the funds will run out before others can access the medical facilities thus resulting in poor healthcare for the country. This will discourage people from taking medical or health covers and lead to the collapse of the market for health insurance (Franklin, 2001). Question 2 It is important that there be consequences for those not willing to comply with the health insurance policy because to achieve a healthy nation all citizens must have access to good healthcare which is possible through the new healthcare policies. According to Ransom (2011), it will ensure that even people of the lower class in the society will get better medical attention. To make sure that people take care of their health the imposition of the penalty has become a very key aspect of health insurance policy. The government believes that the existence of the penalty will ensure the new system will work effectively and also efficiently because otherwise not all the citizens of the country will comply with the new policies. A lower penalty will not bear the desired effects for the new system to work effectively and also efficiently and therefore the penalty should be high enough to make sure that the citizens will not contemplate ignoring the new policies on health insurance. Violation of the new health insurance policies should attract both a jail term and a cash penalty for those contemplating such. However, it may not be effective for the rich members of the society and so punishments should be handed down considering the status of the individual in the society (Ransom, 2011). Conclusion Taking an insurance cover has both benefits and challenges, we have already looked at the benefits of taking such covers and some of the challenges may include; it may be expensive for the lower class members of the society especially those with no steady source of income. The priorities of such individuals is to make sure there is food on their tables and therefore taking insurance covers may sound like a luxury they may not be able to afford. However, despite of the challenges, the benefits of having insurance covers outweigh those of not having an insurance cover and therefore we should encourage people to learn more about insurance and determine which is best suited for their present situation. List of References Vaughan, E. J 1997, Risk Management, Wiley, New York. Franklin, J 2001, The Science of Conjecture: Evidence and Probability before Pascal, Johns Hopkins University Press, Baltimore. Brown, R, L 1993, Introduction to Ratemaking and Loss Reserving for Property and Casualty Insurance, Actex Publications, New York. Ransom, D 2011, IF1 – Insurance, Legal & Regulatory. Chartered Insurance Institute. Schindler, R. M 1994, Consumer Motivation for Purchasing Low-Deductible Insurance. Marketing and Public Policy Conference Proceedings. Chicago: American Marketing Association, 147–155. Barron’s Insurance Dictionary, 2014, Valuation of Potential Property Loss. Retrieved on 10th October, 2014 from http://www.answers.com/topic/valuation-of-potential-property-loss Read More