Investment: Insurance Suggested Solutions

INVESTMENT: INSURANCE – SUGGESTED SOLUTIONS

PART 1

QUESTION 1

PART 2

SECTION B

QUESTION 2

2.1Distinguish between insurance and assurance:

• cover against possible loss or something that might happen 

• cover against a result of a specified event which will happen 

• policies are taken out for short periods of time, e.g. year 

• contracts are long term 

• only pays out if insured claims 

• always result in payment 

(Any 2 x 2) (4)

2.2The advantages of life insurance:

• Insurance on the life of a human being that cannot be replaced. 

• Pays out lump-sum to dependents. 
• Families of deceased can maintain standard of living. 
• Settle debts, e.g. balance on house / car. 
• Principle of security applies. 

(Any 3 x 2) (6)

2.3The advantages of retirement annuities:

• Funds in RA are protected from creditors. 
• Income after retirement can be guaranteed for life. 
• Lump-sum contributions can be made at any time. 
• Retirement funds are taxed at a favourable rate. 
• A change in employment will not affect retirement provision. 

(Any 3 x 2) (6)

2.4Distinguish between compulsory and non-compulsory insurance:

• required by law / regulated by government 

• entered into voluntarily (by choice) 

• no contract required 

• signing of a contract 

(4 x 2) (8)

2.5THREE benefits of unemployment insurance for workers:

• unemployment benefits 
• illness benefits 
• maternity benefits 
• adoption benefits 
• deathbenefits  (3 x 2) (6)

2.6Define the following concepts:

2.6.1over-insurance

• Insurance cover is greater than replacement cost of assets insured. 

2.6.2under-insurance

• Insurance cover is less than replacement cost of assets insured. 

2.6.3average clause

• Payment of insurance claim according to the value insured. 

2.6.4re-instatement

Replacement of damaged or stolen goods instead of paying amount to insurer. 

2.6.5retirement annuity

• Insurance policy to top up retirement funding. 

QUESTION 3

3.1Read the case study and answer the questions that follow:

3.1.1The principle of insurance applicable to the above-mentioned situation:

• Average clause 

3.1.2Calculation: the amount the insurance company will pay Company X for losses suffered.

(8)

3.2Evaluate the viability and relevance of insurance to businesses:

• insurance against death or permanent disability of a key person 
• insurance of co-owners life 
• theft and fire cover of large number of stock 
• product liability insurance against losses due to failure  (Any 3 x 2) (6)

3.3Evaluate the viability and relevance of insurance to individuals:

• to retire comfortably 
• to cover themselves against claims by people injured in vehicle accidents 
• to provide income for dependents in event of death 
• to protect themselves against losses due to theft, burglary 
• to protect themselves against losses due to UIF 
• to protect themselves against losses due to illness, e.g. medical aid 

(Any 3 x 2) (6)

3.4Give ONE example of insurance and assurance:

• e.g. accident insurance for motor vehicle 
• fire 
• theft 
• burglary 

• e.g. death or retirement (life policy) 
• RAF 

(2 x 2) (4)

PART 3

SECTION C

QUESTION 4: BUSINESS VENTURES [INVESTMENT – INSURANCE]

Introduction

• Unemployment Insurance Fund was established to obtain money from workers while they work in order to provide an income when they are not working.
• The Road Accident Fund was established to protect road users against loss or damage due to road accidents. (max 2 x 1)

body

1.Provisions

Unemployment Fund (UIF)

•has been established by the promulgation of the Unemployent Insurance Act.

•protects workers who lose their jobs.

•determines who will benefit in terms of unemployment benefits, maternity benefits,

illness benefits, adoption benefits and dependants benefits, and the process of

claiming unemployment insurance.

•financing is received through the employer who deducts 1% of the employee’s salary

as well as 1% contributed by the employer. (max = 6)

Road Accident Fund (RAF)

•has been established by the promulgation of the Road Accident Fund Act.

•provision for compensation to drivers, passengers and pedestrians injured in road

accidents due to negligence of someone.

•Compensation to dependents of someone killed in a road accident.

•The RAF is funded by a levy / tax on the sale of fuels. (max = 8)

2.Rights

Rights of workers in terms of the Unemployment Insurance Fund

•Unemployment benefits

- Workers can claim from the day stopped working until benefits are exhausted, or

start working again.

-Benefits may stop if worker refuse to accept a job / go for training / go for advice.

•Illness benefits

- If a person is unable to work for more than 14 days and does not receive a salary or

part of salary.

-Cannot claim if contributor refuses to undergo medical treatment.

•Maternity benefits

- Can be claimed for up to 17 weeks (four months).

- Miscarriages: claim for six weeks.

•Adoption benefits

- Application: adoption of child below age of two.

- Application: person takes unpaid leave or receives only portion of his/her salary

while at home caring for the child.

•Death benefits

- upon the death of the person who were financially supporting the household.

- spouse of deceased can claim if he/she is unemployed. (max = 8)

Rights of road users in terms of the Road Accident Fund

•Provide cover for all drivers of motor vehicles against claims by persons injured in

vehicle accidents.

•Provide for claims of dependents of people killed in vehicle accidents.

•Indemnifies driver to compensate for losses suffered due to bodily injuries or death.

•No cover for damage to property.

•All road users are limited to claims up to R160 000.

(max = 8)

3.Changes to the Acts

Road Accident Fund

•Maximum of R160 00 per year for loss of income or loss of support.

•Claimants cannot sue the guilty party in event of an accident.

•Medical cost claims limited to rates charged by public health care authorities.

•Passenger claims will be settled in full, to maximum of R160 000 per year. (max = 8)

Critical analysis of the provisions of the Acts

•The provisions of the UIF is sufficient – payment of benefits it allows beneficiaries

sufficient time to improve their situation / go back to work to earn an income again.

•The Road Accident Fund should be managed financially sound, because recent

reports in the media stated that the RAF was bankrupt.

•Therefore, the Minister of Finance, announced an increase in the levy / tax on sale of

fuels, to finance the RAF. (max = 4)

Conclusion

• The financial viability of the UIF and RAF should be managed properly to ensure that the beneficiaries are paid what is due to them to sustain their standard of living.

(2)

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