Consumer Mathematics: Insurance is about protecting against financial loss by paying a regular premium.
1. How insurance works
You pay a premium to an insurer; in return, the insurer pays out if a covered loss happens. Common types include life, medical, motor and fire insurance. The sum insured is the maximum the policy will pay.
2. Key ideas
- The premium depends on the risk and the sum insured — higher risk, higher premium.
- Motor and some other insurance is often compulsory by law.
- Insurance spreads the cost of rare, large losses across many policyholders.
Worked example
An annual premium is $\text{RM}600$, paid in $12$ equal monthly instalments. Find the monthly payment.
Monthly payment $= \dfrac{600}{12} = \text{RM}50$.
Exam tips
- The premium is what you pay; the sum insured is the maximum payout.
- Higher risk (or higher coverage) means a higher premium.
- Motor insurance is legally required to drive on public roads.