Types of Insurance and Premiums

Question 1

What is a premium in an insurance policy?

Accepted Answer

The regular payment made by the policyholder to the insurer — The premium is the payment the policyholder makes to keep the policy in force; the insurer pays compensation only when a loss occurs.

Question 2

What does the sum insured represent?

Accepted Answer

The maximum amount the insurer will pay — The sum insured is the ceiling of the insurer's liability for a covered loss.

Question 3

Which type of insurance covers damage to a vehicle in an accident?

Accepted Answer

Motor insurance — Motor insurance covers loss of or damage to vehicles, including accidents and theft.

Question 4

A house valued at RM200,000 is insured for RM150,000 with an average clause. A fire causes RM40,000 of damage. How much is the claim?

Accepted Answer

RM30,000 — Claim $= \dfrac{150000}{200000} 	imes 40000 = 	ext{RM}30{,}000$ because the property is under-insured.

Question 5

The average (co-insurance) clause applies when the property is:

Accepted Answer

Under-insured — The average clause reduces the claim in proportion to the shortfall when the sum insured is less than the property's value.

Question 6

The premium rate is RM2.50 per RM1,000 of sum insured. For a sum insured of RM120,000, the annual premium is:

Accepted Answer

RM300 — Premium $= \dfrac{120000}{1000} 	imes 2.50 = 120 	imes 2.50 = 	ext{RM}300$.

Question 7

Which is a benefit of medical insurance?

Accepted Answer

It covers hospitalisation and treatment costs — Medical insurance meets the costs of hospital care, surgery and treatment.

Question 8

Fire insurance typically covers:

Accepted Answer

Loss of or damage to property caused by fire — Fire insurance indemnifies the owner for property damaged or destroyed by fire.

Question 9

A shop worth RM300,000 is insured for RM240,000 with an average clause. A loss of RM60,000 occurs. The claim is:

Accepted Answer

RM48,000 — Claim $= \dfrac{240000}{300000} 	imes 60000 = 0.8 	imes 60000 = 	ext{RM}48{,}000$.

Question 10

If the sum insured equals the full value of the property, the average clause means the claim equals:

Accepted Answer

The full loss (up to the sum insured) — When sum insured = value, the fraction is 1, so the claim is the whole loss up to the sum insured.

What insurance does

Worked example