Compulsory Insurance Notes and Exam Questions Business Studies Grade 12

BUSINESS STUDIES TERM 3 INSURANCE GRADE: 12

SUB TOPICS TO BE COVERED
Compulsory and non-compulsory insurance Understanding life insurance and retirement annuities Insurance of goods (compulsory and non -compulsory) Calculation of under-insurance Unemployment Insurance Fund (UIF), Road Accident Fund (RAF) and Compensation of Occupational Injuries and Diseases Act (COIDA)

FINDINGS FROM THE DIAGNOSTIC REPORTS
Candidates have a tendency of confusing market value with the insured values of the property. candidates find it difficult to identify long term insurance from the scenario. It is clear that they did not know the difference between short term and long term insurance because, in Q3.1.1, they provided examples of life insurance instead of stipulating ‘long term insurance’ Nov 2015.

Most candidates are unable to define the meaning of ‘average clause’ and ‘reinstatement’. Some responded by stating ‘over’ and ‘under’ insurance in each concept instead of explaining the meaning of these concepts. Considerable number of candidates are unable to justify the reason why insurance companies apply the average clause.

Candidates were not clear on the fact that RAF provides cover for road accidents, and referred instead to accidents in general or in the work place. Candidates’ responses were based on how RAF is funded instead of the benefits. Candidates could not distinguish between security and indemnification. They referred to security as a type of employment. The majority of the candidates could not distinguish between compulsory and non-compulsory insurance even though this question was asked many times in past NSC and Gauteng preliminary exam papers. They perceived long term insurance as compulsory and short term as non-compulsory. They could not even give examples of compulsory insurance. March 2017

LEARNERS MUST BE ABLE TO:
Distinguish between compulsory and non- compulsory insurance and give examples. Understand the concepts, principles and importance/advantages of insurance for a business. Identify and explain insurable and non-insurable risks. Identify/Explain the types of life insurance and give examples. Discuss/Evaluate the viability and relevance of insurance to both individuals and businesses. Distinguish between insurance and assurance and give examples. Explain over-insurance, under-insurance, average clause and reinstatement, using examples.

LEARNERS MUST BE ABLE TO:
Make calculations in the case of under-insurance. Explain the types of benefits paid out by the UIF. Know the rights of workers registered for UIF. Explain the provisions of the RAF. Know the rights of road users in terms of the RAF. Explain the main purpose of COIDA as a type of compulsory insurance. Keep abreast of the changes in legislation from time to time, e.g. the RAF is currently changing to the RABS (Road Accident Beneficiary Scheme).

LESSON PLAN 17 : INSURANCE
At the end of the lesson the learners will be able to: Define/Explain/Elaborate on the meaning of insurance Discuss/Explain the importance/advantages of insurance Tabulate/Distinguish/Differentiate/between insurance and assurance and give examples. Elaborate on the meaning of life insurance and give examples of life insurance. Explain over-insurance, under-insurance, average clause and reinstatement, using examples. Make calculations in the case of under-insurance

ACTIVITY FROM THE VIDEO
DIFFERENCES BETWEEN INSURANCE & ASSURANCE.mp3

GUIDELINES ON HOW TO USE THE VIDEO
Ignore the information on shares as this was covered in the previous lesson. Ignore references Start playing the video at 06:25 minutes where it starts with insurance and assurance. Stop the video after types of voluntary insurance. Do not pay the video on the compulsory insurance as this will be done in the next lesson

ACTIVITY ONE FROM A VIDEO CLIP (LP17)
1 State the main purpose of insurance and assurance (2) 2 Mention SEVEN aspects that can cause financial loss for an organisation. (7) 3 Define the meaning of a premium (3) 4 Outline THREE contents of the insurance policy (3) 5 Quote TWO differences between insurance and assurance from the information provided on the video (4) Use the table below to present your answer Mention FIVE types of voluntary insurance that can be taken by businesses (5) INSURANCE ASSURANCE

SOLUTIONS FOR QUESTION 1 FROM THE VIDEO
1 Main purpose of insurance and assurance Enable people and businesses to protect themselves from risks√ that can cause financial losses for the organisation. √ (2) 2 Aspects that can cause financial loss for an organisation Natural disaster√ Burglary√ Fraud √ Shoplifting√ Theft by employees√ Employees getting injured from the business while performing their duties. √ Customers being injured while in the premises√ (7×1) (7) 3 Meaning of a premium Businesses purchase insurance and sign a short term contract. √ The business agrees to pay a certain sum of money to an insurance company √ in return the insurance company agrees to make payments to the business, if certain event occurs. √ Max (3)

SOLUTIONS ACTIVITY 1 (LP 17)
4. Contents of the insurance policy The value of insurance premium√ The business/item that has been insured√ The amount that the insurance company will pay if there is a loss or damage to the property. √ (3×1) (3) 5 Differences between insurance and assurance from the information provided on the video. INSURANCE ASSURANCE -Taken out against events that are certain to occur√ -Assurance company undertakes to pay a sum of money for any loss suffered as a result of a specified event which is bound to happen e.g. life assurance√ -Usually short period/term√ -Usually long term√ Sub max (2)

SOLUTIONS ON ACTIVITY (LP 17)
Types of voluntary insurance that can be taken by businesses Motor car√ Fire √ Public liability√ Theft √ Life assurance of key personnel√ (5×1) (5)

QUESTION 2 (LP17)

SOLUTIONS FOR ACTIVITY 2 (LP 17)

SOLUTION OF ACTIVITY 2 (LP17)

SOLUTIONS ON ACTIVITY 2 (LP17)
2.2 Definition of insurance Insurance refers to cover for a possible event√ that may cause a specified loss damage.√ An agreement whereby the insurer undertakes to indemnify√ the insured in the event of a specified loss/damage.√ The insured has to pay a premium√ for specified losses/damages covered.√ A contract between a person/business/insured requiring insurance cover√ and the insurance company/insurer bearing the financial risk.√ Any other relevant answer related to the definition of insurance Max (4)

SOLUTIONS OF ACTIVITY 2 (LP17)
2.4 Meaning of reinstatement and an example It is a stipulation whereby the insurer may replace lost/damage property/ goods√ instead of reimbursing. √ This stipulation is applicable when property/ goods are over insured. √ The reinstatement value will not be higher that the market value of the loss. √ Any other relevant answer related to the meaning of reinstatement. Sub max (4) Example: A business property that has been insured for R300 000 but the market value for the property is R200 000. If it is destroyed by fire/storm etc., the insurer will rebuild the property instead of paying cash. Any other relevant example of reinstatement Sub max (2) Max (6)

2.5 Meaning of life insurance and examples It is a personal assurance taken out against your life. √ In case of death/severe loss of ability to work, the insurance company will pay out a certain amount of money. √ Some life insurance policies can mature or be paid out when the insured reaches a certain age. √ Any other relevant answer related to the meaning of life insurance Sub Max (2)

Examples of life insurance Retirement Annuities√ Pension funds√ Life cover policies√ Endowment policies√ Any other relevant examples of life insurance NOTE: Mark the first THREE (3) examples only (3×1) (3) Max (5)

SOLUTIONS FOR ACTIVITY 2 (LP17)
Differences between insurance and assurance INSURANCE ASSURANCE -Based on the principle of indemnity. √ Based on the principle of security/certainty. √ -Provides short term cover.√ Provides long term cover.√ -Covers for event that may occur.√ -Covers for event that will definitely occur.√ -Is a form of risk management in which the insured transfers the cost of potential loss√ to another entity for monetary compensation known as a premium. √ -It is a contract where the insurer undertakes to pay an agreed sum of money after a certain period√ has expired/on the death of the person, whichever occurs first. √ -Amount of compensation is determined by the extent√ of the damage and insured amount.√√ -Amount is pre-determined√ when agreement is drawn up.√ -Compensation may/may not be paid out.√ -Compensation will be paid out.√ Sub max 5 Example: Insures a building against fire/storm damage etc.√ -Example: to provide for financial security after retirement or death, etc.√ Any other relevant answer related to insurance. Any other relevant answer related to assurance. Sub max (1)

LESSON PLAN 18 : INSURANCE
At the end of the lesson the learners will be able to: Identify/explain insurable and non-insurable risks and give practical examples. Discuss/Evaluate the viability and relevance of insurance to both individuals and businesses. Discuss/Explain/Describe the principles of insurance.

Danny Trading Enterprise (DTE)
ACTIVITY 1 (LP18) Read the scenario below and answer the questions that follow: Danny Trading Enterprise (DTE) Danny owns a large business that sells groceries in bulk (large quantities). He decided to take out a life insurance policy for his business because he was the only person with business skills and experience. Danny improved his employees’ business skills and expertise through regular training and mentorship. Many employees can now manage the business without his guidance.

ACTIVITY 1 (LP18) 1.1.1 Evaluate the relevancy of Danny’s life insurance policy based on the scenario above. (4) Advise Danny on how he should review his insurance policy based on your findings in QUESTION (4) Explain the meaning of viability of insurance for individuals and give a practical example. (4) 1.2 Tabulate between insurable and non-insurable risks and give TWO practical examples of each type of risk. (8) 1.3 Discuss other THREE principles of insurance. (9)

SOULTION FOR ACTIVITY 1 (LP18)
1.1.1 Danny’s life insurance policy is no longer relevant√ because his employees have skills and they can manage the business without his guidance.√ The risk is low√ because the business will not fail due to lack of skills and expertise.√ Max (4) 1.1.2 Recommendations on the reviewing an insurance policy Danny must find out how much he will receive from the insurance company if he surrenders his life insurance policy. √√ He can reinvest the money he received from the insurance company to a flexible investment option that will yield a better return on investment. √√ Any other relevant recommendation related to the relevancy of Danny’s life insurance Max (4)

SOLUTIONS FOR ACTIVITY1 (LP18)
1.1.3 Meaning of viability of insurance for individuals This is the ability of the insurer√ to pay out when it is necessary.√ It is important to select a reputable√ and well established insurance company.√ Insurance must make financial sense as insurance cost can be high√ and they are often based on risk factors.√ The individual or business must be certain that there is a real risk√ that needs to be covered.√ The insurance must not cost more √ than what it would to cost to replace the goods insured.√ The insured must take all reasonable steps to reduce the risk themselves√ and to inform the insurance company of the depreciation of their assets over time.√ Any other relevant answer related to the meaning of viability of insurance for individuals Sub max (2)

SOLUTIONS FOR ACTIVITY1 (LP18)
1.1.3 Meaning of viability of insurance for individuals Example: A small business will pay less to insure its office equipment if it has good security and an alarm. It must also remember to adjust the value of its equipment each year as it depreciates. √√ Any other relevant example related to the meaning of viability of insurance for individuals Sub max (2) Max (4)

SOLUTONS ON ACTIVITY 1 (LP18)
1.2 Differences between insurable and non-insurable risks and practical examples of each type of risk. Insurable risks Non-insurable risks -Risks that cannot be shifted to insurance companies√, businesses/individuals must carry such risks themselves.√ -Insurance companies cannot work out a premium √ that the business must pay.√ -Any other relevant answer related to the description of insurable risk -Any other relevant answer related to the description of non- insurable risk Sub max 2 Examples of insurable risks Examples of non-insurable risks Theft√ Burglary√ Fidelity insurance√ Money in transit√ Fire√ Storms/Wind/Rain/Hail√ Damage to/Loss of assets/vehicles/ equipment/buildings/premises Injuries on premises√ NOTE: Mark the first TWO examples only (2×1) (2) Nuclear weapons/-war√ Changes in fashion√ Improvement in technology√ Irrecoverable debts √ Financial loss due to bad management √ Possible failure of a business √ Shoplifting during business hours√ Loss of income if stock is not received in time√ Wars√ NOTE: Mark the first TWO examples only (2×1) (2) NOTE: 1. The answer does not have to be in tabular format, but the differences must be clear. 2. Award a maximum of TWO (2) marks, if the difference is not clear Max (8)

1.3 Principles of insurance Applies to long-term insurance√ where the insurer undertakes to pay out an agreed upon amount in the event of loss of life.√ A predetermined amount will be paid out √ when the insured reaches a pre-determined age/or gets injured due to a predetermined event.√ Aims to provide financial security√ to the insured at retirement/the dependents of the deceased.√ Any other relevant answer related to security/certainty as a principle of insurance. Principle 🙁 2) Explanation: (1) Sub max 🙁 3)

Indemnification/Indemnity√√ Usually applies to short term insurance√, as the insured is compensated for specified/proven harm/loss.√ Insurer agrees to compensate the insured for damages/losses specified in the insurance contract√, in return for premiums paid by the insured to the insurer.√ Protects the insured against the specified event√ that may occur.√ Pay-outs from insurance companies/insurer will only be made√, if there is proof that the specified event took place/if the insured can prove the amount of the loss/ damage.√

Indemnification/Indemnity√√ The amount of indemnification/compensation is limited to the amount of provable loss/damage√, even if the amount in the policy/insurance contract is higher.√ The insured must be placed in the same position√ as before the occurrence of the loss/damage√/The insured√ may not profit from insurance.√ Any other relevant answer related to indemnification/indemnity as a principle of insurance. Principle 🙁 2) Explanation: (1) Sub max 🙁 3)

Insurable interest√√ Insured must prove that he/she will suffer a financial loss√ if the insured object is damaged/lost/ceases to exist.√ An insurable interest must be expressed√ in financial terms.√ Insured must have a legal relationship√ with the insured object in the contract.√ Any other relevant answer related to insurable interest as a principle of insurance. Principle 🙁 2) Explanation: (1) Sub max 🙁 3)

Utmost good faith√√ Insured has to be honest in supplying details√ when entering in an insurance contract.√ Both parties√ must disclose all relevant facts.√ Insured must disclose everything√ that may affect the extent of the risk.√ Details/Information supplied when claiming√ should be accurate/true.√ Any other relevant answer related to utmost good faith as a principle of insurance. Principle 🙁 2) Explanation: (1) Sub max 🙁 3) NOTE: 1. Mark the first THREE (3) only. 2. Award marks if the example demonstrates understanding of the principles/requirements Max (9)

LESSON PLAN (19) : INSURANCE
At the end of the lesson the learners will be able to: Explain/Discuss/Differentiate between types of compulsory insurance. Outline/Explain/Discuss the types of benefits paid out by the UIF. Outline/Explain/Discuss/Describe the provisions of the RAF /Rights of road users. Explain the main purpose of COIDA as a type of compulsory insurance. Distinguish between compulsory and non- compulsory insurance and give examples.

VIDOE ON LESSON PLAN 19 DIFFERENCES BETWEEN INSURANCE & ASSURANCE.mp3

GUIDELINES ON HOW TO USE THE VIDEO
Start the video on compulsory insurance NOTE: RABS and COIDA are not included as compulsory insurance. Advice learners to refrain from using the term “Workman Compensation Fund” as this has been replace by “Compensation for Injuries and Diseases Fund”. Ensure that learners do not ignore these concepts. Avoid the last part of the video at 14:00 minutes and the old Acts mentioned in the video.

QUESTIONS ON THE VIDEO 1.1 Name THREE types of compulsory insurance mentioned in the video. (3) 1.2 Explain TWO purpose of the Compensation for Occupational Injuries and Diseases Fund. (3) 1.3 State the purpose of the Unemployment Insurance Fund/UIF (1) 1.4 Explain THREE provisions of UIF (3) 1.5 Explain the purpose of the Road Accident Fund/RAF (3) 1.6 Mention how RAF is funded (1)

1.1 Types of compulsory insurance mentioned in the video Workman Compensation Fund but currently known as Compensation for Occupational Injuries and Diseases Fund. √ Road Accident Fund/RABS √ Unemployment Insurance Fund (UIF) √ (3×1) (3)

1.2 Purpose of the Compensation for Occupational Injuries and Diseases Fund. Insure workers from medical expenditure incurred as a result of injuries√ and becoming ill as a result of performing their occupational duties. √ Compensate workers for any disabilities that results from performing their duties. √ Max (3)

1.3 Purpose of the Unemployment Insurance Fund/UIF Provides money to individuals who become unemployed. √ (1) 1.4 Provisions of UIF People who work for more than 24 hours per month should register with UIF√ Employees must contribute 1% of their earnings√ Employers must also contribute 1% of their oncome √ (3×1) (3)

1.5 Purpose of the Road Accident Fund/RAF Compensate individuals who are injured in the road accidents or the dependents of the individual who was killed by road accident. √ Covers medical expenses.√ Pays compensation to individuals, passengers and pedestrians.√ (3×1) (3) 1.6 Funding of RAF Generated from fuel levy automatically included on petrol √ (1)

QUESTIONS FOR ACTIVITY 2 (LP19)

SOLUTONS FOR ACTIVITY 2 (LP19)

Maternity benefits√√ Pregnant employees receive these benefits for up to 17 weeks/4 months/ 121 days.√ If a person had a miscarriage, she can claim for up to six weeks/42 days.√ Any other relevant answer related to maternity benefits. Benefit 🙁 2) Explanation 🙁 1) Sub max 🙁 3) Adoption benefits√√ Employees may receive these benefits if they adopt a child younger than two (2) years.√ Employees who take unpaid leave/may receive part of their salary while caring for the child at home.√ Only one parent/partner may claim.√ Any other relevant answer related to adoption benefits.

Dependants’ benefits√√ Dependants may apply for these benefits if the breadwinner, who has contributed to UIF, dies.√ The spouse of the deceased may claim, whether he/she is employed or not.√ Any other relevant answer related to dependant benefits. Benefit 🙁 2) Explanation 🙁 1) Sub max 🙁 3) NOTE: 1. Mark the first FOUR (4) only. 2. The benefit could be integrated in the explanation. (Any 4 x 3) (12)

2.2 Distinction between compulsory and non- compulsory insurance and assurance. Compulsory Non-compulsory -Is required by Law/there are legal obligations√ for it to be taken out and paid for.√ Is voluntary/the insured has a choice√ whether to enter into an insurance contract.√ -It is regulated by Government√ and does not require insurance contracts/brokers.√ Insured will enter into a legal insurance contract with the insurer√, who may be represented by an insurance broker.√ -Payment is in the form of a levy/ contribution paid into a common fund√ from which benefits may be claimed under certain conditions.√ Monthly/Annual payments/premiums that must be paid√ in order to enjoy cover for a nominated risk.√ -Any other relevant answer related to compulsory insurance -Any other relevant answer related to non-compulsory insurance Sub max (4) NOTE: 1. The answer does not have to be in tabular format, but the distinction must be clear. 2. Award a maximum of FOUR (4) marks, if the distinction is not clear. Max (8)

ADDITIONAL RESOURCES Insurances
Refers to cover for a possible event that may cause a specified loss/ damage. An agreement whereby the insurer undertakes to indemnify the insured in the event of a specified loss/damage. The insured has to pay a premium for specified losses/damages covered. A contract between a person/business/insured requiring insurance cover and the insurance company/insurer bearing the financial risk.

INSURANCE CONCEPTS Average clause It is a stipulation set by the insurer that is applicable when property/goods are underinsured/insured for less than its market value. The insurer will pay for insured loss/damages in proportion to the insured value. Re-instatement It is a stipulation whereby the insurer may replace lost/damaged property/ goods instead of reimbursing. This stipulation is applicable when property/goods are over insured. The re-instatement value will not be higher than the market value of the loss.

INSURANCE CONCEPTS Underinsurance
Goods/Assets/Property that are insured for less than the current value. The insurer only need to indemnify the amount for which goods/assets/property were insured. Average clause The insurer will only pay the average between the actual value and the insured value. This means that the insured will have to carry a part of the risk that is not insured. This applies to goods/items that are underinsured.

ADDITIONAL RESOURCES Over insurance
Over insurance is when the item is insured for more than the actual/market value. Businesses/Individuals will not receive a pay-out larger than the value of the loss at market value. This means that the extra money paid for the premiums will not be paid out to the insurer. Insurable interest The insured can only claim if they are going to suffer a financial loss/ liability. They must prove that they stand to lose financially if the object or person is destroyed. Insurable risk Risk that can be shifted to insurance companies to minimise the financial impact of the losses. Risks that can be carried by insurance companies.

PRINCIPLE OF INSURANCE
Insurable interest Insured must prove that he/she will suffer a financial loss if the insured object is damaged/lost/ceases to exist. An insurable interest must be expressed in financial terms. Insured must have a legal relationship with the insured object in the contract. Utmost good faith Insured has to be honest in supplying details when entering in an insurance contract. Both parties must disclose all relevant facts. Insured must disclose everything that may affect the extent of the risk. Details/Information supplied when claiming should be accurate/true.

VIABILITY AND RELEVANCE ON INSURANCE
This is the ability of the insurer to pay out when it is necessary. It is important to select a reputable and well established insurance company. Insurance must make financial sense as insurance cost can be high and they are often based on risk factors. The individual or business must be certain that there is a real risk that needs to be covered. The insurance must not cost more than what it would cost to replace the goods insured. The insured must take all reasonable steps to reduce the risk themselves and to inform the insurance company of the depreciation of their assets over time. A small business will pay less to insure its office equipment if it has good security and an alarm. Businesses must also remember to adjust the value of their equipment each year as it depreciates.

Road Accident Fund has been replaced by Road Accident Benefit Scheme Reasons for the introduction of RABS RABS is intended to replace the current fault-based system administered by the Road Accident Fund (RAF), which often results in extensive and costly litigation, prolonged claims finalisation and high administrative costs. Under RABS, fault will not be considered on the part of the claimant or other persons involved in the road accident. The focus will essentially be on how the claimant is immediately assisted.

Who benefits under RABS and what will it do for accident victims?
Road Accident Fund has been replaced by Road Accident Benefit Scheme Reasons for the introduction of RABS Who benefits under RABS and what will it do for accident victims? RABS is a social benefit scheme that will provide a social security safety net based on social security principles to those injured in road crashes and to the dependants of breadwinners who are killed as a result of road crashes. RABS will furthermore continue to indemnify those responsible for road crashes from civil liability. In terms of the scheme, payments will be made directly to claimants, medical and healthcare service providers. Funded by the fuel levy, RABS will provide benefits for medical expenses, income support, family support and funeral benefits. Claimants will be able to claim from the Scheme, while the Scheme’s administrator (RABSA) will assess claims for benefits and pay beneficiaries in terms of the Act. RABSA will take over all of the existing and future RAF claims and RAF undertakings, as well as the RAF staff.

Road Accident Fund has been replaced by Road Accident Benefit Scheme Reasons for the introduction of RABS RABS will furthermore continue to indemnify those responsible for road crashes from civil liability. In terms of the scheme, payments will be made directly to claimants, medical and healthcare service providers. Funded by the fuel levy, RABS will provide benefits for medical expenses, income support, family support and funeral benefits. Claimants will be able to claim from the Scheme, while the Scheme’s administrator (RABSA) will assess claims for benefits and pay beneficiaries in terms of the Act. RABSA will take over all of the existing and future RAF claims and RAF undertakings, as well as the RAF staff. In contrast to the RAF that only provides compensation to motor vehicle accident victims who can prove negligence on the part of another driver, the proposed RABS scheme will provide benefits to all accident victims and their dependants, irrespective of who was at fault.

Road Accident Fund has been replaced by Road Accident Benefit Scheme Reasons for the introduction of RABS Because of the defined nature of the benefits, they are transparent and easily understandable by a claimant, compared to the subjective nature of the compensation paid by the RAF, which in many instances require expert opinions and actuarial calculations Benefits provided by RABS will reach many more road crash victims and their families much sooner than is currently the case Minors, mentally incapacitated persons and those under curatorship will be able to lodge claims until one year after they are legally in a position to do so. In the event of the illegal foreigner’s death, no dependant will be entitled to a family support benefit, nor will the immediate family be entitled to a funeral benefit.

 THE END PLEASE ENSURE THAT LEARNERS ARE WELL CONVERSANT WITH INSURANCE CONCEPTS AND CONTENT. BEST WISHES FOR THE NSC 2017 EXAMS

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Compulsory Insurance Notes and Exam Questions Business Studies Grade 12

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