Insurance

Revise Insurance for Commerce 7100 (O Level) — revision notes, 130 practice questions and instant AI marking.

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Cambridge O Level Commerce 7100

Insurance

The big idea: Many businesses each pay a small, certain amount (the premium) into a pool so that the few who suffer a large, uncertain loss can be compensated from it. Insurance turns a risk that could close a business into a cost it can plan for.

Summary — What This Chapter Covers

The purposes of insurance: risk reduction, compensation, financial protection, business confidence and investment.
Seven types of insurance risk a business covers: consequential loss, employer’s liability, fire, motor, premises, public liability and theft.
Pooling of risk: premiums from many policyholders go into one fund, and the claims of the few who suffer a loss are paid out of it.
A premium is calculated from the value insured (often a rate per $100 or per $1,000 insured) and the size of the risk; a no-claims discount reduces it.
The documents: the proposal form (the application), the cover note (temporary proof of cover) and the policy (the contract).
An insurance broker is an independent adviser who finds the best cover and premium for a client from many insurers.

1. Purposes of Insurance

Syllabus 5.3.1 · Papers 1 & 2

Why businesses pay premiums

Every business faces risks: a fire in the warehouse, a delivery van crash, a customer who slips on a wet floor. Most of these never happen, but one of them could cost more than the business is worth. Insurance deals with that.

Definition · Insurance An agreement in which the insured pays a premium to an insurance company, which promises to compensate the insured if a stated loss happens.

Definition · Premium The amount paid (usually each year) by the insured to the insurance company for the cover.

Purpose	What it means for a business
Risk reduction	The business passes the financial risk of a large loss to the insurer, so the risk it carries itself is smaller.
Compensation	After an insured loss, the insurer pays money to put the business back in the position it was in before the loss.
Financial protection	One fire, theft or court claim does not wipe out the owner’s capital or force the business to close.
Business confidence	Owners are willing to take on new projects, carry valuable stock or trade abroad because the downside is covered. Banks and customers trust an insured business more.
Investment	Insurance companies invest the premiums they collect (in shares, government bonds and property), which provides finance for other businesses and the economy. An insured business is also more willing to invest in new premises, equipment and stock.

Practice Question 1

A logistics company runs 40 trucks. Explain two purposes of insurance for this company.

2. Types of Insurance Risk

Syllabus 5.3.2 · Papers 1 & 2

Seven risks a business insures against

Type of cover	What it covers	Business example
Consequential loss	Loss of profit and extra costs while the business cannot trade after an insured event (for example, wages and rent still to pay while premises are rebuilt)	A restaurant is closed for three months after a kitchen fire
Employer’s liability	Claims by employees who are injured or become ill because of their work	A warehouse worker is hurt by a falling pallet
Fire	Damage to buildings, equipment and stock caused by fire (often also smoke, lightning and explosion)

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Also in the full note

The many pay for the few
A rate per $ insured, adjusted for risk
Proposal form → cover note → policy
Insurance in the longer questions

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Insurance

Insurance

Why businesses pay premiums

Seven risks a business insures against

Past papers that test Insurance

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