Business Finance, Insurance and Risk Management
This domain covers how businesses raise money and how they protect themselves against loss. Candidates must distinguish internal sources of finance (retained profits, sale of assets, owner's capital) from external sources (bank loans, overdrafts, trade credit, hire purchase, leasing, mortgages, debentures, share issue, government grants). Also learn the difference between short-term finance (overdraft, trade credit), medium-term (bank loan, hire purchase, leasing) and long-term (share capital, debentures, mortgage).
Insurance is a way of transferring risk: the insured pays a premium to an insurer, who agrees to compensate for specified losses. Key terms are policy, premium, sum insured, excess (deductible), insurable interest (you must benefit from the thing insured), utmost good faith (full disclosure) and indemnity (restoring the insured to the pre-loss financial position). Learn the types of insurance relevant to business: fire, theft, public liability, employers' liability, marine cargo, motor and business interruption. Also understand risk management: identify, assess, avoid, reduce, transfer or retain risk.
Traps: students confuse premium (the payment) with sum insured (the maximum payout), and confuse indemnity with profit-making. Insurance does not prevent risk; it transfers it. Also remember that life insurance is not a contract of indemnity, because a life cannot be valued in money.
Worked example. A bakery insures its oven for $50,000, pays a $1,200 premium and accepts a $500 excess. A fire causes $8,000 damage. The insurer pays $7,500 ($8,000 minus the excess), restoring the bakery's position - that is indemnity.