PCEIA cheat sheet

Insurable interest requires a financial loss on the insured event; it must exist at inception for life policies and at inception and at loss for indemnity (property) policies.

Pure risk has only loss or no-loss outcomes and is insurable; speculative risk has gain or loss possibilities and is generally not insurable.

Utmost good faith (uberrimae fidei) obliges both parties to disclose material facts; a material fact is one that would influence a prudent insurer's decision or premium.

Indemnity restores the insured to the pre-loss financial position; life and personal accident policies are benefit policies and are not subject to strict indemnity.

Subrogation transfers the insured's recovery rights against a third party to the insurer after paying a claim, and it applies only to indemnity policies.

Contribution applies when two or more indemnity policies cover the same loss; each insurer pays rateably so total recovery does not exceed the loss.

Proximate cause is the dominant, effective cause of a loss; remote causes are disregarded when determining whether a peril is covered.

Risk management steps: identify hazards, measure frequency and severity, select treatment (avoid, reduce, retain, transfer, share), implement, then monitor and review.

Hazards are conditions increasing loss probability or severity: physical (wet floor), moral (dishonesty), and morale (indifference to loss prevention).

Term assurance pays a death benefit only if death occurs within the policy term and builds no cash value; it is the lowest-premium pure protection product.

Whole life insurance covers the entire lifetime, guarantees a death benefit, and accumulates cash value with surrender and loan privileges.

Endowment assurance pays the sum assured on death or on survival to maturity, combining protection with a savings element.

Investment-linked (unit-linked) policies place premiums in units of underlying funds; the policyholder bears investment risk and the benefit fluctuates with unit value.

An annuity converts a lump sum into periodic income; a life annuity ceases at death, while a guaranteed-term annuity continues to a named beneficiary for the balance.

Universal life separates the mortality charge from the savings component and allows flexible premiums and adjustable death benefits, subject to policy terms.

Critical illness riders pay a lump sum on diagnosis of a defined condition, usually subject to a survival period and a pre-existing condition exclusion.

Non-forfeiture provisions (cash surrender value, reduced paid-up, extended term) protect the value of a policy if premiums stop after cash value accrues.

Grace period (commonly 30-31 days) keeps cover in force after a missed premium due date; reinstatement requires evidence of insurability and payment of arrears.

Property policies commonly cover fire, lightning, explosion, and allied perils; special perils such as flood, storm, and earthquake must be added by endorsement.

Average (underinsurance) clause: claim payment = loss x (sum insured / reinstatement or actual value at risk), so inadequate sums insured reduce every claim.

Motor third-party bodily injury and property damage liability cover is typically compulsory; own-damage cover is optional and subject to excess and depreciation.

Marine cargo cover operates under Institute Cargo Clauses: ICC(A) is all-risks, ICC(B) and ICC(C) are named-perils with progressively narrower cover.

Public liability covers third-party bodily injury or property damage arising from the insured's business; employer's liability covers injury to the insured's own employees.

Professional indemnity covers negligent acts, errors, or omissions in professional services, including defence costs, and is written on a claims-made basis.

Personal accident policies pay fixed benefits for accidental death, permanent disablement, and temporary disablement, usually expressed as a percentage of capital sum.

Business interruption pays loss of gross profit and increased cost of working following an insured material damage event at the insured premises.

Home contents are insured on a new-for-old or indemnity basis; buildings are usually insured on a reinstatement basis, and both carry policy excesses.

A contract needs offer, acceptance, consideration, intention to create legal relations, capacity, and lawful object; the premium is the insured's consideration.

Utmost good faith is a duty of disclosure; non-disclosure or misrepresentation of a material fact can render a policy voidable at the insurer's option.

Warranties are strict terms; breach discharges the insurer from liability for the relevant risk, whereas representations are statements inducing the contract.

Conditions precedent must be satisfied before liability attaches (for example, payment of premium); conditions subsequent relate to duties after a loss.

The policy schedule states parties, insured property or life, sum insured, period, premium, excess, and endorsements; the wording contains the operative cover.

Exclusions, deductibles, and excesses limit cover; the onus of proving a loss falls within the insuring clause rests on the insured.

Insurable interest, indemnity, subrogation, and contribution are legal principles applied through policy wording and case law, not separate clauses.

A material change in risk during the policy term (for example, change of occupancy) must be disclosed; failure may allow the insurer to decline a claim.

Underwriting assesses risk to decide acceptance, terms, and premium; the proposal form and medical or loss history are primary evidence.

Standard underwriting decisions: accept at standard rates, accept with extra premium or exclusion, postpone, or decline.

Moral hazard indicators include adverse claims history, inconsistent answers, and financial pressure; physical hazard indicators include age, occupation, and construction.

Claims process: notification, registration, documentation, loss assessment or investigation, coverage determination, settlement or repudiation, and recovery action.

Claims documents typically include the claim form, proof of loss, police report, medical certificate, and receipts or invoices supporting the amount claimed.

Indemnity settlement options include repair, replacement, reinstatement, or cash payment, subject to the sum insured, excess, and average clause.

Policy servicing includes endorsements, renewal, lapse, reinstatement, beneficiary or nomination changes, assignment, and surrender or maturity payments.

A lapse occurs when premiums are unpaid beyond the grace period; reinstatement typically requires arrears plus evidence of insurability within a stated period.

Insurance is regulated to protect policyholders, ensure insurer solvency, promote market confidence, and maintain fair conduct standards.

Solvency margin is the excess of admissible assets over liabilities relative to required capital; regulators set minimum solvency ratios insurers must maintain.

Licensing requirements apply to insurers, brokers, agents, and adjusters; acting without a licence is an offence.

The code of conduct typically requires honesty, integrity, fairness, competence, confidentiality of client information, and timely disclosure of remuneration and conflicts.

Anti-money-laundering duties include customer due diligence, beneficial ownership identification, ongoing monitoring, and suspicious transaction reporting.

Insurers must handle complaints through an internal dispute resolution process, with escalation to an external ombudsman or regulator where available.

Product disclosure requires clear, accurate, and not misleading information about cover, exclusions, premium, and significant risks before the contract is formed.

Data protection principles limit collection of personal data to what is necessary, require consent or lawful basis, and restrict use and disclosure.

Financial planning steps: establish the client relationship, gather data and goals, analyse the situation, develop and present recommendations, implement, then monitor and review.

Life insurance need is commonly estimated by the human life value method (capitalised future earnings) or the needs approach (income replacement plus debts minus existing assets).

Risk management in financial planning ranks treatments: avoid, reduce, retain, and transfer; insurance is the primary transfer tool for pure risk.

Emergency fund guidance is typically three to six months of essential expenses held in liquid, low-risk assets before longer-term investing.

Diversification reduces unsystematic risk; it does not eliminate systematic (market) risk, which affects all assets.

Time value of money: future value = present value x (1 + r)^n; present value = future value / (1 + r)^n, used for premium and annuity comparisons.

Ethical practice requires placing the client's interest first, disclosing commissions and conflicts, documenting advice, and recommending only suitable products.

Suitability assessment considers age, income, dependants, existing cover, risk tolerance, time horizon, and liquidity needs before a recommendation.

Continuing professional development and accurate record-keeping support competence and provide an audit trail for advice given.