Risk Management and Insurance Planning
What the domain tests
Risk management and insurance planning tests how you identify pure risks, apply insurance principles, and choose coverage without turning insurance into an investment story.
Core rules
- Insurable interest must exist at inception for life insurance and at the time of loss for property insurance.
- Indemnity: property claims restore actual loss, not profit.
- Utmost good faith: disclose material facts; non-disclosure can void a claim.
- Proximate cause: the efficient cause of loss, not merely the last event.
- Subrogation and contribution prevent double recovery.
- Life insurance includes term, whole life, endowment, universal life, and variable life. Non-life includes fire, motor, health, and liability.
Worked example
A homeowner insures a P3 million house for P2 million. Fire causes P1 million damage. The insurer pays the actual loss up to the sum insured, less any deductible - here P1 million, not P2 million or P3 million. Reasoning: indemnity prevents profit; the lower sum insured also signals underinsurance.
Traps
Treating VUL as pure protection; failing to disclose a medical condition; naming a minor as irrevocable beneficiary without a trustee; assuming all policies cover acts of nature; ignoring exclusions and deductibles.