Fig. 2 is a diagram showing how the value of personal insurance cover held might change over a person's lifetime. $1000- $800- $600- $400- $200 0 to 20 21 to 30 31 to 45 46 to 65 over 65 Age group of the person [Figure 2] Use Fig. 2 to help you to answer the following questions.

Mark scheme

Marking points from the official mark scheme (May/June 2014). The mark or mark type is shown in brackets.

1. [1] (a) (i) One mark for 31 to 45.
2. [2] (ii) Any two risks × 1 mark each: • buildings • contents • endowment/life • travel • fire • public liability • flood • accident motor • mortgage protection • health. Any other relevant risk.
3. [3] (b) Any three points × 1 mark each and up to 3 marks for a well-developed point: • a person's circumstances may change – may start house ownership 31-45 • young people may be insured by their parents • some insurance policies may mature as people become older and are not renewed, e.g. endowment policies • may have changes in income so cannot afford to insure as much as they would like • needs of the retired may be different from those who are working, e.g. may own a house and have no mortgage so do not need mortgage protection • may have given up driving. Any other relevant point.
4. [4] (c) One mark for the name and one mark for the purpose of documents × 2: • prospectus - setting out details of insurance cover offered • proposal form – the application form for insurance • policy/agreement – the contract of insurance setting out the terms of insurance • cover note - providing temporary cover while the policy is being prepared. Any other relevant point.
5. [6] (d) Level 2 (4-6 marks) Has discussed which insurance principles are the most important and has given a reasoned opinion. (Discussion of only one insurance principle, award 4 marks max). People need to cover risk and spread any losses they have among a large number of people who contribute to a common fund or pool. To do this they take out insurance proposal forms to apply for contracts or policies in order to obtain financial protection. Insurance principles apply and are important throughout the procedure of using insurance. When completing the proposal form it is important that the insured shows utmost good faith i.e. tells the truth and gives all relevant facts that may affect the premium charged. This is also important when making a claim. If utmost good faith is not shown the insurance may be declared null and void. The insured should have an insurable interest in the risk to be insured - must have a direct or financial interest in what is to be insured. If the person wanting insurance does not own what is to be insured, no insurance is possible. The insured should only insure up to the value of what is to be insured. The insured should not over or under insure. If a claim is made, the insured will be indemnified but is not allowed to make a profit from a loss. Other elements of an insurance contract are exclusion clauses - what is not covered, the amount of cover provided and the terms and conditions that apply. There is no doubt that the insurance principles are the basis of any insurance contract and therefore are very important when applying for insurance. Level 1 (1-3 marks) Has commented on insurance principles with/without an opinion. People complete proposal forms when applying for insurance. They have to tell the truth. They cannot make a profit from a loss and they should own what they are insuring. If they do obey the basic insurance rules they may not be able to make a successful claim.
6. [4] (e) Any four points × 1 mark each and up to 2 marks for a well-developed point: • help to satisfy people's need for financial protection • assist trade to function by insuring a variety of risks such as fire and theft • provide cover for a variety of risks + example • part of tertiary production without which primary and secondary production would not function • provide a commercial service without which people might not have the confidence to conduct business • they add value by providing insurance services. Any other relevant point.