Macedon Insurance Ltd is a public limited company that specialises in insurance for home owners. The extract below gives details of its house and contents insurance policy. MACEDON INSURANCE LTD HOUSE AND CONTENTS INSURANCE POLICY The main risks covered are fire, theft, earthquake, storm, flood, oil leakage, burst water pipes and malicious damage. PLUS indemnity up to $2m for liability to members of the public for accidents. The main risks not covered are: 1. The first $200 of any loss. 2. Damage or theft caused by war or riot. Premium $10 for each $5000 of cover required. Failure to tell the truth puts your claims at risk. Fig. 3 Use Fig. 3 to help you to answer the following questions.

Mark scheme

Marking points from the official mark scheme (May/June 2010). The mark or mark type is shown in brackets.

1. [4] (a) Any two benefits explained – Able to raise large amounts of capital by selling shares to a wide market; Able to sell shares on a stock exchange and so attract a wide variety of investors; Different types of shares available – ordinary, preference; Shareholders have limited liability so their personal possessions are protected more likely to invest; Shareholders able to buy and sell on a stock exchange quickly so may be more willing to invest; Share capital cannot be withdrawn – the shareholder must sell to someone else; Benefits of size – may be easier to borrow from banks as large companies are seen as a better risk than smaller ones; Can take advantage of other economies of scale e.g. purchasing, marketing; NB Accept benefits that may also apply to a private limited company; Any other relevant point
2. [1] (b)(i) a contract of insurance
3. [1] (b)(ii) fire/theft/earthquake/storm/flood/oil leakage/burst water pipes/malicious damage/public liability
4. [3] (c)(i) Any three points × 1 mark each – Compensation of up to $2m; To cover accidents to the general public; Caused by the negligence of the policyholder; i.e. public liability insurance; Any other relevant point
5. [1] (c)(ii) Any one point × 1 mark – Insurance company does not wish to deal with small claims; Need to cover their administrative expenses; Not a large amount for a policyholder to bear; May help to reduce the premium for the policy; Policy excess; Any other relevant point
6. [4] (d) Any two reasons explained × 2 marks – They may have two different kinds of houses – one may be larger than the other; One of the houses may be constructed of more flammable materials e.g. thatched roof; One may live in an area where there is more risk – near an oil refinery; One may have made more claims than the other – so seen as a worse risk; One may have asked for more property to be insured e.g. extra buildings; One may be running a business in the house; One may have taken advantage of special offers made by the insurance company/purchased online or be organising the insurance through a third party who can offer better terms; One may have more valuable contents than the other; One has better burglar/fire precautions; One is in a more valuable area than other; Any other relevant reason explained
7. [3] (e)(i) Any three points × 1 mark each – Kadir is unlikely to be successful in his claim; He did not tell the insurance company about the chemicals and so he violated the insurance principle of utmost good faith; Utmost good faith means to tell the truth and give all relevant facts about the risk; The insurance company may have refused insurance or charged him a higher premium because there was greater risk; Any other relevant point
8. [3] (e)(ii) Any three points × 1 mark each – Sarah is not able to make a claim/cannot be indemnified; She has no insurable interest in the bicycle; As she does not own it; And will not suffer any financial loss as the result of the theft; The friend should make the claim; The policy may not cover bicycles; Any other relevant point