Db123 Ema

DB123

You and your money: Personal finance in context

EMA

EMA

Contents: Page No.

Part A - 3

Question 1 - 3

Question 2 - 4

Part B - 6

References - 7

Part A

Question 1

1.1

a) The following table shows the risk of burglary faced by households in two areas of the United Kingdom as a decimal, a fraction, and a percentage:

Dagenham and Becontree - London | South & East Perth - Scotland |

0.055 | 0.00151 |

5.5% | 0.151% |

1 in 18 | 1 in 662 |

b) Using the figures in the above table, it is clear that households in Dagenham and Becontree have a far higher risk of burglary, with 1 in 18 households being broken into, than those in South and East Perth with only 1 in 662 households being burgled.

1.2

With regards to home contents insurance, moral hazard is where households may not put in place the security measures for their home that they otherwise may have if their home contents were not insured. This is due to the guarantee of replacements or compensation for the loss or damage of items from the insurance company.

1.3

One of the methods used to reduce the effects of moral hazard is the use of a mandatory excess. This means that if a claim is made, some of the cost is taken on by the customer, therefore creating more of an incentive to take precautions to protect things that are insured.

Another method used by insurance companies to reduce the effects of moral hazard, is creating policies that offer rewards if certain criteria are met. These rewards could include, for example, car insurance where customers can build up a ‘no claims bonus’ which can be built up over time, and the longer a customer goes without making a claim, the cheaper their insurance premiums become.

1.4

One factor that may make premiums cheaper in West Yorkshire is that it a less affluent area of the country, and households may have...