INSURANCE

Insurance in broad terms may be described as a method of sharing financial losses of few from a common fund who are equally exposed to the same loss.

Unit Structure
Introduction Nature and Principles of Insurance Life Insurance Fire Insurance Marine Insurance

Introduction
Insurance comes from Insure Insure means to guarantee Very simply it is an arrangement of payment of sum of money in the event of loss or injury. To counter the effect of unknown risk, people like to insure themselves against it
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Insurance
Insurance has involved as Service Industry and is Booming Industry in India at the present stage. To understand the Insurance market, it is important for business managers to be aware of basics of Insurance.

Nature and Principles of Insurance

Business Involves many types of risks Business Man incur heavy loss due to fall in Prices. When goods are transited from one party to the other they may be damaged or destroyed due to various reasons like flood, accidents etc. and also due to theft.

The Office or factory may be destroyed by fire. Business involves many risks and in order to protect against the losses that arise due to risks, the business man go for insurance. Human life is insured in order to protect against loss of risk.

Essential Requirements.
Insurance is really subject to risk otherwise it will amount to betting. Time and Occurrence of risk must not involve certainty. Both people must not have any control over the happenings of the event. The risk must easy to calculate.

Meaning of Insurance
Insurance is a contract in which one party, known as the insured or assured, insures with other person known as insurer for life or property or life of other party The instrument containing the contract to insure is called Policy of Insurance

General Principles of Insurance

Indemnity : Except life and Personal accident. To pay to the insurer on happening of certain events which may result in a monetary loss to the insured. Example: X insures his car against accident and theft for Rs. 90,000/- The car meets with an accident and the loss thereby occasioned is Rs. 10,000.

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The amount recoverable from the insurance company will be Rs. 10,000 only. An in case the car is stolen thus resulting in total loss, the amount recoverable from the Insurance company will be Rs. 90,000/(minus depreciation) even though the market value is more than insured say Rs. 1,00,000.
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Good Faith:
There must be utmost good faith and frankness between the insured and insurer. He should inform the facts and figures. Example: When an applicant for an Insurance Policy when asked whether such application was accepted, the reply was two companies and application rejected, then the case was set aside.

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Insurable Interest:
Monitory interest. The contract of insurane, the insurer must have insurable interest in the object or the life insured. Example: A person has insurable interest on his own factory, or goods exported to a foreign country. If no insurable interest no insurance.

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A cannot insure a car belonging to B, but if hypothecated then A has the interest and can insure. Insurance interest for life Insurance is permitted when for Own Life / Husband in the life of Wife / Wife in the life of Husband. Without a Insurable Interest contract void

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Causa Proxima
This is in case of Marine and Fire insurance. When damages are caused due to one or more causes, then the nearest cause of the damage to be looked into. Sugar was shipped and insured against sea perils (damages), certain rats makes a hole at the bottom of ship, water enters and damages sugar, rat is cause and not sea, if insured for peril recovery can be done 15

Mitigation of Loss

When ever a loss is being happening, the insurer must behave as if he has not insured and protect the property to minimize the losses which is being occurred during the mishap.

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Risk must attach

Whenever a insurance is done it must involve risk factor, if risk factor is not mentioned then you are liable for any claim arising from damages.

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Contribution

When one property is insured with one or more insurance company, it is called as double insurance. In the event of loss the insurer will get only the exact loss occurred. The Loss will be shared by the two companies which is called as law of contribution.

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Example
A insures his ship with co A for Rs, 2,00,000 and with Company B for Rs. 1,00000 and the ship is damaged to the extent of Rs. 50,000. A co may sue B Co for contribution which will be divided proportionately. A company 2,00,000 X 50,000 = 33,333 3,00,000

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B company 1,00,000 X 50,000 = 17,667 3,00,000 Hence the sum entitled to A will be Rs. 50,000/- irrespective the sum assured with both the companies, as the risk involved in both the transactions are same.

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Insurance terms used

Premium: It is the consideration for the insurance, payable by the insured to the insurer. Normally consideration is in terms of money. The amount of premium is measured on the estimate of risk involved in the transaction, or upon the previous experience or similar risks. Usually the amount of premium is received in advance
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Double Insurance:
When the insurer effects insurance with two or more insurance company in respect of the same risk, it is called double insurance. Example: X insures his ship against marine perils of Rs. 5,00,000 with A company and Rs. 3,00,000 with B company. This is double insurance.
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Re insurance.

When the insurance company feels the amount of risk involved is too heavy, it contributes with risk with other insurance company, this is called re insurance. Double insurance is not re insurance. Re-Insurance is done by Insurance Company and Double Insurance is done by the Individual who does insurance.
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Policy:
Policy is the formal and stamped document signed and issued by the insurance company with contains terms and conditions between the parties. It is not necessary to deliver the policy to the party, but mere payment of premium, the risk of the insurance starts as per the date and time mentioned on the policy.

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Days of grace:
This is for renewal of the existing policy after the due date. This is just to keep the policy in continuation, and an opportunity to the party to pay the premium. In case of Life Insurance the terms are one year. The premium is paid one in a year / Quarterly / monthly. If death occurs during grace period without payment the money is due under the policy is payable 25

FORMS OF INSURANCE
The Insurance started with Marine insurance only, but over the last century the range applied to life, fire, theft , sickness , unemployment, accident, product liability. Now a days the Insurance sector has developed to a considerable extent and a booming industry.

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Common Ones
But the common ones of Insurance which are covered in our PTU syllabus are: LIFE INSURANCE

FIRE INSURANCE
MARINE INSURANCE
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WORLD INSURANCE PREMIUM

YEAR-1999 US$2324 bn YEAR-2000 US$2444 bn YEAR-2005 US$3000 bn plus LIFE INSURANCE60% NON-LIFE INSURANCE---40%
GLOBAL PENETRATION8% OF GDP 91% OF GLOBAL PREMIUM COMES FROM-NORTH AMERICA/WESTERN EUROPE/OCEANA/JAPAN HIGHEST PER CAPITA OUTLAY-LIFEUS$3165(JAPAN) HIGHEST PER CAPITA OUTLAY-NON LIFEUS$1571 (SWITZERLAND)
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INSURANCE STATISTICS

INSURANCE MARKET PENETRATION DEVELOPED COUNTRIES9% OF GDP DEVELOPING COUNTRIES2.5% OF GDP INDIA----3.4% OF GDP LIFE PREMIUM IN INDIARs.80000 crs. NON LIFE PREMIUM IN INDIARs.20000 crs. No. of NON LIFE COMPANIES=12 No.of LIFE INSURANCE COMPANIES=15

Whole Life Policy

Whole life insurance is also called straight life.

You pay a premium as long as you live. Amount of premium depends on your age when you start the policy. Provides death benefits and accumulates a cash value. You can borrow against the cash value or draw it out at retirement. Look carefully at the rate of return your money earns.

Endowment Policy
The Payment of sum assured is paid on attainment of specified age or death. Payable on maturity. Rate of Premium higher than Whole Life Advantage is it protects saving at old age. Assures payment on premature death to the family members.

Joint Life Policy

A policy for joint lives of two persons Husband and wife or two partners Becomes payable on expiry. Payable on death of any one of the member.

Childrens Deferred Insurance

Policy taken by parents on behalf of the Children. Meets needs of children for education / marriages. Giving a start of life when a child becomes major.

Double Accident Policy

If the assured dies in accident, the representative or nominee gets double the sum of amount of Policy.

Group Insurance Policy

This Policy is taken on whole family members / or employees of the organisation, to cover their lives.

Annuity Policy

The amount is paid on annuity i.e. fixed periodical payments for a specified number of years or till death of the assured.

Partnership Assurance

In case of Partnership firm, if the partner dies, the firm is dissolved, the deceased partners capital is paid to their heirs. To pay such amount at Once will be difficult by the partners, hence this policy.

Term Assurance

The amount is payable only when a person dies before a certain age. In this Policy the premium is low at the beginning and rises as the period goes on increasing.

With Profit policy.

The Insuruer insures the policy with Profit and without profit. What ever sum assured will be paid to the insurer plus the profit as declared by the company from time to time (Bonus)

Subject

matter is property, human life, machinery, goods etc.,

Peril

is fire, storm, burglary, earth quake, injury, explosion etc., loss is normally defined before the contract is signed.

Financial

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An example of impossibility can be quoted say the 9/11 incident where insurance companies were washed out. Hyderabadis never in their dreams thought of taking cover for flood. When the encroached drains could not contain rains for 2 days, the resultant floods had washed away score of vehicles, property etc., So, Risk is inherent in human existence. Human life and material possessions are constantly exposed to loss or damage due to the mechanizations of fortuitous circumstances
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CONTRACT OF INSURANCE
In between the insured and insurer INSURED:Party effecting insurance, (Individual, Company, Firm, Corporate body etc., with legal status) Party granting the protection under an insurance policy. Is the evidence of contract
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INSURER:-

Policy:-

Insurance contracts are governed by Indian contract act 1872 which states that to be legally valid following elements should be in order.
A. B. C.

Offer and acceptance

Consideration
Agreement between the parties

D.
E.

Capacity of the parties

Legality of the contract
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THANK YOU
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