MODULE-4

Learning Points

INDIAN INSURANCE INDUSTRY

 Definition Of Insurance
 Nature Of Insurance
 Functions Of Insurance
 Importance Of Insurance
 Essential Elements of Insurance
 Legal Framework of Insurance
 Principles Of Insurance
 Classification Of Insurance
 Reinsurance
 Double Insurance
 Principles Governing Marketing of Insurance Products

MEANING OF INSURANCE
Insurance is an arrangement by which a company undertakes to
compensate a person, property, company, or entity for a specific loss.
The insurance company also compensates for illness, damage, or death.
Thus, Insurance is the contract where by:
 Certain sum called premium is charged in consideration.
 Against the said consideration a large sum is guaranteed to be paid
by the insurer who received the premium.
 The payment will be made in a certain definite sum i.e., the loss or
the policy amount which ever may be.
 The payment is made only upon a contingency.

BASIC CONCEPT
1. Insured: Insured is a person or an institution that seek protection against
certain risks.
2. Insurer: The party who guarantees the insured to compensate for the loss
in exchange of a premium is termed as insurer.
3. Insurance: The legal agreement between the insured and the insurer is
termed as insurance. It is a contract where the insurer undertakes to
indemnify the insured against certain risk in consideration of a sum called
premium.
4. Premium: It is the price of insurance. It is the money paid by the insured
to the insurer for which insurer undertakes to indemnify the loss.
5. Policy: The stamped document containing the terms and condition of the
contract of insurance is called policy.
 DEFINTION OF INSURANCE
Insurance is a contract by which one party, for a consideration called the
premium assumes particular risk of the other party and promises to pay
to him or his nominee a certain or ascertainable sum of money on a
specified contingency. – E.W. Patterson
a) Insurance is a cooperative form of distributing a certain risk over a
group of persons who are exposed to it. – Ghosh and Agarwal
b) The collective bearing of risk is Insurance. – W. Beveridge’s
c) The term ‘insurance’ can be defined in both financial and legal
sense.
d) In financial sense: A social device providing financial compensation
for the consequences of adversity, the payments being made from the
accumulated contributions of all parties participating in the
arrangement. The essence of insurance thus, is collective bearing of
risks as it involves pooling of risks.
e) In legal sense: A contract under which the insurer in consideration of
a sum of money paid (premium) by the insured agrees to:
 Make good the loss suffered by the insured against a specific risk, or
 To pay a prefixed amount to the insured or his\her beneficiaries on
the happening of a specific event.

NATURE/CHARACTERISTICS OF INSURANCE:
1. Sharing of Risks - Insurance is a device to share the financial losses
which may occur to individual or his family on the happening of certain
events
2. Co-operative Device – Insurance is a co-operative device to spread the
loss caused by a particular risk over a large number of persons who are
exposed to it and who agree to insure themselves against the risk.
3. Value of Risk – Risk is evaluated at the time of insurance. There are
several methods of valuing the risk. Higher the risks, higher will be
premium
4. Payment on Contingency -If the contingency occurs, payment is made;
payment is made only for insured contingency. If there is no contingency,
no payment is made. In life insurance contract, payment is certain
because the death or the expiry of term will certainly occur. In other
insurance contract like fire, marine, the contingency may or may not
occur
5. Amount of Payment of Claim - The amount of payment depends upon
the value of loss occurred due to the particular insured risk. The insurance
is there up to that amount. In life insurance insurer pay a fixed sum on the
happening of an event or within a specified time period. Example – In fire
insurance, if fire occurs and half the property is destroyed, but the whole
 property is insured, then payment of claim will be made only for that half
building that is destroyed not the whole amount of insured.
6. Insurance is different from Charity - In charity, there is no
consideration but insurance is not given without premium.
7. Large number of Insured Person - Insurance is spreading of loss over a
large number of persons. Larger the number of persons, lower the cost of
insurance and amount of premium and in case lower the number of
persons, higher the cost of insurance and amount of premium.
8. Insurance is different from Gambling - In gambling, there is no
guarantee of gain, by bidding the person expose himself to risk of losing.
Whereas in insurance, by getting insured his life and property, he protects
himself against the risk of loss.

INSURANCE ASSURANCE
(NONLIFE INSURANCE) (LIFE INSURANCE)
The term insurance is used for Term assurance is used for life
nonlife insurance contract insurance business
In case of insurance, loss due Loss due to risk is certain
to risk is not certain to happen. Death is bound to
happen, i.e., loss likely to happen
happen or not
Goods and property are the Human life is the subject
subject matter of non-life matter of life insurance
insurance contract
Insurance is a contract for 1 It is a continuing contract i.e.,
year long term contract
Fire, marine insurance are the It is not a contract of
contracts of indemnity indemnity. Since life lost
cannot be returned
This insurance policy cannot It can be surrendered by the
be surrendered by the assured assured before its maturity
before the maturity

ESSENTIALS OF INSURANCE CONTRACT

1. Offer and Acceptance: There must be a ‘lawful offer’ and a ‘lawful
acceptance’ of the offer. There must be two parties to an agreement, one
making the offer and the other accepting it. The offer must be definite,
unambiguous and certain. It must be communicated. Acceptance must be
 absolute and unqualified i.e.; it should not be conditional. It must be
communicated to the offeror.
2. Intention to create legal relationship: There must be an intention
among the parties that the agreement should be attached by legal
consequences and create legal obligations. Agreement of a social or
domestic nature does not involve any legal obligations so they are not a
contract.
3. Lawful consideration: Consideration means something in return. An
agreement is enforceable only when each of the parties to it
gives something and gets something consideration must be ‘something of
value’. It may be past, present or future.
4. Capacity of parties: The parties to an agreement must be competent to
contract. Parties must be of the age of majority and of sound mind and
must not be disqualified from contracting by any law to which they are
subject (Section 11). If any of the parties to the agreement suffers a from
minority, lunacy, idiocy, drunkenness, etc., the agreement is not
enforceable.
5. Free consent: One of the essentials of the valid contract is that there
should be consensus ad idem, i.e., they agree upon the same thing in the
same sense at the same time and that their consent is free and real.
When there is no consent, there is no contract.
6. Lawful object: The object of the contract must be lawful. It should not be
illegal, immoral or opposed to public policy. If the object of the agreement
is performance of unlawful act, the agreement is unenforceable, for
example, an agreement to commit an assault or to beat a man has been
held unlawful and void.
7. Writing and registration: According to the Indian Contract Act, a
contract may be oral or in writing. But in certain special cases, it lays
down that the agreement, to be valid, must be in writing or/and
registered. For example, it requires that an agreement to pay a time
barred debt must be in writing and an agreement to make a gift for
natural love and affection must be in writing and registered.
8. Certainty: The terms of agreement must be certain and not vague,
indefinite or ambiguous. For example, A, agree to sell B” a hundred tons
of oil.” There is nothing whatever to show what kind of oil was intended,
the agreement is void for uncertainty.
9. Possibility of performance: A contract must be capable of
performance. An agreement to do an act impossible is itself is void.
10. Agreement not declared void: The agreement must not be had
been expressly declared void by any law in force in the country.

FUNCTIONS OF INSURANCE
PRIMARY FUNCTIONS
1. Certainty of compensation of loss: Insurance provides certainty of
payment at the uncertainty of loss. The elements of uncertainty are
 reduced by better planning and administration. The insurer charges
premium for providing certainty.
2. Insurance provides protection: The main function of insurance is to
provide protection against risk of loss. The insurance policy covers the risk
of loss. The insured person is indemnified for the actual loss suffered by
him. Insurance thus provides financial protection to the insured. Life
insurance policies may also be used as collateral security for raising loans.
3. Risk sharing: All business concerns face the problem of risk. Risk and
insurance are interlinked with each other. Insurance, as a device is the
outcome of the existence of various risks in our day-to-day life. It does not
eliminate risks but it reduces the financial loss caused by risks. Insurance
spreads the whole loss over the large number of persons who are exposed
by a particular risk.
Secondary functions:
1. Prevention of losses: The insurance companies help in prevention of
losses as they join hands with those institutions which are engaged in loss
prevention measures. The reduction in losses means that the insurance
companies would be required to pay lesser compensations to the assured
and manage to accumulate more savings, which in turn, will assist in
reducing the premiums
2. Providing funds for investment: Insurance provides capital for society.
Accumulated funds through savings in the form of insurance premium are
invested in economic development plans or productivity projects.
3. Insurance increases efficiency: The insurance eliminates the worries
and miseries of losses. A person can devote his time to other important
matters for better achievement of goals. Businessman feel more
motivated and encouraged to take risks to enhance their profit earning.
This also helps in improving their efficiencies.
4. Solution to social problems: Insurance takes care of many social
problems. We have insurance against industrial injuries, road accident, old
age, disability or death etc.
5. Encouragement of savings: Insurance not only provides protection
against risks but also a number of other incentives which encourages
people to insure. Since regularity and punctuality of payment of premium
is a prerequisite for keeping the policy in force, the insured feels
compelled to save.

IMPORTANCE OR BENEFITS OF INSURANCE

IMPORTANCE:
a) Security and Safety: It gives a sense of security and safety to the
businessman. It enables him to receive compensation against actual loss.
He can concentrate on his business with a secure feeling that in case of
losses arising from insurable risk, his losses will be compensated.
b) Distribution of risk: Risk in insurance is spread over a number of people
rather being concentrated on a single individual.
c) Normal expected profit: An insured trader can enjoy normal margin of
profit all the time. He is protected from unexpected losses because of
insurance.
d) Easy to get loans: A trader can get bank loans easily if his stock or
property is insured, as insurance provides a sense of security to the
lenders.
e) Advantages of Specialization: Businessmen can concentrate on their
business activities without spending more time on safeguarding their
property. The insurance companies, on the other hand, can provide
specialized insurance services.
f) Development of Social Sectors: Insurance funds are available for
economic development particularly for the development of social sectors.
Especially for a developing country like India, insurance funds are an
important source for investing in infrastructure projects (roads, power,
water supply, telecom etc).
g) Social cooperation: The burden of loss is shouldered by so many
persons. Thus, insurance provides a form of social cooperation.

BENEFITS TO INDIVIDUAL
a) Insurance provides security & safety: Insurance gives a sense of
security to the policy holder. Insurance provides security and safety
against the loss of earning at death or in old age, against the loss at fire,
against the loss at damage, destruction of property, goods, furniture etc.
b) Insurance provides Protection: Life insurance provides protection to
the dependents in case of death of policyholders and to the policyholder
in old age. Fire insurance insured the property against loss on a fire.
Similarly other insurance provide security against the loss by indemnifying
to the extent of actual loss.
c) Encourage Savings: Life insurance is best form of saving. The insured
person must regularly save out of his current income an amount equal to
the premium to be paid otherwise his policy get lapsed if premium is not
paid on time.
d) Providing Investment Opportunity: Life insurance provides different
policies in which individual can invest smoothly and with security; like
endowment policies, deferred annuities etc. There is special exemption in
the Income Tax, Wealth Tax etc. regarding this type of investment

Benefits to Business or Industry

a) Shifting of Risk: Insurance is a social device whereby businessmen shift
specific risks to the insurance company. This helps the businessmen to
concentrate more on important business issues.
b) Assuring Expected Profits: An insured businessman or policyholder can
enjoy normal expected profits as he would not be required to make
provisions or allocate funds for meeting future contingencies.
c) Improve Credit Standing: Insured assets are easily accepted as
security for loans by the banks and financial institutions so insurance
improve credit standing of the business firm
d) Business Continuation: With the help of property insurance, the
property of business is protected against disasters and chance of closure
of business is reduced

Benefits to the Society

a) Capital Formation: As institutional investors, insurance companies
provide funds for financing economic development. They mobilize the
saving of the people and invest these saving into more productive
channels
b) Generating Employment Opportunities: With the growth of the
insurance business, the insurance companies are creating more and more
employment opportunities.
c) Promoting Social Welfare: Policies like old age pension scheme,
policies for education, marriage provide sense of security to the
policyholders and thus ensure social welfare.
d) Helps Controlling Inflation: The insurance reduces the inflationary
pressure in two ways, first, by extracting money in supply to the amount
of premium collected and secondly, by providing funds for production
narrow down the inflationary gap.

PRINCIPLES OF INSURANCE
1. Principle of utmost good faith: A contract of insurance is a contract of
‘Uberrimae Fidei’ i.e., of utmost good faith. Both insurer and insured
should display the utmost good faith towards each other in relation to the
contract. In other words, each party must reveal all material information
to the other party whether such information is asked or not. There should
not be any fraud, non-disclosure or misrepresentation of material facts.
Example – In case of life insurance, the insured must revel the true age
and details of the existing illness/diseases. If he does not disclose the true
fact while getting his life insured, the insurance company can avoid the
contract.
Similarly, in case of the insurance of a building against fire, the insured
must disclose the details of the goods stored, if such goods are of
hazardous nature.
A material fact means important facts which would influence the judgment
of the insurer in fixing the premium or deciding whether he should accept
the risk, on what terms. All material facts should be disclosed in true and
full form
2. Principle of Insurable Interest: This principle requires that the insured
must have an insurable interest in the subject matter of insurance.
Insurance interest means some pecuniary interest in the subject matter of
contract of insurance. Insurance interest is that interest, when the policy
holders get benefited by the existence of the subject matter and loss if
there is death or damage to the subject matter.
For example – In life insurance, a man cannot insure the life of a stranger
as he has no insurable interest in him but he can get insured the life of
himself and of persons in whose life he has a pecuniary interest. So, in the
life insurance interest exists in the following cases: -
 Husband in the life of his wife and wife in the life of her husband.
 Parents in the life of a child if there is pecuniary benefit derived
from the life of a child.
 Creditor in the life of debtor.
 Employer in the life of an employee
 Surety in the life of a principal debtor
In life insurance, insurable interest must be present at the time when the
policy is taken. In fire insurance, it must be present at the time of
insurance and at the time if loss if subject matter. In marine insurance, it
must be present at the time of loss of the subject matter.
3. Principle of Indemnity: This principle is applicable in case of fire and
marine insurance only. It is not applicable in case of life, personal accident
and sickness insurance. A contract of indemnity means that the insured in
case of loss against which the policy has been insured, shall be paid the
actual cost of loss not exceeding the amount of the insurance policy. The
purpose of contract of insurance is to place the insured in the same
financial position, as he was before the loss.
Example – A house is insured against fire for Rs. 50000. It is burnt down
and found that the expenditure of Rs. 30000 will restore it to its original
condition. The insurer is liable to pay only Rs. 30000.
In life insurance, principle of indemnity does not apply as there is no
question of actual loss. The insurer is required to pay a fixed amount upon
in advance in the event of accident, death or at the expiry of the fixed
term of the policy. Thus, a contract of a life insurance is a contingent
contract and not a contract of indemnity.
4. Principle of Contribution: The principle of contribution is a corollary to
the doctrine of indemnity. It applies to any insurance which is a contract
of indemnity. So, it does not apply to life insurance. A particular property
may be insured with two or more insurers against the same risks. In such
cases, the insurers must share the burden of payment in proportion to the
amount insured by each. If one of the insurers pays the whole loss, he is
entitled to contribution from other insurers
 Example – B gets his house insured against fire for Rs. 10000 with insurer
P and for Rs. 20000 with insurer Q. a loss of Rs. 15000 occurs, P is liable
to pay for Rs. 5000 and Q is labile to pay Rs 10000. If the whole amount of
loss is paid by Q, then Q can recover Rs. 5000 from P.
5. Principle of Subrogation: The doctrine of subrogation is a collorary to
the principle of indemnity and applies only to fire and marine insurance.
According to doctrine of subrogation, after the insured is compensated for
the loss caused by the damage to the property insured by him, the right of
ownership to such property passes to the insurer after settling the claims
of the insured in respect of the covered loss.
Example – Furniture is insured for Rs. 1 lakh against fire, it is burnt down
and the insurer pays the full value of Rs. 1 Lakh to the insured, later on
the damage Furniture is sold for Rs. 10000. The insurer is entitled to
receive the sum of Rs. 10000.
A loss may occur accidentally or by the action or negligence of third party.
If the insured suffer a loss because of action of third party and he is in a
position to recover the loss from the insurer then insured cannot take
action against third party, his right is subrogated (substituted) to the
insurer on settlement of the claim. The insurer, therefore, can recover the
claim from the third party.
If the insured recovers any compensation for the loss (due to third party),
from the third party, after he has already been indemnified by the insurer,
he holds the amount of such compensation as the trustee if the insurer.
The insurer is entitled to the benefits out of such rights only to the extent
of the amount he has paid to the insured as compensation.
6. Principle of Causa Proxima: Causa Proxima means proximate cause or
cause which, in a natural and unbroken series of events, is responsible for
a loss or damage. The insurer is liable for loss only when such a loss is
proximately caused by the peril insured against. The cause should be the
proximate cause and cannot the remote cause. If the risk insured is the
remote cause of the loss, then the insurer is not bound to pay
compensation. The nearest cause should be considered while determining
the liability of the insured. The insurer is liable to pay if the proximate
cause is insured.
Example – In a marine insurance policy, the goods were insured against
damage by sea water, some rats on the board made a hole in a bottom of
the ship causing sea water to pour into the ship and damage the goods.
Here, the proximate cause of loss is sea water which is covered by the
policy and the hole made by the rats is a remote cause. Therefore, the
insured can recover damage from the insurer
Example – A ship was insured against loss arising from collision. A
collision took place resulting in a few days delay. Because of the delay, a
 cargo of oranges becomes unsuitable for human consumption. It was held
that the insurer was not liable for the loss because the proximate cause of
loss was delay and not the collision of the ship.
7. Principle of Mitigation of Loss: An insured must take all reasonable
care to reduce the loss. We must act as if the property was not insured.
Example – If a house is insured against fire, and there is accidental fire,
the owner must take all reasonable steps to keep the loss minimum. He is
supposed to take all steps which a man of ordinary prudence will take
under the circumstances to save the insured property.

TYPES OF INSURANCE
The different types of insurance have come about by practice within
insurance companies, and by the influence of legislations controlling the
transacting of insurance business. Broadly, Insurance may be classified in
to following categories:
 Classification from business point of view: These are as such;
a) Life insurance
b) General insurance
 Classification from risk point of view: These may be classified as follows;
a) Personal insurance
b) Property insurance
c) Liability insurance
d) Fidelity Guarantee Insurance

CLASSIFICATION FROM BUSINESS POINT OF VIEW

a) Life Insurance: The life insurance contract provides elements of
protection and investment after getting insurance, the policyholder feels a
sense of protection because he shall be paid a definite sum at the death
or maturity. Since a definite sum must be paid, the element of investment
is also present. In other words, life insurance provides against pre-
mature death and a fixed sum at the maturity of policy. At present, life
insurance enjoys maximum scope because each and every person
requires the insurance.
Life insurance is a contract under which one person, in consideration of a
premium paid either in lump sum or by monthly, quarterly, half yearly or
yearly instalments, undertakes to pay to the person (for whose benefits
the insurance is made), a certain sum of money either on the death of the
insured person or on the expiry of a specified period of time.
Types of Life Insurance Policies in India
 Term Life Insurance
 Whole Life Insurance
  Endowment Policy
 Money Back Policy
 Savings & Investment Plans
 Retirement Plans
 Unit Linked Insurance Plans – ULIPS
 Child Insurance Policy
i. Term Life Insurance: Term life insurance is a type of life insurance that
provides a death benefit to the beneficiary only if the insured dies during
a specified period. If the insured survives until the end of the period, or
term, the coverage ceases without value and a payout or death claim
cannot be made. Term life insurance is income replacement that remains
active for a specified number of years. Term life insurance is the most
affordable type of life insurance.
Benefits of Term Life Insurance Plans
 Provides life coverage and financial security to the family of the insured
at an affordable premium rate.
 Term insurance plans can be bought online in a simple and hassle
freeway.
 As compared to other life insurance policies term insurance plans offer
higher coverage at a minimum premium rate.
 Term insurance plans offer flexible payout options to the policyholder.
 The premiums paid towards the term insurance plans are eligible for
tax exemption under section 80C of Income Tax Act 1961.
 Term insurance plans also offer the option of additional rider benefit in
order to enhance the coverage of the policy.
ii. Whole Life Insurance: Whole life insurance is a type of life insurance
that provides you coverage throughout your lifetime provided the policy is
in force. Whole life insurance policies also contain a cash value
component that increases over time. You can withdraw your cash value or
take out a loan against it as per your convenience. In addition, in case of
your unfortunate demise before you pay back the loan, the death benefit
paid to your beneficiaries will be reduced.
Benefits of Whole Life Insurance Policy
 One of the major benefits of whole life insurance plan is that it provides
coverage against death for the entire life of the insured i.e., up to 100
years of age.
  Some whole life insurance plans offer the advantage of period payment
to the insured. The whole life insurance plans offer survival benefits to
the insured in form of period payments.
 Tax benefit can be availed under section 80C and 10(10D) of Income
Tax Act 1961.
 Whole life insurance plans offer loan facility to the policyholder.
 The whole life insurance plans can be bought online in a simple and
hassle-free way.
iii. Endowment Policy: An endowment policy is defined as a type of life
insurance that is payable to the insured if he/she is still living on the
policy's maturity date, or to a beneficiary otherwise. An endowment policy
provides you with a dual combination of protection and savings. In an
endowment policy, if the insured dies during the term of the policy, the
nominee receives the sum assured plus the bonus or participating profit or
guaranteed additions, if any. The bonus or profit is paid for the number of
years that the insured survives in the policy term.
Benefits of Endowment Policy
 Endowment plan provides the dual benefit of savings cum insurance
coverage.
 Tax benefit can be availed under section 80C and 10(10D) of Income
Tax Act 1961.
 Endowment policy offers the benefit of long-term savings to the
policyholder.
 Endowment plans also come with rider benefits to increase the
coverage of the policy.
 Endowment plan also comes with an additional bonus facility as a
terminal bonus and reversionary bonus.
 As compared to the other investment options endowment plans are
considered as a low-risk investment option.
iv. Money Back Policy: Money back policy gives you money during the
policy tenure. A money back policy gives you a percentage of the sum
assured at regular intervals during your policy term. If you live beyond the
term of the policy then you will receive the remaining portion of the
corpus and the accrued bonus also at the end of the policy term. But in
case of an unfortunate event before the full term of the policy is over; the
beneficiaries are entitled to receive the entire sum assured regardless of
the number of instalments paid out. Money back policies are the most
expensive insurance options offered by insurance companies as they offer
returns to the insured during the policy tenure.
 Benefits of Money Back Policy
 Money back policies are low-risk savings options which also offer the
benefit of life coverage.
 Money back policy offers regular income to the policyholder in
particular intervals of time in form of survival benefit.
 Tax benefit can be availed under section 80C and 10(10D) of Income
Tax Act 1961.
 Money back policy helps the insured to fulfil the short-term financial
goals of life.
 Additional rider benefits are offered under the policy in order to
increase the coverage of the policy.
 Money back plans also come with an additional bonus facility.
 Money back plans offer risk free returns to the policyholder.
v. Savings & Investment Plans: Savings & Investment Plans provide you
the assurance of lump sum funds for you and your family's future
expenses. While providing an excellent savings tool for your short term
and long-term financial goals, these plans also assure your family a
certain sum by way of an insurance cover. This is a broad categorisation
which covers both the traditional and unit linked plans.
Benefit of Savings and Investment plans
 Savings investment plans offer the benefits of market linked returns to
the policyholder.
 These plans not only provide an opportunity to create corpus over a
long period of time but also offers life protection to the family of the
insured in case of any eventuality.
 Tax benefit can be availed under section 80C and 80D of Income Tax
Act 1961.
 Savings investment plan helps to fulfil the short-term and long-term
financial goals of life.
vi. Retirement Plans: A savings and investment plan that provides you with
income during retirement is called Retirement Plan. Retirement plans are
offered by life insurance companies in India and help you to build a
retirement corpus. On maturity, this corpus is invested for generating a
regular income stream which is referred to as pension or annuity.
Benefits of Retirement Plan
 Helps the insured to create a financial cushion for future so that they
can secure the life after retirement.
  The policyholder is entitled to gain tax benefit under section 80C of
Income Tax Act 1961.
 During the vesting age, the policyholder receives the monthly pension.
 Retirement plan helps the insured to achieve the long-term financial
goals of life.
vii. Unit Linked Insurance Plans – ULIPS: Unit linked insurance plans are a
type of life insurance plan that provide you with a dual advantage of
protection and flexibility in investment. A unit-linked insurance plan (ULIP)
is a type of life insurance where the cash value of a policy varies
according to the current net asset value of the underlying investment
assets. The premium paid is used to purchase units in investment assets
chosen by the policyholder.
Benefits of Unit Linked Insurance Plan-ULIP
 ULIP plan offers the dual benefit of investment cum insurance
coverage.
 ULIP offers the facility to switch between funds.
 The premium paid towards ULIP plans is eligible for tax benefit under
section 80C of Income Tax Act.
 Additional rider benefits are offered under the policy in order to
increase the coverage of the policy.
 ULIP plans allow the insurance holder to make a partial withdrawal
within the tenure of the policy.
viii. Child Insurance Policy: A child insurance policy is a saving cum
investment plan that is designed to meet your child ‘s future financial
needs. A child insurance policy allows your kids to live their dreams. Child
insurance policy gives you the advantage to start investing in the children
‘s plan right from the time the child is born and provisions to withdraw the
savings once the child reaches adulthood. Some child insurance policies
do allow intermediate withdrawals at certain intervals.
Benefits of Child Plan
 Secured the future of the child financially even in the absence of the
parents.
 Child insurance plans offer premium waiver benefit in case of demise of
the insured during the tenure of the policy.
 Tax benefit can be availed under a different section of Income Tax Act
1961.
 A secured loan can be availed under the child insurance plan.
  Offers flexible premium payment options.
b) GENERAL INSURANCE: Insurance contracts that do not come under the
ambit of life insurance are called general insurance. The different forms of
general insurance are fire, marine, motor, accident and other
miscellaneous non-life insurance.
A General Insurance Policy will pay for the losses that may occur during
the policy period only.
 A policy or agreement between the policyholder and the insurer which
is considered only after realization of the premium.
 The premium is paid by the insured who has a financial interest in the
asset covered.
 The insurer will protect the insured from the financial liability in case of
loss.
TYPES OF GENERAL INSURANCE
Following are the different types of General Insurances in India:
 Motor Insurance
 Home Insurance
 Travel Insurance
 Health Insurance
 Marine Insurance
 Commercial Insurance
i. Motor Insurance: Insurance for the damage or theft of your motor
vehicle, two-wheeler, three-wheeler or four-wheeler, is covered under this
type of insurance. The damage caused to the vehicle can be caused
natural or man-made circumstances, the extent of which would change
from policy to policy. Under the Motors Vehicle Act, motor insurance is
mandatory in India. New motor vehicles come with third-party insurance
right from the showroom itself.
ii. Home Insurance: Home and household insurance protects your home
and the items inside it. A home insurance policy would also cover natural
and man-made circumstances. The contents that are covered under a
home insurance policy would depend on the type of policy you buy.
iii. Travel Insurance: Another popular type of general insurance is travel
insurance, which covers your trips abroad. Travel insurance can be taken
to cover loss or theft of your valuables as well as documents. Some travel
insurance policies also cover flight delays and medical emergencies.
Travel insurance can be taken for personal as well as business trips.
 iv. Health Insurance: It is a type of insurance coverage that pays
for medical and surgical expenses incurred by the insured. Health
insurance can reimburse
the insured for expenses incurred
from illness or injury, or pay the care
provider directly.
v. Marine Insurance: Coverage
against loss of or damage to a ship;
and in-transit cargo loss or damage
over waterways.
vi. Commercial insurance: Coverage
for businesses for protection against potential losses through unforeseen
circumstances like theft, liability, property damage, and for coverage in
the event of an interruption of business or injured employees.
Classification from Risk Point of view
i. Personal Insurance: Personal insurance is any insurance that protects
you from having to pay out of pocket for accidents, illness or damage to
your property. To get insurance, you agree to pay a monthly or annual
premium in return for a payout when you need it. It includes Car
insurance, Home and renters’ insurance, Life insurance, Travel insurance,
Disability insurance, Critical illness insurance, Landlord insurance.
ii. Property Insurance: It provides protection against most risks
to property, such as fire, theft and some weather damage. This includes
specialized forms of insurance such as fire insurance, flood insurance,
earthquake insurance, and home insurance.
iii. Liability Insurance: It also called third-party insurance is a part of the
general insurance system of risk financing to protect the purchaser (the
"insured") from the risks of liabilities imposed by lawsuits and similar
claims and protects the insured if the purchaser is sued for claims that
come within the coverage of the insurance policy.
iv. Fidelity Coverage: It is a type of insurance that will protect a business
owner against the theft of money, property, forgery or fraud by an
employee. It will guarantee that if a business owner or employer suffers
any loss due to employee dishonesty, the chosen insurer will share this
loss as long as they are within the limitations prescribed by the contract.
v. Social Insurance: Social insurance provides protection to the weaker
sections of the society who is unable to pay the premium. It includes
pension plans, disability benefits, unemployment benefits, sickness
insurance and industrial insurance.
vi. Reinsurance: Reinsurance is the transfer of insurance business from
once insurance to another. Reinsurance is an arrangement whereby an
original insurer who has insured a risk ensures part of that risk again with
another insurer, that is to say, reinsurance a part of risk in order to
diminish his own liability. The insurer transferring the business is called
the ‘principle’ or ‘ceding’ or ‘original’ of fire and the office to which the
 business is transferred is called for ‘reinsurer’ or ‘guaranteeing office’. It is
also a contract of indemnity. Reinsurance is a contract between the
reinsured (the insurer) and the reinsurer.
Example; Mr. X, a factory owner, approached an insurance company ‘A’
for an insurance of an amount of Rs. 40 crores. Company ‘A’ has two
options before it. It can reject the risk or accept the entire risk and share a
part of the risk with another insurer. In case, the company ‘A’ decides to
assume the risk, by retaining Rs. 20 crores worth of insurance with it and
seeking assistance of other insurer for the excess of his own limit. i.e., for
the balance of Rs. 20 crores. The excess for which the company ‘A’ is
approaching the other insurer is called “Reinsurance”.
Features:
1. It is primarily a wholesale insurance where one insurance company insures with
other insurance company.
2. The insurance company may insure the same risk wholly or partially.
3. The original insurer agrees to transfer part of his risk to other insurance
company on the same terms and conditions.
4. Original insurer cannot ensure the risk with a re-insurer, more than the
sum assured, originally by the insured.
5. Reinsurance can be applied to all kinds of insurance
6. In the event of fire, the insured is entitled to get the amount of claim only
from the original insurer and not from reinsurer.
7. The contract of reinsurance is also a contract of indemnity; therefore, it consists
of same essential features of contract.
8. Reinsurer pays the claim only when the insurer pays to the insured.
9. Reinsurer is not liable to the insured because there is no contract between
reinsurer and the insured.
[Link] original insurer should intimate to the reinsurer about the alteration,
if any, made in terms and conditions with the insured.
[Link] original policy comes to an end, the policy of reinsurance also comes to
an end.
Types of Reinsurance
 ADVANTAGES OF REINSURANCE

1. Reinsurance boosts Insurance Business: The major advantage of

reinsurance is that it assists in the boom of insurance business. It enables
every insurer to accept insurance business as the total risk will be
distributed among other reinsurers. If there is no reinsurance, the insurer
may not be willing to take up risks, particularly when the risk exceeds
beyond his capacity to manage.
2. Reinsurance reduces the risks: The prime principle of insurance is to
reduce risk. As the risks are spread across wider area, the loss of the
individual is minimized which gives the insurer the secured feel. The
revenue of insurance companies is stable due to reinsurance. It also helps
the insurance companies to gain knowledge about various types of risks
and the basis of rating the risks in the future.
3. Reinsurance Increases Goodwill of Insurer: Reinsurance helps to
boost the overall confidence and goodwill of insurer. When the insurer
develops confidence, he understands the nature of risks involved beyond
his capacity. So, reinsurance increases goodwill of an insurer.
4. Reinsurance Limits the Liability: Reinsurance motivates the insurers
to undertake and spread the risks. Hence the liability of insurer is limited
to the maximum.
5. Reinsurance Stabilizes premium Rates: The premium rates of
insurance are stabilized by reinsurance. Generally, the premium rates are
calculated on the basis of the loss experienced by the insurer in the past,
due to the risk concerned. Reinsurance takes into account of all these
data and fixes the premium
rate according for various
types of risks under mutual
agreement. Thus,
reinsurance stabilizes the
fluctuations in the premium
rates of various types of
risks.
6. Reinsurance Protects the
Insurance Funds: The
insurance funds of the
insurer are well protected
due to reinsurance.
Additional security and peace
of mind is an added
advantage of reinsurance for the insurer and the company that offers the
insurance.
7. Reinsurance Reduces Competition: The competitions between inter
company is reduced as everyone work in a cooperative manner and with
the helping tendency in the insurance business. Thus, reinsurance helps
to control competition and increase overall morale of the employees in the
insurance business.
8. Reinsurance Reduces profit fluctuations: The reinsurance plans
reduce, to a considerable extent the violent fluctuations in the profits of
 the company. If on the other hand, heavy risks are retained by the original
insurer; his profits are greatly upset due to a heavy single loss.
9. Reinsurance encourages new enterprises: It encourages the new
underwriters, who in their early period of development have limited
retentive capacity. In the absence of reinsurance facility, the tremendous
growth of new enterprises is doubtful.
10. Reinsurance Minimizes dealings: Due to the reinsurance
scheme, the insurer is required to indulge in the minimum dealings with
only one insurer. In the absence of insurance facility, the insured will have
to approach several insurers to enter into various individual insurance on
the same property. This involves considerable cost, loss of valuable time
and slower down the peace of protection cover.
DOUBLE INSURANCE:
It is s a type of insurance where the same subject matter is insured more
than once. In such cases the same subject is insured, but with different
insurers. The method of double insurance is considered a legal act.
When the insured (client) ensures the same risk with two or more
independent insurers and total sum exceeds the value of the subject matter, it
is called double insurance. If the aggregate of all the insurance exceeds the total
value of the insured risk, it is over-insurance, if there is no express condition in
the contract, double insurance or over insurance is legally valid. In the case of
life insurance, double insurance is profitable because the insured can get full
policy money under all policies.
RULES OF DOUBLE INSURANCE:
1. Recovery of actual loss: A man may insure with as many insurers as he
pleases and up to the full value of his interest with each one. If a loss
occurs, he may claim payment from the insurers in such order as he may
think fit, but in no event is he entitled to recover more than his loss,
because a contract of insurance is a contract of indemnity only. This right
to sue his insurers in any order he likes is a valuable right for the assured.
It protects him against loss in the event of one or more of the insurers
becoming insolvent.
2. Excess amount recovered to the be held in trust: If an assured
recovers more than the value of his interest in case of loss, he holds the
excess amount recovered for the insurers according to their respective
rights inter se, as a trustee.
3. Liability of Insurers Contribution: The insurers as between
themselves are liable to contribute to the loss in proportion to the amount
for which each one is liable. If an insurer pays more than his rateable
proportion of the loss, he has a right to recover the excess from his co-
insurers who have paid less than their rateable proportion.
4. No limit on Life Insurances: In case of Life Insurance, an assured may
take any number of policies on his life and for any amount.

DIFFERENCE BETWEEN DOUBLE INSURANCE AND

REINSURANCE
BASIS FOR DOUBLE INSURANCE REINSURANCE
 COMPARIS
ON

Meaning Double insurance refers to Reinsurance implies an

a situation in which the arrangement, wherein the
same risk and subject insurer transfer a part of risk,
matter is insured more by insuring it with another
than once. insurance company.

Subject Property, Life Original insurer's risk

Compensa It can be claimed with all It can be claimed from the

tion insurers. original insurer, who will claim
the same from reinsurer.

Loss Loss will be shared by all The reinsurer will only be liable
the insurers in proportion for the proportion of
of the sum insured. reinsurance.

Aim To assure the benefit of To reduce the risk of the insurer

insurance

Interest of Insurable interest No interest

insured

Consent of Necessary Not necessary

insured

SOCIAL INSURANCE:
Social insurance has been developed to provide economic security to
weaker sections of the society who are unable to pay the premium for
adequate insurance. The following types of insurance can be included in
social insurance
i. Sickness Insurance: In this type of insurance medical benefits,
medicines and reimbursement of pay during the sickness period, etc. are
given to the insured person who fell sick.
ii. Death Insurance: Economic assistance is provided to dependants of the
assured in case of death during employment. The employer can transfer
his liability by getting insurance policy against employees.
iii. Disability Insurance: There is provision for compensation in case of
total or partial disability suffered by factory employees due to accident
while working in factories. According to Employees Compensation Act, the
responsibility to pay compensation is vest with the employer. But the
employer transfers his liability on the insurer by taking group insurance
policy.
iv. Unemployment Insurance: In case insured person becomes
unemployed due certain specific reasons, he is given economic support till
he gets employment.
v. Old-age insurance: In this category of insurance, the insured or his
dependents is paid, after certain age, economic assistance.
MISCELLANEOUS INSURANCE:
The process of fast development in the society gave rise to a number of
risk or hazards. To provide security against such hazards, many other
types of insurance also have been developed. The important among them
are:
(i) Vehicle insurance on buses, cars, trucks, motorcycles, etc. and made
compulsory so that the losses due to accidents can be claimed from the
insurance company.
(ii) Personal accident insurance by paying an annual premium Rs.12 on policy
worth Rs.12, 000. In case of accidental death or total/partial disability, a
fixed amount as per conditions of insurance, is paid to the insured.
(iii) Burglary insurance against theft, dacoity etc.
(iv) Legal liability insurance (insurance whereby the assured is liable to
pay the damages to property or to compensate the loss of personal injury
or death. This is in the form of fidelity guarantee insurance, automobiles
insurance and machines etc.
(v) Crop insurance (crops are insured against losses due to heavy rains and
floods, cyclone, draughts, crop diseases, etc.)
(vi) Cattle insurance (Insurance for indemnity against the loss of cattle
from various kinds of diseases).
(vii) In addition to the above, insurance plans are available against
crime, medical insurance, bullock cart, jewellery, cycle rickshaw, radio,
[Link]., etc.

LEGAL FRAMEWORK FOR INSURANCE BUSINESS IN INDIA

Acts/Regulations Governing Both Life & General Insurance
Business in India
The following Acts regulate the Insurance Business in India:
 Insurance Act, 1938
 IRDAI Act, 1999 & Regulations passed there under.
 Insurance Amendment Act, 2002
 Exchange Control Regulations (FEMA).
 Indian Stamp Act, 1899.
 Consumer Protection Act, 1986.
 Insurance Ombudsman Rules, 2017.
 Labour Law legislations.
Regulations Governing/Affecting Life Insurance Business in India
 The following Acts govern/regulate the life insurance business in India:
1. LIC Act, 1956.
2. Amendments to LIC Act.
Regulations affecting General Insurance Business in India
The following Acts affect, circumscribe or regulate in some way or the
other, some aspect of the General Insurance Business in India:
 General Insurance Nationalization Act, 1972.
 Amendments to GIN Act, 1972.
 Multi-Modal Transportation Act, 1993.
 Motor Vehicles Act, 1988.
 Inland Steam Vessels Amendment Act, 1977.
 Marine Insurance Act, 1963.
 Carriage of Goods by Sea Act, 1925.
 Merchant Shipping Act, 1958.
 Bill of Lading Act, 1855.
 Indian Ports (Major Ports) Act, 1963.
 Indian Railways Act, 1989.
 Carriers Act, 1865.
 Indian Post Office Act, 1898.
 Carriage by Air Act, 1972.
 Public Liability Insurance Act, 1991.
 Employee State Insurance Act,1948
 Aircraft Act, 1934.

PRINCIPLES GOVERNING MARKETING OF INSURANCE

PRODUCT
Insurance products come in a variety of forms and are advertised and
marketed using a variety of methods to entice customers. Insurance
companies need to market their products because they are in competition
with other insurance for the same customers. Many time they only thing
that distinguishes a company’s product is price as well as advertising
message. The marketing of insurance products can be done directly by an
insurance carrier as well as an agent or company representative.
The following principles are to be adhered by the insurance
companies while marketing their insurance products
1. Provide promotional material such as pamphlets that customers can take
with them. These can be provided at an agency as well as a promotional
or company event.
2. Use a company representative to explain and promote a product or
service that insurance agent can sale at their agencies. Many insurance
use company representatives that go to their agent offices regularly.
3. Buy a local television adds during a sporting event or other type of widely
watched event. There are many commercials that appear on television for
either an insurance company products services or local agent.
4. Take out an ad in the local newspaper or in magazine. Many people still
read newspaper and magazine but decide carefully before spending
money on an add.
5. Who is your ideal client? A young family, a high-risk driver, good credit,
bad credit? Define them. Make sure you have the right products to fit
their needs at a competitive rate. Then figure out where you can find
large groups of these people at inexpensive rates. And start marketing.
6. Have a professional Insurance Agency Face book page. Clients want to be
able to reach you in the methods they use most. Social media is
important for that reason alone.
7. Start speaking at local organization meetings. One favourite topic such as
5 ways to save money on insurance.
8. Create a website that generates quotes. Make sure that the site has a
blog and that you are posting on it at least twice a month. This improves
your Goggle ranking and shows that you are an insurance expert.
9. Use direct mail to advertise a specific product or market a particular
insurance agent in an area. Many insurance agents send a post card or a
letter to customers to promote their services or policy savings.
10. Advertise on website or use popular services such as goggle ad
words.
11. Do a semi-annual marketing campaign to clients who need a
Personal Umbrella Policy.
12. Host a free seminar for your clients. Choose a topic like retirement
planning or financial planning for new parents, etc.