ELEMENTS OF INSURANCE
UNIT - I
BY: Smt. [Link], [Link], [Link],
Guest Lecturer in Commerce, B. Com Shift-II,
CONTENTS:
❖ INTRODUCTION
❖ MEANING & DEFINITION
❖ HISTORY OF INSURANCE
❖ IMPORTANCE OF INSURANCE
❖ FUNCTIONS OF INSURANCE
❖ ESSENTIALS & KEY TERMS OF
INSURANCE
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ TYPES OF INSURANCE
❖ DIFFERENCES BETWEEN LIC &
GIC
❖ PRINCIPLES OF INSURANCE
❖ BENEFITS OF INSURANCE
❖ INSURANCE ORGANISATION &
COMPANIES IN INDIA
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
INTRODUCTION
Insurance is a promise of compensation for any
potential future [Link] is the collective bearing of
Risk, a form of Risk Management, all about
calculating & controlling risk. It transfers risk from
the Insured to one or more [Link] is the
possibility of an occurrence or a loss, where the
chances of its happening cannot be predicted.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
Meaning of Insurance
Insurance is a legal contract between two
parties- the insurance company (insurer) and
the individual (insured), wherein the insurance
company promises to compensate for financial
losses due to insured contingencies in return
for the premiums paid by the insured
individual.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
DEFINITION OF INSURANCE:
● * " A cooperative form of distributing a certain risk
over a group of persons who are exposed to it. "
● * " A Contract in which an individual or entity
receives Financial protection or reimbursement
against losses from a company. The company Pools
Client risks making payments more affordable for the
insured. "
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● * " A form of Contract agreement under
which one party agrees in return for a
consideration to pay an agreed amount of
money to another party to make good a loss,
damage, or injury to something of value in
which the Insured has interest as a result of
some uncertain event.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ HISTORY OF LIFE INSURANCE IN INDIA
❖ * 1818 - The first Life Insurance Company was - " The Oriental
Life Insurance Company " was set up in Kolkata.
❖ * 1870 - In 1870 The British Insurance Act passed an
Enactment and the following three Insurance Companies were
started in Bombay [Link] first Indian Life Insurance
Company are-
➢ 1.* 1871 -" Bombay Mutual Assurance Society Ltd.,
➢ 2.* 1874 - " Oriental Insurance Ltd., "
➢ 3.* 1897 - " Empire of India Ltd., “
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● * 1912 - The first Statutory measure was
introduced - " The Indian Life Insurance
Company Act 1912".
● * 1938 - The first Legislation Act " The
Insurance Act 1938" was passed for
effective control over activities of Insurers.
●
K [Link],[Link],[Link], Guest Lecturer, Department of Commerce
● *1956 “ Life Insurance CorporationAct ” was
passed by an Act Parliament on 19th January
1956, and the Life Insurance Corporation of
India - LIC Act 1956 was created with
contribution of Rs/- 5 Crore from the
Government of India & by Nationalising and
merging 245 Insurance Companies into one
entity as LIC of India.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● *The main aim and purpose for Nationalising
the Insurance Company -
* To provide strict state control over
Insurance Business,
* To safeguard the interest of Insured,
• Setting norms for carrying out the
business smoothly & minimizing
disputes in Settlement
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ HISTORY OF GENERAL INSURANCE:
In India, General Insurance dates back to the
Industrial Revolution.
General Insurance deals with Insurance other than
the Life of individuals.
❖ * 1850 - "Triton Insurance Company"
❖ * 1907 - " Indian Mercantile Insurance Ltd.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● * 1957 - General Insurance Council was formed.
● * 1972 - The General Insurance Business (
Nationalization ) Act
( GIBNA) passed. The General Insurance Corporation
of India ( GIC) was formed and it came into existence
from 1st July 1973 , where 107 General Insurance
Companies were amalgamated into 4 Companies.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
General Insurance companies were amalgamated
into 4 Companies.
● 1.*National Insurance Company Ltd*
● 2.*The New India Assurance Company Ltd*
● 3.*The Oriental Insurance Company Ltd*
● 4.*The United India Insurance Company Ltd
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● * 1999 - Insurance Regulatory & Development
Authority of India (IRDAI) is the Controlling &
Regulatory Apex body in the country for the
Insurance sector & it's Chairman & members are
appointed by the Government of India. It's
Headquarter is located in [Link] was
constituted as a body to regulate and develop the
Insurance industry in 1999 & was incorporated as a
Statutory body in April 2000
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● ESSENTIALS OF CONTRACT OF INSURANCE:
1. Agreement between Two parties.
2. Agreement must be in writing with consent of both the
parties.
3. Events must be subject to risk.
4. Events must involve some element of uncertainty .
5. Risk should not be very small.
6. The Cost of Insurance should not be prohibitive.
7. The risk must be capable of approximate mathematical
estimation so that premium can be fixed.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● IMPORTANCE OF INSURANCE:
1. Provides protection against occurrence of uncertain events.
2. Device for eliminating risk & sharing losses.
3. Co-operative method of spreading risks.
4. Facilitates International Trade.
5. Serves as an agency of capital formation.
6. Financial support.
7. Medical support.
8. Promotes economic growth.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
FUNCTIONS OF INSURANCE:
The functions of Insurance are divided into two types.
➢ PRIMARY FUCTIONS
[Link] Protection
[Link] Risk Bearing
[Link] Risk
[Link] Certainty
➢ SECONDARY FUNCTIONS
[Link] Losses
[Link] larger risk with small capital.
[Link] Economic Growth & Development
[Link] in earning Foreign Exchange
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
KEY TERMS USED IN INSURANCE
*Insured *Hazard
*Insurer *Exposure
*Beneficiary *Covernote
*Contract *Damages
*Premium *Indemnity
*Insured Sum *Reinsurance
*Peril *Tenure
*Double Insurance
*Insured : The party or the individual who seeks protection against a
specified task. He is the Policyholder.
*Insurer : The party who promises to pay indemnity to the other party the
Insured on the happening of a certain event is called Insurer.
*Beneficiary : The person or the party to whom the policy proceeds will be
paid in the event of the death or contingency is called Beneficiary.
*Contract : An agreement binding at law between two or more parties is
called a Contract.
*Premium : The amount of money which is paid to the Insurer by the
Insured in consideration to Insurance contract is known as Premium
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
*Insured Sum : The sum for which the risk is insured is called
Insured Sum or Face Value or Policy Money.
*Peril : An event that causes a personal or property loss by fire,
explosion, floods etc., is called Peril.
*Hazard : A condition that may increase or decrease the chances
of loss from a Peril is called Hazard.
*Exposure : A measure of the physical extent of the risk is called
an Exposure.
* Covernote : An unstamped document issued by the Insurer as
evidence of an Insurance Pending Issue of Policy is called Covernote
.[Link],[Link],[Link], Guest Lecturer, Department of Commerce
*Damages : Monetary Compensation award at law for a civil wrong
or breach of contract is called Damages.
*Indemnity: Compensation for the actual loss suffered is called
Indemnity.
*Reinsurance: When the original Insurer transfers all part of the
risk to another company it is called Reinsurance.
*Double Insurance : When the subject matter is insured with two Or
more Insurance companies it is called Double Insurance.
*Tenure: The period for how many years the policy has been taken
is known as Tenure.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ TYPES OF INSURANCE
It is classified into two types.
➢ LIFE INSURANCE : Is meant for the individual's life.
It is defined as " a type of Insurance Contract whereby the
Insurer in consideration of the premium paid in periodical
instalments, undertakes to pay an annuity or a certain sum of
money either on the death of the Insured or on expiry of a
certain number of years. "
➢ GENERAL INSURANCE : Insurance meant for other than
individuals is called General Insurance.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
LIFE INSURANCE TYPES GENERAL INSURANCE TYPES
Whole Life Insurance Policy Fire Insurance
Endowment Policy
Marine Insurance
Term Insurance
Unit Linked Insurance Plan Health Insurance
Money Back Policy Motor Insurance
Children's Policy Transport Insurance
Annuity Policy Home Insurance
Crop Insurance
❖ DIFFERENT TYPES OF LIFE INSURANCE POLICIES:
❖ Whole Life Policy : This policy provides cover throughout the
whole life of the Insured & the sum assured is paid to the
beneficiary after the death of the Insured.
❖ Endowment Policy : This is a simple policy with guaranteed
returns where the sum assured is paid to the beneficiary on the
death of the Insured or at the time of maturity of the policy.
❖ Term Insurance : This policy covers the amount of protection
against death of an Insured for a given period.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ Unit Linked Insurance Plan : This policy provides Financial
protection along with investment opportunities.
❖ Money Back Policy : This policy provides Insurance cover
and also periodic return at regular intervals.
❖ Children's Policy : This policy plan provides protection to
take care of children and savings for their future education.
❖ Annuity Policy : This is a policy that provides a regular
income in exchange for a lump sum
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ DIFFERENT TYPES OF GENERAL INSURANCE
❖ Fire Insurance : This plan covers the risk of loss to the
property due to fire.
❖ Marine Insurance : This plan covers risk associated with
loss due to marine adventure.
❖ Health Insurance : This plan provides protection against
expenses arising out of health contingencies to the policy
holder & his family members.
❖ Motor Insurance : This plan provides protection to
Vehicles.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ 🚇🚍🚋 Transport Insurance : This plan provides
coverage for medical emergencies & other trip related
losses.
❖ 🏠 Home Insurance : This plan covers and provides
protection to losses and damages to a home & assets in
the home.
❖ Crop Insurance : This plan is designed to provide a
measure of Financial support to the farmers in the
event of crop failure due to drought, floods etc.,
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● DIFFERENCES BETWEEN LIFE INSURANCE &
GENERAL INSURANCE
[Link] [Link]
[Link] of Contract [Link] Interest
[Link] of Contract [Link] Value
[Link] Payment [Link]
❖ PRINCIPLES OF INSURANCE:
The 7 Principles of Insurances are:
* Utmost Good Faith *ProximateCause
* Insurable Interest* Indemnity
* Subrogation* Contribution
• Loss Minimization
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
[Link] of Utmost Good Faith:
Both the parties should act in good faith towards each
other, they must provide clear and concise information
related to the terms and conditions of the contract.
[Link] of Proximate Cause:
Principle of ‘Causa Proxima’ or the nearest
cause,applies when the loss is the result of two or more
causes. The insurance company will find the nearest
cause of loss to the property
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
[Link] of Insurable Interest:
Insurable Interest means that the subject matter for
which the individual enters the insurance contract
must provide some financial gain to the insured and
also lead to a financial loss if there is any damage,
destruction or loss.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
[Link] of Indemnity:
Insurance is done only for the coverage of the loss &
the Insured is compensated the amount equal to the
actual loss and not the amount exceeding the loss.
[Link] of Subrogation:
Subrogation gives the right to the insurance company
to claim the amount of loss from the third-party
responsible for the same.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
[Link] of Contribution:
Contribution principle applies when the insured
takes more than one insurance policy for the
same subject matter.
[Link] of Loss Minimisation:
The insurer takes necessary steps to minimise
the loss to the insured property.
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ BENEFITS OF INSURANCE TO VARIOUS
SECTORS:
❖ Benefits to the Businessmen
❖ Benefits to the Insured
❖ Benefits to the Society
❖ Benefits to the Nation
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ INSURANCE ORGANISATION &
INSURANCE COMPANIES IN INDIA:
❖ IRDAI is a Statutory body regulating &
promoting the Insurance & Reinsurance
companies in India.
❖ As of October 2018 IRDAI has recognized 24
Life Insurance Companies. (One owned by
Govt)
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
❖ As of October 2018 IRDAI has recognized
34 Non-Life Insurance Companies (General
Insurance) (Six owned by Govt)
❖ As of January 2020 IRDAI has recognized
One Reinsurance Company - General
Insurance Corporation of India (GIC Re)
(Govt)
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● Among the 24 Life
Insurance Companies,
ONE is Public Sector
Company - Life
Insurance Corporation
of India - LIC 1956
[Link],[Link],[Link], Guest Lecturer
Department of Commerce
● Among the 34 Non- Life Insurance SIX are Public
Sector Companies.
*United India Insurance -1938
*The Oriental Insurance Company - 1947
*National Insurance Company - 1906
*New India Assurance Company - 1919
*Export Credit Guarantee Corporation of India -
1957
• Agriculture Insurance Company of India – 2002
[Link],[Link],[Link], Guest Lecturer, Department of Commerce
● One Reinsurance
Company - General
Insurance
Corporation of
India - GIC Re
(1972) Public Sector
Company.
[Link],[Link],[Link], Guest Lecturer
, Department of Commerce
❖ PUBLIC SECTOR INSURANCE COMPANIES IN INDIA
Life Insurance Corporation of India (LIC) - 1956
United India Insurance (GIC) - 1938
The Oriental Insurance Company (GIC) - 1947
National Insurance Company (GIC) - 1906
New India Assurance Company (GIC) - 1919
Export Credit Guarantee Corporation of India (GIC) - 1957
Agriculture Insurance Company of India (GIC) - 2002
General Insurance Corporation of India (GIC Re) – 1972
[Link],[Link],[Link], Guest Lecturer, Department of Commerce