Insurance
i. Financial terms
ii. Legal terms
iii. Advantages and disadvantages of Insurance
iv. Life insurance is assurance
v. Reinsurance
Kinds of Insurance
Broadly i. Life ii. non-Life or General Insurance which further divided :
i. Fire Insurance
ii. Marine Insurance
iii. Motor Vehicle Insurance
iv. Personal Accident Insurance
v. Health Insurance
vi. Industrial All Risk Insurance
vii. Professional Indemnity Cover
viii. Videsh Yatra Insurance
ix. Travel Insurance
i. Actuary : Someone who assess risk , determine likeliness of happening of
event and fix the premium accordingly.
ii. Actual Value/Replacement cost
iii. Comprehensive Policy : cover widest range of possible perils
iv. Direct Damage / Consequential damage :
v. Deductible : While filing insurance claim the policy holder liable to pay
their share
vi. Endorsements : change in scope , added , removed or modified to
original policy
vii. Floater : insurance beyond the caps and limits for coverage of expensive
and easily movable items. (jewelry)
viii. Fortuitous event vs deliberate
ix. Known loss rule : rule that prevents making a claim that you lost or
broke before commencement of policy.
x. Mortgage Insurance : If one can not payoff the remainder of your
mortgage due to death or disability an insurer step in pay off the debt.
xi. Omnibus clause : especially auto insurance
xii. Perils : events or forces that cause damage to the things one has
insured.
i. Policy : written terms and conditions of insurance policy
ii. Premium : Payment to purchase policy
iii. Reporting lag : time difference between accident and reporting
iv. Subrogation : If insurance claim involve loss caused due to third
party , insurance company has right to pursue legal action on your
behalf to cover the value of that claim.
Fire Insurance
i. loss/damage of property/materials caused by fire
ii. cause may be fire/lightning/explosion/riot/strike/cyclone/typhoon
etc
iii. personal in nature , cause of fire immaterial , indivisibility (cover
fire loss in whole) , for one year , loading in premium , discount in
premium
iv. Exclusion : generally 5% , pollution or contamination , cold storage
change in temperature , excessive load / current /self heating
Marine Insurance
i. includes sea going / road /rail in transit
ii. covered losses incidental to marine adventure
iii. import / export / bridges & tunnels transport
iv. insure fine art & jwelery
v. hull , cargo (open cargo policy) , P&I , freight insurance covers
shipowner if goods are damaged or lost and are not delivered
vi. Inland Marine Insurance
vii. property and liability insurance
Principle of Insurance
i. indemnity of losses
ii. utmost good faith
iii. Subrogation rights and remediates
iv. Contribution condition for rateable portion
v. Insurable interest at time of proposal and claim
vi. Proximate cause
vii. Arbitration for disputes
viii. Presence of uncertainties
ix. Reduction of impact of risk
x. Protection from intangible losses
i. Indemnity of Losses : The principle of indemnity implies that on the
happening of an event insured against the insured would be placed
by the insurer in the same pecuniary position that she /he occupied
before the event. Non-life insurance covers property and liability
are basically contract of indemnity. The indemnity not to be
construed as an instrument of profit.
- to prevent insured from benefiting under the contract
- to reduce impact of moral hazards
in the event of claim i. sustained monetary loss ii. prove extent and
value of loss iii. transfer rights which may have for recovery from
another source if she/he is fully indemnified. (that’s why life insurance
in nature of assurance)
ii. Utmost Good Faith : positive duty , voluntarily disclose , accurately
and fully all facts relating to the risk covered. (whether requested or
not). material facts :
- motor truck / car / cycle : driver having license or not
- household : commercial use of private dwelling home
- life insurance : heart attack / diseases / cancer /
Misrepresentation : intentional termed as fraudulent and ignorant
Non-representation :intentional-concealment of facts , unintentional
breach of general duty
iii. Subrogation rights and remediates : corollary to principle of
indemnity. (exception is life insurance policies where in
insured/beneficiaries can claim under an insurance policy and proceed
against third party)
example : insurer of an imported machine receives a claim for faulty
machine . Insurer pays the claim but take over the insurer’s right to claim
back against the manufacturer. Subrogation applies only when there is
legal liability under the policy where policy cover existed and the claim
are paid.
iv. Insurable Interest : insurable interest should exist at the time of
proposal and the claim (except in case of marine insurance). Financial
relationship recognized by law.
v. Contribution condition for relatable portion : corollary to the
principle of indemnity. If an insured obtains more than one policy
covering the same risk , he /she can not recover the same loss from
more than same source. Insured obtain more than one policy covering
the same risk. if taken 3 policies Rs 3 , 2, 1 lakh premium then if loss Rs
18 crore he will recover Rs in proportion of Rs 3 cr , Rs 6 cr and Rs 9 cr.
vi. Proximate cause : in a chain of events loss can occur. the dominant
cause which proximate cause to be considered for the purpose.
example : foreman removed undamaged stock of cotton clothes from the
burning building and kept in open yard and subsequently damaged by
rain. if the rain damaged occur before the insurer had an opportunity to
protect from fire then proximate cause is fir. if no precaution taken to
safeguard from rain , then efficient cause is fire.
vii. Presence of uncertainty done against contingency
viii. Arbitration for disputes : when liability under policy is admitted but
quantum of claim is disputed the insurer can not straight away go to
court. First refer to arbitration then if point of law involved then approach
High Court.
ix. Reduction in impact of risk : insurance does not protect asset or life or
not prevent loss due to peril / accident or death. only tries to reduce the
impact of risk on owner
x. Protection from intangible losses : damage are fairly large and beyond
capacity of an individual the insurance can be of use . not in case of
- currency fluctuations
- quality problems
- political changes
- voice of singer / legs of an artist
- Doctor’s risk of negligence
Elements of Insurance Contract
i. Application for insurance
ii. Policy document
iii. Body of the contract – exclusion / conditions / limitations
iv. Limit of liability
v. Endorsements