Insurance Concept Functions and Types

INSURANCE
CONCEPT
FUNCTIONS AND
TYPES
INSURANCE
The dictionary of business and Finance has defined
insurance as a “ form of contract or 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, as a result of
some uncertain event in which the insured has pecuniary
interest.”
The document which contains the contract is called “

Insurance policy” The person who is insured is called the
“Insured” and the firm which insures is called the “Insurer”.
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Nature of Insurance
 Sharing of Risk
 Cooperative device
 Value of risk
 Amount of payment
 Payment at contingency
 Large number of insured persons
 Insurance is not gambling
 Insurance is not charity
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Essentials of contract of Insurance
 Agreement between two parties

 Agreement must be in writing with consent of both the
parties
 Event must be subject to risk
 Event must involve some element of uncertainty either in
regards to time or with respect to its occurrence
 Risk should not be very small
 The cost of insurance should not be prohibitive
 The risk must be capable of approximate mathematical
estimation on the basis of the past records so that
premium can be fixed.
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Role of Insurance
 Insurance protects and safeguards the interest of
individuals or business
 It gives them safety
 It results in diversification of risk among insurance
companies
 It promotes rate of savings and investment and leads to
capital formation
 Creates a sense of security
 Insurance companies acts as a underwriters, guarantor,
subscriber and financer.
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Principles of Insurance
 Principle of Utmost good faith
 Principle of Insurable interest
 Principle of Indemnity
 Principle of Subrogation
 Principle of Contribution
 Mitigation loss
 Risk must attach
 Causa Proxima
It is a rule of law that in actions on fire policies, full regard must be had
to the causa proxima. If the proximate cause of the loss is fire, the loss
is recoverable.
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LIFE INSURANCE
Life insurance may be 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
certain sum of money either on the death of the
insured or on expiry of a certain number of years
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Features of Life Insurance
 General contract
 Insurable interest
 Warranties
 Proximate cause
 Assignment and Nomination
 Return of premium
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Life Insurance Products
 Whole life policy
 Endowment policy
 With or without profit policy
 Joint life Policy
 Double Accident Policy
 Annuity Policy
 Group Insurance Policy
 Convertible Whole life Policy
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NON-LIFE INSURANCE
 Fire Insurance
 Marine Insurance
 Health Insurance
 Motor Insurance
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FIRE INSURANCE
SECTION 160. An alteration in the use or condition of a thing
insured from that to which it is limited by the policy made without
the consent of the insurer, by means within the control of the
insured, and increasing the risk, entitles an insurer to rescind a
contract of fire insurance.
SECTION 161. An alteration in the use or condition of a thing

insured from that to which it is limited by the policy, which does
not increase the risk, does not affect a contract of fire insurance.
SECTION 162. A contract of fire insurance is not affected by any

act of the insured subsequent to the execution of the policy,
which does not violate its provisions, even though it increases the
risk and is the cause of a loss.
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Fire Insurance Coverage
 Standard Fire Policy
 Fire
 Explosion/ Implosion
 Lightning
 Impact damage
 Storm, cyclone, typhoons, hurricane, tornado, floods
 Landslide
 Riots, strike, terror attack
 Missile testing operation
 Forest fire
 Aircraft damage
12
MARINE INSURANCE
SECTION 92. Marine insurance is an insurance against
risks connected with navigation, to which a ship, cargo,
freightage, profits, or other insurable interest in
movable property, may be exposed during a certain
voyage or a fixed period of time.
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Essential Elements of Marine Insurance
 Features of general contract
 Insurable interest
 Utmost good faith
 Contract of Indemnity
 Principle of subrogation and contribution
 Warranties
 Double Insurance / Reinsurance
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Types of Marine Insurance Policies
 Voyage policy  Specific cover policy
 Time policy  Open cover policy
 Mixed policy  Fleet Insurance policy
 Valued policy  Port policy
 Unvalued policy  Composite policy
 Floating policy  Currency policy
 Blanket policy  Block policy
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HEALTH INSURANCE
Health insurance is safeguard against rising medical costs
A health insurance policy is a contract between an insurer
and an individual or group, in which the insurer agrees to
provide specified heath insurance at an agreed upon
price(premium)
Premium may be paid as lump sum or in instalments
Cashless Hospitalization
Planned Hospitalization
Emergency Hospitalization
Medical Reimbursement
16
MOTOR INSURANCE
Largest non-life insurance business in the world. All motor
vehicles are required to be registered with the road
transport authorities and insured third party liability.
Need:
Footpaths
Drunken driving
Theft
Fire
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Types of Motor Insurance Policies
The Third Party Liability Policy or the act Liability Policy
Liability for death or bodily injury is unlimited and damage to
the property of third party
The Comprehensive Policy or the Own Damage Losses and
Act Liability Policy
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Other Types NON-LIFE INSURANCE
 MICRO INSURANCE
 CROP INSURANCE
 MISCELLANEOUS INSURANCE
 Personal accident Insurance
 Fidelity Insurance
 Credit Insurance
 Workmen's Compensation insurance
 Travel Insurance
 GROUP INSURANCE
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INSURANCE

The document which contains the contract is called “

 Agreement between two parties

SECTION 161. An alteration in the use or condition of a thing

SECTION 162. A contract of fire insurance is not affected by any

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