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What is 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. Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events.
Say 1000 motor cars valued @ 300000/-
are observed over a period of five years. On an average say per year two are total loss by accident. Then the total annual loss would be Rs.600000. If the loss is to shared by all the thousand owners then they have to contribute Rs.600/The loss experience will be established by taking the past experience, geographical area in which the vehicles are used and density of traffic.
: A factory catching fire. a ship sinking etc.Risk The term Risk is used to describe all the accidental happenings which produce a monetary loss. For e.g. In insurance jargon they term RISK as an uncertainty regarding loss or what is termed as a FORTUITOUS risk. .
the resultant floods had washed away score of vehicles. Human life and material possessions are constantly exposed to loss or damage due to the mechanizations of fortuitous circumstances . When the encroached drains could not contain rains for 2 days. So. Hyderabadis never in their dreams thought of taking cover for flood.An example of impossibility can be quoted say the 9/11 incident where insurance companies were washed out.. Risk is inherent in human existence. property etc.
MATHEMETICAL VALUE OF RISK L/V x 100 where L= total losses reported V=refers to the total values the product of the above analysis is called Law of averages or the doctrine of probability. So premium rates depend upon past loss experience by systematically classifying the risks. Which are homogenous in characters .
SCOPE OF INSURANCE: General Insurance is divided into three categories: FIRE. MARINE & MISCELLANEOUS .
. IMPLOSION. CYCLONES & LAND SLIDE. FLOOD. TEMPEST. TYPHOON. AIRCRAFT DAMAGE. EARTH QUAKE.FIRE INSURANCE FIRE INSURANCE BUSINESS: Loss due to FIRE. LIGHTINING. EXPLOSION. STORM.. IMPACT BY RAIL. RIOTS & STRIKES. TORNADO.
road. . sea or air. Hull Insurance deals the Loss associated with floating crafts.MARINE INSURANCE BUSINESS: This is the oldest branch of Insurance comprising HULL & CARGO. Cargo insurance provides cover in respect of loss or damage to goods during transit by rail.
aviation . engineering and guarantee insurances .MISCELLENOUS INSURANCE BUSINESS: Mainly includes the motor business. accident.
Is the evidence of contract INSURER:- Policy:- .CONTRACT OF INSURANCE In between the insured and insurer INSURED:Party effecting insurance.. (Individual. with legal status) Party granting the protection under an insurance policy. Firm. Corporate body etc. Company.
B. A. C. D. Offer and acceptance Consideration Absence of Fraud Capacity of the parties Legality of the contract .Insurance contracts are governed by Indian contract act 1872 which states that to be legally valid following elements should be in order. E.
For example you can insure your own bicycle . but not your friend’s bicycle. but not that of your neighbour. In the same way you can take out Assurance on your wife’s life.INSURABLE INTREST This means you can only insure something. if they benefit from its existence and will suffer if it ceases to exist. .
When insurable interest must exist: For Fire or Miscellaneous policy the insurable interest must exist at the time of taking the policy and at the time of the loss. . For Marine policy an insurable interest need not exist at the time of policy taking.
that is the main reason why good faith in case of Insurance contracts becomes UTMOST good faith. . not only already known but also extends to material facts which he ought to know.Utmost Good Faith The greatest degree of good faith by law. MARINE: method of packing. It is the duty of the proposer to disclose all material facts Examples of material facts: FIRE: Construction of building. nature of good stored etc. inherent vice etc. is expected from the proposer. type of occupancy.
if the loss occurs they will check the facts and if inaccurate details have been given they will not compensate you. However. . For example for vehicle insurance if you said you were 25 and were in fact only 18. Failure by the insured to reveal certain details to the insurance company that affect the risk may make the insurance invalid.It is assumed by the Insurance company that the facts you disclose on a Proposal Form are accurate. When you had an accident they would ask for your birth certificate and you would get no compensation. For example that the house is made of wood rather than concrete.
.Indemnity. Can be defined as “ compensation for loss or injury sustained” or “ to make good the loss or damage” The principle of Indemnity states that under the policy of insurance. the insured has to be placed after the loss in the same financial position in which he was immediately before the loss.
EXAMPLES If you have a four year old bicycle and it is stolen. It your vehicle is in an accident and damaged beyond repair. With life assurance one may be financially better of. the insurance company will only give you the current value of the bicycle not the cost of the bicycle when it was new. but it is only to compensate you for the loss suffered. . but the wreck is worth something for example the engine could be sold the insurance company will take this into consideration when giving the compensation.
Under insurance: Property insurances are generally subject to the condition of average. Ex.value of property : Rs. only that portion of the loss is payable.15000 Loss assessed : Rs. and if there has been under insurance.10000 Amount payable will then be: 15000 x 10000 = 7500 20000 The insured is then considered as his .20000 Sum insured : Rs.
. which means that a certain circumstances a part of the loss may have to be borne by the insured.EXCESS OR FRANCHISE In some policies an EXCESS or FRACHISE is incorporated. SALVAGE Property which is saved from loss or damage and still has some commercial value is called salvage.
but that insurance company has the right to claim from A’s insurance company. as it was A that really caused the damage to C.Subrogation means the insurance company has the legal right to claim compensation from any other party that caused the accident. For example vehicle A hits B. . which as a result hits C. C will claim of B’s insurance company.
The principal of contribution does not . The principal of contribution would lead to a situation in which the insured would be able to recover his loss from any one insurer.Contribution An insured may have taken many policies on the same subject matter. Normally the insurers seek to control additional insurances at the proposal stage itself. apply to personal accident policies. who then will have to effect proportionate recoveries from other insurers concerned.
That is €75.000 and a fire occurs in the kitchen causing €100. when a partial loss occurs and the risk is underinsured. .000 damage. 000. As the house is only insured for ¾ of its value. is insured for €300. The insured will only get ¾ of the damage. The average clause applies. For example a house worth €400.000.Average Clause If an item is underinsured and the insured risk occurs then the insured will only get a proportion of the damage that occurs.
not necessarily in time but in efficiency. It is the cause which is most closely connected with the loss. For example. if the risk that is covered in the policy occurs.PROXIMATE CAUSE Means the DIRECT. . if the insurance policy states that the house is covered for fire and theft and it is totally or partially destroyed by a flood no compensation will be paid. DOMINANT or effective cause of which the loss is the natural consequence. Compensation will only be paid.
. he was unable to walk and whilst lying on wet ground. The claim was payable under personal accident policy. the disease. Due to shock and weakness. which was only a remote cause. The proximate cause was considered to be the accident and not the pneumonia.Example: An insured sustained an accident while hunting. he contracted cold which developed into pneumonia causing death ultimately.
. If the claim is substantial the insurance company will send out an Assessor to decide on the amount of the compensation.Making a claim Normal procedure is a phone call to the insurance company giving policy number and details of the claim. The insurance company will then issue a claims form. This form needs to be completed accurately and will normally have to include quotations for the repairs to the damage done.
Replacement Repair Reinstatement. This is the most popular method.Compensation Cash. .
. Just sells for one company. Sells for more than one company and in in general aims to get the best deal for his client. Difficulty of some companies paying greater commission and the may choose those companies Agent.Selling insurance Broker.
Insurance companies own a lot of property in our cities and towns. Creates a lot of jobs. For example people can leave their homes and people build factories etc.How the insurance industry helps the country: Offers peace of mind. As they invest their finances in these so that they can sell them if they receive a lot of claims. .
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