MEANING OF INSURANCE

Insurance is a cooperative form of distributing a certain risk over a

group of persons who are exposed to it -
Ghosh and Agarwal.

Insurance is a contract in which a sum of money is paid to the
assured as consideration of insurers incurring the risk of paying a
large sum upon a given contingency.
- Justice Tindall.

Insurance may be described as a social device whereby a large
group of individuals, through a system of equitable contributions,
may reduce or eliminate certain measurable risks of economic loss
common to all members of the group
Encyclopedia Britannica.

Insurance has been defined as a plan by which large numbers of
people associated themselves, to the shoulders of all, risks attach to
individuals

IMPORTANCE OF LIFE INSURANCE
1.Insurance provides security against loss of a given contingency.
2. A sense of security removes tension and fears. It stimulates more and
better work.
3.The insurance provides adequate amount to the dependents at the
early death of the property owner to pay off the unpaid loan.
4.The insurance assists the family and provides adequate amount at the
time of need.
5. Systematic saving is possible because regular premiums are required
to be compulsory paid.
6.Life Insurance is a best media of saving. In India, the Insurance
policies carry a special exemption from income tax and excise duty.
7.All the needs of the individual such as family needs, old age needs,
re-adjustment needs, special needs are helped by insurance for meeting
requirements and necessary needs.

CHARACTERISTICS OF INSURANCE
Nature of Insurance
Sharing of Risks
Co-operative Device
Valuation of Risk
Payment made on contingency
Amount of Payment
Large Number of Insured Persons
Insurance is not Gambling
Insurance is not charity
Characteristics of Insurance
It is a contract for compensating losses
Premium is charged for Insurance contract.
The payment of Insured as per terms of agreement in the event of loss.
It is a contract of good faith
It is a contract for mutual benefit
It is an instrument of distributing the loss of few among many.
The occurrence of the loss must be accidental
Insurance must be considered with public policy



MEANING OF VALID CONTRACT
A contract may be defined as an agreement
between two or more parties to do or to abstain
from doing an act, and which is intended to create a
legally binding relationship. This could be
summarized as an agreement designed to have
legal consequences.

INSURANCE CONTRACT
Like any other contract the contract of insurance
must fulfill all the essential elements of contracts as
laid down in the law of contract of Indian
Companies Act, 1872. Insurance is a contract
between two parties whereby one party called
insurer undertakes, in exchange for a fixed amount
of money on the happening of a certain event. At
the same time the Insurance Contract must fulfill
certain other elements relating exclusively to
insurance which are known as Fundamental
Principles
The special contract of Life insurance involves the
following principles:

1. Insurable interest
2. Utmost good faith
3. Material Facts

1. INSURABLE INTEREST

A person has an "insurable interest" in something when
loss or damage to it would cause that person to suffer a
financial loss or certain other kinds of losses.
UTMOST GOOD FAITH
Insurance contracts are based upon mutual trust and
confidence between the insurer and the insured.
Utmost good faith in insurance means that each party
to a proposed contract is legally obliged to reveal to the
other party all information which would influence the
others decision to enter the contract, whether such
information is requested or not
MATERIAL FACTS
Every circumstance is material which would influence
the judgment of a prudent insurer in fixing the premium
or determining whether he will take the risk
There has been some criticism of the use of the term
prudent underwriter and there has been a tendency to
substitute reasonable underwriter in applying the rule.
In some quarters it has been suggested that the view of
the reasonable insured rather than a reasonable
underwriter should be the test of whether a fact is
material or not
The test will be a view of a prudent or reasonable
underwriter.


FACTORS AFFECTING LIFE & HEALTH CONSUMPTION
A life insurance policy is an agreement between you and your
insurance company. An agreement cannot take place without
the consent of both the parties involved in the contract. You
will be charged premiums based on how you are rated on
several pre-determined factors - "Health" being one of the
major factors
the health of the applicant attracts special attention. Medical
examinations are carried out to learn more about your medical
profile
Learn how health and life insurance are related and why the
words "Better Health, Lower Rates" are so meaningful
Your age is also a factor in the cost of life insurance. If you
want to attract lower insurance premiums then you might
consider insuring yourself at a younger age.

INSURANCE DOCUMENTS AND
CONDITIONS
The life insurance contract is a long-term one,
lasting 30 or 40 years. Transactions may be few
and far between. If the premiums are paid without
any default and no changes are made in address,
nominations, etc., the policy file may not be opened
till the claim arises. In the absence of proper
documentation, it may not be possible to know the
dues and the rights or even the identities of the
persons concerned.

PROPOSAL FORMS AND OTHER
RELATED DOCUMENTS
The first and the foremost document in the insurance file is the
proposal or application for insurance. The proposal form in
which the application for insurance are made, is printed by the
insurer and made available through agents. Some companies
make the proposal form available through the Internet. The
person proposing for insurance, called the proposer, is
required to give details about himself (name, date of birth,
address, and occupation), name and particulars of the person
to be insured, the amount of insurance, the plan and term
preferred, mode of premium, nominee, etc. The proposal form
is normally given to the insurer along with (i) the personal
statement of health and habits of the person to be insured,
filled up by the proposer and (ii) the confidential report of the
agent. If medical examination is required, the personal
statement is given to the medical examiner, which sends it the
insurer along with his report of the medical examination.

PROSPECTUS

In life insurance, the prospectus gives complete details
about the set up of the company, the plans of insurance
they make available and other general terms and
conditions. The prospectus of the life insurance company
is not bound by the regulations of the SEBI. It is quite
simpler in content and in the purpose. In terms of the
IRDA Regulations, the prospectus should state details of
the various insurance plans on offer, the benefit and other
terms and conditions, whether the policy is participating or
not participating, the riders available along with that policy
and the scope of the riders. A prospectus is not
necessarily a single book containing all details of all the
plans under offer. Some insurers print separate pages for
each plan describing the benefits and obligations and also
a summary of the terms and conditions of the particular
policy.
MEDICAL EXAMINATION
The individual proposed to be insured, is normally
subject to medical examination to determine the
state of health and the terms of insurance if agreed
upon. The rigor of the medical examination
increases along with that of the age increase of the
person to be insured and the proposed SA.
Increasing rigor means more specialized tests like
radiology, sonography, ECG, stress test, lipid
profile, etc
AGE PROOF
The risk of death is higher as age increases. The
likelihood that a person aged 70 will die in the next
year is more than that of a person aged 20 years
dying within one year. Age of the proposer,
therefore, plays a vital role in assessing the risk of
death and therefore the amount of premium to be
charged. Age is considered along with other
features like health, habits, etc., by the underwriter.



SPECIAL REPORTS
Besides the proposal form, personal statement,
agents report, medical examiners report and age-
proof, special medical reports may also be called
for, if the following conditions are applicable:
The SA is very high, say Rs. 15 Lakhs or more
The age at entry is very high, say, 60 years or more
The proposer wants insurance cover under a high-
risk plan
The normal medical examination discloses some
adverse feature

POLICY DOCUMENTS
The policy document is the main evidence of the
insurance contract. It contains the subject matter
and the terms and conditions of the contract. It sets
forth the rights, the duties and obligations of the
insurance company and of the policyholder.
All insurance policies are most likely to follow the
similar format, because the format and the
wordings have been developed over the years.
The wordings may sound to be too legalistic. Some
insurers therefore, issue a small supplement along
with the policy to explain in simple language the
main contents of the policy.
NEED AND FORMAT
The policy document is required to be signed and also
stamped as per the Stamp Act. Otherwise, it cannot be
enforced in a court of law. In the case of PLI, the policy is
exempt from stamp duty. Most of the standard terms and
conditions are printed on the document. Special clauses,
relevant to a particular contract, are attached to the policy
document and form part of the contract.

It is usual to divide the policy document into the following
divisions:
Preamble
Alteration
Duplicate policy
Schedule
Attestation and
Conditions and Privileges

POLICY PREAMBLE
A typical policy document begins with a paragraph, which
states in the following substance:

That the insurer had received a proposal with a personal
statement and the first installment of premium
That the insurer had agreed to grant the insurance cover
(promise to pay the sums specified on the occurrence of the
events specified) on the terms stipulated later in the policy
document
That it is understood and agreed that the basis of the grant of
the insurance cover is the statements made in the proposal
and personal statements signed by the proposer
That the grant of the insurance cover is subject to the
proposed paying the premiums stated in the policy document
on the due dates

SCHEDULE
The Preamble is followed by the Schedule of the policy. The Schedule contains
particulars and details as under, which mention the specific details relating to the
insurance contract, of which the policy document is the evidence.

Policy Number
Name, address of the proposer and of the life assured
Date of proposal
Date of birth and age of the life assured
Date of commencement of insurance
Plan and Term
Sum Assured
Mode of payment of premium viz. yearly, half-yearly, quarterly or monthly and due dates
Installment premium
Date of last payment of premium
Name of the nominee
Date of maturity
Conditions and privileges not applicable
Additional or special conditions

ATTESTATION
Attestation is the signature on the behalf of insurer.
It will appear at the end of the first page of the
policy. Some insurers prepare a supplementary
contract in respect of the additional benefits
provided through the riders. In such case, the
supplementary contract will be attested separately
CONDITIONS AND PRIVILEGES
The provisions of the contract which are stated in the first page of
the policy, if strictly interpreted, would make the contract very
rigid and hard on the policy holder. For example, premiums are
payable when they fall due and failure to pay premiums on or
before the due date, would involve complete forfeiture of the
assurance. The policy conditions provide the following, which
reduce the apparent severity of the contract.
Days of grace
Revival of lapsed policies
Non-forfeiture regulations
Paid up provisions
Surrender value
Loans
Claim concessions
All the privileges are discussed in detail in the following chapters.

ALTERATIONS

The policy document embodies the terms of the contract. These terms continue to
operate throughout the currency of the policy unless it is modified by mutual
consent of the parties to the contract, viz the policyholder may desire alterations in
the terms of the contract to suit changed circumstances
The types of alterations for which requests are normally made are as follows:
Alteration in plan or term
Reduction in SA
Change in mode of payment of premium
Alteration in name
Change of the nominee
Removal of an extra premium.
Splitting up of policy into two or more policies
Alteration from without profit to with profit plan or vice versa
Grant of accident benefit
Settlement option of payment of SA by installments
Grant of premium waiver benefit
Correction in policies (generally soon after commencement)

DUPLICATE POLICY
During the long duration of the policy term, people may
shift residences and rearrange personal belongings. It
is possible that after some years, the policy document is
not found, having been misplaced or lost. Sometimes
the document may also get damaged due to moisture or
termites. The loss or damage does not absolve the
insurer of his liability to pay the policy moneys, when the
claim arises. The claim, in such cases, may be paid to
the claimant even without the policy document. But the
policyholder might want the document for making an
assignment or for pledging it against a loan. After all, a
policy document represents property.

GROUP INSURANCE

INTRODUCTION
Group Insurance is a plan of insurance that provides
cover to a large number of individuals under a single
policy called the master policy. The individuals
covered under the master policy are not parties to the
contract
The contract will be between the insurer and the body
that represents the group of individuals covered
This body may be the employer, who is interested in
obtaining benefits for his employees through insurance
The body may be association of individuals through
whom the collective interests of the individuals are
safeguarded, like a trade or professional association

GROUP INSURANCE IN INDIA
In India the development of group insurance has
taken place since that of the early 1960s. Before
which the group insurance business was very little.
Originally, group insurance was restricted to
employer-employee groups only. Since then the
scheme has been extended to cover different
groups, provided they are identifiable by
homogeneous common attributes like profession,
membership of a cooperative society, etc. The
number of persons covered by group insurance
policies is increasing at a faster rate than the
individuals policies. New insurers find that they can
reach larger numbers of people easier through
group insurance.

NATURE OF GROUP INSURANCE
In group insurance scheme, live covers in granted
to a number of persons under one contract while
individual insurance is between an individual and
the corporation. It is single contract covering many
lives in a group which is considered as a whole.
Group Selection: Under a certain limit called Free
Cover Limit life cover is granted without medical
examination. Group Selection is aimed at obtaining
a group of individual lives which contain reasonable
average cross-section of risk from which practicable
rates of morality could be expected. The group
must have sufficient large individuals at different
risks.
GROUP INDURANCE VS INDIVIDUAL
INSURANCE
GROUP INDURANCE INDIVIDUAL INSURANCE
1) In the case of group insurance,
the contract is with the employer or
with the group / association. A
single master policy is issued
covering all the members. The
individuals covered under the
master policy are not parties to the
contract. They are only the
beneficiaries. The amount and
terms of insurance are negotiated
by the employer or group, and
apply on a uniform basis to all
members
In the case of individual insurance,
the contract is between the insurer
and the individual policyholder.
The individual decides whether he
should be insured, for how much
and under what plan. The
individual pays the premium and
has the right to seek termination or
alteration of the contract
CONTI..
2) The premium has to be paid by
the employer or group to the
insurer
The premium has to be paid by the
individual to the insurer
3) Group insurance is provided only to
groups, which have been formed for
reasons other than obtaining the
insurance coverage. Entry into and
exits from the groups will have to be
for reasons unrelated to the insurance
cover. Employees join or leave an
organization for reasons unrelated to
the insurance cover provided by the
organization
Individual insurance is provided only
to individual , which have been formed
for reasons other than obtaining the
insurance coverage. Entry into and
exits from the individual will have to
be for reasons unrelated to the
insurance cover
4) The master policy will stipulate the
extent of insurance cover available to
each member. The member will not
have a choice about the extent of this
cover. That would have been fixed on
the basis of some objective criterion,
like the earnings, the seniority
The individual policy will stipulate the
extent of insurance cover available to
individual .
CONTI..
5) The premium is received in one
lump sum from the group covering
the entire group. The costs of
administration would naturally be
low. Therefore, the premium
charged in group policies tends to
be lower than in the case of
individual policies
The premium is received from
individual high compare with group
insurance. The cost of
administration would naturally be
high.
6) The premiums charged on a group
policy vary from year to year. This is
because of the new entrants into the
scheme as well as exits due to
retirement, death, etc. The premiums
will also be changed according to the
mortality experience of the group.
The premiums charges on a individual
policy fixed.
TYPES OF GROUP INSURANCE
Initially the LIC had offered three major Group Term
Insurance Schemes, to employers covering
employee benefits.
1. The Group Insurance Scheme (Term)
2. Group Gratuity Scheme
3. Group Superannuation Scheme or Group Pension
Scheme
THE GROUP INSURANCE SCHEME (TERM)

THE GROUP TERM INSURANCE SCHEME IS A
TERM INSURANCE SCHEME RENEWABLE EVERY
YEAR. THIS IS THE SIMPLEST AND CHEAPEST OF
THE SCHEMES. A FIXED SUM IS PAID ON THE
DEATH OF A MEMBER COVERED UNDER THE
SCHEME. THIS SCHEME IS FOUND USEFUL BY
EMPLOYERS, TO HELP EMPLOYEES WHO DIE
YOUNG, WITHOUT HAVING ACCUMULATED
ENOUGH SAVINGS


GROUP GRATUITY SCHEME

The trustees may not have as much expertise in the
investment of funds as the insurer may have
The insurer, with its massive portfolios, is in a better
position to secure maximum benefit from the market, in
terms of protection from fluctuations as well as better
spread, than an individual trust with its relatively small
portfolio can do
The benefit of the group term insurance, given by an
insurer will ensure that families of employees dying early
get the same gratuity as if the employee had completed
the full term of service.
The insurer has actuarial skills to evaluate the adequacy
of the fund from time to time.

SOCIAL SECURITY SCHEMES
In India, group term insurance cover is made
available to poorer sections of society like landless
agricultural laborers, handloom workers, rickshaw
pullers, village artisans, etc. with the help of social
security fund. In case of death of any member a
prescribed sum, say, Rs. 5000 is paid to the
dependants. This amount is doubled if the death is
by accident. The premium is financed either wholly
or partly, by the Central Government. Other weaker
sections of society like co-operative milk producers,
tailors, barbers, masons, carpenters etc. are also
covered by Group Social Security Schemes.

ANNUITIES
Annuity may be defined as the payment of amounts
periodically during the life time of the annuitant in
consideration of the payment of an agreed sum to
insurance company
CLASSIFICATION OF ANNUITIES
A. By Commencement of Income:

Immediate Annuity.
Annuity Due.
Deferred Annuity.

B. By Number of Lives Covered:

Single Life Annuity.
Multiple Life Annuity.

C. By Mode of Payment of Premium:

Level Premium Annuities.
Single Premium Annuities.

D. By Disposition of Proceeds:

Life Annuity.
Guaranteed Premium Annuity.