Professional Documents
Culture Documents
6) Introduction
6) Introduction
Who is not familiar with the saying? 'Man proposes and god disposes.'
The uncertaincy of the results of human activity has been a favorite theme of
poets and philosophers of all ages. From the moment of birth until the life
ends, all men live in uncertainty. Human life and material possessions are
continually exposed to loss or damage by may destructive forces. There is a
great deal of uncertainty in life, in industry and in commerce. It is an
undisputed fact that risk is inherent in the modern complex society.
Uncertainty is a fundamental fact of life.
The people are aware of this uncertainty about what the future holds
for them and therefore they show a strong desire for security both for their
lives and their possessions. The desire for security is sought to be satisfied by
taking all the precautions possible to avoid the consequences of Risk. Inspite
of all precautions, accidents do occur. Inspite of No smoking rule a worker
may carelessly through a lighted cigarette and which may cause a fire in a
godown. A motor cyclist may drive very carefully and yet may be knocked
down by another vehicle whose driver loses control. The earthquakes, floods
and cyclones occur frequently causing loss of lives and damage to property.
Inspite of advances in aviation technology air crashes occur. The titanic a
ship which was built to be an unsinkable ship sank on her very first voyage.
Annual losses to individuals from untimely death accidents, sickness and
unemployment, or to property from fire, windstorms, sea perils, earthquakes,
floods dishonesty negligence etc; when estimated in monetary terms would
amount to a big figure and indicates the importance of recognising and
meeting intelligently such risks.
DEFINITIONS OF INSURANCE
(1) According to Prof. R.S. Sharma "Insurance is a Co-operative device to
spread the loss caused by a particular risk over a number of persons who are
exposed to it who agree to insure themselves against that risk."
(2) According to Ghosh and Agarwal "Insurance is a cooperative form of
distributing a certain risk over a group of persons who are exposed to it".
(3) According to E.W. Fitterson "Insurance is a contact by which one
party for a compensation called in the premium assumes particular risks of
the other party and promises to pay to him or his nominee a certain or
ascertainable sum of money on a specified contingency."
(4) According to Encyclopaedia Britannica "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 risk of
economic loss common to all member of the group."
(5) According to Disnadle Insurance is an instrument of distributing the
loss of few among many."
(6) According to Thosmas "A provision which is a prudent man makes
against fortuitous or inevitable contingencies, loss or misfortune. "
The above definitions clearly show that insurance is a co-operative
device to spread the loss caused by a particular risk over a number of persons
who are exposed to it and who agree to insure themselves against the risk.
Insurance not only equalises loss and distributes heavy sudden loses over a
long period of time and it takes the amount of losses from a business in such
amounts and at such times that no essential want is left unsatisfied.
LIFE INSURANCE
Life Insurance is different from other forms of insurance in the sense
that the subject matter of insurance is life of human being. Life insurance
today commands the greatest popularly and importance in the insurance
world because the life is the most important property of the Society or an
individual who is not familiar with the saying 'Man proposes and God
disposes? From the moment of birth until life has ceased (ended), all man
live in uncertainty. In other word we can say that death is certain, but the
time is uncertain. So there is uncertainty of the time when the suffering and
financial crises may be fall on the family. Therefore, the provision for
children up to their reaching earning period and for window up to long life
should be made. Life insurance will adequately meet this financial
requirement of the family.
The provision for old age is required where the person is surviving
more than his earning period. The reduction of income in old age is serious to
the person and his family. At the time of reduction in income whether by loss
of employment, disability, or death adjustment in the standard of living of
family is required.
FEATURE
OR
CHARACTERISTICS
OF
GENERAL
(b)
(c)
Legal consideration.
(d)
(e)
Legal object.
INSURABLE INTEREST:
must be present. With out insurable interest, contract become void. This
insurable interest must be present in all types of insurance contract. Insurable
interest is the Economic Interest and the amount is to be measured by the
economic loss which the person for whose benefit the insurance is effected
will suffer by reason of the death of the life assured. Insurable interest arise
out of the Economic relationship that exist between the policy holder and the
life assured so that the former stands to loose by the death of the latter and/or
continues to gain by his survival. If such relationship exists, then the former
has insurable interest in the life of latter.
Insurance interest in life insurance may be divided into two categories.
(A)
take an insurance policy on his life to any extent that suit to the
circumstances and means of the applicant. Its presence is not required to be
proved. Bunyon says, every man is presumed to possess an insurable interest
in his estate for the loss of his future gains or saving which might be the
result of his premature death.
(B)
provided the applicant has insurable interest in the party. There are two types
of insurable interest in other's life. First where proof is not required and
second where proof is required. Such third parties must have some
relationship with the applicant say family or commercial. Following are the
parties having insurable interest in other's life:
(a)
(b)
(c)
Father has insurable interest in the life of his son if he depend upon
son.
(d)
Son has insurable interest in the life of his father if he depend upon
father.
(e)
A creditor has insurable interest in the life of his debtor upto the
amount of outstanding loan plus interest there on.
(f)
A surety has insurable interest in the life of his principal upto the
amount of outstanding loan and interest.
(g)
(h)
(i)
(j)
(3)
faith. The utmost good faith says that both the parties, insured and insurer,
must be of the same minds at the time of contract. Both the parties must
make full and True disclosure of the facts material to the Risk. The life
insurance requires that the principle of utmost good faith should be preserved
by both the parties. In life insurance material facts are age, income,
occupation, health, habits, family history. Insured should disclose all the
information to the insurer. It is the duty of the insurer also to disclose all the
material facts which are going to influence the decision of the insured.
In the absence of utmost good faith the contract will be voidable at the
option of the person who suffered loss due to nondisclosure. Once the
voidable contract has been validated by the party not at fault, the contract
cannot be avoided by him later on. For Example, if the insurer has continued
to accept the premium when certain mis-statement of age has been disclosed,
the insurer cannot invalid the contract and cannot refuse to pay the amount of
claim. If the party not at fault does not exercise its Right the contract will
remain valid.
(4)
ELEMENT OF SAFETY
The insurance provides safety and security against the loss on a
ELEMENT OF INVESTMENT
Investment element lies only in life insurance contract. Under life
fixed period. In life insurance, the policy holder is required to pay premium
at regular intervals. This payment of premium is a type of investment with
the insurer. With the payment of each premium the amount of investment
increases. The elements of investment and return of the capital along with
certain additional return are perfectly observed in life insurance.
SAFETY AS WELL AS INVESTMENT
The life insurance contract provides protection against loss if early
death and investment to meet the old age requirements. But other forms of
insurance like fire insurance and marine insurance do not provide investment
because the premium paid is not (loss) returnable if the incident do not occur
within the period. The fire insurance and the marine insurance provide only
protection against loss on damage of the property against the insured risk. In
simple word we can say that other insurance (fire insurance and marine
insurance) includes only the element of safety whereas the life insurance
includes the element of safety and investment because the premium paid or
sum assured is returnable in the life insurance whereas no premium or
amount is returnable in fire insurance.
(6)
WARRANTIES
In life insurance contract those representations which are given in the
policy and expressly or impliedly forming part of the basis of the contract are
called warranties. Every information given by the insured for insurance to the
insurer during the negotiation is a representation. The representation may be
material or non-material. The material representation is the basis of insurance
FAMILY PROTECTION:
uncertain. So, there is uncertainty of the time when the suffering and
financial crises may be fall on the family. Every head of family rich or poor,
wishes his wife and children to be happy. He plans for them with respect to
their education marriage and general welfare but if he is snatched away
before the expected time his dependents are to put up with hardship. But if he
has taken a whole life policy, there will be sufficient help to the dependent.
Thus only life insurance will adequately meet this financial requirement of
the family. It has been rightly remarked that for a middle class family. Life
insurance is a husband's privilege, a wife's right, and a child's claim."
(2)
good provision for old age. The reduction of income in old age is serious to
the person and his family. An endowment policy afford a comfortable support
in old age and the money is available just when it is most urgently required.
With this policy insured can provide for the higher education of children
marriage of daughters, pilgrimage in retired life etc. and at the same time
providing for full protection against early death. In simple word we can say
life insurance is in yardstick for old age.
(3)
BUSINESS PROTECTION:
The insurance has been useful to business community also. Some of
the users are discussed as under:
(a)
A creditor secured his loan by taking the insurance policy in the name
of debtor.
(b)
(c)
The business can obtain loan by pledging the policy as collateral for
the loan. The insured persons are getting more loan due to certainty of
payment at their death.
.
FAMILY PROTECTION:
family interest. There are certain special requirement of the family which is
fulfilled by the earning member of the family. If the member become disable
to earn the income due to old age or death, those needs may remain
unfulfilled and the family will suffer. The life insurance provides safety and
security against the loss of earning at death or in old age.
(ii)
when
the insured is unable to pay the premium on his policy. He can surrender his
policy and can get surrender value. With this the contract comes to an end
and the insured will get the cash without any liability to pay any further
premiums. The insurance company may grant loan to the policy holder on the
security of life insurance policy.
(iii)
The
provision for old age is required where the person is surviving more than his
earning period. In old age income come down while expenditure increases
(i.e. medical Expenditure). The life insurance provides old age funds along
with the protection of the family by issuing various policies.
(iv)
say education for children daughter's marriage and needs for settlement of
children. Insurance comes to help for meeting these requirements.
Multipurpose policy education and marriage policies are the better policies
for these needs.
(v)
20% Rebate is given in income tax on the amount which ever the
insured paid as premium on the life insurance policy taken by him.
(vi)
In most of the
(b)
(c)
insurance policy loan can be taken for business purpose. Life Insurance
Corporation provides credit facilities to big industrial houses. The insured
persons are getting more loans due to certainty of payment at their death. The
insurance policies are the best collateral and adequate loans are granted by
the lenders.
(ii)
BUSINESS FIRMNESS:
at the death of any partner because the firms have to pay to the legal hair of
the decease, his share in the firm. But the insurance policies provide adequate
funds at time of death. With this economic position of the firm become
strong.
(iii)
WELFARE OF EMPLOYEES:
responsibility of the employer. Therefore the employer has to look after the
welfare of the employees. These requirement are easily met by the life
insurance, accident and sickness benefit and pensions which are generally
provided by group insurance. The premium for group insurance is generally
paid by the employer with this employees will work their maximum
capacities to complete their jobs when they are assured of the above benefits.
(iv)
Insurance
company issue a policy that indemnify the employer against direct economic
loss that he may suffer through acts of fraud or dishonesty by an employee in
the course of his employment. This type of insurance policy provides safety
to the businessman from embezzlement of funds form the business.
(v)
a policy on the life of his debtor. The insurance company will pay the debt in
case the debtor dies without paying his debt.
ADVANTAGE OF INSURANCE TO SOCIETY:(i)
The
elements
of
investment, regular saving, capital formation and return of the capital are
observed in life insurance.
(ii)
The Expansion in
the field of insurance provide employment to many. Thus to some extent the
insurance companies can solve the problem of unemployment.
(iii)
REDUCTION IN INFLATION:
(a)
(b)
inflationary gap.
ADVANTAGE OF LIFE INSURANCE TO THE INDUSTRIAL
SECTION:-
INSURANCE IS LIMITED TO MONETARY VALUE ONLY:Under insurance only monetary loss is compensated. Loss which
cannot measure in monetery term not cover under insurance. Therefore the
insurance cannot be done for those goods which are not measure in money
value say love enjoyment feeling and mental suffering.
(2)
insurance this necessary that the assured must have insurable interest in the
subject matter. For insurance contract to be alid: the insured must posses an
insurable interest in the subject matter of insurance. Without insurable
interest the contract of insurance become void. The insurable interest is the
financial interest where by insured is benefited by the existence of the subject
matter and is prejudicial by the damage of the subject matter.
(3)
Therefore insurance facilities is not available to many person say low income
group and people belonging to village area.
(4)
cannot be insured. Such risks cannot be anticipated. Speculative risks are non
insurable risks. These risks take birth by the changes in market condition
such as price fluctuations, they cannot be insured.
(5)
MORAL LIMITATION :-
INSURANCE
IS
NOT A PROFITABLE
INVESTMENT:-
To spread the
(1)
(1)
(2)
(3)
(4)
(5)
(6)
Annuity
(7)
Non-conventional policies.
(A)
(A)
(B)
Endowment Policy
(C)
Term Policy.
whole life. It means that the policy amount will be paid at the death of the
life assured. Under this policy the assured cannot get the policy amount
during his life time, only his dependent will get the advantages of this policy.
Corporation issues the following type of whole life policy:
(i)
Under
this
policy
premium is payable throughout the lifetime of the assured and the policy
money shall be payable after the death of the assured. This policy provides
full protection in the sense that the family received a lumpsum amount after
the death of the assured. The premium payable under this policy is lower as
compared with other type of policies.
Only disadvantages of this policy is that the assured to pay premium
throughout life and he never enjoy the benefit under the policy. This policy
suits middle-aged person who may desire full protection of the family at the
lowest cost.
(ii)
the total amount of premium is paid at one time by the assured. The policy is
not so popular but is purchased for investment purposes.
It generally suits those persons who get windfall income from lotteries or
gambling.
(iii)
in profits after
This
is
whole life policy which gives its holder an option to get it converted at the
end of five years, into an endowment policy. If this option is exercised the
policy no longer remains a whole life policy. The object of the policy is to
provide maximum insurance protection at a minimum cost and at the same
time the policy can be convertd into endowment policy, at the end of five
year. The difference in premiums for the previous five years and interest
thereon, will be charged. The insured is not required to go under fresh
medical examination. The minimum sum assured for which a policy will be
issued under this scheme is Rs. 5000 and the maximum age at entry shall be
45 years. This plan is introduced by the Corporation to meet the needs of the
young man whose income is lower in the beginning and has prospects of
increase in income after a short period.
(B)
shall be payable to the assured if he alive upto the term of insurance or to his
nominee in the event of his early death. The endowment policies are many of
which important endowment policies are as under:
(i)
the amount becomes payable, on the expiry of the term of insurance contract
or in case of death of the assured before maturity. The assured is required to
pay premium throughout the term of insurance or upto death. This policy is
the combination of term insurance and of pure endowment. This policy
provides and ideal combination of both the family protection and the
investment. The old age provision and the family protection is possible by
purchasing only this singly policy. Besides this compulsory saving is possible
under this policy which is not present in other types of policies. This policy is
more popular as compared with others.
(ii)
assured is payable to the life assured if he survive till the term of policy
nothing being payable if death occurs before the term expire. It is suitable
those person who do not feel any need of family provision after their death.
This type of policy has the element of investment only. Pure endowment
grants protection against 'Living too Long'. The rate of premium in such
policy is lower than that in ordinary endowment policy. Sometime pure
endowment are issued on the lives of children to provide funds for college
education.
(iii)
payable to the insured is double the amount of sum assured; if the assured
survives upto the term of policy. In case the assured dies during the term of
policy. Only the sum assured is payable to his nominee or his family. The
Under
this
policy sum assured are payable to the insured in installment during the
term of the policy at certain interval and the balance at maturity. In the
event of death of the insured before maturity, full sum assured shall be
payable without any deduction of payment made earlier. This policy is
beneficial to those who want to provide for their old age and family,
also need lumpsum benefits at a periodical internals. No loan will be
granted under this policy and the minimum amount for which a policy
will be issued is Rs. 5000.
(v)
two lives in a single policy say husband and wife. The assured sum is
payable on the expiry of the insurance terms or the death of one of the
two assured lives during the endowment terms. The main advantages
of such a joint life policy is that the premium is low as compared to the
sum total of the premium separated payable by two persons.
(vi)
this
policy the sum assured is payable only at the end of a agreed period,
but the premium ceases if death of the policy holder occurs earlier. The
beneficiary may discount the policy before maturity. This policy is
meant to meet the needs of a family man who wants to make available
a sum for marriage of a female dependents.
EDUCATION ENDOWMENT POLICY:
Like
marriage
endowment policy this policy is also taken out on the life of the father
or guardian. The child for whose benefit policy is taken s called
beneficiary. But under this policy sum assured is not payable in
lumpsum but is payable in equal installment over a period of five
years. It is payable in half yearly installment for five years.
(C)
period. This policy provides life insurance protection for a limited period of
time from three months to seven years. The sum assured is payable only in
the event of death of the life assured during the insured period and nothing is
payable is case of assured survival. Here the premium charged is
comparatively low. The main purpose of the policy is to provide temporary
protection as that of a property insurance policies do. The terms policies are
for the benefit of the nominee or the dependents. This policy is not very
popular now a days. Various types of term policies are as under:(1)
discuss as under:
(i)
paid at the beginning of the policy. The premium under this policy is
(i)
share the profit of the company. These policy holders get only the
assured. The rates of premium paid on this policy are lower.
(ii)
there is profit. In this policy there is no gurantee that the insured will
get something by way of profit every year. According to insurance Act
Company has to distribute 95 percent of its profit among the policy
holders. Thus if there is no profit in a year no amount can be
distributed to the participating policy holders. The premium rate is
higher in this type of policy.
(4)
(i)
individual is insured. This policy insures only one life. The policy may
be issued in one's own life as well as in other life also. The policy
amount is payable only when the assured event occurs.
(ii)
and the policy amount is payable on the first death. These policies are
suitable to the partners of a firms and to a couple.
(b)
(5)
(i)
Under
these
policies,
Under
this
scheme
creditor under takes a master policy for all his debtors so that the amount of
debt due toward evry debtor is insured. The insured amount goes on
diminishing as payment of debt proceed gradually.
THE
INSURANCE
BUSINESSES:
OF
PERSON
EMPLOYED
IN
SMALL
person who are earning their livelihood from small businesses like milk
vendor. Taxi driver and Rickshaw puller, barber, washerman, bidi worker and
small farmers.
Group insurance schemes are of three types:
(1)
the economic arrangement is being done for the member of a group like
employees professionl group or labourer after their death. The family of the
insured person gets the payment of insured amount as per the terms and
conditions if that perosn dies during the scheme. The insurance remain valid
for the whole duration of the service of the employees. The insurance
benefits ceases the movement the employees retire or resigns from the
service. Under this scheme, all those employees can get themselves insrued
who are on regular service. This is an essential condition of group term
insurance scheme that employer is also expected to bear the burden of
premium. If employer undertakes the responsibility of bearing the whole
premium than this sheme is called non contributory scheme. But it is
necessary that the whole burden may fall on employer. Employer is to bear
premium to the extent of 1\4 of the total premium. The shceme is called
contributory scheme. If employees are also required to pay premium. Under
non contributory scheme it is necessary that all present employees are
insured under group insurance and when new employees becomes eligible
under the scheme they are also to be taken under this scheme. However under
contributory scheme it is no necessary that all the employees should join the
scheme
(2)
SUPERANNUATION SCHEME:
A social security
Group Fund (SSF) administered by the LIC was set up in 1989-90 to meet
the insurance requirement of the weaker and vulnerable sections of the
society. As on 31 march 1999 about 49 lakh people belonging to 24
occupational group/areas have been covered under various social security
group schemes financed from the SSF. Under these schemes people in the
age group of 18-60 years are covered for a sum of Rs. 5,000 on death due to
natural causes, and Rs. 25,000 on death caused by accident. While the SSF
subsideises 50 per cent of the premium. The beneficiary has pay the
remaining 50 percent.
age 20 and 50 years where premiums are to be paid by the members in full
and (ii)
do not want to leave amount for other but want to use their money during
their life time. During the lifetime they may make maximum use of the
money by purchasing annuity which is to possible otherwise.
(2)
under
annuity payment is being made till the annuitant survive. In other word one
can say in annuity money is paid till death. It appears like pension. It seemed
to be a regular source of income in old days.
(3)
maintain a particulars standard of living till their death without seeking any
financial help from others. Annuities help those person by providing regular
source of income till death.
(4)
annuitant at the beginning of the contract is called price of the annuity. The
payment of annuity generally continues upto the life. So the premium rate is
determined according to longvity. The amount of premium is higher at
younger age and lower at old age.
(5)
CHECK ON EXPENDITURE:
expand lavishly. If money is used for taking annuity check may put on excess
expenditure.
(6)
(2)
(3)
(4)
(A)
ANNUITIES
ACCORDING
TO
COMMENCEMENT
OF
INCOME:
(1)
(2)
(3)
DEFERRED ANNUITY.
(1)
single person is contracted. This annuity is most suitable to those who have
no dependent and want to use all saving during his life time.
(2)
Joint life annuity. Under this annuity payment of annuity stops at the
first death.
(b)
can deposit some amounts periodically so that at the end the can get
sufficient amount in equal installment. Before commencement of the
payment of annuity, annuitant is given option to get the surrender value in
cash or to get the paid up values reduced in proportion to the premium paid
to the premium payable. At the death of the depositor the family member can
get the surrender values or premium paid whichever is higher.
(2)
single
(1)
the annuitant througout his life time. No payment is made after his death.
When the depositor dies before receiving all the amounts of the purchase
prices, he is at loss. But if he survives for a longer period than expected, he is
benefited by this annuity.
(2)
the payment will continue for a fixed period say 5, 10, 15, 20 years and upto
life thereafter. But payments commence after deferment period. The annuity
also guarantees refund of cash value of the balance of annuity where the
company promise to pay a lumsum to the nominee or to the annuitant's
estate, the difference, if any, between the total of annuities received before
the annuitant's death the purchase price.
RETIREMENT ANNUITY POLICY:
This
annuity
is
useful
to
employees at the time of retirement. The main object of the annuity contract
is to make provision to the individual in old age. This type of annuity
commences between the age of 58 and 68.
(b)
(c)
(d)
Under this policy minimum sum assured is Rs. 10,000 and maximum
sum assured is 1,00,000 minimum and maximum age at entry is 20 years and
45 years receptively. Maximum maturity age in this plan is 65 years.
Proposal under this plan can be entertained under non-medical
(general) scheme, both in respect of male and female lives upto rupees one
lakh sum assured. However, if anything medial then the regular procedure
life calling for full medical report specula report are to be followed. The
father and mother should jointly sign a deletion regarding the date of birth of
the child.
BIMA KIRAN POLICY:
plan. Therefore it suits the young ones. In built accident benefit and a free
insurance cover after maturity for 10 years is provided under this plan.
Minimum and maximum entry age is 18 years and 60 are respectively. The
policy term is minimum 15 year and maximum 30 years. Minimum and
maximum sum assured under this policy is Rs. 50,000 and Rs. 3 lakh
respectively. Major draw back of this policy is taking loan facilities.
ASHADEEP II POLICY :
policy
is
exclusive
meant
for
liquidity, viability and higher yield on maturity. Minimum sum assured is Rs.
5,00,000. This policy guaranteed addition Rs. 75% per thousand with loyalty
addition, which can go upto 75 % of sum, assured depending upon the
Corporation experience.
CHILDREN'S MONEY BACK POLICY:
need financial support to enter business/career. This policy fulfills this type
of need of the child. Under this policy 20% sum assured is payable after 18
and 20 years age of the child and 30% sum assured is payable after 22 and
24 years of age. At age 26 guaranteed addition of Rs. 80 per thousand is
payable. Loyalty addition can go up to Rs. 90 pr thousand depending upon
Corporation's experience. Entry age is 0 to 10 years.
NEW JANA RAKSHA POLICY:
meant for farmers and industrial workers. Under this policy a 3 years grace
period is provided in case of non-payment of premium after payment of fist 2
years premium. The policy term is 12 to 30 years and minimum sum assured
is Rs. 10000. From 50000 maximum sum assured has been raised Rs. 5 lakh.
JEEVAN GRIHA POICY:
housing loan need. This is a low premium and high-risk coverage plan. Plan
is granted on the face value of sum assured.
Minimum age and maximum age at entry is 18 and 50 years
receptively. The minimum term is 5 years and maximum term is 30 years.
The maturity age is 65 years. This policy can be collateral security for
housing loan.
JEEEVAN SANCHAY POLICY.
fulfil the dreams of your moved ones. This is a new money back policy for
12, 15, 20, and 25 years minimum and maximum sum assured is Rs. 25,000.
Under this policy in addition to sum assured guaranteed addition Rs. 70 per
factor in selecting the insurance policy. This can be determined by the size of
this family his age, the age and health of his wife, children, his other
dependents and the standard of living of his family.
(2)
insure will depend upon this capacity to pay premiums at present as well as
in future also. For this he shall have to take into account his income at
present and also to make a fair estimate of the likely change in it in future.
There should be no overestimate of the future income.
(3)
This
may need provision for the education of his child after ten years in his case
he would do better by taking a ten year endowment policy where the assured
sum may be payable in installment. But if one wants to make provision for
the marriage of his daughter, the payment of policy money in form of a
lumpsum will be more proper.
(4)
TEMPERAMENT: