What are the basic principles of insurance?

(Year – 2003) The basic principles of insurance under common law may be defined as an agreement between the insurers and the insured whereby the insurers having received premium undertake to make good the financial loss subject to limit of sum insured suffered by the insured as a result of damage or destruction of the insured property by fire or other specified perils during a stated period. How are they applied to fire insurance? The fire insurance is also subject to certain special principles evolved under common law. Whether stated in the policy or not, the common law principles automatically apply to fire insurance contracts. These are all called as implied condition. These relate to 1. Utmost good faith 2. Insurable Interest 3. Subject matter of insurance 4. Indemnity Utmost good faith In ordinary commercial contracts the parties to the contract are required to observe only good faith ie. There should not be any fraudulent. However, in insurance contracts the legal doctrine of utmost good faith applies. It means it is the duty of the insured to disclose all material facts bearing on the insurance. The insurers rely entirely on information given by the proposer. The insurer can avoid the contract if they provide that certain material information has not been given or has been incorrectly given by the insured.

Insurable Interest Insurable Interest, in simple terms, means the legal right of insure. To constitute insurable

3. irrespective of sum for which he has insured. which arises under common law. salvage. Elaborate risks covered under Standard Fire and Special Perils Policy with provision of deductible excess.interest. so that he stands to benefit by its safety or be prejudiced by its destruction or damage. The indemnity is subject to the terms and conditions of the policy ie) depreciation. This physical object must be the subject matter of insurance. Fire . The insured can only recover upto the extent of insurable interest. ensures that the insured does not recover more then actual loss suffered by him. Ramesh Babu Fire & Engg. underinsurance and policy excess. The insured must have some relationship to such object recognized by law. 2. Dept 1 Existence of the subject matter The subject matter of insurance must exist when the contract is effected and must be described adequately to ensure that it can be identified in the event of loss. Indemnity The principle of indemnity. There must be a physical object. three essentials are required 1. (Year – 2001) Which are the perils covered under the standard Fire and Special Perils Policy? (Year -2000) The following perils are covered under standard fire and special perils policy 1. capable of being destroyed or damaged by fire or other insured perils. M.

The first 10. Impact by any Rail/ Road vehicle or animal 8. Inundation. Cyclone. Missile Testing Operation. Strike. Storm.2. Subsidence / Landslide including rockslide. Tempest. for covering stocks? (Year -1997 &98) Describe the different types of Floater Policies? (Year – 2001) Explain the need for floater policy? What is a Floater policy? (Year -1997) Explain the special features of floater policy? (Year – 2001 . M. Aircraft damage 5. 11. 10. Bursting and / or overflowing of water tanks.000/. Leakage form Automatic Sprinkler Installation 12. Explosion / Implosion 4.in respect of each and every loss arising out of Act of God perils such as lightning. Typhoon and Tornado. 9.for each and every loss arising out of other perils. Malicious damage 6. STFI and Subsidence and Landslide including Rockslide covered under the policy. 7. The first 5% of each and every claim subject to minimum of Rs. 2. Bush Fire Deductibles 1. Lightning 3.000 /. Riot. 10. Ramesh Babu Fire & Engg. Dept 2 Discuss briefly the various types of floating policies available under Fire dept. apparatus. Flood. Hurricane.

Single sum insured for all the stocks in more than one location. In case Stocks in a process block are covered under the Floater Policy and the rate for the process block is higher than the storage rate. 6. Floater Policy 2. Declaration Policy 3. the process rate plus 10% loading shall apply. Presence of “Kutcha" construction may be ignored. 1. no floater extra is chargeable. Stocks kept in specified location only can be covered. Floater Declaration Policy Need for Floater Policy These policies are issued where stocks are shuttered between different locations so that it is not possible for the insured to specify the value of the stocks at each location. 1. 5. 2. A floater policy can thus be issued covering stocks in more than one location under one amount by charging 10 % extra premium over and above the highest rate applicable to any one risk.State the main features of the Declaration Clause of fire policy? (Year – 1997 & 2003) There are three types of special policies available under the fire department for covering the stocks in the insureds premises. . If stocks situated within godowns / process blocks in the same compound are covered under floater policy. 3. the Floater Policies are issued with the following conditions. 4. Floater Policy In order to take care of stocks at various locations. The rate shall be the highest rate applicable to insured's stocks at any location with a loading of 10 %.

To overcome this problem in cases where there is a frequent fluctuation in the value of stocks. Dept Need for Declaration Policy A Declaration policy is best suited for a client whose stocks are subject to frequent fluctuation during the currency of the insurance.M. It is necessary that the declared values should approximate to this figure at sometime during the policy year 4. The condition of average will apply to the extent of increase in stock value. Ramesh Babu Fire & Engg. However. Declaration Policies 1. 3. 2. as endorsements would have to be passed and additional premium charged or refunded as the case may be. 25 lakhs in atleast one of these locations. To take care of frequent fluctuations in stocks/stock values. Declaration Policies are issued. Usually any increase or decrease in the value of stocks has to be intimated to the insurance company so that stocks are adequately insured at all times. a declaration may be issued. the policy will not provide the complete coverage. In case the insured avail an ordinary stock policy for a particular amount and there is an increase in stock value during the policy period. The minimum sum insured shall be Rs 1 crore in one or more locations and the sum insured should not be less than Rs. Monthly declarations based on . this is not only cumbersome procedure for the insured but for the insurer as well.

Stocks at Railway sidings 10.a) The average of the values at risk on each day of the month or b) The highest value at risk during the month shall be submitted by the insured latest by the last day of the succeeding month. M. If declarations are not received within the specified period. Dept 9. Floater Declaration Policies Floater Declaration policies can be issued subject to a minimum sum insured of Rs 2 crores and compliance with the Rules for Floater and Declaration Policies respectively except that the minimum retention shall be 80% of the annual premium. ii. iii. then the amount which would have been recoverable by the insured shall be reduced in such proportion as the amount of said last declaration bears to the amount that ought to have been declared. If after occurrence of any loss it is found that the amount of last declaration previous to the loss is less than the amount that ought to have been declared. 5. 6. It is not permissible to issue declaration policy in respect of i. The basis of value for declaration shall be the Market Value anterior to the loss. Stocks undergoing process. 7. Insurance required for a short period. 8. Reduction in sum insured shall not be allowed under any circumstances. Refund of premium on adjustment based on the declarations/ cancellations shall not exceed 50% of the total premium. Ramesh Babu Fire & Engg. the full sum insured under the policy shall be deemed to have been declared. Briefly explain the provisions of fire tariff regarding rating of silent risks (Year – 200 .

&03) 1. 2. Write short notes on Short period insurance (Year -2000) 1. The silent rates are not applicable if a risk goes silent following a loss under the policy. The short period scale of rate is applied. 3. 3. Policies for a period of less than 12 months shall be treated as short period insurance. Risks becoming silent shall not be entitled to any discounts. 4. Extension of short period policy is not allowed . Retention of the premium shall be based on the appropriate storage rate or silent risk rate of Re.0.80%o whichever is higher. 4. Fire policies are issued for a period of 12 months. 2. Factories where no manufacturing / storage activities are carried out continuously for 30 days or more are eligible to be rated under silent risks.

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