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In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for payment, known as the premium, the insurer pays for damages to the insured which are caused by covered perils under the policy language. Insurance contracts are designed to meet specific needs and thus have many features not found in many other types of contracts. Since insurance policies are standard forms, they feature boilerplate language which is similar across a wide variety of different types of insurance policies. General features The insurance contract or agreement is a contract whereby the insurer will pay the insured, if certain defined events occur. Subject to the "fortuity principle", the event must be uncertain. 1. Insurance contracts are generally considered contracts of adhesion because the insurer draws up the contract and the insured has little or no ability to make material changes to it. 2. insurance contracts are aleatory in that the amounts exchanged by the insured and insurer are unequal and depend upon uncertain future events. 1|Page

3. Insurance contracts are unilateral, meaning that only the insurer makes legally enforceable promises in the contract. 4. Insurance contracts are governed by the principle of utmost good faith (uberrima fides) which requires both parties of the insurance contact to deal in good faith and in particular it imparts on the insured a duty to disclose all material facts which relate to the risk to be covered. This contrasts with the legal doctrine that covers most other types of contracts, caveat emptor (let the buyer beware). Parts of an insurance contract 1. Declarations - identifies who is an insured, the insured's address, the insuring company, what risks or property are covered, the policy limits (amount of insurance), any applicable deductibles, the policy period and premium amount. 2. Definitions - define important terms used in the policy language. 3. Insuring agreement describes the covered perils, or risks assumed, or nature of coverage, or makes some reference to the contractual agreement between insurer and insured. 4. Exclusions - take coverage away from the Insuring Agreement by describing property, perils, hazards or losses arising from specific causes which are not covered by the policy.

5. Conditions - provisions, rules of conduct, duties and obligations required for coverage. If policy conditions are not met, the insurer can deny the claim. 6. Endorsements additional forms attached to the policy form that modify it in some way, either unconditionally or upon the existence of some condition. 7. Policy riders - A policy rider is used to convey the terms of a policy amendment and the amendment thereby becomes part of the policy. 8. Policy jackets - A policy jacket is a cover, binder, envelope, or presentation folder with pockets in which the policy may be delivered.


Insurance contracts may be placed or classified into broad categories. 1.By nature of event by which the sum becomes payable this classification places the insurance contracts into categories such as Marine, Fire, Life etc. it places emphasis on the homogeneity of the group. 2.Nature of the interest affected this classification places insurance contracts into three broad categories namely; Personal insurance e.g. life, accident, fidelity etc., Property insurance e.g. fire, marine, motor, solvency. Crop, hypothecation etc.,Liability insurance where policies

are taken out in compliance withstatutory provisions e.g. the compulsory third party motor insurance, workmans Compensation, NSSF, NHIF 3.Nature of contract of insurance a contract of insurance may be an indemnity or nonindemnity. An indemnity contract is a contract of insurance where the insured pays a premium on the understanding that in the event of loss, he will be indemnified for the actual loss sustained. He must be restored to the position he was before the loss. Dalby Vs India and London Assurance Co., [1854] 15 CB 361. It was observed that policies of insurance under fire and Marine risks are properly speaking indemnity contracts. A non-indemnity insurance contract is one in which the insured secures the payment of a fixed sum of money, previously determined as the value of the subject matter of insurance. There is an assurance that the amount is payable should risk attach e.g. of life policies. 4.By nature of the program of insurance insurance programs are either private or social. Private insurance is generally optional and voluntary and is effected on the premise that the insured stands to loose should risk attach. Social insurance is compulsorily imposed upon the assured by statute to protect the society from a

hazard which no single individual can cushion it. The individual must guard against such risks as well as the activities giving rise to the risk as it is beneficial to the society. Hence those involved must contribute to cushion those likely to be affected e.g. compulsory third party Insurance. Social insurance is said to be a device of pooling of risks by their transfer to an organization under an obligation to provide pecuniary benefits or service to or on behalf of the insured on the occurrence of the event e.g. Compulsory third party motor insurance, N.H.I.F., N.S.S.F, Workmans compensation. 5. Whether insurance is direct or re-insurance Reinsurance takes place when an insurer who has already undertaken to indemnify the insured or pay the sum assured insures himself against the same risk with a reinsurer. Reinsurance is a 2oth century practice which evolved to cushion the insurers against the insolvency. Re-insurance may be optional or voluntary. Kenya Re- insurers are bound to insure up to 10 % with PTA Reinsurance and up to 5% with the African Reinsurance Corporation. However, an insurance co. is free to re- insure up to 100%. Role of Re-insurance: Reinsurance assists in the distribution and transfer of economic processes from one company to another 2|Page

which benefits the economy. It also generates the making good of losses in the event of insolvency. It also ensures that insurance companies invest part of their accumulated funds locally.

Q. ESSENTIAL ELEMENT OF A Valid Contract of Insurance:

To make contract of insurance valid in the eye of law, some essential elements must be considered in its process of validity. The insurance contract, like any other contracts must satisfy the usual conditions of a contract. The essentials of insurance contracts are as follows: 1. Agreement: Agreement means communication by the parties to one another of their intentions to create legal relationship. For a valid contract of insurance, there must be an agreement between the parties, i.e. one making offer or proposal and another accepting the proposal or signifying his acceptance upon proposal. 2. Free consent: There must be free consent between the parties to contract. Consent means that parties to an agreement must agree on a specific thing in the same sense or their understanding should be the same. Consent must be given by the parties thereto in a contract, freely, independently, without any fear and favor. The consent is known to be free when it

is not caused by, fraud, misrepresentation, mistakes and other undue influences . 3. Components to contract: The parties in an agreement must be legally competent to enter into the contract. It means both parties in the insurance contract must be age of majority, posses sound mind and not disqualified by any ;aw of the country. It clears that a person who is minor, lunatics, idiot and alike cannot enter into a insurance contract. The contract entered into by these will be declared as void. 4. Lawful object: In insurance contract, the object of the contract must be lawful as in other types of contracts. The agreement must not relate to a thing which is contrary to the provision of any law or has expressly been forbidden by any law. It must not be of such nature that if permitted, it implies injury to the person or property of other or immoral or opposed to public policy. 5. Lawful consideration: There must be due and lawful consideration in the insurance contract. The consideration, for which the contract is entered and created by the parties, must be lawful. To establish legal relationship, to create obligation between them and to make it enforceable by law there must be lawful consideration. 6. Compliance with legal formalities: To make an

agreement valid, prescribed legal formalities of writing, registration, etc. must have been observed. In the contract of insurance, the agreement between parties must be in written form and dully signed by both parties; properly attested by witness and registered otherwise it may not be enforced by the court.

Literally the word wager means a bet something stated to be lost or won on the result of a doubtful issue, and, therefore, wagering agreements are nothing but ordinary betting agreements. Section 30 of the Indian Contract Act talks about wagering agreements, which reads as agreements by way of wager are void. The section does not define wager. Section 30 states that, Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made. Effects of Wagering AgreementA wagering agreement is void ab initio, and S. 65 has no application to it.[x] Money paid directly by a third party to a winner of a bet cannot be recovered from the loser.[xi] Even if a loser makes a new promise to

pay for his losses in consideration of his not being posted, the promise cannot be enforced; but if he gives a cheque in discharge of his liability, the cheque may not be tainted with illegality because of the winners promise not to have the name posted. The act for Avoiding Wagers (amendment) act 1865 (Bombay act 3 of 1865) The law is however, different in the state of Bombay. In that state, contracts collateral to or in respect of wagering transactions are prevented from supporting a suit by the special provisions of the act for avoiding wagers (amendment) act 1865 (Bombay act 3 of 1865). It was observed that act was passed close the doors of the courts of justice in the presidency to suits upon contracts collateral to wagering transactions where such collateral contracts have been entered into or have arisen since the act came into force, a purpose which it has effectually answered. In the case of Rajshree Sugars &Chemicals Limited v Axis Bank Limited.[xlii] Since March 2008, Axis Bank and Rajshree Sugars have been fighting a legal battle over the foreign exchange derivatives contract, sold by the Bank to the company, thereby resulting in huge losses for the company estimated to be around Rs. 46-50 crores. The company had refused to make any loan 3|Page

repayment to the bank contending that the contract was a wagering deal, and hence untenable on such grounds. The court answered this issue in the negative. n the light of abovementioned points and also adhering to the Supreme Court judgment in Gherulal Parakh v. Mahadeodas Maiya,[xliv] the Judges in this case concluded that the sequence of events in the present case reflected that the nature of the transaction was not in the form of a wager. Q. DIFFERENCE BETWEEN CONTRACT OF INSURANCE AND WAGERING AGREEMENT: 1. A contract of insurance is a contract to make good the loss of property (or life) of another person against some consideration called premium. A wagering agreement is an agreement to pay money or money's worth on the happening of an uncertain event. 2. In a contract of insurance the insured must have insurable interest. Without insurable interest it will be a wagering agreement. No insurable interest is necessary in case of a wagering agreement. 3. In a contract of insurance both the parties are interested in the protection of the subject matter, i.e., there is mutuality of interest. In a wagering agreement there is conflict of interest and in reality there is no interest at all to protect.

4. Except life insurance, a contract of insurance is a contract of indemnity, i.e. a contract to make good the loss. In case of a wagering agreement there is no question of indemnity. On the happening of the event fixed amount becomes payable. 5. Contracts of insurance are based on scientific and actuarial calculation of risks. Wagering agreements are not based on such calculations and are in the nature of gambling.

Q. The Nature Of Risk And Life Insurance

Everyone knows that we get insurance to cover potential risks. Insurance premiums will of course be directly proportional to the level of risk that their attached policies are covering. This article explores the curious relationship between risk and insurance prices. Different insurance products may have different interpretations of how risky certain things are. You would expect an eighty year old to pay lower car insurance premiums than a twenty one year old but, the same twenty one year old will come up on top every time when it comes to life insurance. It can therefore be said that different insurance products will have their own interpretations of risk I'm going to take a risk of sounding patronising: do we really know what risk is? When you take a second or two to think, this question is actually far

more expansive than it seems. Risk is actually derived from the Italian word 'rischio' meaning a source of peril. Taking a look at my Oxford English Dictionary I get no fewer than six distinct meanings. When accounting for the life insurance industry jargon we get a seventh meaning referring to 'the risk' which in this context means whoever is being insured rather than an event that might cause loss or damage. As a life insurance specialist two key element of what risk is have emerged to me, there must be an element of uncertainty, and there must be a potential for loss. This is, however, seemingly too simplistic for the insurance industry to use. When calculating life insurance policy costs we also need to encompass a third ingredient which is a measurement that allows risk to be distinguished from uncertainty. The probabilities of certain events happening, such as death or injury need to be calculated. This process involves using complex financial models based on past statistical data. While pricing factors such as age and sex are beyond your control there are some steps that can be taken to save some money. Smokers will always get a lousy deal when it comes to life insurance, so quitting can save you a packet. Insurance firms will class

you as a smoker if you have consumed a cigarette in the last twelve months. If you're classed as overweight you'll also take a hit to the pocket. So cutting down on those excess pounds is a great idea. Hopefully I have demonstrated how insurance and risk are intertwined and in order to understand the price of life insurance we must first define just what risk is.

The insurance has the following characteristics, which are observed in case of life, marine, fire and general insurance. Sharing of risk Insurance is a device to share the financial losses which might befall on an individual or his family on the happening of a specified event. The event may be death in case of life insurance, fire in fire insurance etc. If insured the loss arising from these events will be shared by all insured in the form of premium. Co-operative device -The most important feature of every insurance plan is the cooperation of large number of persons who, in effect, agree to share the financial loss arising due to a particular risk which is insured. An insurer would be unable to compensate all losses from his capital. So, by insuring a large number of persons, he is able to pay the amount of loss. Value of risk - The risk is evaluated before insuring to charge the amount of share of an insured, premium. There are several methods of evaluation of risks. If there is expectation of more risk, higher Premium may be charged. So, the probability of loss is calculated at the time of insurance. Payment at contingency The payment is made at a certain contingency insured. If the contingency

Q. cover note
A document used to provide evidence of insurance if policy documents are not immediately available. (This term is most commonly used outside the United States.) It generally shows the name of the insurer and insured, brief details of the property or risk insured, the coverage, and the total amount of insurance. It is similar to a "binder" in U.S. insurance parlance. A cover note is a document issued by an insurer as an interim cover for the period before a formal insurance policy is issued. We do not provide cover notes. However, when you purchase an insurance policy with us we will issue you a Certificate of Insurance. You have a cooling off period that allows you to cancel your policy within 21 days of its being issued if you tell us within this period.

occurs, payment is made. Since the life insurance contract is a contract of certainty, because the contingency, the death or the expiry of term, will certainly occur, the payment is certain. In other insurance contracts, the contingency is the fire or the marine perils etc., may or may not occur. So, if the contingency occurs, payment is made, otherwise no amount is given to the policy-holder. Amount of payment - The amount of payment depends upon the value of loss occurred due to the particular insure d risk provided insurance is there up to that amount. In life insurance, the purpose is not to make good the financial loss suffered. The insurer promises to pay a fixed sum on the happening of an event. If the event or the contingency takes place, the payment falls due if the policy is valid and in force at the time of the event. Large number of insured persons -To spread the loss immediately, smoothly and cheaply, large number of persons should be insured. Large number of persons or property is insured to lower the cost of insurance and the amount of premium. Insurance is not a gambling - The insurance serves indirectly to increase the productivity of the community by eliminating worry and increasing initiative. The uncertainty is changed into certainty by

insuring property and life because the insurer promises to pay a definite sum at damage or death.

Q. FEATURES OF PUBLIC LIABILITY INSUARENCE ACT, 1991 What does this policy cover? The policy provides cover against; It covers your statutory liability arising out of accidents occurring during the currency of the policy due to handling hazardous substances as provided in the PUBLIC LIABILITY INSURANCE ACT 1991 and the Rules framed there under. What does this policy not cover? The policy does not cover liability: Arising out of willful or intentional non compliance of any statutory provisions In respect of fines, penalties, punitive, and/or exemplary damages Arising under any other legislation except in so for as provided for in Section 8 Sub Section (1) and (2) of the Act Applicability A person who owns or has control over handling any hazardous substance at the time of accident and includes a firm any of its partners, an association, any of its members, a company, any of its directors, managers, secretaries or other officers who is directly in charge of, and is responsible to the company for the conduct


of the business of the company. Public Liability Industrial: Provides cover for third party liabilities (bodily injury / property damage) arising out of the manufacturing / industrial premises occupied by the insured and legal costs incurred in connection therewith. The policy can be extended to cover legal expenses arising out of pollution, transportation of hazardous substances, carriage of treated effluents etc. What does this policy cover? Your legal liability towards damages to the third party in respect of accidental death, bodily injury or loss of or damage to property. Legal costs and expenses incurred by you with prior consent. For more comprehensive protection, you can extend it to cover legal exposures arising out of sudden and accidental pollution, Act of God perils, transportation of hazardous substances and more. What does this policy not cover? The policy does not cover liability arising out of or in connection with pollution, any product, personal injuries such as libel, slander, fines, penalties and punitive or exemplary damages, and transportation of materials. Applicability This policy can be offered for manufacturing premises, Godowns / Warehouses. 5|Page

Public Liability Non Industrial: Provides cover for third party liabilities (bodily injury / property damage) arising out of the Non Industrial ( Hotels, Schools, Public halls, Auditorium ,Godowns etc) premises occupied by the insured and legal costs incurred in connection therewith. What does this policy cover? Your legal liability towards damages to the third party in respect of accidental death, bodily injury or loss of or damage to property. Legal costs and expenses incurred by you with prior consent. For more comprehensive protection, you can extend it to cover legal exposures arising out of Food and Beverages, Swimming Pool Extension, Good kept in Care, custody and control. What does this policy not cover? For losses arising out of convulsions of nature, For losses arising out of noncompliance of statutory provision, For losses arising out of pure financial nature such as goodwill loss etc. And For losses resulting from personal injuries(such as libel, defamation etc.) and infringement of plans Applicability Hotels, Motels, Club Houses, Restaurants, boarding and Lodging houses, Guest houses, Cinema halls/ auditorium/ theatres/ operation theatres/ public halls,Offices/ Residential premises/ Administrative premises/ Medical

Establishments/ Research institutes/ Airport premises, Schools, educational institutions, libraries o Exhibitions, Fairs and fetes, stadium and Pandals, Permanent amusement park o Film studios-indoor and outdoor Q. MEDICLAIM Mediclaim insurance plan is an insurance contract made by a general insurance company that takes care of medical expenses following hospitalization of the insured in case of sudden illness, an accident or any surgery required, for a disease that may arise during the policy period. An additional benefit of medical insurance plans is that the insured also becomes eligible for comprehensive preventive medical checkups. To choose the most suitable medical insurance plan from the wide range available in market is not something people look forward to. It requires comprehensive research and thorough understanding of the fine print before investing. Another thing you need to evaluate is the medical insurance rates offered by the different general insurance companies. Thus you are able to ensure that you are getting the right cover for your individual needs at a price that meets your budget. When you have invested in a medical coverage plan, there are two different ways that you can apply for

the benefit in case of an emergency. You can either access cashless facility i.e. in this case your bills are directly paid by the insurance company to the hospital (but there is a catch, the hospital must be registered with the insurance service provider.) or you can pay your bills in the hospital and get a reimbursement afterwards by submitting the same to the insurance company. One point to note is that your mediclaim insurance plan may exclude some health concerns if they fall under the category of preexisting diseases. Also, depending on the plan, some other specific medical conditions too may not be covered. You need to, therefore, read the fine print carefully, so that you understand what benefits you can claim and what you cant. Q. AGRICULTURAL INSURANCE: Crop insurance is the main rural insurance wherein the product, price and income risks are insured. If the farmers do not get a standard amount of product, required price and income from the farms; they are compensated by insurance companies under crop insurance. In past insurance companies did not approach for the crop insurance because of non availability of records of land-ownership yield per acre, inputs used and expected outputs?

The scattered and fragmented land holdings posed other problems. Large varieties of crops, simultaneous harvesting, small premiums and nonavailability of records of labor, cost and input costs have discoursed the insurer to insure the crop risk. The General Insurance Corporation of India had prepared are approach of crop insurance in 1979. The area yield for each to tensile and block have be standardised and was compared with the actual yield to find out the indemnity amount. It has paved the way for Comprehensive Crop Insurance Scheme (CC1S) in 1985 which was later on modified as National Agricultural Insurance Scheme (NAIS). At present NAIS has covered 30 million hectares of cropped area for 18 million farmers throughout the country. Area Based Insurance: The natural hazards differ from state to state and district to district in one state. Weather indices have been prepared to decide the indemnity amount. The catastrophic income losses have been estimated for each year. Area based crop insurance covers the risks of drought, flood etc. in the respective districts and tehsils. The crop insurance covers these, the value of protection desired for meeting the cost of cultivation and value of production etc. Farmers in the same region will receive the same rate of 6|Page

payment of claims in the area. The area based rainfall data is used for deciding the premium amount and claims to be paid in the area. Rainfall Index : The rainfall indexes of the last 30 years are used to demonstrate the rainfall index. It is decided weekly for 30 years to know the capped rainfall. The average of the week of the month in each year is taken for 30 years. Thus the average arrived at is modified with 2 standard deviation to find out the copped rainfall of the week of the month. If the rainfall in less than capped rainfall, the payment is made proportionately. Similarly multiple weather parameter such as rainfall, temperature, frost, humidity, wind speed etc., are decided for fruits and vegetable insurance. Revenue Insurance Products : Besides products, price is another factor of loss to farmers. For example, despite normal production, farmers often fail to maintain their level of income due to price fluctuations. Government has introduced Farm Income Insurance Scheme (FIIS) during Rabi 20032004 season. It encourages crop diversification for cash and ready income. Individual farmers are also assessed for payment. Plant risks have been the significant example of such insurance. The resource poor farmers can get the insurance protection at the

behest of the government's premium. The banking institutions and other financial institutions can ask for crop insurance so that their dues can be paid in time.