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LIFE INSURANCE

PRACTICES IN INDIA

Distribution system
• Distribution System is the relationship
between distribution channels, market
segments and also products is very
important.
• Insurance companies should continuously
innovate and integrate the distribution
channel, make them be the part of the
occupying market and highly promoting
the development of their own.

DISTRIBUTION SYSTEM IN
INDIAN INSURANCE MARKET
• In present Indian insurance market, the
challenge to insurers and intermediaries is twopronged:
• Building faith about the company in the mind of
the client
• Intermediaries being able to build personal
credibility with the clients
Traditionally tied agents have been the primary
channels for insurance distribution in the Indian
market

Distribution system in Life insurance • Need • Law requirements • Beliefs and cultural or religious backgrounds .

is in a position to provide some of this valuable information. family etc. who gets to meet the proposer closely. . The agent. which is vague and far away. • The insurer has to access the risk involved in every proposal for insurance for which the necessary information would include details on personal life styles.Agents are necessary for the selling life insurance due to the following reasons: • Insurance is an idea that has to be explained and its usefulness clarified personally • Each prospective buyer has special needs and requires specialized solutions • Personalized guidance can be given only when there is a live interaction with the agent • Significant amount of money is to be set aside immediately and regularly for a long term in future for a benefit. habits.

direct mail. • Direct response distribution systems are the method whereby the client purchases the insurance directly. telemarketing. This segment. call centers.• The distinction of channels in the developed markets are personal distribution systems and direct response systems.. and work site marketing. . • Personal distribution systems include all channels like agencies of different models and brokerages. banc assurance. which utilizes various media such as the Internet. is just beginning to grow. etc.

gender • Banks – creditor insurance.Multiple distribution channels • Agents – Age. known people. banc assurance • Brokers • Work site marketing • Internet • Invisible insurer .

Technology has a key role to play in worksite marketing to ensure cost benefits. which would determine continued business. group products or work site products do have a definite market that cannot be ignored.Work site marketing • This area needs to be tapped. . Banks and financial institutions have been successfully marketing credit cards and other financial products using this channel. as in any country one of the biggest markets is through the worksite. With changes in human resources management polices and compensation packages. product customization and efficient post sales servicing. If not an identical model a similar approach can be used for selling insurance. • Here the advantages would be: – Captive customer base – Potential to sell individual insurance and group insurance – High trust factor – High hit ratio for the intermediaries The challenges would be the cost effectiveness.

TRENDS IN DISTRIBUTION CHANNELS • Agency and brokerage systems are common and contribute maximum share of life insurance business in the developing countries. notably France. • In European countries. The Japanese life insurance industry depends entirely upon agents. Holland. • Direct mailing is becoming increasing popular in developed countries. Part-Time agents and lady agents form a good proportion of the agency force. . In a small way. Belgium and Spain distribution takes place also through banks. this has started in India. The scope and the experience are being watched.

Remove the perception that anything that looks good is expensive Work against the people's mindset that they are not here for the long term Attract intermediaries especially agents with the requisite qualifications and attributes who can market the company and the product. To retain their creamy layer clientele who are the most likely to be wooed by the new companies Retain and attract good intermediaries Match the aura created by the new companies in the urban market • • • • • Private Sector Companies Have to build their identity in a market where the public does not distinguish them. Products are not attractive and flexible enough but expensive. but the perception of " poor service providers" is a stigma.Differences between public and private sector insurance companies • • • • • • • Public Sector Companies Identity is well established. Run the risk of tapping an already insured market for repeat insurance instead of tapping new virgin pockets in the market • .

Insurance Models • Direct Marketing by the insurance company • Partner-agent model • De-linked model • Service Provider Model .

all are done by the insurance companies • Outreach to provide insurance to poor through this model has been very limited . selling of policies.Direct Marketing by the insurance company • Identification of clients.. receipts of claims and settlement of claims etc. collection of premium.

• Identify the customers.Partner-agent model • Approved intermediary organisations act as insurance agents. negotiate with insurance companies about the adequacy of products and premium rates to be paid. collect the premium • Assist in clients in claim processing and settlement .

claim verification and settlement data collection and maintenance. adverse selection.De-linked model • Community based insurance facility where NGO/MFI or federation of the groups act as insurer • Coverage of risk remains with the insurer • Sum insured. design and pricing of products. assessing client satisfaction etc are undertaken internally by the insurer . collection.

the service providers charge a membership fees to partly cover their costs .Service Provider Model NGOs generally provide basic health care facilities to the rural population since necessary amenities were simply not present in their area of operation. Instead of premium.

Challenges in Insurance Penetration  Designing of products suiting the rural market  Using the right distribution channel mix to reach the potential customer  Intermediaries being able to build personal credibility with the clients .

Distribution Channels • • • • • • • Agents Formal Banks Regional Rural Banks Cooperative Banks NGOs & MFIs Post Offices Internet & Rural Kiosks & Rural Knowledge Centers .

School teacher.000 villages have population of less than 500 . gram sevikas. gram sahayaks • Training & educating poses a challenge • Not an optimum channel as 42 % of 600.Agents • Prime channel for insurance distribution in urban areas • Trust of the company & customer must • Knowledge of different products • Postman. shopkeeper.

111 • Private banks are constrained by their lack of reach and meager branch strength • Banking sector has shown propensity towards the larger size accounts • Within the foreseeable future they will normally not be able to fully serve that market .Formal Banks • 27 PSBs have19. 104 rural branches and 30 Pvt.SBs 1.

Ltd .70 million • RBI has permitted RRBs to undertake insurance business as corporate agent without risk participation • Chitradurga Gramin Bank has -in close cooperation with the NABARD GTZ-Projectintroduced a new deposit scheme called “Rakshith” Savings Bank Scheme in tie up with LIC and UIICo.Regional Rural Banks • 177 RRBs together with14.150 branches cover 516 districts and serve a client base of close to 62.

000 and above .10. only 9 facilitated non life insurance products • The most significant range in amount of cover was in the category of Rs.NGOs and MFIs • Large number of NGOs and MFIs are involved in social as well as financial services intermediation • Out of 61 sample MFIs studied by Sa-Dhan 34 were providing insurance services • While all 34 MFIs provided life insurance products.

Challenges faced by NGO & MFIs • Many of them are working as pure service provider particularly in health insurance. premium is seen as additional expenditure rather than risk cover • Without the availability of basic health infrastructure in rural areas. intermediary • Poor live for the present and do not plan for the future. health insurance is difficult to sell . private insurer. it is difficult to explain the concept of insurance to poor • Given this mindset. Given their fatalistic attitude.

Challenges faced by NGO & MFIs • Cooperation with the insurance company has not proved successful. Limited motivation on both sides to improve the cooperation • Delays in settling claims and complicated formalities • Challenge to pick up the necessary insurance techniques and adjust them to the needs of their members • No legal status as a private insurer. This complicates the matter further when it comes to reinsurance .

Post Offices • There are about 129. • Post Office itself is offering insurance products to the poor • Its efficacy as an intermediary channel needs to be explored .000 rural post offices.

Rural kiosks & Knowledge Centers • Using net for transactions has been catching up in urban areas. Many banks provide online banking • Most of the insurance companies have product information and/or illustrative tools on the web • In rural areas too rural knowledge centers are being set up to bring information close to the people.Internet. The insurance companies can use these centers to create awareness about insurance • Can only be enablers for the human channels .

. Once you‟ve completed the training. The good thing about becoming an LIC agent is that you have a chance to earn unlimited income. IRDA will give you a license if you pass the exam and you can now become an insurance agent. If you are an eligible candidate. and in-house consultant. can handle different personalities.Appointment of agent • • • • • • • Eligibility Life Insurance Corporation of India has eligibility requirements. first-rate training. you will be allowed to take the pre-licensing exam by IRDA (Insurance Regulatory and Development Authority). An interview will be conducted by the branch manager of LIC to determine if you can qualify to undergo training. and treat clients as bosses. The said training is conducted until the 100 hours is complete and it will cover the different aspects of life insurance and the business. try to locate a local branch office of LIC and schedule an appointment with the Development Officer. LIC will provide the needed support which includes advertising. An LIC agent should be ambitious. The branch office of LIC where you applied will already absorb you into their team of insurance agents. You are free to decide on your working hours so you can pick the most convenient time to work. You should be at least 18 years of age or above and the 12th standard pass. outgoing. The training will be conducted by the Divisional/Agency Training Center.

REMUNERATION TO AGENTS • Persons appointed by an insurer may be remuneration in any of the following ways: – Payment of fixed monthly salary – Payment of commission related to the business done – Part payment of fixed salary and part payment of commission based on business done. .

high in first year and lower in subsequent years. . • Bonus commission is also payable on the first year premium as an incentive for higher performance. It may also vary from year to year.• Commission to agents is specified as a percentage of premiums paid. • Commission is also payable to the heirs after the agent‟s death. provisions exist whereby agents who have performed certain qualifying levels of business during 10 years of the agency are entitled to receive commission for the rest of their lives under certain conditions. • In India. This percentage may vary between different plans of insurance. This is a percentage of the eligible first year commission increases. • Commission may be paid right through the term of the policy or may be paid only for a fixed number of years.

The amount of term insurance is linked to the average annual commission (renewal) earned in the three agency years preceding his death. – The death must take place before he has completed 60 years of service – He must have an insurance policy on his own life for at least Rs. The following other conditions also have to be fulfilled: – The agent should not have completed 50 years on the date of appointment as an agent.5000 SA and the policy must have been in force at the time of his death. . – He must have completed at least 3 years as an agent at the time of his death.• Agents of the LIC are entitled to term insurance and gratuity benefits.

conviction on a charge of criminal misappropriation. cheating or forgery. • Gratuity is admissible at the eligible rate for each qualifying year for the first fifteen qualifying years and at half the eligible rate for the subsequent ten qualifying years subject to a maximum. offering rebate or giving false information in the agency application form with a view to defraud the insurer. 180th part of the aggregate of the qualifying year renewal commission is the eligible rate. criminal breach of trust. acting against the interests of the insurer.• An agent will be eligible for gratuity if he has worked continuously for 15 years or more and his agency is not terminated due to fraud. • The amount of gratuity is related to the renewal commission earned in the last 15 qualifying years preceding the date of claiming gratuity. Gratuity is paid only once in the agency career. .

the prospect and the insurer simultaneously in the same transaction. viz.• Functions Of The Insurance Agent: • Life insurances agent has the unique role of such a person. functions of a life insurance agent could be divided into two parts. • To simplify. who enjoys the trust of two parties . • 'Post-sale functions' . 'Pre-sale functions'.

Filling of form Arranging for Medical Examination Collection proofs of age and income Any other information required by the underwriters .• • • • • • • • Function Before Sales: Contact prospects Study their insurance needs Completion of formalities for proposal of new insurance viz.

• Assist the policyholder or the claimant to comply with the requirement for getting timely settlement of claims. . • Assist the policyholder in case he wants to get loan against the policy assignment.• Function After Sales: • Ensure payment of renewal premiums. • Assist policyholder for nomination / or change thereof.

One is „death cover‟ or „risk over‟. • The other is the „survival benefit‟. • These plans have two basic elements.Plans of life insurance • Life insurance products are usually referred to as „plans‟ of insurance. which provides for the benefit being paid on survival of a specified period. which provides for the benefit being paid on the death of the insured person within a specified period. .

Stage 3 Old age: Post. accidents. The variations between people will depend on the ages. Loss of income as a result of sickness. but not in the same measures. . Stage 5Avoiding the loss of wealth (assets) due to depreciation or inflation. all these needs exist simultaneously. Stage 2 Children: Provision for higher education. Generally. expenses for treatment of diseases. Insurance plans of various kinds are designed to meet these one plan alone may not meet all the needs.retirement income for self and family/dependants. Start-in life. Stage 4 Special Needs: Disability. marriages. for all persons. The needs of people for life insurance can be classified as under: Stage 1 Family: Protection of the interests of the family against loss of income resulted because of the death of the bread-winner. All the needs can be met through a judicious mix of plans. size of families and dependants and the nature of other properties and incomes.Understanding the Needs Levels • • • • • • • • Every possible adverse consequence that requires to be taken care of constitutes a need for insurance.

• What can be the SA? Some plans stipulate a minimum SA. • Who can be insured? The various possibilities are (i) individual adults (ii) children (minors) (iii) two or more persons jointly under one policy. • How would the SA be payable? Could be in one lump sum of in installments. By making changes in these features or adding and combining some of them. There are maximum limits also for certain benefits. • In what contingency would the SA be payable? Could be on death or on survival. • What would be the term (duration) of the policy? This determines the period during which the specified event should occur for the SA to be payable. like accident benefits. any number of plans can be developed. Some plans provide for benefits even beyond the term. • When would the SA be payable? On the contingency happening or some other dates. .Basic elements of plans • A plan of assurance will have the following features.

halfyearly or yearly).A. • Does the SA increase? This can happen because of participation in surpluses and bonus additions or because of guaranteed increases in S. • Are there additional benefits? These. as well as the period during which it is payable. Some plans provide for premiums to be paid for a period less than the term. quarterly. in addition to the basic covers. also called supplementary benefits. may be provided by way of riders. • Does the SA reduce? This can also happen. .• When would the premium be payable? Variations are in the frequency of payment (monthly). if the plan is to meet reducing liabilities under a mortgage.

Whole Life Assurance • • • • Ordinary whole life policy Limited Payment Whole Life Policy Single Premium Whole Life Policy Convertible whole Life Assurance Policy .

Endowment Assurance • Advantages : – Compulsory savings – Old Age Provision – Accumulation of Fund Types of Endowment Policies – Ordinary Endowment Policy – Double Endowment – Pure Endowment Policy – Anticipated Endowment of Money back Policy – Triple Benefit Endowment Policy – Marriage Endowment Policy – Educational Endowment Policy .

Other Life Insurance Plans • • • • • • • Money Back Policy Family Income Assurance Limited payment plans Participating Plans Convertible Plans Joint Life Policies Children’s Plan – deferment period. risk cover. vesting • Variable Insurance Plans • Plans covering handicapped . deferment date.

Policy Rider
• A rider is a clause or condition that is added on to a
basic policy providing an additional benefit, at the choice
of the proposer.
• For example, a provision that in the event of death of the
life assured by accident, the SA would be double can be
a rider on an Endowment policy. This rider can be added
on to a policy under any plan. The option to participate in
valuation surplus can also be offered as a rider.
• Insurers find it convenient to have a small number of
basic, plans, with riders being offered as options, so that
effectively the prospect has a number of options, to
choose from each plan can be taken with any one or
more of the riders.

• Some of the riders being offered by insurers in India are mentioned
below:
– Increased death benefit, being twice or even more the survival benefit.
– Accident benefits allowing double the SA if death happens due to
accident.
– Permanent disability benefits, covering loss of limbs, eyesight, hearing,
speech, etc.
– Premium waives which would be useful in the case of children‟s
assurance, if the parent dies before vesting date or in the case of
permanent disability and sickness.
– Dreaded disease cover, providing additional payments (in or in
installments), if the life insured requires medical attention because of
specified conditions like cancer, cardiac or cardiovascular surgeries,
stroke, kidney failure, major organ transplants, major burns, total
blindness caused by illness or accident, etc.
– Guaranteed increase in cover at specified periods or annually.
– Cover to continue beyond maturity age for same SA or higher SA.
– Option to increase cover within specified limits or dates.

• As per the regulations made by the IRDA in April
2002 and amended in October 2002.
• The premium on all the riders relating to health
or critical illnesses shall not exceed 100% of the
basic premium of the main policy.
• And the premium on all the other riders put
together should not exceed 30% of the basic
premium.
• This virtually puts a limit n the number of riders
that can be offered with any policy. It is possible
that this limit of 30% may be changed from time
to time.

• The Annuity is called the “up-side-down application of the life insurance principle”. in case of death of the life assured.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”. . he pays the insurer a specified capital sum. may be in installments. in return for a promise from the insurer to make a series of payments to him as long as he lives. • When a person buys an annuity contract. When a person purchases a life insurance contract he agrees to make a series of payment (premiums) to the insurer in return for which the insurer agrees to pay a specified sum to the beneficiaries.

Difference between Annuity and Insurance • • Insurance is a pooling arrangement whereby a group of individuals make contributions that the dependents of the unfortunate few. Life insurance policy protects against the absence of income in the event of premature death or disability. who die each year. Annuity is pooling arrangements whereby those who die prematurely and do not need further cover make a contribution so that those who live beyond their expectancy may receive more income from their contribution alone would provide. These two are extreme forms that assume protection to two unfortunate groups.” . On the other hand. whereas the annuity (policy) protects against the absence of income on the part of those affected with undue longevity. “One dying too soon and the other living too long. may be indemnified for the loss of the bread winner‟s income.

– Multiple Life Annuity. Last Survivor Annuity • C. – Deferred Annuity. – Annuity Due. – Guaranteed Premium Annuity. By Commencement of Income: – Immediate Annuity. By Disposition of Proceeds: – Life Annuity. • D. • B. . – Single Premium Annuities. By Number of Lives Covered: – Single Life Annuity. By Mode of Payment of Premium: – Level Premium Annuities.-Joint Life Annuity .CLASSIFICATION OF ANNUITIES • A.

• Group Insurance is a plan of insurance that provides cover to a large number of individuals under a single policy called the “master policy”. • Group Gratuity Schemes are related to gratuity payments. . as instruments of social welfare. Group insurance schemes are used by the Government. after having put in specified periods of minimum service. Gratuity is paid to employees who retire or die and also to those who resign. • The Group Superannuation Scheme is offered to employers in order to facilitate the funding and disbursement of pensions. Pensions are payable to employees who retire from service on attaining the age of superannuation or retirement. usually 15 years.

” . to indemnify another insurer (called the reinsured or ceding company) for losses paid by the latter under insurance policies issued to its policyholders.REINSURANCE • “Reinsurance is a contract of insurance whereby one insurer (called the reinsurer or assuming company) agrees. for a portion of the premium.

Insured . .Underlying Insured Insurance Co.Insurer .TRANSFERRING RISK INSURANCE RISK Policyholder .

.Primary Insurer – Direct Company Reinsurer -Assuming Co.TRANSFERRING RISK REINSURANCE Risk • Insurance Co. .Ceding Co. .Cedent .

ELEMENTS OF REINSURANCE • Reinsurance is a form of Insurance. .the Reinsurer and the Reinsured . • There are only two parties to the reinsurance contract .both of whom are empowered to insure.

.ELEMENTS OF REINSURANCE (continued) • The subject matter of a reinsurance contract is the insurance liability the Reinsured has assumed under insurance policies issued to its own policyholders. • A reinsurance contract is an indemnity contract.

.What Reinsurance Does • It redistributes the risk of loss which a reinsured incurs under the policies it issues according to its own needs. • It redistributes the premiums received by the reinsured according to its own needs.

• Make loss either more or less likely to happen • Make loss either greater or lesser in magnitude • Convert “bad” business into “good business” .What Reinsurance Does Not Do! • Convert an uninsurable risk into an insurable one.

limits apply separately to each loss EXCESS OR NON-PROPORTIONAL Excess Each Risk/ Excess Each Per Risk Occurrence (Catastrophe) Aggregate Excess (Stop Loss) Reinsurer covers Reinsurer over a covers over a predetermined predetermined aggregate limit amount or limit of loss or loss ratio for a for all losses specific arising out of period of one event or time occurrence Per Risk Aggregate Excess of Loss Reinsurer covers over aggregate claims for a risk in a specified period of time .Forms of Reinsurance PROPORTIONAL Quota Share Reinsurer covers the same percent on each risk Surplus Share Reinsurer’s share based on type or size of risk Per Risk Excess of Loss Reinsurer covers excess of a predetermined amount.

.FORMS OF REINSURANCE • PROPORTIONAL (OR PRO-RATA) – PAY PREMIUM ON A SHARE BASIS – COLLECT LOSSES ON SAME SHARE • EXCESS OF LOSS – PAY PREMIUM ON NEGOTIATED PRICE – COLLECT LOSSES ONLY WHEN RETENTION IS EXCEDED.

– Reinsurer pays cedent a Commission to Reimburse for Expenses • Can be Flat Percentage • Can Include Profit Commission • Can be “Swing-Rated” .The Forms of Reinsurance • Pro-Rata or Proportional: – Reinsurer receives a percentage share of premium and pays that same percent of each loss.

) – Can be Quota Share or Surplus: – Quota Share • Reinsurer takes same % on each risk. .The Forms of Reinsurance • Pro-Rata or Proportional (cont.

• Whatever that percentage share is.) – Surplus Share • Reinsurer‟s share varies for each risk based on type and/or size of risk. .The Forms of Reinsurance • Pro-Rata or Proportional (cont. reinsurer receives same percent of premium and losses.

Per Occurrence (casualty) or Claims Made – Per Occurrence: Catastrophe .The Forms of Reinsurance • EXCESS OR NON-PROPORTIONAL: – Per Risk (property).

The Forms of Reinsurance • Per Risk or Occurrence Excess – Responds to Losses Excess of a Predetermined Retention – No Proportional Sharing of Premium or Loss – Premium is Negotiated – Normally has Occurrence Limit – Reinstatements are Negotiated .

Forms of Reinsurance • Catastrophe Excess of Loss – Covers all losses in an event – Occurrence is defined as a geographic area (flood and Riot) or a time period (wind. fire and winter storm) – Usually Limited to two Occurrences • Additional Cover Needed – Sold in Layers – Usually has two risk warranty . quake.

Functions of Reinsurance • Financing • Stabilization • Capacity • Catastrophe Protection • Services .

Financing • is growing and needs additional surplus to maintain acceptable premium to surplus ratios. • Unearned premium demands reduce surplus. . • Marketing considerations dictate that an insurer enter new lines of business or new territories.

. Management Consideration Planning for long term growth and development requires a more stable environment than an insurance company‟s book of business is apt to provide.Stabilization Marketing Consideration Policyholders and stockholders like to be identified with a stable and well managed company.

often a requirement in today‟s market.Capacity • Refers to an insurer‟s ability to provide a high limit of insurance for a single risk. . • Reinsurance can help limit an insurer‟s loss from one risk to a level with which management and shareholders are comfortable.

• Covers multiple smaller losses from numerous policies issued by one primary insurer arising from one event. .Catastrophe Protection • Objective is to limit adverse effects on P&L and surplus from a catastrophic event to a predetermined amount.

Actuarial Review 5.Loss Prevention . Financial Advice 6.Services 1. Product Development 4. Engineering . Underwriting 3. EDP and other systems 7. Claims Audit 2. Accounting.

Single Policy/Risk b.Reinsurance is Provided Through A. Facultative a. Reinsurer evaluates each risk and establishes or agrees to acceptance. price and risk B. form and price c. Reinsurer accepts as written by insurer as to form. Automatic or semi-automatic facilities . Covers classes or entire “books” of business b. Treaty a.

Professional Reinsurers Specialize in Reinsurance Are Licensed in at Least One State Derive Majority of Their Premium Income From Reinsurance 2. Pools Special Purpose General Purpose . Reinsurance Department of Primary Company 3.Types of Reinsurers 1.

Broker (Intermediary) Market • Reinsurance Intermediary Provides Business for Reinsurers Brings Parties Together .Marketing of Reinsurance 1.Helps Negotiate Reinsurance Terms Acts as Agent of Ceding Company Compensated by Reinsurer • Reinsurers Share Reinsurance Programs .

Marketing of Reinsurance 2. Direct Writers • Contact Primary Insurers Directly Through Salaried Employees • Frequently Assume 100% of Reinsurance Program .

General Insurance Products • • • • • • • • • Fire Health Motor Marine Industrial Liability Micro insurance Credit insurance Miscellaneous – – – – – – – Social Rural Accident and hospitalization Travel Package Business Others .

content) of the policy is to be calculated shall be the cost of replacing or reinstating on the same site property of the same kind or type but not superior to or more extensive than the insured property when new. . the basis upon which the amount payable under interest insured (building.Reinstatement Value Policies • It is agreed that in the event of the property insured being destroyed or damaged. subject to the following Special Provision and subject also to the terms and conditions of the policy except insofar as the same may be varied hereby.

Special Provisions i. . Until expenditure has been incurred by the insured in replacing or reinstating the property destroyed or damaged the insurer shall not be liable for any payment in excess of the amount which would have been payable under the policy if this memorandum had not been incorporated therein. otherwise no payment beyond the amount which would have been payable under the Policy. The work of replacement or reinstatement must be commenced and carried out with reasonable dispatch and in any case must be completed within 12 months after the destruction or damage or within such further time as the insurer may (during the said 12 months) in writing allow. ii.

This memorandum shall be without force or effect if (a) The Insured fails to intimate to the Insurer within 6 months from the date of destruction or damage or such further time as the Insurer may in writing allow his intention to replace or reinstate the property destroyed or damaged.iii. . iv. (b) The Insured is unable or unwilling to replace or reinstate the property destroyed or damaged on the same or another site. If at the time of replacement or reinstatement the sum representing the cost which would have been incurred in replacement or reinstatement if the whole of the property covered had been destroyed exceeds the sum insured thereon at the breaking out of any fire or at the commencement of any destruction of or damage to such property by any other peril insured against by this policy then the Insured shall be considered as being his own insurer for the excess and shall bear a rateable proportion of the loss accordingly.

one year) and pays premium accordingly. a trader will take a floating policy on a sum estimated to be large enough to cover shipments during a period (say. At this stage the trader takes another floating policy and whole process starts over again. and adjusts it against the premium paid by the trader.Floating Policy • Insurance cover for situations where the total insurable amount can be reasonably estimated but cannot be determined accurately-enough for computing correct premium. the insurer is informed and the value of those shipments is deducted from the insured sum. until the insurance policy comes to an end. For example. As the shipments are sent out. This procedure is repeated until the insured sum is almost exhausted. . The insurer then recomputes the premium according to the total value of the alreadysent shipments.