Q.1. Why insurance market required healthy and efficient market?

In this part we show why a healthy insurance industry is of crucial importance for the welfare and for the development of a country. The social and economic benefits of a functioning insurance market are huge and they reach all groups and sectors of the economy. But also the costs of insurance should be taken into account. Benefits of Insurance:    The insurance mechanism is an essential method to handle and control risk in a rational and sophisticated way. Insurance enables people to choose which risks they take and which they protect themselves against. An efficient insurance industry provides important and unique benefits for households, enterprises, commerce, government, and the financial sector. Private households benefit through personal lines of insurance such as life, health or property insurance. Insurance can enable a higher quality of life by satisfying the universal desire for security and guaranteeing an assured level of income. Compulsory insurance such as motor liability insurance establishes an indispensable system of social protection. It can protect potential victims against the insolvency of injurers. Insurances quantify the consequences of risk-taking behavior by setting insurance premiums according to individual risk (risk pricing). This allows insured people to deal more rationally with risks and can prevent them from unreasonably risky actions/decisions. Individuals have strong economic incentives to reduce their risks and control loss potentials. Automobile drivers are encouraged to prevent accidents and improve their car¶s safety conditions to avoid higher insurance premiums. Furthermore insurance companies have an interest themselves to help their clients prevent and reduce losses. They are likely to promote a variety of preventive measures (safer cars or production) and introduce loss control programmes Insurance promotes and stabilizes entrepreneurship, production and commerce. Many products and services are produced and sold only if adequate insurance is available. Entrepreneurs are much more likely to invest in innovative ventures if they can secure adequate insurance protection. E.g. a pharmaceutical company, Life Science Company is unlikely to develop and market a highly beneficial product without access to product liability insurance. Accordingly, insurance allows industry managers to encounter the risk of damage to production facilities, which will increase their willingness to invest in them. 




Besides, insurance enhances the credibility of economic agents. Trade and commerce are facilitated when transportation, payment and goods are insured. Consumers on the other hand are encouraged to purchase largeexpense items, such as automobiles or real estate. Insurance consequently serves as a ³lubricant of commerce´ fostering consumption, entrepreneurship and innovation. Likewise property/liability insurers can reduce costly interruption or even the entire liquidation of firms in case of unforeseen losses. Insurance can minimize follow-up costs of financial distress. This helps to avoid substantial capital waste and stabilizes business and the economy as a whole. Insurances can help to reduce government spending significantly. Insurers can in part substitute for government security programs (such as insurance against premature death or disability). They relieve pressure on social welfare systems, reserving government resources for essential social security purposes. Moreover, insurance can cushion negative economic effects of natural calamities (such as crop loss) reducing the need for financial firefighting interventions by the state. Insurance markets play a crucial role for the development and efficient functioning of the financial sector: Insurance companies are financial intermediaries. They reduce transaction costs from savers to borrowers by amassing large sums from thousands of small premium payers. Life insurers help to mobilize and channel significant amounts of savings to investments in corporate and government bonds, commercial mortgages and equity. Worldwide, life insurers have become a key source of long-term finance, which is particularly important for emerging economies in need of investment for infrastructure projects. An efficient insurance market is likely to:  Considerably reduce the amount of risk and losses and increase risk awareness  Enable a higher quality of life, ensure social protection and relieve the public sector  Promote commerce and entrepreneurship and stabilize the economy  Foster capital mobilization and its efficient investment through financial markets

whether or not a fire will occur at all).2. Q. Insurance coverage can incite dishonest and incautious behaviour (moral hazard). Cost of benefit aspect? Costs of Insurance:    Although insurance provides enormous benefits its economic and social costs can be great and have to be taken seriously.     Net Effect of Insurance: Costs vs. The uncertainty can be either as to when the event will happen (i. in a fire insurance policy. Benefits    Taken together the social and economic benefits of insurance generally outweigh its potential costs by far. There may also be significant potential social and economic costs if regulation and surveillance of insurance companies is insufficient: Without a strong regulatory and competitive framework policyholders would not be protected against the insolvency or unscrupulous behavior of insurance companies. the event must be uncertain. Insurers tie economic resources and cause sales and administrative expenses. Subject to the "fortuity principle". Insured would be unable to enforce their rights and might be strained to pay overly high premiums. The assured financial indemnification can result in fraudulent or inflated claims and an inappropriately lax attitude towards potential losses. Adhesion: 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. if certain defined events occur. the time of the insured's death is uncertain) or as to if it will happen at all (i. Features and structure of insurance policy Basic Features of Insurance Contract :  The insurance contract is a contract whereby the insurer will pay the insured (the person whom benefits would be paid to. or on the behalf of).e. tax evasion or illegal self-enrichment. Only an appropriate regulatory and legal framework with proper surveillance will allow to control and minimize the costs of insurance. It is however the responsibility of the government to ensure that this precondition is guaranteed. Auto accidents for instance may be faked or damage may be overstated to collect benefits from the insurance companies. in a life insurance policy.e. This is interpreted to mean that the insurer bears  .3.Q. Insurance could also be misused for criminal purposes such as money laundering.

meaning that only the insurer makes legally enforceable promises in the contract. If policy conditions are not met. It summarizes the major promises of the insurance company. hazards or losses arising from specific causes which are not covered by the policy.g accident] or property [e. Insurance policies are sold without the policyholder even seeing a copy of the contract. perils. as well as stating what is covered. In contrast. The insured is not required to pay the premiums.   the burden if there is any ambiguity in any terms of the contract. caveat emptor (let the buyer beware). Aleatory: Insurance contracts are aleatory in that the amounts exchanged by the insured and insurer are unequal and depend upon uncertain future events. but the insurer is required to pay the benefits under the contract if the insured has paid the premiums and met certain other basic provisions. rules of conduct. the insured can sue an insurer in tort for acting in bad faith Basic Structure of an Insurance Policy:  Declarations : o The following details are usually provided on a form that is filled out by the insurer based on the insured's application and attached on top of or inserted within the first few pages of the standard policy form.describes the covered perils. Insuring agreement . ordinary non-insurance contracts are commutative in that the amounts (or values) exchanged are usually intended by the parties to be roughly equal. or makes some reference to the contractual agreement between insurer and insured. House] are covered  The policy limits (amount of insurance)  The policy period and premium amount. Utmost Good Faith: Insurance contracts are governed by the principle of utmost good faith (uberrimae fide) 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.define important terms used in the policy language.  Details of Nomination if any  Details of Assignment if any Definitions . Exclusions . Conditions .  Identifies with details who is the Policy Holder/Owner and who is the beneficiary  Identifies with details who is an insured. or nature of coverage. the insurer can deny the claim. Unilateral: Insurance contracts are unilateral.take coverage away from the Insuring Agreement by describing property. or risks assumed. This contrasts with the legal doctrine that covers most other types of contracts.provisions.g. the insured's address  The insuring company  What risks [E.     . In the United States. duties and obligations required for coverage.

the owner would pay the Rs 5. this payment of Rs 5.  Endorsements . may carry a Rs 5. Renewal dates are important times for insurance companies and policyholders. while a policyholder with several claims may see an increase. add restrictions or terminate coverage. General policy changes that affect all insureds also take place at policy renewal. A policyholder who has not filed any claims may see a premium reduction.      . The car owner is said to have 'met the deductible' and is now eligible for complete protection. Changing Policies: If the insured find a better rate with another company or are unhappy with the insurance company's service.000 means that the next accident claim would be covered by the insurance company. A typical auto insurance policy. insurance companies include a deductible in their policies to avoid paying out benefits on relatively small claims.additional forms attached to the policy form that modify it in some way. However. a deductible is the amount of money which the insured party must pay before the insurance company's own coverage plan begins.4. Purpose: Renewal dates give both the insurance company and the insured the opportunity to make any necessary changes to the policy. Policy Changes: If the insurance company determines that the risk posed by the policyholder has changed. Insurance companies would not encourage a claim for such minor damages. The same holds true for medical insurance and other insurances [except Life Insurance for death]. Instead of allowing nonlawyer underwriters to directly customize core policy language with word processors.000 repair bill out of own pocket. consider switching policies at renewal. for example. the insurance company renews the policy. and. at the end of that period.000 deductible. insurers usually direct underwriters to modify standard forms by attaching endorsements preapproved by counsel for various common modifications Deductible: In insurance policy terms. Definition: A renewal date is when a policy period expires and a new policy period begins. The insurer will avoid cancellation fees that may be imposed for midterm cancellations. Q. Premium Changes: A change in risk may also trigger a premium change at renewal. Importance of Renewal dates?  An insurance policy is issued for a limited time. either unconditionally or upon the existence of some condition. If the owner of that car accidentally hits another car while parking and both drivers agree the damage is minimal. it may amend the policy. In practical terms. Renewal dates typically occur six months or one year after the policy began or the last renewal date occurred.

000 * 11 = Rs 1.000 = Rs 11 Or Rs 1.5. is able to invest the premium received and earn income and profit earning is important for sustainable insurance business Hence there is need to compute correct premium based on all above factors The basis for computing the appropriate premium is as shown in Table: Life Insurance Premium Computation below      .0011 It means that out of the 10.000/The contract provides for payment of the sum assured in case of death of any insured within 1 year term From the mortality table it is found that the probability of death of a healthy person aged 25 years within one year is 0.000 persons insured 11 persons die within the one year term Hence the cost of benefit payment is estimated as Rs 10.10 per mille [ cost per Rs 1.10.000 for persons aged 25 for sum assured of Rs 10.000 By the principle of insurance this is expected to be shared by all persons taking insurance cover and hence the premium per person would be Rs 1.10.000 sum assured] The premium thus arrived at by using the expected mortality rate is called Pure or Natural Premium From the above it is noted that if no expenses are to be incurred and no investments are made and no profits are to considered then the premium as computed by the insurer would be sufficient for the term policy insurance period of one year However in actual practice the insurer incur operations and admin expenses.Q. Methods for calculation of premium on LIP? Life Insurance Premium Calculation: Example:       A Insurer is going to sell life insurance cover to 10.000/10.

62 9.000 216. of claims by [as per @ Rs payment factor surviving the @ 10.943 9.840 8.848 1.66 49.522.11 250.Table: Life Insurance Premium Calculation No.510 44.000 167. as they age     Level Premium:  Considering the disadvantage of pure premium scheme especially for the aged insureds the insurer will devise a system to collect higher premium in early stages which will offset lower collection at latter stages Alternatively the insurer will be able to meet all the claims if the collection is made uniformly over the term of 5 years at a single rate of premium from the surviving policy holders From the above table level premium is arrived by diving the total cost of benefit which Rs 1.974 20 20.06   .848 [column 2] The level premium works out to 1.890 8.705 0.954 25 25.000/. Hence the premium burden increases with the age of the insured.989 15 15.929 29 29.357.000/49848 = 20.72 Age yrs 1 25 26 27 28 29 Total Pure or Natural Premium:   The premium arrived by using the expected mortality rate is called pure or natural premium From column 4 of above Table it is noted that pure premium increases with age because the mortality increases with age and the number of surviving persons reduces with age.000 92.876.500 0.864.00 110.21 290.[column 5] by the total number of surviving members which is 49.86 9.02 150.000 11 11.00 9.000 10.000/ @ the death/Probability actuarial claims 6%pa policyholder table] claimant 6%pa of death 2 3 4 5 6 7 8=2*7 10.000.423.000 133.792 7.022 0.000. Based on above Table 1 the insurer will devise premium recovery rate As noted the pure premium is Stepped Up as the age increase However the major disadvantage is the insureds may find it difficult to service policy with increasing premium rate.000 808.000 198.359 1.000.58 9.924 0.000. of persons Pure or Cost of Present Present living at Natural benefit value of Present value of Re age X & value Premium payment benefit 1 from each sharing No.05 200.

The same amounts to 44522.72 [column 8] The level premium after considering interest factor is 808. mortality.of contribution from each surviving member at the same interest rate of 6%pa.06 This system is called level premium Net Premium     In the above example it may be noted that the insurer collect the premium in advance [ at the beginning of the period] and settle claim at the end of the period Thus the insurer is able to invest the premium amount for one year and can earn interest.is computed as Rs 808.72 = 18. Further there will be loadings such as bonus loading and mortality options loading.   So instead of charging 5 different premiums in the 5 years of the policy term the insurer will collect uniform premium for all the 5 years at 20. Thus office premium can be stated as the premium than an insurer publishes as the premium rates for lives that are considered to be standard in underwriting . Further the insurer should also consider the present value of Re 1/.510/44522. The insurer should also provide for adverse fluctuations in all the 3 components viz.16 The net premium is lower than level premium and significantly lower than pure premium In India it is observed that Unit Linked Insurance products charge stepped premium and endowment products charge whole life level premium     Office Premium:        The operation of insurance company involves expenses So the premium should contain an element of these expenses Hence to recover these costs insurer adds expense component to net premium The insurer should also note to include an element of profit in the above. To that extent the insurer can pass on the benefit to the policy holders By incorporating interest factor say at a reasonable rate of 6%pa the present value of the total benefit of Rs 1.000/.000. interest and expenses and also for the profits.510/[column 6].

inventory. For example. pension. medical expenses. disability. earthquake. A single policy may cover risks in one or more of the categories set out below. or becomes ill before the debt is fulfilled. accident. acts of directors & officers. etc Liability Insurance: Taken for covering claims arising due to professional conduct.6. It may cover loss suffered by the boiler and machinery itself and may include damage done to other property as well a business interruption losses Burglary & Theft Insurance: Coverage against property losses due to burglary. etc that can cause severe losses to insured Lists of many different types of Insurance: Below are (non-exhaustive) lists of the many different types of insurance that exist. other property against losses from fire. becomes unemployed. theft. product/services . earthquake. plant & machinery. flood. environmental liability. machinery breakdown. robbery or larceny    . accident.Q. health. the owner¶s liability and accident insurance on the passengers Boiler & Machinery Insurance: Coverage for loss arising out of the operations of pressure. Different types of Insurance Policy? Types of Insurance: Basic broad types of insurance are: Personal Insurance: Taken by an Individual [for himself or his relative/s] or for group of peoples [by a company for its employees] covering perils of death. Catastrophe [CAT] Insurance: For covering for specific disastrous events like hurricane. funeral expenses. annuity etc Property Insurance: Taken by an Individual/ group of persons/company covering property like house. etc Credit Insurance: Taken by the lender as protection in the in the event that the borrower/Sundry Debtor/Credit Card holder passes away. vehicle. auto insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from causing an accident). mechanical and electrical equipment. burglary.   Automobile Insurance: Insurance that protects an insured from financial losses arising from the operation of a vehicle Automobile Liability Insurance: Insurance specifically designed to indemnify for loss incurred through legal liability for bodily injury and damage to property of others caused by accident arising out of ownership or operation of an automobile Aviation Insurance: Aircraft insurance including coverage of aircraft or their contents.

Insurance against relatively remote possibilities .g. Motor Third Party Liability Insurance. It is a form of credit enhancement insurance Completed Operations Insurance: A form of insurance issue particularly to various types of contractors. It covers a contractor¶s liability for accidents arising out of jobs or operations that the contractor has completed Comprehensive Motor Insurance: Protection against loss resulting from damage to the insured motor vehicle including third party insurance and death/bodily injury and damage/loss of property of a third party or liability to pay money to third party     Compulsory Personal Liability Insurance: Insurance that covers the insured from liability losses they incur that are not the result of practicing their profession or operating a vehicle Compulsory Insurance: Any form of insurance which is required by law e.        Business Insurance: A policy which primarily provides coverage of benefits to business as contrasted to an individual for indemnifying a business for the loss of services of a key employee or a partner who becomes disabled Business Interruption Insurance: Known also Loss of Profit Insurance covers losses from unforeseen circumstances[perils which are listed in the policy] which reduce the output both physical and financial of a business Business Life Insurance: Life insurance purchased by a business unit on the life of a member of the firm like by a partnership to protect surviving partners against loss caused by death of a partner or by a corporate on death of a key employee Casualty Insurance: A type of insurance that is primarily concerned with the legal liability for losses caused by injury to persons or damages to the property of others Commercial Lease Payment Insurance: A form of financial guaranty insurance that guarantees periodic commercial lease payments owned by the tenant lessee Commercial Paper [CP] Insurance: Insurance guaranteeing the prompt payment of principal and interest on CP issued by firms. This is policy is often taken to cover irrigated agriculture to cover loss or damage to crop consequent to breakdown of irrigation equipment Contingency Insurance: Backup insurance that protects a party¶s interest if certain events occur. Public Liability Act Insurance. Consequential Loss Insurance: Insurance against monetary loss other than material damage caused by insured perils.

The insurance can be general covering all debtors or specific covering selective debtors Credit Life Insurance: Term life insurance issued to a lender or lending firm to cover repayment of a specific loan / debt obligation in case of debtor¶s death Credit Unemployment Insurance: Provide funds for the payment of amounts due under a specific credit transaction while the insured debtor is involuntarily unemployed Critical Illness [CI] Insurance: Also known as Critical Diagnosis Insurance is an individual health insurance that pays lumpsum benefit when the insured is diagnosed with a specified illness Decreasing Term Life Insurance: Provides a death benefit that decreases in amount over the policy term Directors and Officers Liability Insurance [ Officers & Directors Liability Insurance]: Protects directors and officers from liability claims arising out of alleged errors in judgment. If the equipment¶s fair value is less than the value stated in the policy on the agreed date the insurer would pay the difference Export Credit Insurance: A form of credit insurance that protects an exporter against losses resulting from the inability to collect on credit that has been extended to commercial customers in other countries Group [Life] Insurance: Insurance written on a number of employees under a single policy issued to their employer . breaches of duty and wrongful acts related to their organizational activities which may harm the organization . Equipment Value Insurance: A policy covering lease equipment guaranteeing its value on a specified date.               Contractual [or Assumed] Liability Insurance: Insurance to protect for a loss for which the insured has assumed liability express or implied under a written agreement Credit Crop Insurance [Crop Insurance. stakeholders and shareholders. Dismemberment Insurance: A health insurance that provides payment in case of loss by bodily injury. Druggists Liability insurance: Protects a druggist in case of suit arising out of filing prescriptions Endowment Insurance: Life insurance that provides a policy benefit payable either when the insured dies or if the insured is still alive on the stated date. Crop Credit Insurance] : Linked with Agricultural production and credit system Credit Enhancement Insurance: Under which the insurer guarantees the payment of interest and/or principal of the insured in connection with debt instruments issued by the insured Credit Insurance [ Creditor Group Insurance] : Insurance against loss resulting from failure of debtors to pay their obligations to the insured.

Kidnap and ransom insurance: Kidnap and ransom insurance or K&R insurance is designed to protect individuals and corporations operating in high-risk areas around the world K&R insurance policies typically cover the perils of kidnap. They also typically pay for the fees and expenses of crisis management consultants. K&R policies are indemnity policies they reimburse a loss incurred by the insured. extortion. earthquake and other perils Income Protection Insurance: Provides coverage of income benefit while the insured is disabled and not able to work/ due to disability is earning less than before. and then seek reimbursement under the policy. These consultants provide advice to the insured on how to best respond to the incident. The policies do not pay ransoms on the behalf of the insured. dismemberment. such as medical expenses . burglary.The policies also typically indemnify personal accident losses caused by a kidnap. wrongful detention and hijacking. loss-of-ransom-intransit and additional expenses. Losses typically reimbursed by K&R polices are ransom payments. thus incurring the loss. vandalism. the cargo and damage to third parties and the environment . These include death. Level Term Life Insurance: Provides a death benefit that remains the same amount over the term of the policy Life Insurance: A policy that will pay a specified sum to beneficiaries upon death of the insured Limited Partnership Investor Bond Insurance: A form of financial guaranty insurance to fulfill the obligations of a person investing in a limited partnership Limited Payment Life Insurance: Whole life insurance on which premiums are payable for a specified number of years or until death if death occurs before the end of the specified period Limited Coverage Deposit Insurance: A guarantee that the principal and interest accrued on protected deposit will be paid up to a specified limit Livestock Insurance: A class of agricultural insurance providing mortality covers for livestock [cattle] due to named disease and accidental injury Loss Insurance: Provide indemnity for the financial loss caused to the insured by the happening of the event insured against Marine Insurance: Insurance of ships. and permanent total disablement of a kidnapped person. The insured must first pay the ransom.            Health[Expense] Insurance: A policy that will pay specific sums for medical expenses/treatments and it can offer many options to the insured Home Owners¶ Insurance: An elective combination of coverage for the risks of owning a home to cover losses due to fire. This may include the marine hull the ship itself.

[Refer Comprehensive Motor Insurance above] Multiple Line Insurance: Policies that combine many perils previously covered by individual policies of fire and liability companies. Municipal Bond Guaranty Insurance: Coverage that guarantees bondholders against default by a municipality Mutual Fund Insurance: A form of financial guaranty insurance that guarantees repayment of principal invested in mutual fund No Fault Insurance: A form of insurance written in conjunction with a no-fault law under which person causing injury is granted immunity from legal action and person injured must collect for the loss from own insurer Nuclear Energy Insurance: Covers property damage. Homeowner¶s policy is a good example. lawyers. others from losses they incur as a result of being responsible for the losses to their clients .. injury/damage to third parties person/property etc.                 Medical Expense [Medi Claim] Insurance: A type of health insurance that pay benefits for all or part of the treatment of an insured¶s sickness or injury Money Market Fund Insurance: Private insurance that protects insured investors in a money market mutual fund against loss in the event the fund fails or defaults in redemption of investments Mortgage Guaranty Insurance: Insurance purchased by a lender to provide indemnification in case a borrower fails for any reason to meet the due mortgage payment Mortgage Protection Insurance: A term insurance with a sum assured decreasing in step with the debt outstanding under a mortgage loan Mortgage Redemption Insurance: A decreasing premium term life insurance plan to provide death benefit amount corresponding to amount owned on mortgage loan Motor Fleet Insurance: Covering a fleet of vehicle under a single policy Motor Insurance: Basic insurance to protect owners of motor vehicle against damage to vehicle. liability and accident risks entailed in the operation of nuclear installation Oil and Gas Deficiency Insurance: A guarantee to indemnify if an oil or gas field¶s actual output falls short of engineering report projections Permanent Health Insurance [PHI]: To cover against long term sickness or invalidity Pollution Insurance: Provides protection to business from claims of third parties who have been harmed by chemical emissions. spillages or radiation Premises and Operational Liability Insurance: Liability coverage for exposures arising out of an insured¶s premises or business operations Professional Liability [Indemnity] Insurance: Covers professional like doctors.

7. Q. In the first type of economy I.riot.e non-money or natural economies (without money. It protects the insured against suits brought by members of the public Specific Risk Insurance: A policy that defines the perils to be covered by the insurance as opposed to ³All Risks´ policy which covers multitude of perils Stock Repurchase [ Redemption] Insurance: A type of business insurance coverage that provides the remaining stock [share] holders of the company with funds to buy the stock [share] of a deceased partner Stop Loss Insurance: Insurance purchased by an insurance company or health plan from another insurance company to protect itself against losses Workers¶ [Workmen] Compensation Insurance: A government mandated program providing insurance coverage for work related injuries and disabilities Other types of Insurance are: o Cash in transit Insurance o Cash in Safe Insurance o Fidelity Guarantee [Risk] Insurance o Inland Goods in Transit Insurance o Overseas Goods in Transit Insurance o Stock in Trade/ Stock Throughput Policy o Erection All Risk Policy o Goods in Storage Policy o General Commercial Liability Policy.        Property Damage Liability Insurance: Protection against liability for damage to the property of another including loss of use of the property Property Insurance: Insurance against loss of or damage to real and personal property caused by perlis as fire. explosion. etc. History of Insurance (World) History of Insurance in the World:   In some sense we can say that insurance appears simultaneously with the appearance of human society. theft. markets. civil commotion [SRCC]. Public Liability Insurance: A general term applied to forms of third party liability insurance with respect to both bodily injury and property damage liability. strike. financial instruments and so on) which is more ancient we can see insurance in the form of people helping each other and this type of insurance .

. Toward the end of the seventeenth century. he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen or lost at sea Achaemenian monarchs of Ancient Persia were the first to insure their people and made it official by registering the insuring process in governmental notary offices. Early methods of transferring or distributing risk were practised in 2nd millenia BC by Chinese merchants travelling treacherous river rapids who would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing The Babylonians developed a system which was recorded in the famous Code of Hammurabi. and practised by early Mediterranean sailing merchants. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage. and those willing to underwrite such ventures. In the late 1680s. 1750 BC. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century. Edward Lloyd opened a coffee house that became the meeting place for parties wishing to insure cargoes and ships. Guilds in the Middle Ages served a similar purpose. insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century. 600 AD when they organized guilds called "benevolent societies" which cared for the families and paid funeral expenses of members upon death. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year) The inhabitants of Rhodes invented the concept of the 'general average'. London's growing importance as a centre for trade increased demand for marine insurance..e. a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post-Renaissance Europe. If a merchant received a loan to fund his shipment. These new insurance contracts allowed insurance to be separated from investment. c. in which people donated amounts of money to a general sum that could be used for emergencies. and it works rather differently than the more familiar kinds of insurance. Lloyd's of London remains the leading market more for reinsurance for marine and other specialist types of insurance.        has survived to the present day in some countries where modern money economy with its financial instruments is not widespread. "friendly societies" existed in England. The Greeks and Romans introduced the origins of health and life insurance c. as were insurance pools backed by pledges of landed estates. Separate insurance contracts (i. Today. and specialized varieties developed.

Not only did his company warn against certain fire hazards. inland waterway. inundation. so the coverage for the vehicle would be the same regardless of the Insurance Company Moreover.8. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency´ and after a number of attempted fire insurance schemes came to nothing. In the second type of economy I. riot. car insurance is mandatory and needs to be renewed every year A comprehensive Motor Insurance policy for the car that keeps it secure against damage caused by natural and man-made calamities. in 1732. tempest. he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Features of Motor vehicle policy?  Motor Car Insurance in India is governed by the Indian Car Tariff. strike.000 houses. including acts of terrorism. particularly against fire in the form of perpetual insurance. hailstorm. malicious act. Own Damage. self-ignition or lightning. frost. landslide. Personal Accident and Liability cover all in one policy What is covered: o Loss or Damage to the vehicle against Natural Calamities o Fire. typhoon. terrorist activity. Optional personal accident covers for co-passengers available. which in 1666 devoured more than 13. In 1752.   Insurance as we know it today can be traced to the Great Fire of London. and eleven associates. rail. 2 Lakhs for the individual driver of the vehicle while travelling. Personal Accident Cover: Coverage of Rs. financial instruments and so on) insurance markets have become centralized nationally and internationally and insurance in a modern money economy is part of the financial sphere. money. earthquake. rockslide o Loss or Damage to your vehicle against Man-made Calamities o Burglary. it refused to insure certain buildings where the risk of fire was too great. hurricane. mounting or dismounting from the car. Benjamin Franklin helped to popularize and make standard the practice of insurance. explosion. any damage in transit by road. lift. accident by external means. South Carolina. cyclone. established England's first fire insurance company The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day Charleston). flood. storm. theft.     .e money economies (with markets. Q. such as all wooden houses. in 1681 Nicholas Barbon. Franklin's company was the first to make contributions toward fire prevention.

The bonus is adjusted from the premium payable and is subject to applicable terms and conditions Q.     Third Party Legal Liability: Protection against legal liability due to accidental damages resulting in the permanent injury or death of a person. permitted by the concerned RTO. in which case the liability of the company shall be limited to 50% of the cost of replacement. then the actual value (after depreciation) of this item can be added to the sum insured over and above the IDV o In case of vehicles fitted with bi-fuel system such as Petrol/ Diesel and CNG/ LPG. What is not covered: o Normal wear and tear and general ageing of the vehicle o Depreciation or any consequential loss o Mechanical/ electrical breakdown o Wear and tear of consumables like tyres and tubes unless the vehicle is damaged at the same time. o Vehicles including cars being used otherwise than in accordance with limitations as to use o Damage to/ by a person driving any vehicles or cars without a valid o Damage to/ by a person driving the vehicle under the influence of drugs or liquor o Loss/ damage due to war. mutiny or nuclear risk Sum Insured: o All vehicles are insured at a fixed value called the Insured¶s Declared Value (IDV). the CNG/LPG kit fitted to the vehicle is to be insured separately at an additional premium of 4% on the value of such kit. 1998 with the purpose of quick disposal of the grievances of the insured customers and to mitigate their problems involved in redressal of those grievances. o IDV is calculated on the basis of the manufacturer¶s listed selling price of the vehicle(plus the listed price of any accessories) after deducting the depreciation for every year as per the schedule provided by the Indian Motor Tariff o If the price of any electrical and / or electronic item installed in the vehicle is not included in the manufacturer¶s listed selling price. and damage caused to the surrounding property. . This is to be specifically declared in the proposal form. The compulsory deductible amount is Rs 500 or Rs 1000 based on capacity of the vehicle No claim bonus: The insurer is entitled for a No Claim Bonus [NBC] on the own damage section of the policy if no claim is made or pending during the preceding 3 years.9.Role of Insurance Ombudsman  The institution of Insurance Ombudsman was created by a Government of India Notification dated 11th November.

whichever is earlier. IRDA. Chairman. Territorial jurisdiction of Ombudsman: The governing body has appointed twelve Ombudsman across the country allotting them different geographical areas as their areas of jurisdiction. Appointment of Ombudsman: The governing body of insurance council issues orders of appointment of the insurance Ombudsman on the recommendations of the committee comprising of Chairman. Chairman. o All enquiries on misconduct will be sent to Insurance Regulatory and Development Authority which may take a decision as to the proposed action to be taken against the Ombudsman.         This institution is of great importance and relevance for the protection of interests of policy holders and also in building their confidence in the system. (10) Lucknow. LIC. (4) Guwahati. (2) Bhubaneswar. GIC and a representative of the Central Government. in case he is found guilty . o On recommendations of the IRDA. (5) Chandigarh. (11) Mumbai. (7) Chennai. o The governing body may appoint such person as it thinks fit to conduct enquiry in relation to misconduct of the Ombudsman. The institution has helped to generate and sustain the faith and confidence amongst the consumers and insurers. (6) New Delhi. The total expenses on Ombudsman and his staff are incurred by the insurance companies who are members of the insurance council in such proportion as may be decided by the governing body. The governing body of insurance council consists of representatives of insurance companies. The areas of jurisdiction of each Ombudsman has been mentioned in the list of Ombudsman. The Ombudsman may hold sitting at various places within their area of jurisdiction in order to expedite disposal of complaints. Eligibility: Ombudsman are drawn from Insurance Industry. Insurance council comprises of members of the Life Insurance council and general insurance council formed under Section 40 C of the Insurance Act. Reappointment is not permitted. (9) Ahmedabad. Removal from office: An Ombudsman may be removed from service for gross misconduct committed by him during his term of office.The Ombudsman has a secretarial staff provided to him by the insurance council to assist him in discharging his duties. (12) Hyderabad. 1938. Office Management . (8) Kolkata. Civil Services and Judicial Services. the Governing Body may terminate his services. The offices of the twelve insurance Ombudsmans are located at (1) Bhopal. Terms of office: An insurance Ombudsman is appointed for a term of three years or till the incumbent attains the age of sixty five years. (3) Cochin.

The insurance Ombudsman is empowered to receive and consider complaints in respect of personal lines of insurance from any person who has any grievance against an insurer. 20 lakhs. (d) delay in settlement of claims and (e) non-issuance of any insurance document to customers after receipt of premium.          Power of Ombudsman: Insurance Ombudsman has two types of functions to perform (1) conciliation.e. consumer forum or arbitrator. Ombudsman's powers are restricted to insurance contracts of value not exceeding Rs. (2) Award making. he will send a communication in writing within 15 days of the date of receipt accepting the settlement. (a) any partial or total repudiation of claims by the insurance companies. Award:The ombudsman shall pass an award within a period of three months from the receipt of the complaint. The same complaint on the subject should not be pending with before any court. (c) dispute on the legal construction of the policy wordings in case such dispute relates to claims. (b) dispute with regard to premium paid or payable in terms of the policy. Manner of lodging complaint: The complaint by an aggrieved person has to be in writing. Before lodging a complaint: The complainant should have made a representation to the insurer named in the complaint and the insurer either should have rejected the complaint or the complainant have not received any reply within a period of one month after the concerned insurer has received his complaint or he is not satisfied with the reply of the insurer. The complaint can also be lodged through the legal heirs of the insured. If the complainant accepts recommendations. and addressed to the insurance Ombudsman of the jurisdiction under which the office of the insurer falls. Recommendations of the Ombudsman:When a complaint is settled through the mediation of the Ombudsman. The insurance companies are required to honour the awards passed by an Insurance Ombudsman within three months. The complaint may relate to any grievance against the insurer i. The complaint is not made later than one year after the insurer had replied. . he shall make the recommendations which he thinks fair in the circumstances of the case. Such a recommendation shall be made not later than one month and copies of the same sent to complainant and the insurance company concerned. The awards are binding upon the insurance companies.

In general. As per the policy-holder's protection regulations. theft. Life Insurance is a policy that people buy from a life insurance company. To be a life policy the insured event must be based upon the lives of the people named in the policy. Its function is to help beneficiaries financially after the owner of /person named in the policy dies In return. flood. such as terminal illness or critical illness.).        . Steady increase in number of complaints received by various Ombudsman shows that the policy-holders are reposing their confidence in the institution of Insurance Ombudsman. which can be the basis of protection and financial stability after one's death.10. every insurer shall inform the policy holder along with the policy document in respect of the insurance Ombudsman in whose jurisdiction his office falls for the purpose of grievances redressal arising if any subsequently. the Policy Holder agrees to pay a stipulated amount called premiums at regular intervals or in lump sums. There may be conditions in some countries where bills and death expenses plus catering for after funeral expenses should be included in Policy Premium . in these jurisdictions "insurance" refers to providing cover for an event that might happen (fire. rather it is the value derived from the 'peace of mind' experienced by the policyholder. due to the negating of adverse financial consequences caused by the death of the Life Assured. various aspects of LIP and Assurance policy  Life insurance/ assurance is a contract between the Policy Owner/Holder and the Insurer. not from an actual claim event. while "assurance" is the provision of cover for an event that is certain to happen (death).   If the policy holder is not satisfied with the award of the Ombudsman he can approach other venues like Consumer Forums and Courts of law for redressal of his grievances. Life Insurance is a contract between the insurer and the Policy Holder whereby a benefit is paid to the designated beneficiaries if an insured event occurs which is covered by the policy The specific uses of the terms "insurance" and "assurance" are sometimes confused. etc. Q. where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event. The value for the policyholder is derived.

With an irrevocable beneficiary. for example claims relating to o Suicide o Fraud o War o Riot and civil commotion. or cash value borrowing. for example.retirement savings and investment options Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. o But if A buys a policy on his wife B then A is the owner and B is the insured . Specific exclusions are often written into the contract to limit the liability of the insurer.          Insured events that may be covered include: o Death o Accidents o Serious Illness o Disability o Dismemberment Life insurance o Provide security for insured¶s family o Protect insured¶s home mortgage o Take care of insured¶s estate planning needs o Offer insured other tax savings . The policy owner is the guarantee and he or she will be the person who will pay for the policy. The insured is a participant in the contract. However. o For example. he is both the owner and the insured. In cases where the policy owner is not the insured or also referred to as Celui Qui Vit [CQV] insurance companies have sought to limit policy purchases to those with an "insurable interest" in the CQV. policy assignments. There is a difference between the insured and the policy owner (policy holder). if A buys a policy on his own life. but the beneficiary is not a party to the policy. "insurable interest" is required to limit an unrelated party from taking life insurance on. A or his wife B The beneficiary receives policy proceeds upon the insured's death. The Policy Owner can change the beneficiary unless the policy has an irrevocable beneficiary designation. The owner designates the beneficiary. but not necessarily a party to it. although the owner and the insured are often the same person. that beneficiary must agree to any beneficiary changes. .

A common form of this design is term insurance. There's a mortality function and a cash function. although the actual death benefit can provide for greater or lesser than the face amount. The mortality function would be the classical notion of pooling risk where the premiums paid by everybody else would cover the death benefit for the one or two who will die for a given period of time. Morbidity Table. The premium computation for all life insurance is a function of Mortality Table. Special provisions may apply. The "insurable interest" requirement usually demonstrates that the purchaser will actually suffer some kind of loss if the CQV dies. This undermines the primary purpose of life insurance as the investors have no financial loss that would occur if the insured person were to die. In some jurisdictions. there are basically two functions that make it work. Stranger Originated Life Insurance [STOLI] is a life insurance policy that is held or financed by a person who has no relationship to the insured person.         For life insurance policies. Common forms are whole life. o Investment policies: Where the main objective is to facilitate the growth of capital by regular or single premiums. With no insurable interest requirement. Life-based contracts tend to fall into two major categories: o Protection policies: Designed to provide a benefit in the event of specified event. Such a requirement prevents people from benefiting from the purchase of purely speculative policies on people they expect to die. the risk that a purchaser would murder the CQV for insurance proceeds would be great. STOLI has often been used as an investment technique whereby investors will encourage someone (usually an elderly person) to purchase life insurance and name the investors as the beneficiary of the policy. some states provide a statutory one-year suicide clause). The policy matures when the insured dies or reaches a specified age (such as 100 years old). typically a lump sum payment. Longevity Table With all life insurance. universal life and variable life policies. Any misrepresentations by the insured on the application is also grounds for nullification The face amount on the policy is the initial amount that the policy will pay at the death of the insured or when the policy matures. . close family members and business partners will usually be found to have an insurable interest. there are laws to discourage or prevent STOLI. such as suicide clauses wherein the policy becomes null if the insured commits suicide within a specified time (usually two years after the purchase date.

Life insurance may be divided into two basic classes And in the following subclasses o Temporary o Permanent  Term  Universal  Whole life  Endowment life Temporary Life Insurance Policy o Term Insurance:  Provides life insurance coverage for a specified term of years in exchange for a specified premium. a minimum rate of investment return on the premiums will be required in the event that a policy matures. 2. and 3.  There are three key factors to be considered in term insurance: 1. 20. then the mortality function alone will not be able to cover the cash function.  The term can be for one or more years.  The policy does not accumulate cash value. 15.  The face amount can remain constant or decline.  Common types of term insurance include y Level Term y Annual Renewable Term y Mortgage insurance Term  Level Term: y It has the premium fixed for a period of time longer than a year. y These terms are commonly 5. . 25. where the premium buys protection in the event of death and nothing else. So in order to cover the cash function. it is reasoned that out of a group of 1000 people.  Term insurance is generally considered "pure" insurance. Face amount (protection or death benefit).    The cash function inherent in all life insurance says that if a person is to reach age 95 to 100 (the age varies depending on state and company). Premium to be paid (cost to the insured).  The premium can remain level or increase. then the policy matures and endows the face value of the policy. Actuarially.  Various insurance companies sell term insurance with many different combinations of above three parameters. 10. 30 and even 35 years. if even 10 of them live to age 95. Length of coverage (term).

The face amount is intended to equal the amount of the mortgage on the policy owner¶s residence so the mortgage will be paid if the insured dies. unless the owner fails to pay the premium when due (the policy expires OR policies lapse). o Permanent insurance builds a cash value that reduces the amount at risk to the insurance company and thus the insurance expense over time.  Level term is often used for long term planning and asset management because premiums remain consistent year to year and can be budgeted long term. guaranteed cash values. borrowing the cash value.  Mortgage Insurance Term: This is usually a level premium. or surrendering the policy and receiving the surrender value. y At the end of the term. and a cash value table included in the policy guaranteed by the company. o The policy cannot be canceled by the insurer for any reason except fraud in the application. Permanent Life Insurance Policy: o It is life insurance that remains in force (in-line) until the policy matures (pays out). fixed and known annual . and that cancellation must occur within a period of time defined by law (usually two years). o The owner can access the money in the cash value by withdrawing money. declining face value policy. This means that a policy with a million rupee face value can be relatively expensive to a 70 year old. some policies contain a renewal or conversion option. The primary advantages of whole life are guaranteed death benefits. The basic types of permanent insurance are: o Whole Life o Universal Life o Limited Pay o Endowment y Whole Life Insurance:   Whole Life Insurance provides for a level premium.  Annual Renewable Term: It is a one year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time.

the cash values are generally kept by the insurance company at the time of death. Cash value can be accessed at any time through policy loans and are received income-tax free. Endowments Policy  Endowments Policy is a type in which the cash value built up inside the policy.  . Common limited pay periods include 10year. Since these loans decrease the death benefit if not paid back. and equity indexed universal life insurance. The primary disadvantages of whole life are premium inflexibility. 20-year.    premiums. Riders are available that can allow one to increase the death benefit by paying additional premium. variable universal life insurance. Cash values support the death benefit so only the death benefit is paid out  Universal Life Insurance  Universal Life Insurance [UL] is relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. payback is optional. and mortality and expense charges will not reduce the cash value shown in the policy. the death benefit only to the beneficiaries. The age this commences is known as the endowment age. equals the death benefit (face amount) at a certain age. Endowments are considerably more expensive (in terms of annual premiums) than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier.   Limited Pay  Limited Pay Life Insurance is a type all the premiums are paid over a specified period after which no additional premiums are due to keep the policy in force. and paid-up at age 65. There are several types of universal life insurance policies which include interest sensitive (also known as traditional fixed universal life insurance). and the internal rate of return in the policy may not be competitive with other savings alternatives Also. A ULP is akin to ULIP and does not work in a recession or low interest rate environment.

o Group Life insurance: Is term insurance covering a group of people. Endowment Insurance is paid out whether the insured lives or dies. professional sports. Others have no rights to participate in the profits of the company. Some of the riders are: o Accidental Death and Dismemberment Insurance [AD & D Policy]:  In an AD&D policy. o Modified Whole Life: Is a whole life policy that charges smaller premiums for a specified period of time after which the premiums increase for the remainder of the policy. 15 years) or a specific age (e. or involvement in a war] or the coverage is not maintained after the accident until death occurs  AD & D rider may provide for double [double the face value of amount insured] accidental death benefits or even a triple indemnity cover. flying an airplane. but also for loss of limbs or bodily functions such as sight and hearing.  With-profits Policy is used as a form of collective investment achieve capital growth. usually employees of a company or members of a union or association. Riders are modifications to the insurance policy added at the same time the policy is issued.g. The underwriter [insurer] considers the size and turnover of the group. etc. o Survivorship life: Is a whole life policy insuring two lives with the proceeds payable on the second (later) death. and the financial strength of the group. This may also be marketed as final expense insurance o Preneed (or Prepaid) Insurance Policies: Are whole life policies that. These riders change the basic policy to provide some feature desired by the policy owner. benefits are available not only for accidental death.  Investment Policies: o With-Profits Policy: Some policies allow the policyholder to participate in the profits of the insurance company. Other policies offer a guaranteed return not dependent on the company's underlying investment performance.g an insured who puts themselves at risk in activities such as parachuting. these are non-profit policies. o Joint Life Insurance: Is either a term or permanent policy insuring two or more lives with the proceeds payable on the first death or second death. although available at any age. Contract provisions will attempt to exclude the possibility of adverse selection. 65).  AD&D policies very rarely pay a benefit. o Senior Citizen Insurance: Insurance companies have developed products notably targeting the senior citizen to address needs of an aging population and offer senior citizen an opportunity to buy affordable insurance. o Single Premium Whole Life: Is a policy with only one premium which is payable at the time the policy is issued. are usually offered to older applicants as well designed specifically to cover funeral expenses when the insured person dies. after a specific period (e.g.  . either the cause of death is not covered [e.

the pension will become in payment. For pension insurer include besides an amount of mortality risk. morbidity risk and also include longevity risk. o Pension Policy: Pensions are a form of life assurance. There are two periods: the accumulation (when payments are paid into the account) and the annuitization (when the insurance company pays out). A pension fund will be built up throughout a person's working life.these are often referred to as without-profit policies which may be construed as a misnomer. which will guarantee a certain pay-out each month until death. which pays out a sum at pre-determined intervals. . and at some stage the pensioner will buy an annuity contract. o Annuity Policy: An annuity is a contract with an insurance company whereby the insured pays an initial premium or premiums into a taxdeferred account. When the person retires.

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