INSURANCE MANAGEMENT

MODULE 1

CONCEPT & DEFINITION OF INSURANCE

Insurance is a legal agreement between two parties – the insurer and the insured, also known as
insurance coverage or insurance policy. The insurer provides financial coverage for the losses of
the insured that s/he may bear under certain circumstances.

• A contract between the insurer and insured under which the insurer undertakes to
compensate the insured for the loss arising from the risk insured against.

• The business is related to the protection of the economic value of assets , created through
efforts of owner.

• Insurance is a mechanism of risk transfer and sharing by pooling of risks and funds
among a group of individuals who are exposed to similar kinds of risks for the benefit of
those who suffer loss on account of the risk.

• Insurance is, thus, a financial tool specially created to reduce the financial impact of
unforeseen events and to create financial security. Indeed, everyone who wants to protect
himself against financial hardship should consider insurance.

• Traditionally, “the joint family” has been an informal social security in India. In modern
society, social security is available only to those who are employed in the organized
sector. Insurance is considered one of the tools of social security for formal and informal
sectors and is largely carried out in two ways.

• The first way is known as Social Insurance. Here, the State or government takes care of
those who are subjected to losses due to some risk event e.g. The Employees’ State
Insurance scheme (ESI), ’ Provident Fund Organization (EPFO) that provides pensions
and survivors’ benefits in the event of an employee’s death

• The second way is through voluntary Private Insurance. Here, individuals and groups can
buy insurance from an insurance company by entering a contract of insurance with the
company. The insurance company enters a contract (an insurance policy) whereby it
(insurer) undertakes, in exchange for a small amount of money (premium), to provide
financial protection by agreeing to pay the insuring person (insured) a fixed amount of
money (sum assured) on the happening of a certain event (insured peril).

PURPOSE OF INSURANCE
 Insurance plans will help you pay for medical emergencies, hospitalisation, contraction of any
illnesses and treatment, and medical care required in the future.
 The financial loss to the family due to the unfortunate death of the sole earner can be covered by
insurance plans. The family can also repay any debts like home loans or other debts which the
person insured may have incurred in his/her lifetime
 Insurance plans will help your family maintain their standard of living in case you are not around
in the future. This will help them cover the costs of running the household through the insurance
lump sum payout. The insurance money will give your family some much-needed breathing
space along with coverage for all expenditure in case of death/accident/medical emergency of the
policyholder
 Insurance plans will help in protecting the future of your child in terms of his/her education.
They will make sure that your children are financially secured while pursuing their dreams and
ambitions without any compromises, even when you are not around
 Many insurance plans come with savings and investment schemes along with regular coverage.
These help in building wealth/savings for the future through regular investments. You pay
premiums regularly and a portion of the same goes towards life coverage while the other portion
goes towards either a savings plan or investment plan, whichever you choose based on your
future goals and needs
 Insurance helps protect your home in the event of any unforeseen calamity or damage. Your
home insurance plan will help you get coverage for damages to your home and pay for the cost
of repairs or rebuilding, whichever is needed. If you have coverage for valuables and items
inside the house, then you can purchase replacement items with the insurance money

IMPORTANCE OF INSURANCE

 Provides Safety and Security to Individuals and Businesses: Insurance provides financial

support and reduces uncertainties that individuals and businesses face at every step of their
lifecycles. It provides an ideal risk mitigation mechanism against events that can potentially
cause financial distress to individuals and businesses. ). For instance, with medical inflation
growing at approximately15% per annum, even simple medical procedures cost enough to
disturb a family’s well-calculated budget, but a Health Insurance would ensure financial security
for the family. In case of business insurance, financial compensation is provided against financial
loss due to fire, theft, mishaps related to marine activities, other accidents etc.
 Generates Long-term Financial Resources: The Insurance sector generates funds by way of
premiums from millions of policyholders. Due to the long-term nature of these funds, these are
invested in building long-term infrastructure assets (such as roads, ports, power plants, dams,
etc.) that are significant to nation-building. Employment opportunities are increased by big
investments leading to capital formation in the economy.
 Promotes Economic Growth: The Insurance sector makes a significant impact on the overall
economy by mobilizing domestic savings. Insurance turn accumulated capital into productive
investments. Insurance also enables mitigation of losses, financial stability and promotes trade
and commerce activities those results into sustainable economic growth and development. Thus,
insurance plays a crucial role in the sustainable growth of an economy.
 Provides Support to Families during Medical Emergencies: Well-being of family is
important for all and health of family members is the biggest concern for most. From elderly
parents to newborn children, medication and hospitalization play important role while ensuring
well-being of families. Rising medical treatment costs and soaring medicine prices are enough to
drain your savings if not well prepared. Anyone can fall victim to critical illnesses (such as heart
attack, stroke, cancer etc.) unexpectedly. And rising medical expense is of great concern.
Medical Insurance is a policy that protects individuals financially against different type of health
risks. With a Health Insurance policy, an insured gets financial support in case of medical
emergency.

 Spreads Risk: Insurance facilitates moving of risk of loss from the insured to the insurer. The
basic principle of insurance is to spread risk among a large number of people. A large population
gets insurance policies and pay premium to the insurer. Whenever a loss occurs, it is
compensated out of corpus of funds collected from the millions of policyholders.

NATURE OF INSURANCE

Contract
Insurance is contract between two parties in which one party agrees to provide protection to
other party from losses in exchange for premium. The parties are insurer and insured. Insurer
guarantees compensation in occurrence of any contingency to insured and insured pays premium
to insurer for protection. Insurance companies accept the offer made by the insurance policy
holder and enter into contract. Contract for insurance is always in written.

Lawful Consideration
Existence of lawful consideration is must for insurance contract like any other lawful contract.
The insurance policy holder is required to pay premium regularly to the insurance company. This
premium is paid in exchange for protection against losses and damages guaranteed by insurance
companies.

Payment On Contingency
Insurer is required to compensate the insured only on happening of contingency for the damages
and losses done. Insured cannot make profit from insurance policy but can only claim
compensation from insurer in case of contingency. If no contingency occurs, insurer is not
required to pay any compensation to insured. 

Risk Evaluation
Insurer evaluates the risk associated with subject matter of insurance contract. Proper risk
evaluation enables the insurer to calculate the right amount of premium to be paid by insured.
Insurer uses different techniques for risk evaluation. If insurance object is subject to heavy
losses, heavy premium will be charged. On the other hand, if there is less expectation of losses
then low premium will be charged.

Large Number Of Insured Persons

There are large numbers of insured person’s takes insurance policy from insurer. Larger the
number of insurance policy holders with insurance companies, smaller will be the degree of risk
on any individual. Risk arising from any contingency is shared among these large numbers of
insured persons.

Co-Operative Device
Insurance is a cooperative device to pool risk among large number of persons. Insurance is a
platform where different persons come together to share risk by taking insurance policy from
insurer. All persons pay premium regularly to insurance companies. If any of person incurs
losses or damages due to occurrence of any contingency, insurance company will compensate
him out of premiums paid by different persons. 

Not A Charity Or Gambling

Insurance is a legal contract. It cannot be termed as a charity or gambling. Compensation paid to
insured by insurer is not in charity but is paid in exchange of premium deposited by him. Insured
pays premium to insurer for guarantee of compensation in happening of contingency. Also,
insured cannot make profit out of insurance policy and is meant for recovering him from losses
only. He is paid compensation only when he incurs losses due to contingency. That is why it is
not a gambling.

Double Insurance and reinsurance

• Double insurance refers to a situation in which the same risk and subject matter, is
insured more than once. Reinsurance implies an arrangement, wherein the insurer transfer
a part of risk, by insuring it with another insurance company. The reinsurer will only be
liable for the proportion of reinsurance.

• Reinsurance is an arrangement by which the primary insurer that initially writes the
insurance transfers to another insurer called (the reinsurer) part or all the potential losses
 associated with such insurance. The reinsurer is then responsible for the payment of its
share of the loss.

• primary insurer that initially writes the insurance is called the ceding company . The
insurer that accepts part or all the insurance from the ceding company is called the
reinsurer . The amount of insurance retained by the ceding company for its own account
is called the retention limit or net retention . The amount of insurance ceded to the
reinsurer is known as the cession . Finally, the reinsurer in turn may reinsure part or all of
the risk with another insurer. This is known as a retrocession . In this case, the second
reinsurer is called a re trocessionaire . 

Reinsurance

Itcan be used by which insurance companies are indemnified by reinsurers for catastrophic
losses.
There are some other reasons for reinsurance which are given below:

i) Risk Minimization By Spreading: The basic concept of insurance is to spread the risk over as
wider an area as possible as so to decrease the burden of loss at each stage. The reasons for
reinsurance says, reinsurance facilitates a risk to be scattered over a much wider area and the
principle of insurance is taken well care of. This in fact helps in the ultimate viability of
insurance business.
ii) Risk Transfer: To an insurer, the need for reinsurance safeguard arises in the same way as
the insured needs insurance protection. But for reinsurance, the business of insurance would not
have developed to the extent of the present day growth.

3.Development : The growth of an insurance company is particularly dependent on sound

financial standing, which is primarily based on the stability of profit and loss. Profit cannot be
expected if there is an untoward charge on the fund by way of claim which it cannot sustain or
for which there is no provision. Reinsurance tends to stabilize profits and losses and permits
more rapid growth of an insurance company.

4) Prediction For Rating : An insurer needs to have large number of similar cases in his book
for the purpose of predicting an accurate rating structure. But assuming a large number of similar
risks is in itself undesirable unless some precautionary measure is taken. It may not also be
possible to get a large number of similar cases by an insurer because of the operation of numbers
of insurers in the market. Whatever it is, reinsurance takes care of such a situation in both the
ways. On the one hand it provides protection to the insurer by way of providing unsustainable
losses, and on the other creates a forum of getting large number of similar cases through
reciprocity.

5) A New Insurer who has recently started transacting insurance business cannot certainly
develop and possibly cannot survive in the absence of reinsurance protection.
6) Capacity Relief : Reinsurance which allows the company (reinsured) to write the bigger
amounts of insurance.

Basis of Difference Double Insurance Reinsurance

Meaning In double insurance, the same In the reinsurance, the risk or a

risk is insured with different part of the risk is transferred to
insurance companies or more another insurance company. The
than one insurance company. risk remains the same.

Subject This insurance is basically taken This insurance covers the risk of
for properties having a high the original insurer.
value.
Claim You can make a claim to all the In this insurance, you will have
insurance companies for to claim from the original
compensation. insurer, and it will claim from
the reinsurer.

Basis of Difference Double Insurance Reinsurance

Loss The loss will be shared by all The reinsurer will only be liable
the insurance companies from to pay the proportion of the
which you have taken the reinsurance.
insurance.

Goal The main goal of this insurance The main goal of this insurance
plan is to assure the benefit of is to reduce the risk of the
insurance to the insured. insurer.
Interest of Insured The insured has an insurable The insured doesn’t have an
interest in this kind of plan. insurable interest in this kind of
plan

Insured Approval The insured approval is needed The consent of the insured is not
in double insurance. needed in Reinsurance because
it is done on the insurer’s end.

Underwriting
Underwriting refers to the process of selecting, classifying, and pricing applicants for insurance .
The underwriter is the person who decides to accept or reject an application.
Process :
Underwriting starts with a clear statement of underwriting policy. An insurer must establish an
underwriting policy that is consistent with company objectives.
The objective may be a large volume of business with a low profit margin or a smaller volume
with a larger margin of profit. Classes of business that are acceptable, borderline, or prohibited
must be clearly stated. The amounts of insurance that can be written on acceptable and borderline
business must also be determined.
• The insurer’s underwriting policy is determined by top-level management in charge of
underwriting.

• The underwriting policy is stated in detail in an underwriting guide

• underwriting guide that specifies the

• lines of insurance to be written

 • territories to be developed

• forms and rating plans to be used

• acceptable, borderline, and prohibited business

• amounts of insurance to be written

• business that requires approval by a senior underwriter; and other underwriting

details.

Underwriting Principles
• Underwriting is based on several principles. Three important principles are as follows:

• Attain an underwriting profit.

• Select prospective insureds according to the company’s underwriting standards.

• Provide equity among the policyholders.

• Underwriting profit :

• The primary objective of underwriting is to attain an underwriting profit. The objective is

to produce profitable book of business.

• The underwriter constantly strives to select certain types of applicants and to reject others
to obtain a profitable portfolio of business.

• Select prospective insureds according to the company’s underwriting standards.

• This means that the underwriters should select only those insureds whose actual loss
experience is not likely to exceed the loss experience assumed in the rating structure.

For example, a property insurer may wish to insure only high-grade factories and expects
that its actual loss experience will be well below average.
 • The purpose of the underwriting standards is to reduce adverse selection against the
insurer. There is an old saying in underwriting, “select or be selected against.” Adverse
selection is the tendency of people with a higher-than-average chance of loss to seek
insurance at standard (average) rates, which if not controlled by underwriting, will result
in higher-than-expected loss levels.

• A final underwriting principle is equity among the policyholders .

• This means that equitable rates should be charged, and that each group of policyholders
should pay its own way in terms of losses and expenses. Stated differently, one group of
policyholders should not unduly subsidize another group.

• For example, a group of 20-year-old persons and a group of 80-year-old persons

should not pay the same premium rate for individual life insurance. If identical
rates were charged to both groups, younger persons would be subsidizing older
person.

Steps in Underwriting
Step 1: Review and evaluate the application or other paperwork to determine creditworthiness,
medical history (life insurance), financial soundness (investment), or other other factors that vary
with the type of risk.
Step 2: Obtain an appraisal of property, evaluation of securities, or require a medical exam as
required to help further determine risk.
Step 3: Process all gathered information and make a decision to:

 Accept: Approval involves other decisions including loan rates, terms, premium amounts, or

price to pay for securities, depending on the type of underwriting decision being made.

 Deny: Denial results when the various factors show unacceptable risk in the eyes of the

underwriter.

 Pending: A decision to hold the application typically means the underwriter doesn't have enough

or the right information to make a firm decision.

MODULE 2
PRINCIPLES OF INSURANCE
1.Nature of Contact

Nature of contract is a fundamental principle of insurance contract. An insurance contract comes

into existence when one party makes an offer or proposal of a contract and the other party

accepts the proposal.A contract should be simple to be a valid contract. The person entering into

a contract should enter with his free consent.

Insurance contracts are governed by Indian contract act 1872 which states that to be legally valid

following elements should be in order.

 Offer and acceptance

 Consideration
 Agreement between the parties
 Capacity of the parties
 Legality of the contract

2.Principle of Insurable interest

This principle says that the individual (insured) must have an insurable interest in the subject
matter. Insurable interest means that the subject matter for which the individual enters the
insurance contract must provide some financial gain to the insured and also lead to a financial
loss if there is any damage, destruction or loss. 
• This means you can only insure something, if they benefit from its existence and will
suffer if it ceases to exist. For example, you can insure your own bicycle , but not your
friend’s bicycle.

• In the same way you can take out Assurance on your wife’s life, but not that of your
neighbour.

The essentials of valid insurable interest

• There must be a subject matter to be insured.

• The policy holder should have monetary relationship with the subject matter.
 • The relationship between the policyholder and the subject matter should be recognized by
law.

• The financial relationship between the policy holder and the subject matter should be
such that the policy holder is economically benefited by survival or existence of the
subject matter.

Insurabe interest in life Insurance

Broadly categorized in two categories

Insurable interset in own life:

 Every individual competent to enter into a contract has insurable interest in his/ her own
life.

 The interest is unlimited in this case as because can not be measured in terms of money.
No limit can be placed for amount of money.

 But usually its ten times of one year income .

Insurable interest in others life

1. proof not required:

 Wife has insurable interest in the life of husband

 Husband has insurable interest in the life of wife

2. Proof required:

 Business relationship

Business Relationship
 A creditor has insurable interest in the life of his debtor

 Surety and principle

 A partner’s interest in life of other partner

  An employer’s interest in the life of a key man

Example – the owner of a vegetable cart has an insurable interest in the cart because he is
earning money from it. However, if he sells the cart, he will no longer have an insurable interest
in it. To claim the amount of insurance, the insured must be the owner of the subject matter both
at the time of entering the contract and at the time of the accident. 
Principle of Utmost Good Faith
The fundamental principle is that both the parties in an insurance contract should act in good
faith towards each other, i.e. they must provide clear and concise information related to the terms
and conditions of the contract.
The Insured should provide all the information related to the subject matter, and the insurer must
give precise details regarding the contract.
Example – Jacob took a health insurance policy. At the time of taking insurance, he was a
smoker and failed to disclose this fact. Later, he got cancer. In such a situation, the Insurance
company will not be liable to bear the financial burden as Jacob concealed important facts.
Principle of Indemnity
This principle says that insurance is done only for the coverage of the loss; hence insured should
not make any profit from the insurance contract. Indemnity means security or compensation
against loss or damage. The principle of indemnity is such principle of insurance stating that an
insured may not be compensated by the insurance company in an amount exceeding the insured’s
economic loss. In type of insurance the insured would be compensation with the amount
equivalent to the actual loss and not the amount exceeding the loss.
Example – The owner of a commercial building enters an insurance contract to recover the costs
for any loss or damage in future. If the building sustains structural damages from fire, then the
insurer will indemnify the owner for the costs to repair the building by way of reimbursing the
owner for the exact amount spent on repair or by reconstructing the damaged areas using its own
authorized contractors.
PRINCIPLE OF INDEMNITY IS NOT APPLIED IN LIFE INSURANCE BECAUSE-
The indemnity principle means that the policy payout should restore the insured to the same
financial position in which he was before the loss happened. Since the value of human life
cannot be ascertained, the principle of indemnity does not apply as it is not possible to quantify
the loss.
This principle is not much of practical importance in connection with life insurance. However,
this principle is observed too in life insurance.
Sucide: when sucide occurs within one year of the policy or there was any intention then the
payment of policy would be restricted only up to interest
Accident benefit: in accident benefit double of the policy amount is paid .
• War risk: only premium paid or surrender value whichever is higher is payable .In India
this principle is ignored and full benefit is given.
Principal of subrogation:
The principle of subrogation enables the insured to claim the amount from the third party
responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of
loss, For example, if you get injured in a road accident, due to reckless driving of a third party,
the insurance company will compensate your loss and will also sue the third party to recover the
money paid as claim.
For example: Mr. Arvind insures his house for ` 1 million. The house is totally destroyed by the
negligence of his neighbour Mr. Mohan. The insurance company shall settle the claim of Mr.
Arvind for 1 million. At the same time, it can file a law suit against Mr. Mohan for ` 1.2 million,
the market value of the house. If insurance company wins the case and collects ` 1.2 million from
Mr. Mohan, then the insurance company will retain 1 million (which it has already paid to Mr.
Arvind) plus other expenses such as court fees. Then balance amount, if any will be given to Mr.
Arvind, the insured.

Essentials of subrogation
• Integral part to the principle of indemnity
• Subrogation is substitution
• Subrogation is only up to the amount of payment
• This may be applied before payment
• Subrogation is not applied in personal insurance as principle of indemnity is not applied I
this.
Subrogation by contract commonly arises in contracts of insurance. The doctrine of
subrogation confers upon the insurer the right to receive the benefit of such rights and remedies
as the assured has against third parties in regard to the loss to the extent that the insurer has
indemnified the loss and made it good.
Principle of Contribution
Contribution principle applies when the insured takes more than one insurance policy for the
same subject matter. It states the same thing as in the principle of indemnity, i.e. the insured
cannot make a profit by claiming the loss of one subject matter from different policies or
companies.
Example – A property worth Rs. 5 Lakhs is insured with Company A for Rs. 3 lakhs and with
company B for Rs.1 lakhs. The owner in case of damage to the property for 3 lakhs can claim the
full amount from Company A but then he cannot claim any amount from Company B. Now, 
Company A can claim the proportional amount reimbursed value from Company B.
Circumstances:
 The concerned policies must cover the same perils
 They must cover the sames subject matter
 The must protect the same interest
 They must be enforced at time of loss.
MODULE 3

LIFE INSURANCE

• Life Insurance can be defined as a contract between an insurance policy holder and an
insurance company, where the insurer promises to pay a sum of money in exchange for a
premium, upon the death of an insured person or after a set period. The insurance act
1938 defines life insurance business s the business of affecting contracts of insurance
upon human life, including any contract whereby the payment of money is assured on
death or happening of any event insured by contract.

CHARACTERISTICS OF LIFE INSURANCE

1) Offer and acceptance: Like other contracts of insurance the life insurance  contract is also  the 
outcome of an offer made by the policy owner and its acceptance by  the insurer. Generally the  l
ife insurance  is a  contract is made in waiting. 

2) Agreed sum of money: The insurer agrees to pay a  certain sum of money either on the death o
f poliy owner  or on the maturity of the policy whichever is earlier 

 3) Premium: The policy  owner is liable to pay periodically the amount of the payment in the for
m of premium till the death of the policy owner or expiry of the period of policy  whichever is ea
rlier.

4) Not a contract of indemnity: Life insurance contract is a note a contract  of indemnity as the lo
ss caused by the death cannot be measured in terms of money is a compensation for loss of the o
ne’s life.

 5)  Insurable interest: In life insurance  insurable interest must exist when the claim. The person 
who has been assigned  a life policy  need not  have insurable interest in it as the insurable intere
st was already present at time of taking policy.

 6) Lending helping hand: Life insurance  provides helping hand to those  who are left support le
ss and  helps financially in case of the death of the insured. It is also considered to be than the be
st alternative for making savings.
 
7) Covers other risks: Life insurance covered  others risks which are connected with the  human l
ife in addition  to the risk of death. For example, total and permanent disability or temporary disa
bility and medical expense compulsory retirement or the  economics death risks etc.have also  be
en covered under the purview of Life insurance these days.

Features of Life Insurance

There are specific features of life insurance that make it different from general insurance
policies. Below we discuss these attributes:

 It is long-term that may go from 10 to 30 years or even more. You have to pay the life
insurance premium for the term that you decide. This is called Premium Payment Term
 The one who buys the policy and pays the premium is the insured. S/he can appoint a
nominee or a beneficiary to receive the amount in his/her absence
 Premium can be paid through regular monthly payments, annual payments, or a one-time
payment
 A life insurance policy can be a good saving/investment plan for the future or a
pension/post-retirement plan. This depends on the type of policy. It can also provide tax
benefits
 It comes to aid in case of the untimely or sudden death of the breadwinner of the family.
If s/he is insured, then the family has a source of income. It makes them financially
stable, independent, and perhaps liability-free.

BENEFITS OF LIFE INSURANCE

1.Financial Security 
Among several advantages of life insurance, financial security, and peace of mind are hugely
significant. You can rest assured your family will not have to compromise due to financial
burdens in case of a mishap. It will also help them in taking care of financial liabilities, such as
loan payments.

2.Tax benefits:– Enrolling for a life insurance policy can guarantee you tax benefits.The
premiums you pay towards the policy make you eligible for tax exemptions of up to ₹1.5 lakhs
of your taxable income, under Section 80C of the Income Tax Act. The death benefits are also
fully tax exempt, under Section 10(10)D of the ITA.

3.Guarantee of fix returns:- Life insurance policies guarantee that you get a fixed amount after
a fixed timeline. You need to go through the structure of different life insurance products.Read
through the structure and terms and conditions of different life insurance products to choose a
policy that best suits your needs. Whatever you choose, you can rest assured that the promised
death benefits will be disbursed to the beneficiary, if the information provided by you at the time
of enrolling for the policy was accurate.

4. Risk mitigation and coverage:- These policies provide the quintessential risk coverage in
terms of monetary compensations to mitigate and cover risks after the policyholder’s death. By
enrolling for life insurance, you are protecting your family against financial risks that would
occur if the primary breadwinner meets an untimely death.

5. Provision for loan:- Certain policies provide the option of loan and allow to borrow a sum of
money.This means that if you need to take on a loan, for instance, to fund the education or
marriage of a child, you can use the life insurance policy as collateral.

Types of insurance

The types of Insurance are:

1. Life Insurance
2. General Insurance (which includes fire insurance, health insurance and marine insurance)

TYPES OF LIFE INSURANCE-

 Whole Life Insurance
As the name suggests, in this kind of policy the amount that is insured will only be paid out to
the person who is nominated and it is only payable on the death of the insured.
As a life insurance policyholder, you get the benefits depending on the types of life insurance
policies you have chosen. What distinguishes a whole life insurance plan from other life
insurance types is that it provides insurance coverage to the insured for the entire life, up to 100
years of age.
Typically, the death benefit, under a whole life insurance, is payable to the beneficiary in the
case of the untimely demise of the policyholder. On the other hand, you are eligible to receive a
maturity benefit under a whole life insurance policy if you cross 100 years of age. The biggest
advantage of this product is that not only does it provide lifelong protection to the insured but
also provides a simple way to leave behind a legacy for their children.
Whole insurance plans offer a lot of stability. After paying the premiums for 5 years, you get a
guaranteed income on maturity. Moreover, the income received from a whole life insurance
policy is tax-free* subject to Section 10(10D) of the Income Tax Act of 1961.
Whole life insurance policies are beneficial for those who want to leave a financial legacy for
their legal heirs. In the case of death of the policy holder during the term, the nominee receives
the policy benefits, including a bonus for the total premiums paid.

Endowment Insurance Plans

Endowment plans are ideal for people who want guaranteed returns along with the protection of
life insurance. An endowment plan is a life insurance policy that provides life coverage along
with an opportunity to save regularly. This enables you to receive a lump sum amount on the
maturity of the policy. In case of death during the policy term, your nominee(s) also receives a
death benefit.
 Just like ULIPs, endowment plans are quite flexible too. You can choose a suitable method and
time frame to pay the premium. Endowment plans also give you a chance to benefit from
bonuses, that are paid additionally over and above the sum assured of your policy.
Lastly, the returns generated on maturity from an endowment plan are tax-free * subject to
Section 10(10D) of the Income Tax Act of 1961. The premiums paid can also be claimed as a
deduction under Section 80C* of the same Act.
Let’s understand with an example. Mohit, aged 35, buys ICICI Pru Savings Suraksha Plan for a
policy term of 20 years and a premium paying term of 10 years. He pays an annual premium of ₹
30,000 and has a sum assured of ₹ 3 lakh. At an 8% return, the maturity benefit would be ₹ 7.21
lakhs. At a 4% return, his estimated maturity benefit, including guaranteed additions, and
terminal bonus, will be ₹ 4.47 lakhs. Another significant feature of such whole life
insurance plans is that some offer the option to pay premium for the first 10-15 years while you
get the benefits for the entire life.

Features of Endowment plans

 Life cover 1:
Endowment plans pay an amount known as Death Benefit to the nominee in case of an
unfortunate demise of the life assured.
 Maturity benefits:
The unique feature of endowment plans is that they provide benefits upon maturity. On
completion of the tenure of the policy, the policyholder receives a maturity benefit.
 Premium payment:
Usually, the premium payment frequency can be selected as per comfort. The policyholder can
opt for a monthly, half-yearly, or annual premium payment mode. The entire amount can be paid
all at once as well.
 Tax benefits#:
Did you know that you can claim deductions # from your taxable income for your endowment
plan premiums? Under Section 80C of the Income Tax Act, 1961, you can claim deductions up
to ₹ 1.5 lakh for premiums paid in a financial year.

Term Insurance Plans

Term insurance protects your family’s financial future if something were to happen to you.
Designed as a simple and affordable way to give financial cover, a term plan is a vital part of
financial planning for the primary wage earner in a family.
Term insurance is a pure protection plan and is not market-linked. Moreover, the premiums for
term insurance are lower as compared to any other life insurance product. The premiums are also
more affordable if you buy them early in life. Experts often suggest that term plan should be a
priority for you as soon as you start earning.
Term insurance can be used for various purposes. In the absence of an income, your family can
use the cover from the insurance to pay for their day to expenditure, education costs, or wedding
expenses. If you have any outstanding debts, such as home loan, car loan, etc., your family can
pay them off with the cover.
Some term plans also give you the option to add riders, like critical illness^ coverage (providing a
lump sum for the treatment of specified critical ailments) and accidental death benefit + (paid over
and above the sum assured in the unfortunate event of death due to an accident). These riders can
provide you and your family with an extra layer of protection at a nominal increase in the
premium.
Let’s understand with an example. A 25-year-old Fatima wants ₹ 1 crore term insurance till she
turns 60. She buys ICICI Pru iProtect Smart Term Plan with an annual premium of ₹ 9225 for a
premium paying term of 35 years and with the regular income payout option. She also buys ₹ 50
lakhs accidental death cover (premium: ₹ 3540) and ₹ 50 lakhs critical illness cover (premium:
₹ 7657). So, the total premium for this comprehensive package turns out to be less than ₹ 63 a
day or ₹ 20422 a year for Fatima, inclusive of all taxes.

Moneyback Policy
The purpose of investing in the insurance policy in India for your loved ones can be to create
wealth over an extended period. However, most of the types of life insurance do not provide any
provision to get funds before their tenure ends. It is where a moneyback policy plays a vital role
in solving the problem of liquidity.

As the name suggests, moneyback policies are one of the popular types of life insurance policies
in India that give money back regularly. 

Retirement Plans 
Retirement Plans are amongst the types of life insurance policies that provides financial security
and help you with wealth creation after your retirement. With Retirement Plan, you will get a
sum of money as pension in the vesting period.

In case of your untimely demise during the policy term, your nominee will get the death
benefits. Retirement Plans comes with death benefit as well as vesting benefit providing
protection to you and your family members.
Unit Linked Insurance Plan (ULIP)
You may face a dilemma in life about choosing between any of the two options – investment or
insurance. A ULIP is one of the types of life insurance policies in India that fulfill both these
aspects. Amongst different types of life insurance, it is the one that offers life cover along with
investment opportunities. Being one of the types of life insurance, it has a lock-in period of five
years, which makes it a long-term investment instrument that comes with risk protection. ULIPs
also allow you to balance your funds as per market dynamics.

GENERAL INSURANCE

 Insurance contracts that do not come under the ambit of life insurance are called general
insurance. General insurance helps us protect ourselves and the things we value, such as our
homes, our cars and our valuables, from the financial impact of risks, big and small – from fire,
flood, storm and earthquake, to theft, car accidents, travel mishaps – and even from the costs of
legal action against us. And we can choose the types of risks we wish to cover by choosing the
right kind of policy with the features we need.

FIRE INSURANCE

• As per insurance act 1938 “ Fire insurance is the business of affecting, otherwise than
incidentally to some other class of insurance business, contracts of insurance against loss
by or incidental to fire or other occurrence customarily included among the risk insured
against in fire insurance policies.

KINDS OF FIRE INSURANCE POLICY

1. Valued Policy

As the name suggests, the value of the insured property is pre-determined at the inception of the
policy. In case of loss suffered by the insured, a fixed compensation amount is paid by the
insurer irrespective of the actual amount of financial loss suffered by the insured. The claim
amount may be less or greater than the market value of the property and will not include
renovations made in the property.

2.Specific Policy

In this policy, a specific policy coverage amount is mentioned which is not the market value of
the property and is for a specific period of time for a particular property. The compensation paid
will not exceed the policy coverage value.
Floating Policy

In this type, a single policy covers two or more properties present at different locations for an
insured. A single premium is paid by the insured, providing him convenience against buying
multiple policies.

Average Policy

It is that policy in which the Insured doesn’t take insurance policy which covers the total value
of the property. The loss is shared by both the insured and the Insurance Company in pre decided
proportion. For example, Rama took an Insurance policy of ` 7, 00,000 for her house which value
is `1, 4 00,000. In case of a fire, her house is 50 percent damaged, and then she will receive
compensation of `3, 50,000 from the Insurance Company which is 50 percent of her Insurance
coverage value.

Reinstatement Policy

Here, the Insurance Company replaces or reinstates the insured property in case of damage of
fire instead of providing monetary compensation.

GENERAL EXCLUSIONS OF FIRE INSURANCE

The policy has standard excess clause. The amount which is deducted from each and every loss.
The amount is dependent on the Sum Insured under the policy. The clause reads as under:-

(i) (a) The first 5% of each claim subject to a minimum of Rs. 10,000 in respect of each loss
arising out of “Act of God perils” such as Lightning, STFI, Subsidence, landslide and Rock slide
covered under the Policy (b) The first Rs. 10,000 of each loss arising out of other perils in
respect of which the Insured is indemnified by this Policy.

 The Excess shall apply per event per Insured.

 Loss, destruction or damage caused by war, and kindred perils.

 Loss, destruction or damage directly or indirectly caused to the insured property by nuclear
peril.
 Loss, destruction or damage caused to the insured property by pollution or contamination.

 Loss, destruction or damage to any electrical and / or electronic machine, apparatus, fixture
or fitting (excluding fans and electrical wiring in dwellings) arising from or occasioned by
overrunning, excessive pressure, short circuiting, arcing, self-heating or leakage of
electricity, from whatever cause (lightning included). However damage to other assets by
spread of such fire is covered under the policy.

 Loss of earnings, loss by delay, loss of market or other consequential or indirect loss or
damage of any kind or disruption whatsoever.

 Earthquake Vulcanic erruption: It is not covered under the fire policy but by paying
additional premium, the earthquake can be covered.

 Loss or damage due to Terrorism unless specifically covered.

 Loss or damage by spoilage resulting from the retardation or interruption or cessation of any
process or operation caused by operation of any of the perils covered.

 Loss by theft during or after the occurrence of any insured peril except as provided under
Riot, Strike, Malicious and Terrorism Damage cover.

 Loss or damage to property insured if removed to any building or place other than in which
it is herein stated to be insured, except machinery and equipment temporarily removed for
repairs, cleaning, renovation, or other similar purposes for a period not exceeding 60 days.

MARINE INSURANCE

Marine insurance refers to a contract of indemnity. It is an assurance that the goods dispatched
from the country of origin to the land of destination are insured. Marine insurance covers the
loss/damage of ships, cargo, terminals, and includes any other means of transport by which
goods are transferred, acquired, or held between the points of origin and the final destination.

The term originated when parties began to ship goods via sea. Despite what the name implies,
marine insurance applies to all modes of transportation of goods. For instance, when goods are
shipped by air, the insurance is known as the contract of marine cargo insurance.
Importance of Marine Insurance
Marine insurance is required in many import-export trade proceedings. Admitting the terms,
both parties are liable for the payment of goods under insurance. However, the subject matter
of marine insurance goes beyond contractual obligations, and there are several valid arguments
necessary for buying it before dispatching the export cargo.

Goods in transit need to be insured by one of the three parties:-

 The Forwarding Agent
 The Exporter
 The Importer
Also, it can be taken by anyone involved in the transit of goods.

Types of Marine Insurance policies

Voyage policy

A specific policy can be taken for a single lot or consignment only. The exporter needs to
purchase insurance cover every time a shipment is sent overseas. The drawback is that extra
effort and time is involved each time an exporter sends a consignment. With open policies, on
the other hand, shipments are insured automatically.

Time policy

Time policy in marine insurance is generally issued for a year’s period. One can issue for more
than a year or they may extend to complete a specific voyage. But it is normally for a fixed
period. Also under marine insurance in India, time policy can be issued only once a year.

Floating policy

Floating in Marine Insurance policy, large exporters may opt for an open policy, also known as
a blanket policy, instead of taking insurance separately for each shipment. An open policy is a
one-time insurance that provides insurance cover against all shipments made during the agreed
period, often a year. The exporter may need to declare periodically (say, once a month) the
detail of all shipments made during the period, type of goods, modes of transport, destinations,
etc.
Motor vehicle insurance: Motor vehicle insurance is a popular option for the owners of motor
vehicles. Here the owners’ liability to compensate individuals killed by negligence of motorists
is borne by the insurance company.

Procedure for MV Insurance

1. Select Type of Policy

Car insurance policies in India are of two types – 

1. Third-party Car Insurance Policy:

 Under the Indian Motor Vehicle Act, third-party insurance is mandatory. This type of
policy only covers third-party damages and losses. 

2. Comprehensive Car Insurance Policy:

With a comprehensive policy, you get coverage for your own damage as well as third-
party coverage.  

2. Choose the Add-ons With your Comprehensive Car Insurance Policy

If you have opted for a comprehensive policy, you will then be required to choose any add-ons
that you may prefer. While there are many add-ons, do note that every add-on comes at an added
cost to your premium. Here are some of the add-ons you can consider.

3. Select Reputed Insurer and Pick a Policy

The next step is to select a reputed insurer. Most of the top insurers now offer many different
types of 4-wheeler insurance plans. Browse through the options to select one that best suits your
requirements.

4. Check Policy Documents

Once you have selected an insurance policy, make sure that you first check the policy documents
before moving ahead. Ensure that the policy offers what it promises. Give special attention to all
the inclusions and exclusions of the policy to understand it thoroughly. Understanding the policy
in detail will help you pick the best and protect you from any conflicts in the future.

5. Provide Basic Information

You are no longer required to submit any documents for purchasing or renewing four-wheeler
insurance online. You only need to provide basic personal details about yourself and your car.
But make sure that you do have access to documents such as RC book, driving license, and the
original invoice of your car.

This is because you will be required to provide details such as make and model of your car,
RTO, chassis number, purchase and manufacture date, etc. for purchasing insurance. However,
with an insurance company such as IFFCO Tokio, you can enter your personal details and
vehicle number to know which policies you can buy.

6. Make Online Payment

Once you submit the details, you can go ahead and pay the policy premium online. Most insurers
accept payments through debit/credit cards and online banking. The process of four-wheeler
insurance renewal is similar too. One extra step would be providing details of your
current/expired policy.

7. Get a Copy of Your Policy

When the payment is done, you will get a digital copy of your insurance on your verified e-mail
id within minutes. Once you have the policy, make sure you check it for any discrepancies. For
this, you might want to keep the registration certificate (RC) of your car in front of you. Make
sure you match the following details in your policy with the car’s RC.

HEALTH INSURANCE

Health insurance is a type of insurance that covers medical expenses that arise due to an illness.
These expenses could be related to hospitalisation costs, cost of medicines or doctor consultation
fees. Health insurance is an insurance product which covers medical and surgical expenses of an
insured individual. It reimburses the expenses incurred due to illness or injury or pays the care
provider of the insured individual directly.

Types of Health Insurance

There are two basic types of health insurance:
1. Mediclaim Plans
Mediclaim or hospitalisation plans are the most basic type of health insurance plans. They
cover the cost of treatment when you are admitted to the hospital. The payout is made on
actual expenses incurred in the hospital by submitting original bills. Most of these plans cover
the entire family up to a certain limit.
2. Critical Illness Insurance Plans
Critical Illness Insurance Plans cover specific life-threatening diseases. These diseases could
require prolonged treatment or even change in lifestyle. Unlike hospitalisation plans, the
payout is made on Critical Illness cover chosen by the customer and not on actual expenses
incurred in the hospital. The cover gives the flexibility to use the monies for changing
lifestyle and medicines. Also it's a substitute for income for the time you could not resume
work due to illness. Payout under these plans are made on the diagnosis of the disease for
which the original medical bills are not required.
Benefits of Health Insurance
Purchasing health insurance is crucial for a number of reasons. Let's take a look at the most
important benefits of our health insurance policies:

1. Helps Deal with Rising Medical Costs

People purchase health insurance policies to safeguard their finances against ever-rising medical
costs. An accident or medical emergency could end up costing you more than a few thousand
rupees. With a medical insurance plan, you enjoy cover for everything from ambulance charges
to daycare procedures, making it easier for you to get the care you need to recover.

2. Critical Illness Cover

Many health insurance policies will also offer cover for critical illnesses at an additional cost.
Given the rising incidence of lifestyle-related diseases today, this is another crucial cover to
have. You will be provided with a lump sum payout in case you are diagnosed with any of the
covered critical illnesses. These issues are often very expensive to deal with and manage, so
critical illness cover is another vital benefit of having health insurance.

3. Easy Cashless Claims

Every health insurance provider will tie-up with a number of network hospitals where you can
enjoy cashless claims. This makes the entire process of receiving emergency medical care much
easier. At a network hospital, you aren't really required to pay for any of the covered treatments.
For all valid claims, we'll take care of the medical costs, without you having to pay for anything,
except non-covered expenses and the mandatory deductibles.

4. Added Protection
If you enjoy cover under a group health insurance plan, you may wonder why you should
purchase your own health insurance policy. Well, individual health insurance plans offer
provider more and better cover than group plans. Additionally, if you happen to leave the group
at any time, you risk losing the cover, which could make you and your finances vulnerable.

5. Tax Savings
Under Section 80D of the Income Tax Act, 1961, premiums paid towards the upkeep of health
insurance policies are eligible for tax deductions. For a policy for yourself, your spouse, your
children and parents below the age of 60, you can claim a deduction of up to INR 25,000 per
year from your taxable income. If you've also purchased a policy for a parent who is over the age
of 60, you can claim an additional deduction of INR 50,000.

MODULE 4

What is an insurance claim?

An insurance claim is a formal request to your insurance provider for reimbursement against
losses covered under your insurance policy.
Insurance is a financial agreement between you and your insurer. You have to pay a fixed
premium. And in exchange, the insurance provider offers financial cover for losses based on the
policy terms.
When the event covered under your policy occurs, a claim must be filed. The purpose is to notify
the insurer that the event for which you have opted for an insurance has occurred and the insurer
should pay the claim amount.

How does an insurance claim work?

An insurance claim acts as a safety net against financial losses.
Unforeseen expenses like medical emergencies, accidents, and life’s uncertainties can cause
immense economic distress. Insurance claims can provide relief in such unfortunate events.
The funds can cover medical bills, act as income replacements, and help your family meet their
living costs. If you have financial dependents, claim payouts can serve as a lifeline if your family
loses the support of your income.
TYPES OF INSURANCE CLAIMS

Life Insurance

Unlike other types of insurance claims, you don't file a life insurance claim as an insured, but
rather after the death of the insured. To file a life insurance claim, you'll need to submit certified
copies of the insured's death certificate along with appropriate claims forms. States often have
specific timelines for when a life insurance claim must be paid out (for example, within 30-60
days).

Health and Dental Insurance

For most types of insurance, you have to submit your own claim in order to receive benefits. But
with health and dental insurance, your provider will usually submit a claim directly to the
insurance company. The provider then bills you for anything not paid for by your insurer. If you
do have to submit your own claim, contact the insurance company for the required forms and
submit those along with an itemized bill from your provider.

Car Insurance Claims

If you’re involved in a car accident, you’ll probably need to file a claim with your insurance
company, whether the accident resulted in property damage, physical injuries, or both. Even if
the other driver was at fault, you should file a claim with your insurance company in case the
other driver’s insurance company refuses to pay, or if the other driver was uninsured or flees the
scene. Types of insurance claims under an auto policy can include property damage, physical
injuries, uninsured motorist coverage, collision coverage, and liability.

Homeowners Insurance Claims

Under a homeowners insurance policy, you would file a claim with your insurance company if
your property sustains damage that’s covered by your policy, such as wind damage during a
storm, or a pipe bursting in your kitchen. You must also notify your insurance company if
someone else is injured while on your property. If you’re sued by that person, your insurance
company has a duty to defend you under the liability portion of your policy, as long as the claim
is potentially covered by your policy.

 Claim Management-TPA
A TPA is basically a middle man who facilitates the settlement of a health insurance claim. A
TPA is appointed by the insurer. TPAs help you (the insured) process your health insurance
claim using various hospital bills and documents. However, they are not responsible for claims
rejection or acceptance.

The claims settlement process is one of the most important aspects of an insurance policy,
especially if it is a health cover. A policyholder's health insurance claim can get settled by an
insurer in two ways: third-party administrators (TPA) and through the insurer's in-house claims
processing department. TPAs are available only for processing of health insurance only .
A TPA is basically a middle man who facilitates the settlement of a health insurance claim. A
TPA is appointed by the insurer. TPAs help you (the insured) process your health insurance
claim using various hospital bills and documents. However, they are not responsible for claims
rejection or acceptance.
Claim- Management (in house)
In the in-house claim settlement process, instead of taking the services of a TPA company,
insurers set up an entire department within their own company to act as in-house claims
processing department. The in-house claims processing department is also known as HAT
(Health Administration team).

Claim Settlement Process

Life Insurance Claims
• 1.Claim intimation/notification

The claimant must submit the written intimation as soon as possible to enable the
 insurance company to initiate the claim processing. The claim intimation should consist
of basic information such as policy number, name of the insured, date of death, cause of
death, place of death, name of the claimant. The claimant can also get a claim
intimation/notification form from the nearest local branch office of the insurance
company or their insurance advisor/agent. Alternatively, some insurance companies also
provide the facility of downloading the form from their website.
2.Documents required for claim processing

The claimant will be required to provide a claimant's statement, original policy document, death
certificate, police FIR and post mortem exam report (for accidental death), certificate and records
from the treating doctor/hospital (for death due to illness) and advance discharge form for claim
processing. Based on the sum at risk, cause of death and policy duration, insurance companies
may also request some additional documents.

3.Submission of required documents for claim processing

For faster claim processing, it is essential that the claimant submits complete documentation as
early as possible. A life insurer will not be able to take a decision until all the requirements are
complete. Once all relevant documents, records and forms have been submitted, the life insurer
can take a decision about the claim.

4.Settlement of claim

As per the regulation 14 (2)(i) of the IRDAI (Policy holder's Interest) Regulations, 2017, the
insurer is required to settle a claim within 30 days of receipt of all documents including
clarification sought by the insurer. However, the insurance company can set a practice of settling
the claim even earlier. If the claim requires further investigation, the insurer has to complete its
procedure.
• Formalities for a death claim
• When a person with a life insurance policy – called a life assured – dies, a claim
intimation should be sent to the insurance company as early as possible. The assignee or
nominee under the policy can do this. So can any close relative or the agent who handles
the policy.
• The claim intimation should contain information like the date, place and cause of death.
The insurance agent has the duty to help the life assured’s family/ assignee to deal with
the insurance company to fulfil the formalities for a claim.
• The insurance company will respond to this intimation and will ask for the following
documents:
• Filled-up claim form (provided by the insurance company)
• Certificate of death
 • Policy document
• Deeds of assignments/ re-assignments if any
• Legal evidence of title, if the policy is not assigned or nominated
• Form of discharge executed and witnessed
• Other documents such as medical attendant's certificate, hospital certificate,
employer's certificate, police inquest report, post mortem report etc could be
called for, as applicable.

• Formalities for a maturity claim

• Where a life insurance policy is maturing, the insurance company will usually send
intimation to the policyholder along with a discharge voucher at least two to three months
in advance of the date of maturity giving details like the maturity amount payable.
• The policyholder has to sign the discharge voucher – which is like a receipt – have his
signature witnessed and send it back to the insurance company along with the original
policy bond to enable it to make the payment.
If the policy has been assigned in favour of any other person or entity – like a housing
loan company – the claim amount will be paid only to the assignee who will give the
discharge.
Arbitration
• Arbitration is an alternative to going to court over a business dispute. Instead, a neutral
third party is recruited to settle the dispute.
• Arbitration is the process of using a third party to settle a dispute instead of taking the
case to court. Both sides rely on the arbitrator – an unbiased individual or panel – to come
to an appropriate decision based on the facts of the case. The resulting judgement is
called an arbitration award. It is legally binding and includes all of the information
about the case, along with the arbitrator’s decision regarding fees, damages, or
disciplinary actions to resolve the case.
• Arbitration is a simpler process and it’s less expensive than going to court. Since it
doesn’t go on the public record, it’s often used in cases where privacy is desired, such as
divorce settlements or other confidential matters.
How it works
• Arbitration may be used to settle an insurance dispute between an insurance provider and
a policyholder. Instead of filing a lawsuit, the insurer and the policyholder both present
their case to the arbitrator.
• The arbitrator reviews the facts and comes to a decision about how to resolve the dispute.
This could result in the provider having to pay for damages it tried to deny coverage, or a
policyholder might have to pay for damages that the arbitrator ruled were not included in
the insurance policy.
Salvage
• In case of claims under various types of insurance policies, the partly damaged goods or
the wreck of a car or any machinery or any other property settled on Total Loss Basis is
known as “Salvage”.
• After settling the claim for the full amount the salvage becomes the property of
insurance company. Generally the job of salvage disposal is entrusted by the insurance
company to the surveyor who carried out the loss assessment, subject to observance of
procedure for salvage disposal.
• The amount realized through salvage disposal will be set off by insurer against losses
paid by them.
• Salvage Value — the amount for which an asset can be sold at the end of its useful
life. In insurance circles, this term commonly refers to the scrap value of damaged
property.
• Abandonment and salvage can be added as a clause in an insurance contract, giving the
insurer the option to rightfully claim an insured property that has been destroyed and
subsequently abandoned by its owners. In cases of partial loss and salvage, the insured
generally cannot abandon the property and claim full value.
MODULE 5
Insurance Act-1938
• The insurance act originally passed in the year 1938. however, It amended for several
times,
• It latest amendment of the insurance act was the, the IRDA itself when it became the
authority to perform many tasks required to be done under the insurance act such as
issuing licenses, issuing registration certificates, monitoring compliance with the
provisions of the Act, issuing directives, laying down norms.
• The all above said functions were performed by the controller of Insurance earlier as per
the Insurance Act, 1938. The provisions of the Act may be briefly described as follows-

Registration

To obtain the certificate of registration is compulsory to the every insurance company. The
Registration should be renewed annually. The paid up capital must be of Rs. 100 crores for life
insurance or general and Rs. 200 crores for re-insurance business. Every insurer has to deposit in
cash or approved securities, a sum equivalent to 1 % in life insurance or 3% in general insurance
of the total gross premium in-any financial year commencing after 31st March, 2000 with the
Reserve Bank of India. The amount is not being exceeding Rs. 10 crores. The deposit amount is
Rs. 20 crores for reinsurance businesses.

Every insurance company must keep the accounts separately of all receipts and payment in
respect of each class of insurance business such as the marine or miscellaneous insurance.
 Insurers must invest his assets only in those investments which approved under the provisions of
the Act.

Every insurance company has to do a minimum insurance business in the rural or social sector,
as may be specified in the order. The authority can be investigated the affair of the insurer at any
time.

Licensing of agents

License is the pre requirement for becoming the agent. Person can’t work as an insurance agent
unless he has obtained a license from the authority. There is some disqualification as per the act
for a person to be an agent, as follows:
 Being unsound mind.
 Being convicted of criminal misappropriation or criminal breach of trust or cheating or forgery
or Abetment or Attempt to commit any such offence.
 Being found to have been guilty of or connived at any fraud, Dishonesty or misappropriation
against any insured on insurer.

Licensing of surveyors and loss assessors

No insurer can settle any claim equal to or exceeding Rs. 20000/- without the report on the loss
from a licensed surveyor. The person can act as a surveyor or loss assessor only after obtaining
license from the authority. The authority can’t issue the license without get satisfaction about the
applicant.

Solvency margin

The authority for the insurer also decides the solvency margin. The act clarifies how the assets
and liabilities have to be determined and the extent to which the assets are to exceed the
liabilities. These provisions exist to ensure the adequacy of insurer’s solvency

Payment of premium before assumption of risk

A risk can be assumed by the, insurance company after receiving the premium or a guarantee
that the premium will be paid within the prescribe time. Sometimes agents collect the premium
amount and dispatch or deposited to the insurance company. They have to deposit the money
within the 24 hours except the bank and postal holiday. The agent has to deposit the premium in
full without deducting his commission. If any refund of, the premium will be due, the insurer
directly shall paid the amount to the insured by crossed or order cheque or by postal money
order.
What is IRDA?
IRDA or Insurance Regulatory and Development Authority of India is the apex body that
supervises and regulates the insurance sector in India. The primary purpose of IRDA is to
safeguard the interest of the policyholders and ensure the growth of insurance in the country.
When it comes to regulating the insurance industry, IRDA not only looks over the life insurance,
but also general insurance companies operating within the country.
The IRD Act has established the Insurance Regulatory and Development Authority (“IRDA” or
“Authority”) as a statutory regulator to regulate and promote the insurance industry in India and
to protect the interests of holders of insurance policies. The IRDA Act also carried out a series of
amendments to the Act of1938 and conferred the powers of the Controller of Insurance on the
IRDA. The members of the IRDA are appointed by the Central Government from amongst
persons of ability, integrity and standing who have knowledge or experience in life insurance,
general insurance, actuarial science, finance, economics, law, accountancy, administration etc.
The Authority consists of a chairperson, not more than five whole-time members and not more
than four part-time members.

Every Chairperson and member of IRDA appointed shall hold office for a term of five years.
However, Chairperson shall not hold office once he or she attains 65 years while whole time
members shall not hold office beyond 62 years. Central Government may remove any member
from office if he or she is adjudged insolvent or is physically or mentally incapacitated or has
been convicted of an offence involving moral turpitude or has acquired financial or other
interests or has abused his position. Chairperson and the whole time members shall not for a
period of two years from the date of cessation of office in IRDA, hold office as an employee
with Central Government or any State Government or with any company in the insurance sector.
POWERS /FUNCTIONS OF IRDA
Under Section 14 of the IRDA Act, IRDA has the following powers:
(a) Issue of Certificate of Registration to insurance companies, renew, modify, withdraw,
suspend or
cancel the certificate of registration

(b) Protection of interests of policyholders in matters concerning assignment of policies,

nomination,
insurable interest, claim settlement, surrender value and other terms and conditions of insurance
contract

(c) Specification of requisite qualifications, practical training and code of conduct for insurance
agents
and intermediaries

(d) Specification of code of conduct for surveyors and loss assessors

(e) Promoting efficiency in the conduct of insurance business

(f) Promoting and regulating professional organizations connected with insurance and
reinsurance
business

(g) Levying fees and other charges for carrying out the purposes of the Act

(h) Calling for information from or undertaking inspection of insurance companies,

intermediaries and
other oganisations connected with insurance business
 (i) Control and regulation of rates, advantages, terms and conditions that may be offered by
general
insurance companies

(j) Specifying the form and manner in which books of account shall be maintained by insurance
companies and intermediaries

(k) Regulation of investments of funds by insurance companies

(l) Regulation of maintenance of margin of solvency

(m) Adjudication of disputes between insurers and insurance

(n) specifying the percentage of life insurance business and general insurance business to be
undertaken by the insurer in the rural or social sector; and  exercising such other powers as may
be prescribed
Objectives
• To take care policy holder's interest
• To open the insurance sector for pvt sector
• To ensure continues financial soundness and solvency
• To regulate insuranse and reinsuranse company
• To eliminate dishonesty and unhealthy competitions
• To amend the insuranse act 1938, LIC act 1956 and GIC act 1972.

What is the role and importance of IRDA in the insurance sector?

India began to witness the concept of insurance through a formal channel back in the 1800s and
has seen a positive improvement ever since. This was further supported by the regulatory body
that streamlined various laws and brought about the necessary amendment in the interest of the
policyholders. Below mentioned are the important roles of IRDA -

 First and foremost is safeguarding the policyholder’s interest.

 Improve the rate at which the insurance industry is growing in an organised manner to benefit the
common man.
 To ensure the dealing are carried on in a fair, integral manner along with financial soundness
keeping in mind the competence of the insurance company.
 To ensure faster and a hassle-free settlement of genuine insurance claims.
 To address the grievances of the policyholder through a proper channel.
 To avoid malpractices and prevent fraud.
 To promote fairness, transparency and oversee the conduct of insurance companies in the
financial markets.
 To form a reliable management system with high standards of financial stability.

Insurance Sector Reforms

• 1991: Government of India begins the economic reforms program and financial sector
reforms
• 1993: Committee on Reforms in the Insurance Sector, headed by Mr. R. N. Malhotra,
(Retired Governor, Reserve Bank of India) set up to recommend reforms.
• 1994: The Malhotra Committee recommends certain reforms having studied the sector
and hearing out the stakeholders
• Some recommended reforms
• Private sector companies should be allowed to promote insurance companies
• Foreign promoters should also be allowed
• Government to vest its regulatory powers on an independent regulatory body
answerable to Parliament
• In yet another remarkable move, both the houses of Parliament have passed the Insurance
Amendment Bill in the budget session. The Bill amends the Insurance Act 1938,
increasing the FDI limit from 49% to 74%.
• In 2015, thegovernment increased it to 49% from 26%, and now, in 2021, it has been
raised to 74%.
• In 1994, a committee headed by former RBI Governor RN Malhotra, formed by the
then Congress government, recommended inclusion of private insurers and foreign
collaborators.
• in 2000, under the Vajpayee government, that a Bill was passed to welcome private
players and allow foreign investment up to 26%. This was the first time that insurance
sector witnessed policy reforms.