Asi 4104 Hasina Mam Insurance Books Notes PDF

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Accounting for Specialized Institutions – (4104)

HASINA BEGUM MAM
INSURANCE PRINCIPLES AND PRACTICE (M.N. MISHRA)
Compiled By: Ashiqur Rahman Shihab
ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

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Chapter 1 ....................................................................................................................................................5
Functional Definition .......................................................................................................................5
Contractual Definition ......................................................................................................................5
Functions of Insurance.........................................................................................................................5
Primary Functions .............................................................................................................................5
Secondary Functions .........................................................................................................................5
Nature of Insurance ..............................................................................................................................5
Principles of Insurance .........................................................................................................................6
Insurance is not to prevent risk but to indemnify the loss arising from a certain risk - comment
(Previous Years).................................................................................................................................6
Chapter 2 ....................................................................................................................................................7
Evolution of Insurance .....................................................................................................................7
Kinds of Insurance................................................................................................................................8
Types of Insurance ................................................................................................................................9
Chapter 3 ....................................................................................................................................................9
Uses to an Individual ............................................................................................................................9
Uses to Business ................................................................................................................................. 10
Uses of Society ................................................................................................................................... 11
Chapter 4 ................................................................................................................................................. 12
General Contract ................................................................................................................................ 12
Special Contract .................................................................................................................................. 12
Insurable Interest............................................................................................................................ 12
Utmost Good Faith........................................................................................................................ 12
Principle of Indemnity (ক্ষতিপূরণ) .................................................................................................. 13
Doctrine of Subrogation................................................................................................................ 13
Warranties........................................................................................................................................ 14
Proximate Cause ............................................................................................................................. 14
Assignment or Transfer of Interest.............................................................................................. 14
Return of Premium ........................................................................................................................ 15
Chapter 5 ................................................................................................................................................. 16
Nature of General Contract .............................................................................................................. 16
Features of Life Insurance Contract ................................................................................................ 16
Insurable Interest............................................................................................................................ 16
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General Rules of Insurable Interest in Life Insurance: ............................................................. 16

Utmost Good Faith........................................................................................................................ 17
Warranties........................................................................................................................................ 18
Proximate Cause ............................................................................................................................. 18
Assignment and Nomination ........................................................................................................ 19
Return of Premium ........................................................................................................................ 19
Chapter 9 ................................................................................................................................................. 20
Morality Table ................................................................................................................................. 20
Features............................................................................................................................................ 20
Chapter 10 ............................................................................................................................................... 20
Maths of Premium ............................................................................................................................. 20
Math No. 1 (Book Math)............................................................................................................... 20
Math No. 2 (25th Batch Mid – 2) .................................................................................................. 21
Details of Marine Insurance (Chapter 19,21,22,23) ........................................................................... 22
Definition of Marine Insurance .................................................................................................... 22
Elements and Principles of Marine Insurance ................................................................................ 22
Feature of general contract ............................................................................................................... 22
Insurable interest ............................................................................................................................ 22
Utmost good faith .......................................................................................................................... 23
Doctrine of indemnity ................................................................................................................... 23
Doctrine of subrogation ................................................................................................................ 24
Warranties........................................................................................................................................ 24
Proximate cause .............................................................................................................................. 25
Assignment ...................................................................................................................................... 26
Classification of Marine Insurance ................................................................................................... 26
Hull insurance ................................................................................................................................. 26
Cargo insurance .............................................................................................................................. 26
Risk Covered ................................................................................................................................... 27
Freight insurance ............................................................................................................................ 27
Liability insurance ........................................................................................................................... 27
Forms of liability ............................................................................................................................ 27
Classification of the policies.......................................................................................................... 28
Causes of Marine Losses/ Marine perils ......................................................................................... 29
Types of Marine Losses ..................................................................................................................... 31
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Total Loss ........................................................................................................................................ 31

Partial Loss ...................................................................................................................................... 32
Claims and Settlement ................................................................................................................... 33

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Chapter 1
The definition of insurance can be made from two points.
Functional Definition
Insurance is a co-operative device to spread the loss caused by a particular risk over a
number of persons, who are exposed to it and who agree to insure themselves against the
risk.
Contractual Definition
Insurance has been defined to be that in which a sum of money as a premium is paid in
consideration of the insurer’s incurring the risk of paying a large sum upon a given
contingency.
Functions of Insurance
Primary Functions Secondary Functions
• Insurance Provides Certainty • Prevention of loss
• Insurance Provides Protection • It Provides capital
• Risk Sharing • It improves efficiency
• It helps economic progress
Nature of Insurance
The insurance has the following characteristics which are, generally, observed in case of life,
marine, fire and general insurances
1. Sharing of Risk
2. Co-operative Device
3. Value of Risk
4. Payment at Contingency
5. Amount of Payment
6. Large number of Insured Persons
7. Insurance is not Charity
8. Insurance is not a Gambling –
The insurance serves indirectly to increase the productivity of the community

by eliminating worry and increasing initiative. The uncertainty is changed into
certainty by insuring property and life because the insurer promises to pay a
definite sum at damage or death. From a family and business point of view all
lives possess an economic value which may at any time be snuffed out by death,
and it is as reasonable to ensure against the loss of this value as it is to protect

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oneself against the loss of property. In the absence of insurance, the property
owners could at best practice only some form of self-insurance, which may not
give him absolute certainty. Similarly, in absence of life insurance, saving
requires time, but death may occur at any time and the property, and family
may remain unprotected. Thus, the family is protected against losses on death
and damage with the help of insurance. From the company's point of view, the
life insurance is essentially non-speculative, in fact, no other business operates
with greater certainties. From the insured point of view, too, insurance is also
the antithesis of gambling Nothing is more uncertain than life and life insurance
offers the only sure method of changing that uncertainty into certainty. Failure
of insurance amounts gambling because the uncertainty of loss is always
looming. In fact, the insurance is just the opposite of gambling. In gambling, by
bidding the person exposes himself to risk of losing, in the insurance, the
insured is always opposed to risk, and will suffer loss if he is not insured. By
getting insured his life and property, he protects himself against the risk of loss.
In fact, if he does not get his property or life insured he is gambling with his life
on property.
Principles of Insurance
• Principles of Co-operation
• Principles of theory of Probability
Insurance is not to prevent risk but to indemnify the loss arising from a certain risk - comment
(Previous Years)
Every risk involves the loss of one or other kind. The function of insurance is to spread the
loss over a large number of persons who are agreed to co-operate each other at the time of
loss. The risk cannot be averted but loss occurring due to a certain risk can be distributed
amongst the agreed persons. They are agreed to share the loss because the chances of loss, the
time, amount to a person are not known. Anybody of them may suffer loss to a given risk,
so the rest of the persons who agreed will share the loss. The larger the number of such
persons, the easier the process of distribution of loss.

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Chapter 2
Evolution of Insurance
Marine Insurance – The marine insurance is the oldest of form. 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. The co-
operative device was quite voluntary in the beginning, but now in modern it has been
converted into modified shape of premium.
Hull insurance
Insurance of the ship (vessel and its equipment)
Cargo insurance
Insurance of the goods transported through ship.
Freight insurance
The amount to be paid to the shipping company on the safe arrival of goods.
Fire Insurance - After marine insurance, fire insurance developed in present form. It had been
observed in Anglo- Section Guild form for the first time where the victims of fire hazards were
given personal assistance by providing necessaries of life. It had been originated in Germany in
the beginning of sixteenth century. The fire insurance got momentum in England after the great
fire in 1666 when the fire losses were tremendous. About 85% of the houses were burnt to
ashes and property worth of sterling ten crores were completely burnt off. Fire Insurance Office
was established in 1681 in England. With colonial development of England, the fire insurance
spread all over the world in present form 'Sun Fire Office' was successful fire insurance
institution.
Life Insurance - Life insurance made its first appearance in England in sixteenth century, the
first recorded evidence in England being the policy on life of William Gybbons on June 18,
1653. Even before this date annuities had become quite common in England, and marine
insurance had, in fact, made its appearance three thousand years ago. The life insurance
developed at Exchange Alley. The first registered life office in England was the Hand-in-Hand
Society established in 1696. The famous Amicable Society for a Perpetual Assurance Office
started its operation since 1706. Life insurance did not prosper in the United States during the
18th century, because of serious fluctuations in death-rate, but soon after 1800 some active
interest began to be shown in this enterprise because of the application of level premium plan
which had by then been in operation in U.K. for more than a generation. In India, some
Europeans started the first life insurance company in Bengal Presidency, viz., the Orient Life
Assurance Company in 1818. The year 1870 was a year of a landmark in the history of Indian
Insurance separating the early period of pioneering attempts at life insurance from the
subsequent period of steady development at the establishment of Indian Life Office, viz.,
Bombay Mutual Life Assurance Society in 1871. The next important life office was Oriental
Government Security Life Assurance Co., Ltd.. which started its operation since 1874. Since
then several offices developed in India.
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Miscellaneous Insurance - The miscellaneous insurance took the present shape at the later
part of nineteenth century with the industrial revolution in England. Accident insurance, fidelity
insurance, liability insurance and theft insurance were the important form of insurance at that
time. Lloyds's Association was the main functioning institution. Now, insurances such as cattle
insurance, crop insurance, profit insurance, etc., are taking place. The scope of general insurance
is increasing with the advancement of the society.
Kinds of Insurance
From Business POV, there are three types of Insurances
1. Life Insurance
2. General Insurance
3. Social Insurance
From Risk POV, there are three types of Insurances
1. Personal Insurance - The personal insurance includes insurance of human life which may
suffer loss due to death, accident and disease. Therefore, the personal insurance is further
sub-classified into life insurance, personal accident insurance and health insurance.
▪ Life Insurance
▪ Personal Accident Insurance
▪ Health Insurance
2. Property Insurance - The property of an individual and of the society is insured against the
loss of fire and marine perils.. the crop is insured against unexpected decline in production,
unexpected death of the animals engaged in business, break-down of machines and theft
of the property and goods.
▪ Marine Insurance
▪ Fire Insurance
▪ Miscellaneous Insurance
▪ Automobile Insurance
▪ Cattle Insurance
▪ Crop Insurance
▪ Machinery Insurance
▪ Theft Insurance
3. Liability Insurance - The liability insurance covers the risks of third party, compensation to
employees, liability of the automobile owners and reinsurances..
▪ Third Party
▪ Employees
▪ Motor Insurance
▪ Reinsurance
4. Fidelity Insurance
▪ Fiduciary Insurance
▪ Credit Insurance
▪ Privilege Insurance

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Types of Insurance
1. Self-Insurance
2. Individual Insurer
3. Partnership
4. Joint Stock Companies
5. Mutual Companies
6. Co-operative Insurance Organisation
7. Lloyd’s Association
8. State Insurance
Chapter 3
The process of insurance has been evolved to safeguard the interests of people from uncertainty
by providing certainty of payment at a given contingency. The insurance principle comes to be
more and more used and useful in modern affairs. The role and importance of insurance, here,
has been discussed in three phases. (i) uses to individual, (ii) uses to a special group of individuals,
viz., to business or industry, and (iii) uses to the society.
Uses to an Individual
Insurance provides security and safety: Insurance provides safety and security against the loss on
a particular event. In case of life insurance, payment is made when death occurs or the term of
insurance expires. The loss to the family at a premature death and payment in old age are
adequately provided by insurance. In other words, security against premature death and old age
sufferings are provided by life insurance. In other insurance, too, this security is provided against
the loss at a given contingency. for e.g. property of insured is secured against loss due to fire in
fire insurance.
Insurance affords peace of mind: Insurance provide security which is the prime motivating
factor. It tends to stimulate an individual do more work.
Insurance protects mortgaged property: At the death of the owner of the mortgaged property,
the property is taken over by the lender of money and the family is deprived of the use of the
property. On the other hand, the mortgagee wishes to get the property insured because at the
damage or destruction of the property he may lose his right. Insurance provides adequate
amount to the dependents at the early death and the property-owner to pay off the unpaid
loans. Similarly, the mortgagee gets adequate amount at the loss of the property.
Insurance eliminates dependency: At the death of the husband or father or earning mother, the
loss to the family needs no elaboration. Similarly, at destruction of property and goods, the
family would suffer a lot. The economic independence of the family is reduced or, sometimes,
lost totally. Insurance tries to eliminate dependency.
Life Insurance encourages saving: The elements of protection and investment are present only
in case of life insurance. In property insurance, only protection element exists. In most of the
life policies elements of saving predominates. Systematic saving is possible because regular
premiums are required to be compulsorily paid. In insurance the deposited premium cannot be
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withdrawn easily before the expiry of the term of the policy. The compulsion to pay premium
in insurance is so high that if the policy-holder fails to pay premiums within the days of grace,
he subjects his policy to lapsation and may get back only a very nominal portion of the total
premiums paid on the policy. For the preservation of the policy, he has to try his level best to
pay the premium.
Life Insurance provides profitable investment: Individuals unwilling or unable to handle their
own funds are pleased to find an outlet for their investment in life insurance policies. The
elements of investment i.e. regular saving, capital formation, and return of capital along with
certain additional return are perfectly observed in life insurance. Life insurance fulfils all these
requirements at a low cost.
Life Insurance fulfils the needs of a person, (a) Family Needs (b) Old age needs (c) Re-
adjustments needs (d) Special Needs (e) The clean-up needs
Uses to Business
Uncertainty of business losses is reduced: In world of business, commerce and industry a huge
number of properties are employed. With a slight slackness or negligence, the property may be
turned into ashes. The accident may be fatal not only to the individual or property but to the third
party also. New construction and new establishment are possible only with the help of insurance.
In absence of it, uncertainty will be to the maximum level and nobody would like to invest a huge
amount in the business or industry. A person may not be sure of his life and health and cannot
continue the business up to longer period to support his dependents. By purchasing policy, he
can be sure of his earning because the insurer will pay a fed amount at the time of death. Again,
the owner of a business might foresee contingencies that would bring great loss. To meet such
situations, they might decide to set aside annually a reserve, but it could not be accumulated due
to death. However, by making an annual payment, to secure immediately, insurance policy can be
taken.
Business efficiency is increased with insurance: When the owner of a business is free from the
botheration of losses, he will certainly devote much time to the business. The carefree owner
can work better for the maximization of the profit. The new as well as old businessmen are
guaranteed payment of certain amount with the insurance policies at the death of the person;
at the damage, destruction or disappearance of the property or goods. The uncertainty of loss
may affect the mind of the businessman adversely. Insurance removes the uncertainty and
stimulates the businessmen to work hard.
Enhancement of Credit: Business can obtain loan by pledging the policy as collateral for the
loan. And persons can get more loans due to certainty of payment at their deaths. The insurance
properties are the best collateral and adequate loans are granted by the lenders.
Business continuation: In partnership, business may discontinue at the death of any partner
although the surviving partners can re-start the businesses, but in both the cases the business
and the partners will suffer economically. Insurance policies provide adequate fund at the time
of death. Each partner may be insured for the amount of his interest in the partnership and his
dependents may get that amount at the death of partner. With the help of property insurance,

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the property of the business is protected against disasters and the chance of disclosure of the
business is reduced.
Welfare of Employee: The welfare of employees is the responsibility of the employer. The
former work for the latter. Therefore, the latter has to look after the welfare of the former
which can be provision for early death, provision for disability and provision for old age. These
requirements are easily met by the life insurance, accident and sickness benefit and pensions
which are generally provided by group insurance. The premium for group insurance is generally
paid by the employer. This plan is the cheapest form of insurance for employers to fulfil their
responsibilities. The employees will devote their maximum capacities to complete their jobs
when they are assured of the above benefits. The struggle and strife between employees and
employer can be minimized easily with the help of such schemes.
Uses of Society
Wealth of the society is protected: The loss of a particular wealth can be protected with
insurance. Life insurance provides for loss of human wealth. The human force, if it is strong,
educated and care-free, will generate more income. Similarly, the loss of damage of property at
fire, accident etc., can well indemnified by property insurance, cattle, crop, profit and machines
are also protected against their accidental and economical losses. With the advancement of the
society, the wealth or the property of the society attracts more hazard and so new types of
insurance are also invented to protect them against possible losses. Through the prevention of
economic losses, insurance protects the society against degradation. Through stabilization and
expansion of business and industry, the economic security is maximized. The present, future
and potential human and the property resources are well protected.
Economic Growth of the country: For the economic growth of the country, insurance provides
protection against loss of property and adequate capital to produce more wealth. Welfare of
employees creates a conducive atmosphere to work. Adequate capital from insurers accelerates
production cycle. Similarly, in business, too, the property and human materials are protected
against certain losses, capital and credit are expanded with the help of insurance. Thus, the
insurance meets all the requirements for the economic growth of a country.
Reduction in Inflation: The insurance reduces the inflationary resource in two ways. First, by
extracting money in supply to the amount of premium collected and secondly, by providing
sufficient funds for production narrow down the inflationary gap. With reference to Indian
context it has been observed that about 5.0 per cent of the money in supply was collected in
form of premium. The share of premium contributed to the total investment of the country
was about 10.0 per cent. The two main causes of inflation, namely, increased money in supply
and decreased production are properly controlled by insurance business.
Insurance is able to curtail inflation so it should be made compulsory – Comment.

The insurance reduces the inflationary resource in two ways. First, by extracting money in
supply to the amount of premium collected and secondly, by providing sufficient funds for
production narrow down the inflationary gap. As we know the two main causes of inflation
are increased money in supply and decreased production in supply. Through collecting of

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insurance premium of the policy insurance reduces money in supply and provide loan to
their policy holder enhancing production supply in market so that it can curtail inflation.
Chapter 4
Insurance may be defined as a contract between two parties of whereby one party called insurer
undertakes, in exchange for a fixed sum called premiums, to pay the other party called insured a
fixed amount of money on the happening of a certain event. The insurance contract involves –
(A) the elements of a general contract and (B) the element of special contract relating to
insurance.
General Contract
The contract, according to Section 10 of Indian Contract Act 1872, must have the following
essentialities.
• Agreement (offer and acceptance).
• Legal consideration
• Competent to make contract
• Free consent.
• Legal object.
Special Contract
Insurable Interest
Insurable interest is one of the requisite elements in an insurance contract. A thing is insurable
only if the insured will face pecuniary losses when it is destroyed. Thus, the insured must have
an actual financial interest in the subject matter of the insurance contract.
1. There must be a subject-matter to be insured.

2. The policy-holder should have a monetary relationship with the subject-matter.
3. The relationship between the policy-holders and the subject-matter should be recognized
by law. In other words, there should not be any illegal relationship between the policy-
holder and the subject-matter to be insured.
4. The financial relationship between the policy-holder and subject-matter should be such
that the policy-holder is economically benefited by the survival or existence of the subject-
matter and or will suffer economic loss at the death or existence of the subject matter.
The subject-matter is life in the life insurance, property, and goods in property insurance,
liability, and adventure in general insurance.
Utmost Good Faith
The doctrine of disclosing all material facts is embodied in the important principle ‘utmost good
faith’ which applies to all forms of insurance. Both parties to the insurance contract must agree
(ad idem) at the time of the contract. There should not be any misrepresentation, non-disclosure
or fraud concerning the material. In case of insurance contract, the legal maxim ‘Caveat Emptor’
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(let the buyer beware) docs not prevail, where it is the regard of the buyer to satisfy himself of
the genuineness of the subject-matter and the seller is under no obligation to supply information
about it. But in the insurance contract, the seller, i.e., the insurer will also have to disclose all the
material facts.
Principle of Indemnity (ক্ষতিপূরণ)

As a rule, all insurance contracts except personal insurance are contracts of indemnity.
According to this principle, the insurer undertakes to put the insured, in the event of loss, in the
same position that he occupied immediately before the happening of the event insured against, in
a certain form of insurance, the principle of indemnity is modified to apply.
//For example, in marine or fire insurance, sometimes, a certain profit margin which would have
earned in the absence of the event, is also included in the loss. In a true sense of the indemnity,
the insured is not entitled to make a profit from his loss.
Doctrine of Subrogation
Subrogation is the substitution of one person in place of another in relation to a claim, its rights,
remedies or securities.
The insurance sector is considered a primary area of application of the subrogation principle. By
using subrogation, an insurance company can recover the amount of the insurance claim paid to
the insured client from the party that caused the damage. Note that in such situations, the
insurance company represents the interests of its insured client. In other words, subrogation is a
remedy to the insurance company for the paid-out insurance claim.
The subrogation right is generally specified in contracts between the insurance company and the
insured party. The contracts may contain special clauses that provide the right to the insurance
company to start the process of recovering the payment of the insurance claim from the party
that caused the damages to the insured party.
Example: John and Sam were involved in a car accident. As a result, John’s car was
severely damaged, and he required $3,000 for the repair of the vehicle. Luckily, John’s car
was insured, and he recovered the full cost of the repair ($3,000) through an insurance
claim.
Eventually, an investigation determined that Sam was responsible for the accident as he
exceeded the speed limit. John’s insurance company decides to recover the amount of
the claim from Sam, as he caused the damages.
In such a case, John’s insurance company can use the subrogation doctrine to recover its
losses. The insurer can sue Sam to recover its losses while representing the interests of
John in the court.
Essentials of Doctrine of Subrogation
• A corollary to the Principle of Indemnity

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• Subrogation is the Substitution

• Subrogation only up to the amount, of payment
• The Subrogation may be applied before Payment
• Personal Insurance
Warranties
There are certain conditions and promises in the insurance contract which are called warranties.
According to Marine Insurance Act, “A warranty is that by which the assured undertakes that
some particular thing shall or shall not be done, or that some conditions shall be fulfilled, or
whereby he affirms or negatives the existence of a particular state of facts.”
Warranties that are mentioned in the policy are called express warranties. Certain warranties are
not mentioned in the policy. These warranties are called implied warranties. Warranties which are
answers to the question are called affirmative warranties. The warranties fulfilling certain
conditions or promises are called promissory warranties.
Warranty is a very important condition in the insurance contract which is to be fulfilled by the
insured. On the breach of warranty, the insurer becomes free from his liability. Therefore, insured
must have to fulfil the conditions and promises of the insurance contract whether it is important
or not in connection with the risk. The contract can continue only when warranties are fulfilled.
Proximate Cause
When a loss is caused by more than one causes, the proximate or the nearest or the closest cause
should be taken into consideration to decide the liability of the insurer.
The principle states that to find out whether the insurer is liable for the loss or not, the proximate
(closest) and not the remote (farest) must be looked into.
For example: - A cargo ship's base was punctured due to rats and so sea water entered and cargo
was damaged. Here there are two causes for the damage of the cargo ship -
(i) The cargo ship getting punctured because of rats, and (ii) The sea water entering ship through
puncture. The risk of sea water is insured but the first cause is not. The nearest cause of damage
is sea water which is insured and therefore the insurer must pay the compensation.
Assignment or Transfer of Interest
It is necessary to distinguish between the assignment of (a) the subject-matter of insurance, (b)
the policy, and (c) the policy money when payable.
Marine and life policies can be freely assigned but assignments under fire and accident policies,
are not valid without the prior consent of the insurers—except changes of interest by will or
operation of law.
Moreover, assignments under fire and accident policies must be made before tine insured parts
with his, interest. Once he has lost interest, the policy is void and cannot be assigned. The life
policies can be assigned whether the assignee has an insurable interest or not.
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Return of Premium
Ordinarily, the premium once paid cannot be refunded. However, in the following cases, the
refund is allowed.
• By Agreement in the Policy
The assured may pay a full premium while affecting the insurance but it may be agreed to return
it wholly or partly in the happening of certain events. For example, special packing may reduce
risk.
• For Reasons of Equity
• Over Insurance by Double Insurance

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Chapter 5
Life insurance contract may be defined as the contract, whereby the insurer in consideration of a
premium undertakes to pay a certain sum of money either on the death of the insured or on the
expiry of a fixed period.
Nature of General Contract
• Offer and Acceptance
• Competency of the Parties - The essential element of a valid contract is that the parties to,
it must be legally competent to contract. Every person is competent to contract (1) who is
of the age of majority according to the law, (2) who is of sound mind, and (3) who is not
disqualified from contracting by any law.
• Free Consent of the parties -
• Legal Consideration
• Legal Objectives
Features of Life Insurance Contract
Insurable Interest
Insurable interest is the pecuniary interest. The insured must have an insurable interest in the life
to be insured for a valid contract. Insurable interest arises out of the pecuniary relationship that
exists between the policy-holder and the life assured so that the former stands to lose by the death
of the latter and/or continues to gain by his survival. If such relationship exists, then the former
has insurable interest in the life of the latter. The loss should be monetary or financial. Mere
emotion and expectation do not constitute insurable interest in the life of his friend or father
merely because he gets valuable advices from them.
Insurable interest in life insurance may be divided into two categories: (1) insurable interest in
own life, and (2) insurable interest in other's life. The latter can be sub-divided into two classes:
(a) where proof is not required, and (b) where proof is required. Again, this insurable interest, (b)
can be divided into two classes: (1) insurable interest arising due to business relationship, and (ii)
insurable interest in family relation.
General Rules of Insurable Interest in Life Insurance:
Time of Insurable Interest: Insurable interest must exist at the time of proposal. Policy, without
insurable interest, will be wager. It is not essential that the insurable interest must be present at
the time of claim.
Services: Except the services of wife, services of other relatives will not essentially form insurable
interest. There must be financial relationship between the proposer and the life-assured. In other
words, the services performed by the son without dependence of his father, will not constitute
insurable interest of the father in the life of his son. Vice-versa is not essential for forming
insurable interest.

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Insurable Interest must be valuable: In business relationship the value or extent of the insurable
must be determined to avoid wager contract of additional insurance. Insurance is limited only up
to the amount of insurable interest.
Insurable interest should be valid: Insurable interest should not be against public policy and it
should be recognized by law. Therefore, the consent of life assured is very essential before the
policy can be issued.
Legal responsibility may be basis of insurable interest: Since the person will suffer financially
up to the extent of responsibility, the proposal has insurable interest to that extent.
Insurable Interest must be definite: Insurable interest must be present definitely at the time of
proposal. Mere expectation of gain or support will not constitute insurable interest.
Legal Consequence: Insurable interest must be there to form legal and valid insurance contract.
Without insurable interest, it would be null and void.
Utmost Good Faith
Life insurance requires that the principle of utmost good, faith should be preserved by both the
parties. The principle of utmost good faith says that the parties, proposer (insured) and insurer
must be of the same mind at the time of contract because only then the risk may be correctly
ascertained. They must make full and true disclosure of the facts material to the risk.
Material facts: In life insurance material facts are age, income, occupation, health, habits,
residence, family history and plan of insurance. Material facts are determined not on the basis of
opinion; therefore, the proposer should disclose not only those matters which the proposer may
feel are material but all facts which are material.
Duty of both parties: It is not only the proposer but the insurer also who is responsible to disclose
all the material facts which are going to influence the decision of the proposer. Since the decision
is taken mostly on the basis of subject-matter, the life to be insured in life insurance, and the
material facts relating to the subject-matter are known or is expected to be known by the proposer;
it is much more responsibility of the proposer to disclose the material facts.
Full and True Disclosure: Utmost good faith says that there should be full and true disclosure of
all the material facts. Full and true means that there should be no concealment, misrepresentation,
half disclosure and fraud of the subject matter to be insured.
Legal Consequence: In the absence of utmost good faith the contract will be avoidable at the
option of the person who suffered loss due to non-disclosure. The intentional non-disclosure
amounts to fraud and the unintentional non-disclosure is voidable at the option of the party not
at fault. Once the voidable contract has been validated by the party not at fault, the contract
cannot be avoided by him later on. For instance, if the insurer has continued to accept the
premium when, certain non-disclosure, say miss-statement of age, has been disclosed the insurer
cannot invalid the contract and cannot refute to pay the amount of claim. If the party not at fault
does not exercise its option, the contract will remain valid.

P a g e | 18
Indisputability of Policy: The doctrine of utmost good faith works as a great hardship for a long
period on the plea of miss-statement at the time of proposal. In such cases, it would be very
difficult to prove or disprove whether a particular statement made, at the time of policy was true.
Therefore, to remove this hardship, certain sections in the concerned Act are provided. In India,
Section 45 of the Insurance Act, 1938 deals with such dispute. It is called indisputable clause,
“No policy of life insurance, after expiry of two years from the date on which it was effected, be
called into question by an insurer on the ground that a statement made in the proposal for
insurance or in any report of a medical officer or referee or friend of the insured or in any other
document leading to the issue of the policy was inaccurate or false, unless the insurer shows that
such statement was on a material matter or suppressed facts which it was material to disclose and
that it was fraudulently made by the policy-holder and that the policyholder knew at the time of
making it that the statement was false or that it suppressed facts which it was material to disclose.
Provided that nothing in this section shall prevent the insurer from calling for proof of age at any
time if he is entitled to do so.
Warranties
Warranties are an integral part of the contract, i.e., these are the basis of the contract between the
proposer and insurer and if any statement, whether material or non-material, is untrue, the
contract shall be null and void and the premium paid by him may be forfeited by the insurer. The
policy issued will contain that the proposal and personal statement shall form part of the Policy
and be the basis of the contract. Warranties may be informative and promissory. In life insurance
the informative warranties are more important. The proposal is expected to disclose all the
material facts to the best of his knowledge and belief. Warranties relating to the future may only
be statements about his expectation or intention, for instance, the insured promises that he will
not take up any hazardous occupation and will inform the insurer if he will take the hazardous
occupation.
Breach of Warranty
If there is breach of warranty, the insurer is not bound to perform his part of the contract unless
he chooses to ignore the breach. The effect of a breach of warranty is to render the contract
voidable at the option of the other party provided there is no element of fraud. In case of
fraudulent representation or promise, the contract will be Void ab initio.
Proximate Cause
The efficient or effective cause which causes the loss is called proximate cause. It is the real and
actual cause of loss. If the cause of loss (peril) is insured, the insurer will pay; otherwise the insurer
will not compensate. In life insurance the doctrine of Causa Proxima (Proximate Cause) is not
applicable because the insurer is bound to pay the amount of insurance whatever may be the
reason of death. It may be natural or unnatural. So, this principle is not of much practical
importance in connection with life assurance, but in the following cases the proximate causes are
observed in the life insurance, too.
War-risk: Where Policy is issued on exclusion of war and aviation risks, the proximate cause of
death is important because the Insurer waives its liability if death occurred, in this case, while the

P a g e | 19
insured was in field or is engaged in operation of war and aviation. Only premium paid or
surrender value whichever is higher is payable and the total Policy amount is not payable.
Suicide: If suicide occurs within one year of the policy, or there was intention to commit suicide,
the payment of policy would be restricted, only up to the interest of the third party in the policy
provided, the interest was expressed at least one month before the suicide.
Accident Benefit: A problem arises when an insured under an accident Policy is killed or
suffers an injury which has an immediate cause and also a remote cause. In accident benefit policy,
double of the Policy amount is paid. So, the cause of death in this Policy is of paramount
importance.
Assignment and Nomination
The Policy in life insurance can be assigned freely for a legal consideration or love and affection.
The assignment shall be complete and effectual only on the execution of such endorsement either
on the Policy itself or by a separate deed. Notice for this purpose must be given to the insurer
who will acknowledge the assignment. Once the assignment is completed, it cannot be revoked
by the assignor because he ceases to be the owner of the Policy unless reassignment is made by
the assignee in favour of the assignor. An assignee may be the owner of the policy both on survival
of the life assured, or on his death according to the terms of transfer. The life policies are the only
Policies which can be assigned whether the assignee has an insurable interest or not.
Nomination
The holder of a policy of life insurance on his own life may, either at the time of affecting policy
or at any subsequent time before the Policy matures, nominate the person or persons to whom
the money secured by the policy shall be paid in the event of his death. A nomination can be
cancelled before maturity, but unless notice is given of any such cancellation to the insurer, the
insurer will not be liable for any bonafide payment to a nominee registered in the records. When
the policy matures, or if the nominee dies, the sum shall be paid to the Policy-holder or his legal
representatives.
Return of Premium
Ordinarily, the premium once paid cannot be refunded. However, in the following cases the
premiums paid are returnable.
For reason of Equity
Equity implies a condition that the insurer shall not receive the price of running a risk he runs
Thus, there the contract does not come into effect or it is held to be void ab initio. For example,
on account of misrepresentation or breach of warranty, the insured, in the absence of any express
condition to the contrary, can claim the return of any premiums paid. But if the policy runs for a
time and becomes void later on, the insured is not entitled to the return of any part of the
premium.
Where the insured is guilty of fraud in obtaining a policy, he will fail in his claim to the sum

P a g e | 20
assured. He cannot also ask for a return of the premiums because he will have to allege his own
fraud to succeed in his claim and no court will assist such person.
Chapter 9
Morality Table
It is such data which records the past morality and is put in such form as can be used in estimating
the course of future data. Thus, the morality table is to predict future morality. It is also described
as the picture of a generation of individuals passing through time.
Features
• Observation of Generation
• Start from a point
• Yearly Estimation
• Morality & Survival Rates
Chapter 10
Maths of Premium
Math No. 1 (Book Math)
Here, the period of term insurance is 5 years and ROI is 3%.
Age Number of Persons Number of Deaths Morality Rate
Living (Per 1000 people)
40 96,463 273 2.83

41 96,190 302 3.14
42 95,888 336 3.50
43 95,552 375 3.92
44 95,177 418 4.39
45 94,759 467 4.03
The number of details can be known from the above table we assume that each person dead will
be paid Tk. 1,000. Now, calculate the net single premium, on the basis of morality table above,
for a life insurance policy.
Answer:
𝑆
We know, the formula for calculating present value is, P =
(1+𝑖)𝑛
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑟𝑠𝑜𝑛𝑠 𝑙𝑖𝑣𝑖𝑛𝑔

Probability of deaths expressions in units =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑒𝑎𝑡ℎ𝑠

P a g e | 21
Year of Age probability of deaths Amount Present Net Single Premium

Insurance (2) expressions in units of Policy value of Tk (6) = (3) × (4) × (5)
(1) (3) (4) 1.00
(5)
1 40 .00283 .971 2.74793
2 41 .00314 .943 2.96102
3 42 .00350 1000 .915 3.20250
4 43 .00392 .888 3.48096
5 44 .00439 .863 3.78857
Total 16.8098
Math No. 2 (25th Batch Mid – 2)

Calculate, on the basis of mortality table below, net single premium at 5% rate of interest for a
life insurance policy for policy amount taka 1000 at the age of 60 years. Assume the policy is a 5-
year term insurance.
Age Number of Persons Living Number of Deaths
60 1000 20
61 980 22
62 958 25
63 933 33
64 900 40
65 860 45
Answer:
𝑆
We know, the formula for calculating present value is, P =
(1+𝑖)𝑛
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑟𝑠𝑜𝑛𝑠 𝑙𝑖𝑣𝑖𝑛𝑔

Probability of deaths expressions in units =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑒𝑎𝑡ℎ𝑠
Year of Age probability of deaths Amount Present Net Single Premium

Insurance (2) expressions in units of Policy value of Tk (6) = (3) × (4) × (5)
(1) (3) (4) 1.00
(5)
1 60 .0200 .9523 19.46
2 61 .0224 .9070 20.31
3 62 .0261 1000 .8638 22.54
4 63 .0353 .8227 29.04
5 64 .0444 .7835 34.78
Total 126.13

P a g e | 22
Details of Marine Insurance (Chapter 19,21,22,23)

Definition of Marine Insurance
Marine insurance has been defined as a contract between insurers and insured whereby insurer
undertakes to indemnify the insured in a manner and to the interest thereby agreed, against marine
losses incident to marine adventure.
Elements and Principles of Marine Insurance
• FEATURES OF GENERAL CONTRACT
• INSURABLE INTEREST
• UTMOST GOOD FAITH
• DOCTRINE OF INDEMNITY
• SUBROGATION
• WARRANTIES
• PROXIMATE CAUSE
• ASSIGNMENT AND NOMINATION
• RETURN OF POLICY
Feature of general contract
1. Proposal: The broker will prepare a slip upon receipt of instructions to insure from ship owner,
merchants or other proposers. Proposal form is so common in any branches of insurance, are
unknown in the marine insurance and only the slip so called is used for the proposal.
2. Acceptance: The original slip is presented to the LLOyd’s or other insurer or to the lead of
the insurer, who initial the slip and proposal is formally accepted. But contract cannot be legally
enforced until a policy is issued. The slip is evidence that the underwriter has accepted the
insurance and that he has agreed subsequently to sign a policy on the terms and conditions
indicated on the sleep.
3. Consideration: The premium is determined on assessment of the proposal and is paid at the
time of the contract .The premium is called consideration to the contract.
4. Issue of policy: Having affected the insurance, the broker will now send his client a cover note
advising the terms and conditions, on which the insurance has been placed.
Insurable interest
Section7, 8 and 9 to 16 provide for insurable interest .An insured person will have insurable
interest in the subject matter where he stands in any legal or equitable relation to the subject matter
in such a way that he may be benefited by the safety or due arrival of insurable property may be
prejudice by its losses or by damage thereto or by the detention thereof or may incur liability in
respect thereof.
Exception: There are two exceptions of the rules in marine insurance
1. lost or not lost: A person can also purchases policy in subject matter in which it was known
whether the matter was lost or not. In such cues the assured and the underwriter are ignorant

P a g e | 23
about the safety or otherwise of the goods and complete reliance was placed on the principle of
good faith.
2. P.P.I policy: The subject matter can be insured in the usual manner by p.p.i (policy proof
interest).i.e interest proof interest. It means that in event of claim underwrites dispenses with all
proof of insurable interest.
The insurable interest in marine insurance can be following forms:
a .According to ownership: The owner has insurable interest up to the full value of the subject
matter. The owners are of different types according to the subject matter.
b. In case of ship: The ship owner or any person who has purchase it on charter basis can insure
the ship up to the full price of it.
c. In case of cargo: The cargo owner can purchase policy up to the full price of the cargo. If he
has paid the freight in advanced, he can take the policy for the full price of the goods plus amount
of freight plus expenses of insurance.
d. In case of freight : The receiver of the freight can insure up to the amount of freight to be
received by him
Utmost good faith
Section 19, 20, 21, and 22 of the marine insurance Act 1963 explained doctrine of utmost good
faith .The doctrine of caveat emptor applies to commercial contracts, but insurance contract are
based upon the legal principle of subprime fides .If this is not observed by either of the parties,
the contract can be avoided by the other party.
The duty of utmost good faith applies to the insurer .He may mot urge the proposal to affect an
insurance which he knows is not legal or has run off safely. The assured therefore, must disclose
all the material information which may influence the decision of the contract. Any non-discloser
was intentional or inadvertent .The assured is expected to know every circumstance which in the
ordinary courses of business ought to know by him .He cannot rely on his own inefficiency or
neglect. The duty of discloser of all material facts falls even more heavily on the broker. He must
disclose every material fact which the assured ought to disclose and also every material which he
knows. The broker is expected to know or inquire from the assured all the material fact.
Exceptions:
• Facts of common knowledge
• Facts which are known should be known to the insurer
• Facts which are not required by the insurer
• Facts which the insurer ought reasonably to have inferred from details given to him
• Facts of public knowledge
Doctrine of indemnity
Under section 3 of the act is provided ‘A contract of marine insurance is an agreement whereby
the insurer undertakes to indemnify the assured in a manner and the extent agreed upon. The
P a g e | 24
contract of marine insurance is of indemnity. Under no circumstances an assured is allowed to

make a profit. The insurer agreed to indemnify the assured only in the manner and only to the
extent agreed. Marine insurance fails to provide a complete indemnity due to large and varied
nature of the marine nature of the voyage. The basis of indemnity is always cash basis as
underwriter cannot replace the lost ship and cargo and the basis of indemnification is the value of
subject matter. This value may be either insured or insurable value. If the value of the subject
matter is determined at the time of taking the policy is called insured value.
Exceptions:
1. Profits allowed: Actually, the doctrine says that the market price of the loss should be
indemnified and no profit should be permitted, but in marine insurance a certain profit margin is
always allowed.
2. Insured value: The doctrine of indemnity is based on the insurable value, whereas the marine
insurance is mostly based on insured value. The purpose of the valuation is to be predetermined
in the worth of insured.
Doctrine of subrogation
Section 79 of the act explains the doctrine of subrogation. The aim of doctrine of subrogation is
that insured should not get more than the actual loss or damage. After payment to the loss, the
insurer gets the right to receive the compensation or any sum from the third part from whom the
assured is liable to get the amount of compensations. The main characteristics of subrogation are
as follows:
1. The insurer subrogates all the remedies rights and liabilities of the insured alter payments of the
compensation.
2. The insurer has the right to pay the amount of loss after reducing the sum received by the
insured from the third party. But in marine insurance the right of subrogation arises only after
payment has been paid, and it is not customary as in fire and accident insurance.
3. After indemnification, the insurer gets all the rights of the insured on the third parties, but
insurer can’t file suit in his name. Therefore, the insured must assist the insured for receiving
money from the third party.
Warranties
A warranty is that by which the assured undertakes that some particular thing shall or shall not be
done, or that some conditions shall be fulfilled or whereby he affirms or negatives the existences
of a particular state of facts.
Warranties are the statement according to which insured person promises to do or not to do a
particular thing or to fulfill or not to fulfill certain conditions.
Warranties are of two types:
1. Express warranties
2. Implied warranties

P a g e | 25
Express warranties: Express warranties are those warranties which are expressly included or
incorporated in the policy by reference.
Implied warranties: These are not mentioned in the policy at all but are tactically understand by
the parties to the contract and are as fully binding as express warranties.
In marine insurance, implied warranties are important. These are:
• Seaworthiness of ship
• Legality of venture
• Non- deviation
a. Seaworthiness of ship: The warranty implies that the ship should be seaworthy at the
commencement of the voyage , or if the voyage is carried out in the stage at the commencement
of each stage. This warranty implies only to voyage policy, through such policy may be of ship,
cargo, freight or any other interest.
b. Legality of the venture: This warranty implies that the adventure insured shall be lawful and
that so far as the assured can control the matter it shall be carried out in a lawful manner of the
country. Illegality must not be confused with the illegal conduct of the third party e.g. barratry,
theft, pirates, rovers .The waiver of this warranty is not permitted as it is against public policy.
Other implied warranties:
a. No change in voyage: When the destination of the voyage is changed intentionally after the
beginning of the risk, this is called change in voyage. In absence of any warranty contrary to this
one.
b. No delay in voyage: This warranty applies only to voyage policies. There should not be delay
in starting of voyage and laziness or delay during the course of the journey. This is implied
condition that venture must start within the reasonable time.
c. Non deviation: The liability of the insurer ends in deviation of journey Deviation means
removal of the common route or path. When the ship deviates from the fixed passage without
any legal reason.
Proximate cause
According to section 55(1) marine insurance act , ‘subject to the provision of the act and unless
the policy otherwise provides the insurer is liable for any loss proximately caused by a peril insured
against , but subject to as aforesaid he is not liable for any loss which is not proximately caused
by any peril insured against .’Section 55(20 ensures the losses which are not payable are
(a)misconduct of the assured(b) delay although the delay be caused by a peril or proximately
caused by rates or vermin or any injury to machinery not proximately caused by maritime perils.
1. The insurer is not liable for any loss attributed to the willful misconduct of the assured, but,
unless the policy otherwise provide, he is liable for any loss proximately caused by a peril insured
against.
2. The insurer will not be liable for any loss caused by delay unless otherwise provide.
P a g e | 26
3. The insurer will not be liable for ordinary wear and tear, ordinary leakage and breakage, inherent
vice and or nature of subject matter insured. Dover says…….`` The cause proximate of a loss is
the cause of the loss , proximate to the loss , not necessarily in time , but in efficiency .While
remote causes may be disregarded in determining the causes of loss , the doctrine must be
interpreted with good sense .So as to uphold and not defeat the intention of the parties to the
contract.
Assignment
A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be
assigned either before or after loss. A marine policy maybe assigned by endorsement thereon or
on other customary manner. A marine policy is freely assignable unless assignment is express
prohibited. A marine policy is not an incident of sale. So, if there is intention to assign a policy
when interest passes. There must be an agreement to this effect. Section 53 of marine insurance
act 1963-states.Where the assured has parted with or loss his interest kin subject matter insured
and has no, before or at the time of so doing, expressly or impliedly agreed to assign the policy.
Classification of Marine Insurance
• Hull insurance
• Cargo insurance
• Freight insurance
• Liability insurance
Hull insurance
Insurance of vessel and its equipment are included under hull insurance. There are a number of
classification of vessel such as ocean steamers, sailing vessel, builders, risks fleet policies and so
on. It is concerned with the insurance of hull and machinery of ocean going and other vessels like
tankers fishing and sailing vessel. The ship is to be measured with GTR (gross register tonnage)and
NTR(net register tonnage)GTR is calculated by dividing the volume in cubic feet of the ship hull
bellow to tonnage dock , plus all spaces above the deck with permanent means of closing. The
hull insurance is further sub classified into:
• General cargo vessel
• Dry bulk carriers
• Liquid bulk carriers
• Passenger vessels
• Others vessels
Cargo insurance
Cargo insurance is covered under risk policy or floating policies. The cargo may be of any
description, for example wares, merchandise, property, goods, and so on. Transit clause of ICC
(A), (B), and (C) describes the duration of risks as attaching from the time the goods leave the
warehouse or any other place of storage at the placement in the policy for commencement of
transit. The risks then continues during the ordinary courses of transit to terminate on delivery.
Cargo insurance has coverage of losses or damage caused by war, civil war, revolution, rebellion,
P a g e | 27
insurrection or civil strife or any hostile act, capture, seizure, arrest, restraint detainment, general
average and salvage charges, strikes, riots, etc.
Risk Covered
All risk clauses covers inland Transit risks also for the cargo insurance. Losses or damages are
covered if risks occurred due to:
• Fire
• Lighting
• Exploitation
• Riot, strikes, malicious damage
• Impact by rail\road vehicle
• Storm, cyclone, flood, inundation
• Earth quack, burglary
• Accidental physical loss or damage
A special declaration policy is a form of floating policy issued to insure who have a large turnover
with many and frequent dispatches of goods anywhere within the country by rail or road or in
water wrap.
Freight insurance
Freight is to be payable for carriage of cargo or if vessel, is chartered, the money is to be paid for the vessel
use of the vessel. The carriage is unable to earn freight if the goods or properties are not safely transported.
Pre-paid freight payable in advanced is at the risk of the cargo owner who includes it in the value
of the goods insured under cargo policy. But freight payable only on delivery of the goods at the
destination is at the risk of the ship owner who has insurable interest in it and therefore can insure
it.
Time charter hire is payable to the ship owner for the use of his ship for carriage of goods for
specific period of time. If any events occur such as break down of machinery , damage to the
vessel etc. which prevents the operation of the vessel for more than 24 consecutive hours of the
payment hire shall cease until the ship become operational .this freight is at the risk of the ship
owner.
Liability insurance
The marine insurance policy may include liability hazard such as collision or running down.
Insurance can also be taken for the expenses involved in noncompliance of rules and regulation
without any intention to device. It should be clear here that the marine perils insurance covers not
only the ‘ocean but also the inland perils’, The perils to be included in the policy are clearly defined
and the insurer will be liable only for insured perils.
Forms of liability
There are two types of liabilities: cross liability and single liability
Exclusion:
• Removal or disposal of obstruction wreaks
P a g e | 28
• Any real or personal property

• Cargo or other property
• Loss of life, personal injury
Classification of the policies
The marine insurance policy is issued only when the contract has been finalized and it would be
the legal document of the contract. The form of marine insurance has been taken from the pretty
old time. There has been a slight change in the wording of the policy. The standard policy has
been contained the following information:
• Name of the insured or his agent
• Subject matter insured .It may be ship, cargo or freight.
• Risks insured against.
• Name of the vessel and officers.
• Description of the voyage or period of insurance.
• Amount and term of insurance
• Premium
There are various clauses which are suitably inserted according to the nature and type of policies
Hull cargo and freight policies have different standard clauses. In case of hull insurance, the
clauses provided that if the insured vessel at the expiration of the policy is at sea, or at a port of
refuge .Generally the ship may be covered until arrival at port of destination. Different classes of
policies are used in marine insurance. These are given below:
1. Voyage policies: The policy is issued to be covered a particular voyage from one port to
another port and from one place to another place. The policy mentions the port of departure and
port of destination between which the policy are generally underwritten. This policy is not suitable
for hull insurance as a ship usually does not operate over a particular rote only. This policy is used
in case of cargo insurance. The goods remain covered even when the ship halts at intermediate
port.
2. Time policies: Under this policy, the subject matter is insured for a definite period of time. e.g
from 6 pm of 1st journey ,1997 to 6 pm of 1st journey ,1999.The policy is generally taken for one
year although it may be for less than one year.
3. Voyage and time policy or maxed: In this policy, the elements of voyage or time policy are
combined in under policy. The reference is made certain period after completion of voyage. For
example, 24 hours after arrival. It may be beneficial to hull as well as to cargo insurance.
4. Valued policy: Under this policy the value of loss to be compensated is fixed and remained
constant throughout the risk except where there is fraud and excess over valuation. The value of
subject matter is agreed between the insurer and the assured at the time of taking the insurance.
It is also called insured value or agreed value.
5. Unvalued policy: When the value of the policy is not determined at the time of
commencement of risk but is left to be valued when the loss takes place. The value thus decided
P a g e | 29
later on is called the insurable value or valuable policy. In deciding the value, the invoice cost,
freight, shipping and insurable charges are included and no margin for anticipated profit is added.
6. Floating policy: this policy describes the general terms and leaves the amount of cash and
other particulars to be declared on it. The declaration is made in order of dispatch of shipment
7. Blanket policy: The policy is taken to cover losses within the particular time and place. The
policy is taken for a certain amount and premium is paid on the whole of it in the beginning of
the policy and readjusted at the end of the policy according to the actual amount at risk.
8. Named policy: Under this policy, the name of the ship and the amount of insured cargo are
mentioned these policies are specific policy.
9. Single vessel fleet policy: A ship or a fleet of is insured in a single policy. When a one policy
is assured, it is called single vessel policy and when a fleet of a ship is insured is called fleet policy.
10. Block policy: This policy insures incidental island risk, too, along with marine perils. For
example; cotton is insured from time of processing to the time when it was delivered at the point
of destination.
11. Currency policies: Policies insured for foreign currency is called currency policy, where the
sum assured is stated in foreign currency. This policy avoids the foreign currencies because the
claim amount is determined in the foreign currency and the fluctuations in the exchange of the
inland.
12. P.P.I policy: The policy is issued to avoid the complication of the principle of insurable
interest. This is called`` policy proof of interest’ and are honored by the insurer even in absence
of insurable interest .This policy is based on mutual understanding, so it is called honored policy.
13. Special declaration policy: A special declaration policy is a floating policy issued to clients
who have large turnover with many and frequent dispatches of goods. The minimum annual
estimates dispatches shall be RS.3 crores for individual company.
Causes of Marine Losses/ Marine perils
The perils insured against are mentioned in the policy and the underwriter shall be liable for
damages caused by the insured perils. “Marine perils means the perils consequent”, or incidental
to the navigation of the sea, that is to say, perils of the sea, fire , war perils, pirates, rovers, thieves,
captures, seizures, restraints and determine of princes and people, jettisons, barratry and other
perils, either of the like kind or which may be designated by the policy.
1) Perils of Sea: Under perils of Sea, ordinary action of the winds and waves, ordinary wear and
tear to the vessel, inherent risk of the cargo are not included. Perils of the sea refers to fortuitous
accidents or casualties of the sea. If the loss arising out of any of the perils of the sea insured is
attributable to the fraud or willful misconduct of the assured, the underwriter is acquitted from
the liability under the policy.
2) Fire: In older times fire was the biggest maritime perils, but recently it has been under control
to a greater extent. Damage resulting from the fire and smoke is included under fire-peril. The

P a g e | 30
water used for extinguishing fire may cause damage to the insured goods. So, this peril is also
insurable.
3) Man-of-War: This is the vessel which is authorized by nations for the purpose of defense or
attack in the event of hostilities. Any damage to the goods or ships arising out of collision against
a man-of-war is insurable.
4) Enemies: The ship belonging to the foe (enemy) may cause to the insured and is reunder
written by the marine policy. This policy extends to all the persons of the enemy country and to
their hostile acts provided such acts form part of enemy action.
5) Pirates, Rovers, Thieves: The perils on account of pirates, rovers and thieves were common
in olden times, but it has been reduced considerably these days. These acts are generally committed
for the pursuit of individual gain by the persons beyond the jurisdiction of a state. The term
‘thieves’ does not mean clandestine theft or a theft committed by anyone of the crew or officers
or passengers.
Jettison: Jettison means voluntary throwing away of the cargo or part of a vessel’s equipment for
the lightening or relieving the ship for common safety. The aim of the intentional throwing away
of the goods or property is to relieve the vessel from some imminent peril. Accidental falling of
things does not constitute jettison. The own inherent vice of cargo is also not included in the
jettison.
Barratry: Barratry includes every wrongful act willfully committed by the master or crew the
prejudice of the owner. The act of barratry must be committed without the knowledge of the
owner. The insurer, if barratry insured, is liable for losses arising out of barratry.
Restraints and Detainments: The prevention to fee as of a port by the government of the
country is called restraints. It may cause interruption and possible loss of voyages involving such
ports and sacrifice of cargo. The term ‘detainments’ covers losses resulting from the detention of
a vessel its cargo by blockage or possible quarantine regulation or other interference by the policy
power of a nation while a vessel is in part.
The Free of Capture and Seizure Clause (F.C & S. Clause): The policy generally covers war
perils. But, to include perils of sudden declaration of war, the war clause or free of capture and
seizure clause is added to relive war perils.
Explosion: The risk of explosion has greatly increased. The explosion on board of a vessel
damaging hull or cargo or both could be constructed as a peril on a sea. An explosion on shore
might damage a ship or its cargo.
Strikes, Riots and Civil Commotion Clause: The marine insurance on cargo is extended to
cover from warehouse to warehouse or otherwise insures the goods on shore prior to shipment
and after discharge; the damage of underwriters being held liable for losses, resulting from the
unlawful acts of strikers from riots or civil commotions is materially enhanced.
All Other Perils: Loss occurred by salt water of the sea, actions of worms on timber, cattle dying
due to want

P a g e | 31
of fodder as a result of lengthy voyage constitute sea perils. There may be other damage due to
oil, sweat, heat,
which are insured under other perils.
Types of Marine Losses
If the loss takes place on account of any of the perils insured against with the insurer, the insurer
will be liable for it and shall have to make good the losses to the assured. If the peril is insured,
the insurer will indemnify the assured, otherwise not.
There are two types of marine losses
1. Total loss
2. Partial loss or average loss
Total Loss
According to S. 57(1) of the Marine Insurance Act, there is an actual total loss where the subject
matter insured is destroyed or so damaged as to cease to be a thing of the kind insured or where
the assured is irretrievable deprived thereof. In case of total loss, the insured stands to lose to the
extent of the value of the property provided the policy amount was to that limit.
1) Actual Total Loss: Actual total loss is a materials and physical loss of the subject matter
insured. Where the subject-matter insured is destroyed or so damaged as to cease to be a thing of
the kind insured, or where the insured is irretrievable deprived thereof, there is an actual total loss.
When a vessel is foundered or when merchandise is so damaged as to be valueless or when ship
is missing it will be an actual total loss.
The actual total loss occurs in the following cases:
i) The subject-matter is destroyed, e.g. a ship is entirely destroyed by fire.
ii) The subject-matter is so destroyed as to cease to be a thing of the kind insured. Here the
subject-matter is not totally destroyed but damaged to such as extent as the result of the mishap;
it is no longer of the same specie as originally insured.
iii) The insured is irretrievably deprived of the ownership of goods even they are in physical
existence as in the case of capture by enemy, stealth by thief or fraudulent disposal by the captain
or crew.
iv) The subject-matter is lost. For Example- where a ship is missing for a very longtime and no
news of her is received after the lapse of a reasonable time. An actual total loss is presumed unless
there is some other proof to show against it.
2) Constructive Total Loss: Section 60 of the Act defines constructive Total loss. Where the
subject-matter is not actually lost in the above matter, but is reasonably abandoned when its actual
total loss is unavoidable or when it is cannot be preserved from total loss without involving
expenditure which would exceed the value of the subject matter.
The constrictive total loss will be were--

P a g e | 32
i) The subject-matter insured is reasonably abandoned on account of its actual total loss appearing
to be unavoidable.
ii) The subject matter could not be preserved from actual total loss without an expenditure which
would exceed its repaired and recovered value.
Partial Loss
Section 56 of the Act provides that any loss other than a total loss is a partial loss. Partial loss is
there where only part of the property insured is lost or destroyed or damaged. Partial losses, in
contradiction from total losses, include (a) Particular Average losses, i.e., damage, or total loss of
a part, (b) General Average losses i.e., the sacrifice expenditure, etc., done for common safety of
subject matter insured, (c) Particular or Special Charges i.e., expenses incurred in special
circumstances, and (d) Salvage Charges
a) Particular Average loss:
Section 64 of the Act defines Particular Average loss as ‘a partial loss’ of the subject-matter insured
caused by a peril insured and is not a general average loss. The general average loss or expenses is
voluntarily done for the common safety of all the parties insured. But, the particular average loss
is fortuitous or accidental.
The particular average loss must fulfill the following conditions:
i) Particular Average loss is a partial loss or damage to any particular interest caused to that interest
only by a peril insured against.
ii) The loss should be accidental and not intentional.
iii) The loss should be of the particular subject-matter only.
iv) It should be the loss of a part of the subject-matter or damage thereto or both. The
distinguishing feature in this matter is that where the properties insured are all of the same
description, kind and quality and they are valued as a whole in the policy, the total loss of a part
of this whole is a particular loss, but where the properties insured are not all of the same
description, kind and quality and they are separately valued in the policy, the lossof an apportion
able part of the interest is a total loss.
b) General Average loss:
Section 66 of the Act defines General Average as a loss caused by or directly consequential on a
general average act which includes a general average expenditure as well as a general average
sacrifices. The following elements are involved in general average loss.
i) The loss must be extra ordinary in nature. The sacrifices or expenditure must not be related to
the performance of routine work.
ii) The whole adventure must be imperiled. The peril should be something more than the ordinary
perils of the sea. It should be imminent and real.
iii) The General Average loss must be voluntary and intentional accidental loss or damage is
excluded.
P a g e | 33
iv) The loss must be direct result of a general average act. Indirect losses such as demurrage and
market losses are not allowed as general average.
v) General average must not be due to same default on the part of the person whose interest has
been sacrificed.
Types of General average loss
The general average losses are divided into two classes
General Average Sacrifices The general average sacrifices are made for common safety. For
example- Jettison, which means throwing away of the cargo in order to lighten the ship.
General Average Expenditure: The general average act involves expenditure. In this case extra
expenditures are involved for common safety.
c) Particular or Special Charges: Where the policy contains a “ Sue and Labour” clause, the
engagement thereby entered into is deemed to be supplementary to the contract of insurance and
the assured may recover from the insurer any expenses properly incurred pursuant to the clause.
i) The expenses must be incurred for the benefit of the subject matter insured. The expenses
incurred for the common benefit will be a part of general average.
ii) The expenses must be reasonable and be incurred by “the assured” his factors, his servants or
assigns” and this provision effectively excludes salvage charges.
iii) They are recoverable only when incurred to avert or minimize a loss from a peril covered by
the policy.
Sue and Labour:
Sue and Labour charge are a types of particular charges. They are incurred short of destination i.
e. reconditioning costs and follow upon loss or damage.
Extra Charges:
Extra charges are the expenses of proving a claim e. g. survey fee. These are payable only if the
loss is payable under the policy.
d) Salvage Charges:
Section 65 of the Act defines Salvage Charges as those recoverable under maritime law by a salvor
independent of contract. It is the remuneration or reward payable according to maritime law of
salvors who voluntarily and independently of contract render services it recuse or save property
at sea i. e. hull, cargo and freight. No reward for services or payments for loss or expenses can be
claimed by salvors where the services were unsuccessful and the property was totally lost.
Claims and Settlement
Notice of claim: A prompt notice of claim by the insured is required . The received of notice or
approval of the course of action taken by the insured does not mean that the liability of any loss
is acknowledged. The damage notice must be given prior to survey by insurer’s representative and
the survey report signed by him.
P a g e | 34
Documents Required for Claim: The following documents are required at the time of claim.
1) Policy or certificate of insurance.
2) Bill of lading. It determines the scope of the contract of carriage.
3) Invoice or bill stating term and condition of sale.
4) Copy of protest. In the event of stranding of or accident to the vessel, the master of the ship
notes ‘protest’ before a counsel or notary public. The protest state that everything was done to
bring safety the ship and cargo and loss or damage was not due to lack of diligence on the part of
the master or crew.
5) Certificate of survey. This is necessary to find out whether the necessary franchise is reached
or not in the case of particular average.
6) Account sales or bill of sale. Similar documents where goods have been sold. The difference
between gross sound value and proceeds as per account sales might be accepted as amount of
loss.
7) Letter of Subrogation. It gives the underwriters to sue and recover compensation from third
parties where the same is due.

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Page |1

Accounting for Specialized Institutions – (4104)

Compiled By: Ashiqur Rahman Shihab

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

General Rules of Insurable Interest in Life Insurance: ............................................................. 16

Total Loss ........................................................................................................................................ 31

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

The insurance serves indirectly to increase the productivity of the community

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

Insurance is able to curtail inflation so it should be made compulsory – Comment.

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

1. There must be a subject-matter to be insured.

Utmost Good Faith

Principle of Indemnity (ক্ষতিপূরণ)

Essentials of Doctrine of Subrogation

• A corollary to the Principle of Indemnity

• Subrogation is the Substitution

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

40 96,463 273 2.83

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑟𝑠𝑜𝑛𝑠 𝑙𝑖𝑣𝑖𝑛𝑔

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

Year of Age probability of deaths Amount Present Net Single Premium

Math No. 2 (25th Batch Mid – 2)

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑟𝑠𝑜𝑛𝑠 𝑙𝑖𝑣𝑖𝑛𝑔

Year of Age probability of deaths Amount Present Net Single Premium

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

Details of Marine Insurance (Chapter 19,21,22,23)

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

contract of marine insurance is of indemnity. Under no circumstances an assured is allowed to

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

• Any real or personal property

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

ACCOUNTING FOR SPECIALIZED INSTITUTIONS 4104 ASHIQUR RAHMAN SHIHAB

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