Unit 2

TYPES OF INSURANCE
 General Insurance
• All Insurance other than life insurance falls
under this category
• General Insurance is also know as non-life
Insurance
• Includes
– Fire
– Marine
– Aviation
– Engineering
– Contractor All Risk Insurance
– Etc
Fire Insurance
• Protect insurer from the loss cause by
the fire
• Fire means a condition of Burning
• There is a special contract between
insurer and insured in which insured
should pay premium for the specific
period of time
• During the mention time, if any accident
occurs cause by fire and lost property,
insurer is liable to provide compensation
again the loss of property
• Specially, buildings, vehicles, stores,
raw materials are necessary to protect
against the fire
 Fire Insurance

• Divided Into 2 Parts

– House Hold Insurance
– Commercial Insurance
 Fire Insurance
• House Hold Insurance
– Cheapest form of Insurance
– Low risk low, low premium
• Scope of Coverage
– Fire and Lightening
– Losses by explosion cause by the
household equipments
– Earthquake
– Strom, Flood and Inundation
– Subsidence, Landslide
– Airplane crash or the good those falls from
plane
– Losses due to the accident of vehicle and
animals
 Fire Insurance
• Commercial Insurance
• Under this insurance policy, the main risk
covered is fire.
• Also included under this scheme are the risks
arising from lightning, losses resulting from
earthquake
• Scope of Coverage
– Fire and Lightening
– Earthquake (Compulsory)
Addition
– Strom, Flood and Inundation
– Subsidence, Landslide, Explosion,
– Aircraft Damage
– Impact Damage
Motor Insurance

• Protection against fire,

burglary, theft, accident
and damage of motor,
motorcycles etc
 Motor Insurance
• Covers the vehicle
comprehensively against all
types of losses and damages
including liability to third parties
in respect of bodily injury, death
or property damage.
• 1. Third Party Liability -
restricted to the liability
2. Comprehensive policy includes
own damages in addition to
Third Party Liability
 Motor Insurance
• Divided into 3 category
 Marine Insurance
• Most of goods are transferred via ship
• Best means of transportation
• Ship and cargo loaded in the ship are
always at risk of sink, theft and collusion
• Losses and damages that may be incurred
by ships, the goods stationed in such ships
and the losses and damages that may be
suffered while transporting these goods to
their respective destinations through other
modes of transport are covered for
• Includes hull insurance (insurance of ship),
cargo insurance, freight insurance (freight
charge or rest or carriage charge of cargo)
and the liability insurance (insurance of
cargo of other ship due to the collision made
of own ship)
 Marine Insurance
• In-Land Marine
• Ocean Marine
• Air Cargo
 Marine Insurance
• Institute Cargo Clause A / B / C
 Marine Insurance
• Institute Cargo Clause (Rail or Road)
 Marine Insurance
• Institute Cargo Clause (AIR)
 Marine Insurance
• Institute Theft, Pilferage and Non-
delivery
• Institute War Clause (Cargo)
• Institute War Clause (Air)
• Strike, Riots and Civil-commotion
Clause
 Aviation Insurance
• This insurance operates to cover for the risks of possible losses that may
be suffered by aircrafts such as aero planes, helicopters, etc.
– Hull - Personal Accident - Crew
– Hull War - Third Party risk/loss raised from Aviation
– Spares - Loss of License
– Combine Single Liability
 Engineering Insurance
• Under this insurance, the
following schemes are
included:
– Contractor All Risk Insurance
– Machinery Overall Risk
Insurance
– Electronic Equipment
Insurance
– Erection all risk Insurance
 Miscellaneous Insurance .

• Miscellaneous Insurance
– Burglary and Housebreaking
Insurance
– Cash in transit Insurance
– Personal accident insurance
– Workmen Compensation
Insurance
– Fidelity guarantees
insurance
 Miscellaneous Insurance .

 Travel insurance policy

 Cash in Transit Insurance
 Public liability Insurance
 Lift (Third Party Insurance)
 Banker Blanket Policy
 Loss of profit Insurance
 Medical Insurance
 General Liability Insurance
 Professional Indemnity
Insurance
 Life Insurance

• Developing country Nepal, there are limited no. of

life insurance policy
• They are categorized in two class
– Term Insurance
• It protect the life for certain period.
• It is required to renew and has no cash value or saving element
– Cash Value Life Insurance
• Rest all the policy falls under this category
• The contract term is longer than term insurance policy and need
not to renewal each year
• Sometimes insurance cover whole life
• Have cash value which is refund to insured after maturity/death
 TYPES OF LIFE INSURANCE
Types of Life Insurance
Endowment Life Insurance
• The insurance policy in which the period of insurance
is pre determined and the sum assured is paid to the
policyholder after the expiry of the policy or paid to the
nominee/heir of the policyholder if he/she dies within the
insurance period. Generally, 10, 12, 15, 20, 25 are the
periods of such policy. If insured dies within the insurance
period no further payment is required to pay

• In the countries like Nepal, this type of policy is being

sold in a huge quantity and it is very popular policy.

• Endowment policy gives the benefit of saving and

financial protection. Saving plus return can be used after
expiration of the policy.
 TYPES OF LIFE INSURANCE
Types of Life Insurance

Whole Life Insurance

• a. A whole life insurance policy, in which the sum
assured is paid to the nominee/heir of the insured only
after the death of the insured. This type of insurance
policy is appropriate for the financial protection of
descendants of the insured.

• In the preliminary phase of the development of life

insurance policy, such policy was very popular. At that
time, people used to insure the life of pubic figures. Later
in eighteenth, this policy became easily accessible for the
general people.
 TYPES OF LIFE INSURANCE
Types of Life Insurance

Term Life Insurance

• A very short period insurance policy (1 year or 2
years), in which if the insured dies within the period of
insurance, the sum assured is paid to the nominee/heir
of the insured. All the premium of insurance should be
paid in advance in the beginning of the policy. No
payment is made to anyone if the insured is alive till the
expiration of the policy. After expiration of the policy, the
policy finished automatically.
•
 Contractual provisions
1. Ownership clause
It mandate that the policyholder possesses all
contractual right in the policy while the insured
is living . These right include naming and
changing the beneficiary ,surrendering the
policy for the cash value ,receiving the dividend
and electing settlement options
It may be insured , beneficiary , trust ,
assignee or other party .In most cases ,the
applicant , insured and owner are the same
person,
 2.Incontestable clause
• It state that the insurer can not contest the
policy after it has been in force two years
during the insured's lifetime.
• The insurer can not later contest a death
claim on the basis of a material
misrepresentation, concealment or fraud.
• Insurer has two years in which to discover
any irregularities in contract.
 3.Entire Contract Clause
• It states that the life insurance policy and attached
application constitute the entire contract between
parties.
• All statements in the application are considered to be
representation rather than warranty.
• No statement can be used by the insurer to void the
policy unless it id material fact in the application.
• No term can be changed by insurer without consent of
insured.
• It prevent insurer to amend policy, it protect beneficiary
being attached with application.
 4.Suicide Clause
• It states that if the insured commits suicide
within two years after the policy is issued
the face amount of insurance will not be
paid . In some cases it is excluded for a
year.
• If the insured commits suicide after the
period expires , policy proceeds are paid
just like any other claim.
 5.Grace Period
• A Life insurance policy also contain a
grace period during which the policy owner
has a period of 30 days to pay an over due
premium.
• Purpose is to provide financial flexibility to
the insured .
• To prevent the policy from lapsing.
 6.Reinstatement clause
• A policy may lapse if the premium are not
paid at the end of grace period.
• Reinstatement permit the owner to
reinstate the lapsed policy
Conditions
• Should not have been surrendered and
must be within stipulated time.
• Producing insurability of life, paying all
overdue premium , repayment of policy
loan if exist,
7. Misstatement of age clause
8. Mode of payment of premium clause
9. Surrender value and paid up value clause
10. Assignment of policy clause
11. Nomination
12. Policy loan clause
13. Exclusions and restrictions
14. Dividend option
15. Non forfeiture option
16. Settlement options
17. Additional benefits
• General Term & Condition of Policy

Features.pdf
 Dividend Option
• Participating life insurance policies,
unlike nonparticipating policies, pay
dividends.
• The source of dividends arises because the
actual mortality costs were less than projected;
operating expenses were lower than expected;
or investment income was greater than
expected.
• When the life insurer does better than expected,
it returns part of the paid premiums to the
insured.
 Nonforfeiture Options

Insurance companies can provide 4 different

nonforfeiture options:
• paying the cash surrender value to the
insured;
• convert the insurance to term life
insurance;
• convert to a reduced paid-up insurance
policy;
• convert it to an annuity.
 Settlement options
• Most life insurance policies provide for
payment in a lump sum.
• The four most common alternative
settlement approaches are:
a. The interest option
b. The fixed period option
c. The fixed amount option
d. The life income option
 Additional Benefits in Life
Insurance(Rider)

A provision of an insurance policy that is purchased

separately from the basic policy and that provides
additional benefits at additional cost.
Additional Benefits are,
1. Waiver of premium rider
2. Disability income rider
3. Critical illness rider
4. Accidental death benefit rider
5. Return of premium rider
6. Child protection rider
 Social insurance
• Form of compensation provided and
controlled by a government for elderly,
disable, or unemployed people.
• Acceptance in a social insurance program
is not guaranteed and individuals seeking
to be covered have to meet certain
requirements.
• Medicaid, Medicare, and
unemployment compensation are all
examples of social insurance programs.
Self-insured retention (SIR)
• Amount specified usually in a liability insurance
policy that the insured must pay before the
insurance company (insurer) pays. Unlike a
deductible (which the insured pays to the insurer),
SIR is paid directly to the claimant by the insured.
• Old Age, Survivors and Disability Insurance-
OASDI
• The official name for Social Security. The OASDI is
a comprehensive federal benefits program that
provides benefits to retirees, disabled people and
their survivors.
 Medicare

• Medicare is divided into two parts. The first

part of the coverage encompasses in-
patient hospital, skilled nursing facility,
home health and hospice care.
• The second part of coverage
encompasses almost all the necessary
medical services (doctors' services,
Surgery, Hospital Charges, laboratory and
x-ray services, wheelchairs, etc).
 
 Unemployment Insurance
• Government welfare scheme under which
employable persons who are unemployed through
no fault of their own (but are available for work and
are actively seeking paying jobs) are given monthly
sums (called unemployment benefit) for sustenance.
• In other words, Unemployment is paid to workers by
state governments from a fund of unemployment
taxes collected from employers. Unemployment
insurance often only pays workers about half of
what they were earning at their previous job to help
encourage them to seek re-employment.
 Health Insurance
• A type of insurance coverage that pays for medical
and surgical expenses that are incurred by the
insured.
• Health insurance can either reimburse the insured for
expenses incurred from illness or injury or pay the
care provider directly.
• Health insurance is often included in employer benefit
packages as a means of enticing quality employees.
• Insurance against loss by illness or bodily injury.
Health insurance provides coverage for medicine,
visits to the doctor or emergency room, hospital stays
and other medical expenses.