Definition of Insurance

Insurance is a contract, represented by a policy, in which an individual or entity receives

financial protection or reimbursement against losses from an insurance company. The
company pools clients' risks to make payments more affordable for the insured.

Fundamental elements of Insurance

1. Utmost good faith (Latin phrase uberrima fides)
2. Insurable interest
3. Indemnity
4. Subrogation
5. Causa Proxima
6. Risk must attach
7. Mitigation of Loss
8. Contribution
9. Period of Insurance
Terms used in Insurance
Re-insurance and Double Insurance

Additional Principles used in Life Insurance

1. Assignment and nomination
2. Application of double insurance
3. Conditional contract
4. Aleatory contract – unpredictable – No mutual exchange of monetary value
between insured and insurer
5. Contract of Adhesion

Types of Life Insurance

1. Term insurance plan
2. Whole life policy
3. Endowment insurance plan
4. Unit linked insurance plans (ULIPS)
Term Insurance Plan: If the insured stays alive after the specific time period, the
benefit (Sum assured) will not be paid.
Whole Life Policy: The insured gets insurance cover for the whole life irrespective of
the period. The payment of sum assured will be made on the death of the insured.
Endowment insurance plan: In this policy, the insured is entitled for both death and
survival benefit. Upon death of the insured, the beneficiary can claim death benefit
and on survival the insured can claim maturity benefit if he survives the entire tenure
of the policy.
Unit linked insurance plans (ULIPS):Units are the parts of investment in a mutual
fund. Similarly, ULIPs are known as mutual funds with insurance cover. These are the
insurance plans which provide both insurance cover and investment benefit. The
investments in ULIPs are known as “Units” similar to those invested in mutual funds.
Net Asset Value (NAV) refers to value of each unit of the fund on a certain day. The
premium collected from insured are pooled in a unit fund such as equity fund, debt
fund, money market fund and balanced fund.
The premium collected by the insurer is invested in the funds chosen by the insured.
Policy holder has to bear the investment risk for getting investment benefit. Insurance
company credits units to insured for premium received after deducting expenses.
Riders: Riders are additional benefits included in a base policy that gives additional
benefits to the insured for extra premium. Different riders can be added to the base policy
depending upon the needs and coverage requirements of insured. Any benefit arising under
each of the riders shall not exceed the sum assured under the base policy. A few of the
riders are as follows:
a) Increased death benefit rider:
b) Critical illness rider:
c) Major surgical assistance benefit:
d) Accidental Death Benefit (ADB) rider:
e) Waiver of premium rider:
f) Guaranteed insurability option rider:
g) Disability income benefit rider:
h) Spouse Insurance rider:
Surrender value and Paid up value
AI applications in Insurance
IRDA
Insurance Regulatory and Development Authority Act, 1999: This Act provides for the
establishment of an authority to protect the interests of holders of insurance policies,
to regulate, promote and ensure orderly growth of the insurance industry and for
matters connected therewith or incidental thereto and further to amend the Insurance
Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business
(Nationalization) Act, 1972.

Subsequent to the passage of this Act, IRDA (Insurance Regulatory and Development
Authority) was established whose powers include to
 granting registration to insurers,
 protecting the interests of the policyholders,
 regulating the insurance intermediaries and agents and
 promoting efficiency in the conduct of insurance business.