UNIT - 2

TYPES OF INSURANCE
Types of Insurance under different basis

 Based on insurer
 Government Insurance
Social Insurance
Other government Insurance
 Private Insurance
Life and Health Insurance
Property and Liability Insurance
 Based on Products
 Personal Insurance
 Life, Accidental & Health
 Property Insurance
 Fire,
Marine, Motor, Aviation, Miscellaneous &
Engineering
 Liability Insurance
 Third party, Employees, Vehicles
 Fedility Insurance
 Fiduciary, Credit
Government Insurance
 Guardian of Public.

 Take cares of health, education,

employement, Old age.
Social Insurance
 Financed entirely or in large part by
contributions from employers and/or
employees
 Benefits are heavily weighted in favor of low-

income groups
 Eligibility and benefits are prescribed by

statute
 In developed countries social insurance
are run by government in collaboration
with other organizations.
 Examples: Old age, Social Security,

Unemployment, Workers Compensation,

Helath Insurance
Other government Insurance
 Employees retirement system
 Civil service retirment system

 Life insurance program

 Cattle and crop insurance

PRIVATE INSURANCE
 Life and Health Insurance:
 Life insurance policies
 Life insurance pays death benefits to designated
beneficaries when the insured dies.
 The benefits includes funeral expenses, medical bills
and other miscellaneous expenses.
 Health insurance covers medical expenses because of
sickness or injury
 Disability plans pay income benefits
 Types of Life insurance policies
 Term Life insurance
 Endowment life insurance
 Whole life insurance
 Property and Liability Insurance (Non
life/General Insurance)
 Property insurance indemnifies property owners
against the loss or damage of real or personal
property
 Liability insurance covers the insured’s legal
liability arising out of property damage or bodily
injury to others
 Casualty insurance refers to insurance that covers
whatever is not covered by fire, marine, and life
insurance
TYPES OF GENERAL
INSURANCE
 Fire
 Motor
 Marine
 Engineering
 Aviation
 Miscellaneous
FIRE INSURANCE
 Fire and allied peril Insurance

 Fire loss of profit Insurance

 Household Insurance
 An insurance against damage created from
the fire.

 Such insurance compensate the damage of

house,machine, equipments, goods, things
and other immovable properties of the
insured from the risk of the fire
SCOPE OF COVERS
 Standard fire insurance policy covers the loss
of insured property due to Fire, Lighting and
explosion of domestic gas cylinders.

 Ignition of Fire.

 Accidental and Unintentional Fire.

WHAT MAY BE INSURED
 Building (completed or under construction)
 Contents
 Stocks in trade
 Goods or merchandise
 Machinery, equipment, spare parts, accessories and tools.
 Business or household appliances, utensils, furniture,
fixtures and fittings.
 Personal effects and belongings (money and jewelry
excluded).
 Other materials, property, such as postage stamps, books,
motor vehicles and others.
PERILS COVERED BY FIRE INSURANCE
POLICY
 Fire and Lightning
 Earthquake
 Storm, Cyclone, Typhoon, Hurricane
 Flood and Inundation
 Landslide
 Explosion/ Implosion
 Aircraft Damage
 Impact Damage
 Riot, Strike Damage, Malicious Damage & Terrorism
(RSMDST)
Motor Insurance
 Private car Insurance

 Motorcycle Insurance

 Commercial Vehicle Insurance

 Motor Insurance is one of the most important
portfolios of general insurance industry.
 Motor Insurance covers a financial loss that can
arise virtually on a daily basis.
 Damage to your own vehicle,
 Damage to another person’s vehicle,
 Injury or death of a passenger or member of public as a
result of an accident.
 In motor insurance, the vehicle is the property
which is exposed to loss or damage.
 The insured also has a legal liability towards third
parties; he may suffer financial loss if he incurs
that liability through third party caused by
negligent use of the vehicle. Therefore, the
insured has insurable interest which entitles him
to insure the vehicle against damage and liability
risk.
COVER
 Motor Insurance covers only loss or damage to the
vehicle by
 Accidental
 Fire
 External explosion
 Self ignition
 Natural Calamities
 Riot Strikes Malicious Acts & Terrorism
 Burglary or theft
 The insured’s liability to third party in respect of death
or bodily injury and damage to property.
Marine Insurance
 Inland Transit Insurance (Road or Rail)

 Marine Insurance (Cargo)

 Marine Insurance (Air Cargo)

 Oldest branch of Insurance
 It is an important element of the General Insurance
industry.
 Marine insurance is essential to overseas trade, inland
trade and to shipping.
 It is concerned with:
 The insurance of goods in transit from one place to another
by sea, by inland waterways, by rail/road and air
 The insurance of ships, that is, hull insurance covering loss
or damage to the hull and machinery of a vessels and
insurance of ships owners’ various interests and liabilities.
COVERAGE OF MARINE
INSURANCE
 Perils of Sea/Land
 Stranding
 Sinking
 Collision
 Heavy weather
 Over turning
 Derailment of vehile
 Fire & loss whilst extinguishing fire
 Pirates
 Jettison
Extraneous perils
 Theft, pilferage, and non-delivery (TPND)
 Rain Water damage
 Hook Damage
 Contamination
 Heating and sweating
 Leakege
 Breakage
 Change of weather
 Earthquake/ Volcanic eruption/ Lighting
 Strike, Riot and Civil Commotion Clause (SRCC) and War
ENGINEERING INSURANCE
 CONTRACTOR’S ALL RISKS (CAR)
 ERECTION ALL RISKS (EAR) INSURANCE

 MACHINERY BREAKDOWN (MB)

 BOILER AND PRESSURE PLANT (BPP)

 CONTRACTOR’S PLANT & MACHINERY

(CPM)
 ELECTRONIC EQUIPMENT INSURANCE

(EEI)
 This class of Insurance covers unforeseen and
sudden losses to various engineering activities
 Construction and Erection of all types of structures
 Construction plants & machinery on project sites
 Machinery breakdown in factories.
 Cover is divided into two sections
 The first section would cover damage to the property
where the works are being carried out whilst
 The second section will cover damage to third parties
resulting from these works.
CONTRACTOR’S ALL RISKS
(CAR)
 Insurance against loss or damage to the
contractor while undertaking construction
activities for buildings, bridges, dams, plants,
etc. is covered by the Contractor’s All Risk
Policy.
 This policy can also be extended to third-

party liability of the contractor during the

construction period.
 This Policy broadly covers the risk of accidental
physical loss or damage in respect of the contract
works, during the execution of a civil project.
 CAR insurance provides an "all risk" cover. All
perils are covered unless specifically excluded.
 Cover incepts from the commencement of work or
after unloading of first consignment at project site,
whichever is earlier and terminates on handing
over of works to the principal or expiry of policy,
whichever is earlier.
COVERAGE
 Comprehensive cover for the entire civil
engineering project from the time of arrival
of the first lot of materials at site and
continuous while the work is in progress till
such time it is completed.
 The CAR Policy consist of the following two

sections:
 MATERIAL DAMAGE
 THIRD PARTY LIABILITY
Aviation Insurance
 Hull Insurance
 Hull War Insurance
 Hull & Passenger Liability Insurance
 Loss of license Insurance
 PA to crew member
 Aviation insurance provides coverage for hull losses as
well as liability for passenger injuries, environmental
and third-party damage caused by aircraft accidents.
 Aviation insurance is insurance coverage geared
specifically to the opearation of aircraft and the risks
involved in aviation.
 Aviation insurance policies are distinctly different from
those for other areas of transportation and tend to
incorporate aviation terminology, as well as
terminology, limits and clauses specific to aviation
insurance.
COVERAGE
 A plane on the ground can be damaged by wind, fire,
collapse, theft, vandalism, or other perils
 A plane on flight can collide with another plane, can be
struck by lightning, damage by winds, can experience
mechanical difficulties from a fire or explosion
 Physical damage insurance provides coverage for
direct damage to the aircraft
 Three liability coverages are available
 Bodily injury liability
 Passenger bodily injury liability
 Property damage liability
WORKER’S COMPENSATION
INSURANCE
 Form of insurance providing wage replacement and
medical benefits to employees injured in the course
of employment in exchange for mandatory
relinquishment of the employee's right to sue their
employer for the negligence.
 Insurance that covers medical and rehabilitation
costs and lost wages for employees injured at work;
required by law of a country.
Miscellaneous Insurance
 Burglary
 Money

 Medical/Hospitalization/Health guard/Travel

 Banker’s Blanket/ Indemnity

 Personal Accident

 Fedelity Guarentee

 All Risk Insurance/ Business Machine

LIFE INSURANCE
 Contract between an insurance policy holder and an
insurer
 The insurer promises to pay a designated
beneficiary a sum of money (the benefit) in
exchange for a premium, upon the death of an
insured person (often the policy holder).
 The goal of life insurance is to provide a measure
of financial security for a family after the death of a
bread owner.
 Before purchasing a life insurance policy,
you should consider your financial situation
and the standard of living you want to
maintain for your dependents or survivors
TYPES OF LIFE INSURANCE
POLICIES
 Term Life Insurance
 Yearly Renewal term
 Term policy with More than one year’s period
 Term to age 65
 Whole Life Insurance
 Ordinary Life Insurance
 Limited payment Life Insurance
 Endowment Insurance
TERM LIFE INSURANCE
 Term Life Insurance
 Insurance policy with a specific period is
called term insurance
 Term life insurance is the simplest and least
expensive type, as it pays benefits only upon
the policy holder's death (Natural and
accidental).
 Term insurance policies have no cash value or
saving's element
TYPES OF TERM INSURANCE

 Yearly Renewal term-

 Is issued for one year period and insurer can renew
for successive one year periods. Premium increases
with the age at each renewal
 Term policy with More than one year’s period
 Term insurance can also be issued for 5, 10, 15, or
20 years or for long period. The premiums paid
during the term period are constant in level term
policy, but in increasing term they increase when
the policy is renewed
 Term to age 65
 A term to age 65 policy provides protection to
age 65, at which time the policy expires but
can be converted to a permanent plan of
insurance but should be decided before 60
years old (In Nepal this not in practice)
WHOLE LIFE INSURANCE
 It provides for the payment of the face amount
upon survival of insured till the maturity period
and the insured amount at the insured’s death
 It is a cash-value policy that provides lifetime

protection until death

 Two types of whole life Insurance

 Ordinary Life Insurance

 Limited-payment Life Insurance
Ordinary Life Insurance
 This provides whole life insurance with
premiums that are payable for the whole of
life
 Oldest form of whole life may be referred to

several other names, including straight life

insurance (fixed premium payment for
premium paying term) and continuous-
premium (until the death of the insured,
cheaper than others)
Limited-payment Life Insurance
 Traditional Type of whole life Insurance
 The insurance is permanent , and the insured

has lifetime protection

 The premiums are paid only for a certain

period
ENDOWMENT INSURANCE
 This policy pays the face amount of
insurance if the insured dies within the
specific period, they are paid with the bonus.

 If the insured survives to the end of the

endowment policy, the amount is paid to the
policy owner
 The benefit provide by an endowment policy are:
 It has characteristic of insurance
 These are also used as investment
 Also for Saving
 Tax benefit
 In this policy if the owner survives till the end,
he/she will get the insured amount which becomes
very useful in the old age
 So this is very popular life insurance policy in Nepal
CHARACTERISTICS OF LIFE
INSURANCE
 Protection
 Investment

 Financial Security

 Social Security
CHARACTERISTICS OF LIFE INSURANCE
CONTRACT

 Element of a valid insurance contract

 Offer from one party and acceptance from
another party
 Both parties should be legally capacity and free
from pressure to enter into the contract
 Utmost good Faith
 Premium

 Need to be paid in advance for the coverage.

Based on mortality table (age, health conditions,
profession etc.)
 Insurable Interest
 Husband/Wife,
 Parents/Children
 Employee/employer
 Debtors/creditors
 Return of Premium
 Premium amount is returned after the maturity or
death
LIFE INSURANCE CONTRACTUAL
PROVISION

“Few policyholders ever read a life insurance

contract with any effort to understand its provisions”
-Mehr and Gustavson
Life insurance: Theory and Practice
CONTRACTURAL PROVISIONS
 Ownership Clause
 This clause states that the policy owner
possesses all contractual rights in the policy
while the insured is living.
 Entire-Contract Clause
 This clause states that the life insurance policy
and attached application constitute the entire
contract between the parties.
 Incontestable Clause
 This clause states that the insurer cannot contest
the policy after it has been in force two years
during the insured’s lifetime.
 Suicide Clause
 The suicide clause states that if the insured
commits suicide within two years after policy is
issued, the face amount of insurance will not be
paid
 Grace Period
 A life insurance policy also contains a grace period during
which the policy owner has a period of 31 days to pay an
overdue premium.
 Reinstatement Clause
 The reinstatement provision permits the owner to reinstate
a lapsed policy.
 Misstatement of Age or Sex Clause
 Age is a key factor in underwriting and pricing the
insurance.
 Misstatement of age either intentionally or by mistake,
causes rating errors
 Beneficiary Designation
 The beneficiary is the party named in the policy to
receive the policy proceeds
 Change of Plan Provision
 It allows policy owners exchange their present
policies for different contracts
 Exclusions and Restrictions
 life insurance policy contains remarkably few
exclusions and restrictions
 Payment of Premiums
 Life insurance premiums can be paid
 Annually
 Semiannually
 Quarterly
 Monthly

 Assignment Clause
 Absolute assignment transfers all ownership rights
in the policy to a new owner.
 Policy Loan Provision
 Cash-value life insurance contains a policy loan
provision that allows the policy owner to borrow
the cash value.
 Automatic Premium Loan
 Under the automatic premium loan provision, an
overdue premium is automatically borrowed from
the cash value after the grace period expires,
provided the policy has a loan value sufficient to
pay the premium
DIVIDENDS OPTIONS
 If the policy pays dividends, it’s known as a
participatory policy
 The dividend represents largely a refund of part

of the gross premium if the insurer has

favorable experiences with respect to mortality,
interest, and expenses.
 Policy that does not pay dividends is known as

nonparticipating policy
 Policy deividends are derived from three
principal sources
 The differenec between expected and actual
mortality experience
 Excess interest earnings on the assets
required to maintain legal reserves
 The difference between expected and actual
operating expenses
 Policyowners have several ways to take
dividends
 Take the cash
 Reduce the next premium coming due
 Let the dividends accumulate at interest and
withdraw later
 Paid up additions
 Term insurance
Nonforfeiture options
 Nonforfeiture clauses can be found in life
insurance as well as long-term care insurance
policies.
 The clause may involve returning some

portion of the total premiums paid, the cash

surrender value of the policy, or a reduced
benefit based on the amount of premiums
that were paid up until the policy lapsed.
 The payment to a withdrawing policyowner
is known as a nonforfeiture value or cash
surrender value
 Policyowners have three nonforfeiture
options
 Cash value
 Reduced paid-up insurance
 Extended term insurance
SETTLEMENT OPTIONS
 Settlement options refer to the various ways that the
policy proceeds can be paid.
 The policy owner can elect the settlement option prior to
the insured’s death, or the beneficiary may be granted
that right.
 The most common settlement options:
 Cash
 Interest option
 Fixed-period option
 Fixed-amount option
 Life income options
ADDITIONAL LIFE INSURANCE
BENEFITS
 Waiver of premium provision
 Guaranteed purchase option

 Accidental death benefit rider

 Cost of living rider

 Accelerated death benefits rider

WAIVER OF PREMIUM PROVISION

 If the insured becomes totally disabled from

bodily injury or disease before some stated
age, all premiums due during the period of
disability are waived
 During the period of disability death
benefits, cash values and dividends are
continued
GUARANTEED PURCHASE
OPTION

 Permits the policy holders to purchase

additional amounts of life insurance at
specific times in the future without
evidence of insurability
 Also called guaranteed insurability option

 Amount of insurance
 Advance purchase privilege
 Other considerations
ACCIDENTAL DEATH BENEFIT RIDER

 Also Known as double indemnity

 Doubles the face amount of life insurance if

death occurs as a result of an accident

 In some policies the face amount is tripled
Cost of living rider
 This type of coverage is designed to help you
hedge your bets against inflation.
 For example, if you purchase this type of
coverage, your policy is going to increase in value
if inflation increases.
 If you purchase a policy and then pass away 20
years later, there will have been some inflation in
that time span. With this coverage, your family
would actually receive more than the face value of
the policy because of the cost-of-living rider.
Accelerated death benefits riders

 Allows insureds who are terminally ill or who

suffers from certain catastrophic diseases to
collect part or all of their life insurance
benefits before they die, primarily to pay for
the medical care they require
 Benefits may also be payable if the insured is

receiving long term care in a nursing home or

hospital
SOCIAL INSURANCE
 Compulsary government insurance programs with
certain characteristics that distinguish them from
privte insurance and other government insurance
program.
 These programs provides safety net against the
financial insecurity that can result from premature
death, unemployemnt, poor health, job related
disabilities and old age.
 Social insuranec are especially valuable to workers
and families with low incomes.
 Old-Age, Survivors, and Disability Insurance
 Medicare
 Unemployment Insurance
 Workers Compensation
REASONS FOR SOCIAL
INSURANCE
 To help solve complex social problems
 To provide coverage for perils that are difficult to
insure privately
 To provide a base of economic security to the
population
Old-Age, Survivors, and Disability
Insurance (OASDI)
 Commonly known as Social Security, OASDI is
the most important social insurance program in the
US
 Enacted in 1935, it covers more than 9 out of 10
workers
 Virtually all private-sector employees, and a
majority of state and local government employees
are covered under the Social Security Program
OASDI: Survivor Benefits
 Survivor benefits can be paid to dependents of a
deceased worker who is either fully or currently
insured
 Survivors include:
 Unmarried children younger than age 18
 Unmarried disabled children
 Surviving spouse with children younger than age 16
 Surviving spouse age 60 or older
 Disabled widow or widower, ages 50-59
 Dependent parents
 The benefits provide a substantial amount of
financial protection to families
OASDI: Disability Benefits
 Disability income benefits can be paid to disabled
workers who meet certain eligibility requirements
 The benefits provide protection against the loss of
income during a long-term disability
 The worker must meet a five-month waiting period,
and satisfy the definition of disability
 The worker must have a physical or mental
condition that prevents him or her from doing any
substantial gainful activity and is expected to last at
least 12 months or is expected to result in death
 Major groups eligible to receive OASDI disability
income benefits include:
 A disabled worker under the full retirement age
 The spouse of a disabled worker
 Unmarried children of the disabled worker, if under
age 18
 Unmarried children age 18 or older who become
severely disabled before age 22
MEDICARE (PART A)
 Hospital Insurance provides coverage for inpatient
hospital stays and other services including skilled
nursing facility care, home health care.
 Inpatient care is covered for up to 90 days for each
benefit period
 Inpatient care in a skilled nursing facility is covered
up to a maximum of 100 days in a benefit period
 Hospitals are reimbursed for inpatient services under
a prospective payment system
 A flat amount is paid for each service based on its
diagnosis-related group
MEDICARE (PART B)
 Medical Insurance is a voluntary program that
covers physicians’ fees and related medical services
 Covered services include physician services,
clinical laboratory services, home health care,
outpatient hospital services.
 Beneficiaries must pay a monthly premium for the
benefits
 The beneficiary must meet an annual deductible
 The program pays 80% of the Medicare-approved
amount for most services
Unemployment Insurance
 Unemployment insurance programs are federal-
state programs that pay weekly cash benefits to
workers who are involuntarily unemployed
 Cash benefits are paid during periods of short-term
involuntary unemployment
 Applicants are encouraged through local
employment offices to find jobs
 Unemployment benefits help stabilize the economy
during recessionary periods
Workers Compensation
 Broad coverage of employees for job-related
accidents and disease
 Substantial protection against the loss of income
 Sufficient medical care and rehabilitation services
 Encouragement of safety
 Reduction in litigation
HEALTH INSURANCE
 Health insurance is insurance against the risk of
incurring medical expenses among individuals.
 By estimating the overall risk of health care and health
system expenses, among a targeted group, an insurer
can develop a routine finance structure, such as a
monthly premium or payroll tax, to ensure that money
is available to pay for the health care benefits specified
in the insurance agreement.
 It includes insurance for losses from accident, medical
expense, disability, or accidental death and
dismemberment
RE-INSURANCE
 Did you know that insurance
companies buy insurance from other
companies?
 Parts or all of the policies that an insurance
company writes may be sold to other
insurance companies, mainly to spread risk,
and all is done without the policyowner
knowing any difference.

 Reinsurance is the term that describes this

distribution of policies and the attendant risk
among insurers.
 The insurance company that wrote the policy
for the insured is called the primary insurer
(ceding company), and the insurance
company that accepts the transference is the
reinsurer

 The purpose of reinsurance is to spread a risk

amongst a number of insurers.