Insurance

• Insurance is a mechanism through which assets

are insured against the risk of being
destroyed/lost/ made non functional due to any
accident occurrence so that the owners of the
assets can cope with economic consequences of
such event
• It means protection of economic value of assets.
 Essential elements of Insurance
• Agreement
• Free consent
• Components of contract
• Consideration
• Consensus “ad idem”
• pecuniary interest

(all the essential elements of contract)

 Fundamental principles
• Insurable Interest:
• the person opting for insurance must have pecuniary interest
in the property he is going to get insured and will suffer
financial loss on the occurrence of the insured event. This is
one of the essential requirements of any insurance contract.
• Therefore, a person can go for insurance of only those
properties where he stands to benefit by the safety of the
property, and will suffer loss, damage, injury if any harm takes
place to such property.
• Thus, if you want to insure Taj Mahal or Red Fort, you will
not be allowed to do so as you do not have any pecuniary
interest in these properties. (life insurance)
• principle of Utmost Good Faith:
• It means that both the policyholder and the
insurer need to disclose all material and
relevant information to each other before
commencement of the contract.
• Principle of Indemnity
• Indemnity means security or compensation against loss or damage.
The principle of indemnity is such principle of insurance stating that
an insured may not be compensated by the insurance company in an
amount exceeding the insured’s economic loss.
• In type of insurance the insured would be compensation with the
amount equivalent to the actual loss and not the amount exceeding
the loss.*

• This principle is observed more strictly in property insurance than in

life insurance.
• The purpose of this principle is to set back the insured to the same
financial position that existed before the loss or damage occurred.
• Principle of Subrogation
• Subrogation means substituting one creditor for another.
• According to the principle of subrogation, when the
insured is compensated for the losses due to damage to
his insured property, then the ownership right of such
property shifts to the insurer.
• This principle is applicable only when the damaged
property has any value after the event causing the
damage. The insurer can benefit out of subrogation
rights only to the extent of the amount he has paid to
the insured as compensation.
• Principle of Contribution
Principle of Contribution is a corollary of the principle of
indemnity.
• It applies to all contracts of indemnity, if the insured has
taken out more than one policy on the same subject
matter.
• According to this principle, the insured can claim the
compensation only to the extent of actual loss either
from all insurers or from any one insurer. If one insurer
pays full compensation then that insurer can claim
proportionate claim from the other insurers.
 Principle of Mitigation
• the insured is obligated to take reasonable steps to
minimize the damage or loss to the insured subject
or property.
• The main aim behind this principle is to ensure that
the insured does not become careless towards the
insured property or subject after taking the policy
for covering the risks.
• If the insured does not take reasonable care of the
insured property, then he/she might lose the claim
amount from the insurer.
Classification of life insurance
 Term insurance
• The term insurance policy provides pure risk
cover without any element of saving for a
specified period only and may be tried as
temporary insurance.
• the sum assured is payable only if ensure die
during the specified period.
• In case the insured does not die during the
insured period, nothing is payble
• Level term plan: premium and benefit will be
same throughout the term policy
• Decreasing term insurance: premium is
constant but benefit decreases over the years
• Increasing terms plan: premium as well as
benefits will increase
• Renewable term plan: by new premium
 Whole life insurance
• For the whole life, premium has to be paid
throughout the life
 Endowment insurance
• Pure endowment: benefit will be payable only
after survival.
• Endowment policy: combination of both term
as well as pure endowment
 Annuities
• An annuity is a contract between an insurance
company and an individual in which the insurance
company makes a series of guaranteed income
payments in return for premium from the
individual.
• The retirement landscape is changing, and an
annuity can be a great way to help achieve a
secure retirement. In fact, only an annuity can pay
an income that can be guaranteed for the rest of
an individual’s life.
• A deferred annuity has an accumulation
period, which is the time between when
premiums are paid and when income payment
begins, which could be years later.
• An immediate annuity has no accumulation
period. The income payments start no later
than one year after the premium has been
received by the insurance company.
 Deferred Annuities
• Fixed (Traditional)
• During the accumulation period of a fixed
deferred annuity, the contract earns interest
rates set by the insurance company based on
the performance of the company’s own
general portfolio account.
• The company guarantees that it will pay no
less than a minimum rate of interest.
• Fixed Indexed
• a type of fixed annuity that, during the
accumulation period, earns a rate of return
based on the market performance of an
external index, such as the S&P 500, SENSEX
etc.
• Variable
• The purchaser of a variable annuity chooses
how the money will be invested and the rate
of return will depend on the underlying
performance of the investments that were
selected.
 longevity annuity
• A longevity annuity is a type of deferred
annuity that’s meant to provide protection
against outliving your money late in life.
• Also known as an advanced life delayed
annuity, this type of annuity requires you to
wait until you reach age 80*.
• Once the payout begins, the annuity provides
a guaranteed, regular amount of income for
the rest of your life.
 Immediate Annuities
• Immediate Income – There is no accumulation
period. Immediate income annuities are
usually purchased with one, lump-sum
premium payment and the purchaser begins
receiving payments no later than one year
after the insurance company receives the
premium.
 Unit Linked Insurance
• Unit Linked Insurance Policies or ULIPs are
insurance policies which offer you the potential of
wealth creation while providing the security of a
Life Cover.
• In ULIPs, a part of your premium is dedicated
towards your Life Cover and the rest is assigned to
a common pool of money( fund) which invests in
equity, debt, or a combination of both. The returns
on your investments depend upon the
performance of the fund opted by you.
 Fire insurance
• To provide for financial loss to property due to fire
and other related hazards.
• Building and their contents such as machine/
equipment / accessories and goods, raw materials/
semi & finished goods, packing materials and so on.
• Electric installation of a building
• Goods in open
• Furniture/fixture of a building
• Pipelines inside/outside the building
 Fire hazards
• Explosion
• Aircraft damage/destruction
• Riots, strikes and terrorism damage
• Landslide/costal
• Defective design/use of defective materials
• Demolition and construction
• Missile testing operation etc
 Marine insurance
• It has two boarder components
• Hull insurance: it is concerned with carrier of
the good and purchased by the owner of the
vehicles
• Cargo insurance: cover for loss/damage that
could occur to goods in transit on sea, rail and
air.
 Marine insurance Act 1963
• The legal framework for carrying out marine
insurance is provided by MIA. It has several
clauses.
• ICC(C):
1. Fire
2. Vessel grounded/sunk/capsized
3. Collision/contact of vessel with any other
object
• ICC (B):in addition to ICC(C)
1. Earthquake, volcanic, lighting
2. Total loss of any package lost overboard or
dropped while loading and unloading
• on payment of extra premium
1. theft/ non delivery
2. Rain damage
3. damage by mud, acid etc
4. Heating
• ICC (A): unlike (C) and (B) the risk are not
specified under (A) . These clauses provide
cover for all risks of damage/loss to the
subject matter insured caused incidentally
• ICC(Air): risk of loss under this clause are the
same as ICC(A).
• Inland transit(rail/road) clause C: covers loss
by fire and lighting
• Inland transit(rail/road) clause B:
1. Fire
2. Lighting
3. Breakages of bridges
4. Collision
5. Derailment or other accident
 Motor/accident insurance
• Any liability arising in respect of death/bodily injured to any
person including the owner of the vehicle/his authorized
person in carriage
• any property of third party
• Liability for death/injury of passenger carried(public transport)
Types of vehicle:
1. Pvt cars
2. Motor cycles/scooters
3. Commercial vehicles(goods carrying)
4. Passenger carrying vehicles (auto, taxi, bus)
5. ambulance etc
 Health/medical insurance
• Health insurance covers mainly two types of
benefits:
1. Reimbursement of medical expenses related
to specified diseases
2. Hospitalization

cashless and cash reimbursement

 Individual mediclaim policy
• Boarding expenses(hospital, nursing home)
• Surgical fee, anesthetist fees, consultant fee,
specialist fee etc
• Nursing fee
• Blood, oxygen, OT, surgical appliances,
medicine, diagnostic reports,
The total liabilities under policy does not exceed
the total sum assured.*
• To recover claims under this policy , the
claimant should be hospitalized for a min. 24
hours. Also, expenses incurred for a period up
to 30 days prior to hospitalization and 60 days
after.*
• For certain treatment like eye surgery, dental,
dialysis etc. the 24 hr. limit could be waived .
 Domiciliary hospitalisation
• Where the patient cannot be moved to a
hospital of nursing home due the condition or
lack of facility/accomodation, and treatment is
carried out by professional doctors at home.
• The benefits of all the normal hospitalisation
expenses .
 Exclusions***
• All the diseases that were per exiting at the time
of taking out policy.
• Injuries caused due to suicide attempts
• pregnancy, child birth (waiting period: 9-24
months)
• various conditions commonly referred to as AIDS
• Any medicine expense which are not part of
treatment.
• Waiting Clause (1-2 months.)
 Important point
• 5 to 80 years(less than 5, only F/M is covered
concurrently )
• Cost of regular checkup (4month).but less than
1% of sum of assured
• Extended to Nepal and Bhutan as well
• First Info. Must be given to company within 7
days and final claim submit within 30 days to
completion of treatment
• Tax benefit
 Group mediclaim
Almost all the benefits are same as individual
• Available to any corporate, association,
institution and group of the people.
• Premiums payable in group.
• Maternity benefit*
• Max. age 70 (accepted if pay extra premium )
• Cosmetic surgery (not included)*
 Travel Insurance
• Despite all your planning, a trip abroad can go
wrong due to medical eventualities, and non-
medical contingencies such as loss of baggage,
trip delay and other incidental expenses.
• Travel insurance covers the insured against
these misfortunes while traveling.
 Liability insurance
• Liability insurance is a policy that offers protection
to businesses and individuals from risk that they
may be held legally or sued for negligence,
malpractice or injury.
• This insurance policy protects the insured from
legal payouts and costs for which the policyholder
is deemed to be responsible.
• However, contractual liabilities and intentional
damage are usually not covered as part of this
policy.
 types
• Product: these liabilities arise from sale of the products
to customers and resulting damage to any customer due
to a fault in the product .
• Professional: from practice of a particular profession.
Medical, engineers, architects, CA etc
• Public liability: Public liability insurance covers a person,
a business, an event, a contractor – even a community
building – for costs from legal action if they are found
liable for death or injury, loss or damage of property, or
economic loss resulting from their negligence.
 Indian Insurance Act 1938
• Any class of insurance business in India can be
carried out only by a public company,
corporate society , an insurance corporate
society,
• Having a paid up capital of 100 cr. , net worth
5000cr.
 IRDA
• The Insurance Regulatory and Development Authority
(IRDA) is a national agency run by the Government of
India. IRDA is based in Hyderabad and was formed by an
act of Indian Parliament called as IRDA Act of 1999.
• Considering some of the emerging requirements of the
Indian insurance industry, IRDA was amended in 2002. As
stated in the act mission of IRDA is
• "to protect the interests of the policyholders, to
regulate, promote and ensure orderly growth of the
insurance industry and for matters connected therewith
or incidental thereto." Indian insurance industry is
regulated by the terms and conditions of the IRDA
 Establishment:
• IRDA Act was passed upon the recommendations
of Malhotra Committee report (7 Jan,1994), headed
by Mr R.N. Malhotra (Retired Governor, RBI)
• Main Recommendations - Entrance of Private
Sector Companies and Foreign promoters & An
independent regulatory authority for Insurance Sector in
India
• In April,2000, it was set up as statutory body, with its
headquarters at New Delhi.
• The headquarters of the agency were shifted
to Hyderabad, Telangana
 Objectives of IRDA:
• To promote the interest and rights of policy
holders.
• To promote and ensure the growth of
Insurance Industry.
• To ensure speedy settlement of genuine
claims and to prevent frauds and malpractices
• To bring transparency and orderly conduct of
in financial markets dealing with insurance
 Organisational Setup of IRDA:
• IRDA is a ten member body consists of :
One Chairman (For 5 Years & Maximum Age - 60
years )
• Five whole-time Members (For 5 Years and
Maximum Age- 62 years)
• Four part-time Members (Not more than 5 years)
• The chairman and members of IRDAI are
appointed by Government of India.
 Removal of Members
The Central Government can remove any member of the Authority if
he :-
• a) Is declared bankrupt
• b) Has become physically or mentally incapable of acting as a member
• c) Has been awarded punishment by any Court.
• d) Has acquired such financial or other interest which affect his
function as a member.
• e) Has so abused his position as to render his continuation in office
detrimental to the public interest.
But no member can be removed form the office unless & until the
reasonable opportunity of being heard is given to such member in the
matter.
 Functions And Duties of IRDA:
• It issues the registration certificates to insurance
companies and regulates them.
• It protects the interest of policy holders.
• It provides license to insurance intermediaries such
as agents and brokers after specifying the required
qualifications and set norms/code of conduct for
them.
• It promotes and regulates the professional
organisations related with insurance business to
promote efficiency in insurance sector.
• It regulates and supervise the premium rates and
terms of insurance covers.
• It specifies the conditions and manners, according
to which the insurance companies and other
intermediaries have to make their financial reports.
• It regulates the investment of policyholder's funds
by insurance companies.
• It also ensures the maintenance of solvency margin
(company's ability to pay out claims) by insurance
companies.
 Appointment of Insurance Agent by the
Insurer
1) An applicant seeking appointment as an Insurance Agent of an Insurer
shall submit an application in Form I-A to the Designated Official of the
Insurer
2) The Designated Official of the insurer, on receipt of the application,
shall satisfy himself that the applicant:-
a) has furnished the Agency Application in Form I-A complete in all
respects;
b) has submitted the PAN details along with the Agency Application Form;
c) has passed the insurance examination as specified under Clause VI;
d) does not suffer from any of the disqualifications mentioned in Clause
VII
e) has the requisite knowledge to solicit and procure insurance business;
and capable of providing the necessary service to the policyholders;