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Principles of insurance
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Indrajeet Kamble

Oct. 23, 2012

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 Principles of insurance
1. PRINCIPLES OF INSURANCE PRESENTED BY: CHAITHRA.G CHAITRA.M. CHANDNI.K.
DEVIKA.B.Z. NIVEDITHA.C.
2. INSURANCE Insurance is a form of risk management primarily used to hedge
against the risk of a contingent, uncertain loss. Insurance is defined as
the equitable transfer of the risk of a loss, from one entity to another, in
exchange for payment.  An insurer is a company selling the insurance.  The
insured, or policyholder, is the person or entity buying the insurance policy. 
The amount to be charged for a certain amount of insurance coverage is
called the premium.
3. Insurance governed acts 1) The insurance Act, 1938 2) The life insurance
corporation Act, 1956 3) The Marine Insurance Act, 1963 4) The General
Insurance Business Act, 1972
4. Contract of Insurance Is a contract whereby the insurer undertakes to make
good the loss of another called the insured by payment of some money
to him on the happening of a specific event.
5. Terminologies used  Insurer  Insured  Premium  Policy  Subject matter 
Insurable interest  Insurable risk
6. Insurable Risk  The law of large number.  The loss produced by the risk must
be definite.  The loss must be fortuitous or accidental.  The loss
must not be catastrophic.
7. Criteria of determination of whether a risk can be insured or not  The risk
must arise out of the ordinary course of business and it should not be
artificially created by parties.  The risk must be common enough to justify its
spreading at a nominal cost.  There must be an element of uncertainty
as to the occurrence of risk or the time of the occurrence.  The party must have
some real interest in avoiding the risk.
8. Types of insurance 1) Personal or Life insurance 2) Property insurance 3)
Liability insurance 4) Guarantee insurance
9. Fundamental principles of insurance 1) Essential elements of a valid contract.
 There must be contract between two parties i.e. insurer and insured.
 The contract must be in writing.  The insurance policy is printed, stamped,
signed my the insurer and handed over to the insured.  It should have a
valid offer, acceptance and consideration.  There should be a lawful object.
10. Contd… 2) Principle of co-operation and probability. 3) Utmost good faith. 4)
Indemnity. 5) Contingent contract. 6) Insurable interest. 7) Aleatory
contract. 8) Term of policy.
11. Contd… 9) Commencement of risk. 10) Premium. 11) Causa proxima. 12)
Mitigation of loss. 13) Contribution. 14) Subrogation. 15) Reinsurance.
16) Double insurance.
12. Distinction b/w double insurance and reinsurance Double insurance Reinsurance
Risk The same risk and same The transfer of part of the subject in
insured by the risk by the insurer. policy holder. Extent of The loss will be
shared by all The re-insurer will be liable liability of the the insurers. for a
proportion of part of insurer the loss. To whom liable Each insurer is directly
liable The re-insurer is liable only to the policy holder. to the first insurer.
Object It is a method of assuring the It is a method of reducing of benefit of
insurance. the risk of the insurer.
 13. Wager The meaning of ‘wagering’ is staking something of value upon the result
of some future uncertain event, such as a horse race, or upon the
ascertainment of the truth concerning some past or present event.  An agreement
under which each bettor pledges a certain amount to the other
depending on the outcome of an unsettled matter.  A matter bet on; a gamble. 
Something staked on an uncertain outcome.  A pledge of personal
combat to resolve an issue or case.
14. Ingredients of a wager contract 1) It can relate to part, present or future
act or event. 2) One party is to win and the other party is to lose upon the
determination of the event. 3) There shall be two persons either to whom stands
to win or lose 4) Stake is the only interest between the two parties.
They have no real interest in the subject matter.
 15. Similarities b/w a contract of insurance and wager 1) Uncertainty: In both
uncertainty is involved. 2) Amount : In both money plays an important role.
3) Speculation : both depends upon happening or non-happening of speculative
events.
16. Return of premium There are circumstances which make the contract of insurance
void or even voidable. The contract of insurance is voidable
when the affected party has opted to avoid the contract. This usually happens when
the consideration has failed.
17. Circumstances when the insurer is bound to return the premium 1) No risk – no
premium. 2) Doctrine of pari delicto. 3) Frustration and impossibility.
4) Non-disclosure of fact or mistake. 5) Fraud by the insurer. 6) Ignorance of the
fact. 7) Fraud played by the insurance agent. 8)
Cancellation/rescission. 9) Ultra vires the insurance company. 10) Surrender of
the policy.

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