GENERAL INSURANCE

Insurance ‐‐‐ Mechanism of Covering Risk

Insurance is a mechanism by which the person exposed to the potential risk,

arising out of the events beyond his control, transfers the financial loss; in
part or in full to a third party.

The party which transfers the potential loss is termed as the ‘Insured’ and the
party which indemnifies or undertakes to compensate the other party of such
potential loss is termed as ‘Insurer’.

The Insurer provides the coverage for the potential financial loss for a fee or
a consideration which is called the ‘Premium’.

Thus Insurance is a special type of contract between the Insurer (the

Insurance Company) and the Insured (the client) wherein:

a) The client agrees to pay a premium to the Insurance Company. Such

premium may be a fixed amount payable as a single payment or it may
be paid as periodical payments. This will depend upon the type of
Insurance and the terms thereof.

b) In lieu of the payment of such premium the Insurance Company agrees

to make some payment to the client or bear the costs of the client due
to financial loss incurred on the occurrence of certain events.

For example, in vehicle insurance, the Insurance Company pays the cost of
repairing the vehicle if it is damaged in an accident.
 Types of Insurance

Insurance in India is mainly of two types viz. Life Insurance and Non Life
Insurance which is termed as General Insurance. These are described as follows:

c) Life Insurance
Under Life Insurance the Insured pays the premium at specified times
and in turn the Insurance Company undertakes to pay the specified
fixed amount to the legal heirs in the event of death of the Insured.
Thus life insurance is a mechanism whereby the life of the Insured is
insured.

d) General Insurance
Insurance other than Life Insurance falls under the category of General
Insurance. The different types of General Insurance are fire, marine,
Motor Vehicle, accident and other types of non life insurance.

General Insurance

As explained in the preceding para Insurance Contracts that do not come

under the ambit of Life Insurance are called General Insurance or Non Life
Insurance Contracts.

General Insurance comprises of:

 Insurance of property against fire, theft etc.

 Personal Insurance such as Accident & Health Insurance.
 Liability Insurance which covers legal liability arising out of third
party claims such as claim from a person injured in a motor accident
etc.
 Other types of Insurances such as Credit Insurance, Crop Insurance, etc.
Thus General Insurance provides indemnity against loss arising from damage
to property or assets, expenditure or loss of earning arising from injury to a
person, legal liabilities etc.
The factors that distinguish General Insurance from Life Insurance are as follows:

Sr. No. Parameter Life Insurance General Insurance

The element of risk is

a. Risk The element of risk
the damage/ loss to a
is the death of a
property or an asset.
person
Comparatively
shorter period not
b. Tenure Long Period
extending beyond the
useful life of the
asset.
In the event of death The beneficiary
of the Insured the would generally be
c. Beneficiary Beneficiary would the Insured who
be the Legal Heirs of would also be, in
the Insured. most cases, the owner
of the asset
Periodical Payments Generally Lump Sum
d. Payment
which could be Payment at the time
quarterly, half yearly of taking up the
of Premium
or yearly Policy.

Importance of General Insurance

General Insurance is the best practical option for every person who would
like to cover himself from loss arising out of risks.

Risk is associated with everything that we do or are involved in. Immovable

Properties that we own are prone to fire and damage / destruction due to
natural calamities such as Earthquakes, Floods etc.

Movable properties including personal effects such as jewelry are prone to

theft and burglary. Vehicles are also prone to accidents. Similarly human
beings are prone to injuries resulting from accidents and illnesses.
All the incidents enumerated above would result into financial losses.

Then there could be Third Party Claims on you. For instance, you are driving
a car and unfortunately you meet with an accident in which a pedestrian is
injured. Such person will have a Claim on you.

Also there could be claims on you while you are performing your
professional duties. A Doctor may be subject to a claim for negligence in
treating a patient.

General Insurance, wherever applicable, would provide cover against such

losses. The modern day General Insurance covers practically all losses
arising out of risks. The primary risk that is not covered by General Insurance
is death of a person which is covered by Life Insurance.

Needless to say, when the losses due to risks are covered a person would lead
a peaceful life. The Security provided by General Insurance would improve
the quality of life of a person.

Apart from the peace of mind General Insurance also covers Business Losses
and Personal Losses in case the unfortunate incident happens resulting in the
loss. This would help the person who has suffered loss to run his business
smoothly.