Intro To Insurance and Risk MGMT 481 v1 3

Introduction to Insurance and
Risk Management
Sub Code 481
Developed by
Prof. Ajay Prabhu
On behalf of
Prin. L.N. Welingkar Institute of Management Development & Research
!
Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)
Board Members
1. Prof. Dr. Uday Salunkhe 2. Dr. B.P. Sabale 3. Prof. Dr. Vijay Khole 4. Prof. Anuradha Deshmukh
Group Director Chancellor, D.Y. Patil University, Former Vice-Chancellor Former Director
Welingkar Institute of Navi Mumbai (Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)
Program Design and Advisory Team
Prof. B.N. Chatterjee Mr. Manish Pitke

Dean – Marketing Faculty – Travel and Tourism
Welingkar Institute of Management, Mumbai Management Consultant
Prof. Kanu Doshi Prof. B.N. Chatterjee

Dean – Finance Dean – Marketing
Welingkar Institute of Management, Mumbai Welingkar Institute of Management, Mumbai
Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Dean – Management Development Programs Faculty – Media and Advertising
Welingkar Institute of Management, Mumbai Founder of EVALUENZ
Prof. B.N. Chatterjee Prof. Vineel Bhurke

Dean – Marketing Faculty – Rural Management
Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Director – Intraspect Development Faculty – Healthcare Management
Manager Medical – Air India Ltd.
Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Dean – IT/Business Design Faculty – Hospitality
Welingkar Institute of Management, Mumbai Former Manager-Catering Services – Air India Ltd.
Prof. Sandeep Kelkar Mr. Anuj Pandey

Faculty – IT Publisher
Welingkar Institute of Management, Mumbai Management Books Publishing, Mumbai
Prof. Dr. Swapna Pradhan Course Editor

Faculty – Retail Prof. Dr. P.S. Rao
Welingkar Institute of Management, Mumbai Dean – Quality Systems
Welingkar Institute of Management, Mumbai
Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Dean – Banking Dean – Marketing
Mr. P.M. Bendre Course Coordinators

Faculty – Operations Prof. Dr. Rajesh Aparnath
Former Quality Chief – Bosch Ltd. Head – PGDM (HB)
Welingkar Institute of Management, Mumbai
Mr. Ajay Prabhu Ms. Kirti Sampat

Faculty – International Business Assistant Manager – PGDM (HB)
Corporate Consultant Welingkar Institute of Management, Mumbai
Mr. A.S. Pillai Mr. Kishor Tamhankar

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Ex Senior V.P. (Sify) Welingkar Institute of Management, Mumbai
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1st Edition, June 2015

CONTENTS
Contents
Chapter No. Chapter Name Page No.
1 Introduction to Insurance 04-66

2 Basic Concepts of Insurance 67-100
3 Insurance Business Environment in India 101-145
4 Concepts of Risk and Risk Management 146-165
5 Insurance Documentation 166-205
6 Underwriting and Insurance Pricing 206-232
7 Various Types of Life Insurance Products 233-292
8 Special Types of Insurance Plans 293-342
9 Policy Servicing and Claims Settlement 343-399
10 Various Types of General Insurance Products 400-456
11 Fire Insurance 457-491
12 Motor Vehicle Insurance 492-526
13 Miscellaneous General Insurance 527-579
! !3
INTRODUCTION TO INSURANCE
Chapter 1
Introduction to Insurance
Objectives
This chapter will help you understand the phenomenal changes that have
evolved in the Insurance sector from the ancient times.
! !4
Structure:
1.1 Introduction
1.2 Evolution of Insurance from the Ancient Times Till Date (In the World)
1.2.1 Insurance in the Pre-Greek Period

1.2.2 Ancient Greece Period
1.2.3 Insurance in the Roman Empire
1.2.4 Insurance in the Dark and Middle Ages
1.2.5 Insurance Business in the 16th Century and Onwards
1.2.6 Globalisation of Insurance Markets
1.2.7 Insurance and the Developing World
1.2.8 Challenges Facing the Insurance Industry
1.2.9 General Trends for the Global Insurance Industry
1.3 Evolution of Insurance from the Ancient times Till Date (in India)
1.3.1 Insurance in Its Current Form has its History Dating Back
Until 1818
1.3.2 The First Attempt to Regulate the Life Insurance Business
in India
1.3.3 Nationalising the Life Insurance Sector
1.3.4 The History of General Insurance
1.3.5 Insurance Sector Reforms in India
1.3.6 Opening up of Insurance Market
1.3.7 Impact of Globalisation on Indian Insurance Market
1.3.8 Insurance Repository Services in India
1.3.9 Insurance Laws (Amendment) Ordinance 2014
1.4 Summary
1.5 Activities for Students
1.6 Suggested Readings and References
1.7 Web Resources
1.8 Self Assessment Questions
! !5
1.1 Introduction
Is insurance a matter of choice or something forced down the throat of an

ignorant investor by an agent/advisor? If insurance was a matter of choice,
every investor would have been aware about the basic concepts of
insurance. Only then, could he decide about buying the right insurance
product which would fulfill his needs and wants. If an investor does not
understand the basic concepts of insurance, but, is willing to buy an
insurance product due to a blind faith he has in his agent/advisor, then
surely this is an excellent example of something forced down the throat of
an ignorant investor. This ultimately culminates into the agent/advisor
earning commission and the investor repenting/regretting for his act.
Thus, before buying and/or selling an insurance product (life and/or non-
life), both the agent/advisor and the investor should be clear about the
basic concepts of insurance and its usefulness.
The very word “insurance” is derived from the classical Latin word
“secures” meaning “security.” Other forms of insurance terminology are
also derived from ancient practices of Mediterranean commerce. The word
“policy” is also of Italian origin – derived from the Italian word “polizza”
which means “promise” – although other sources have been claimed for
this word.
Insurance makes a major contribution to economic growth and

development. It facilitates economic transactions by providing risk transfer
and indemnification. It encourages risk management and the promotion of
safe practices. It promotes financial stability by providing long-term
investment in the economy. It encourages stable and sustainable savings
and pension provision.
An article on The History of Insurance posted by Andrew Beattie on http://

www.investopedia.com makes a beautiful mention of the meaning of
insurance as follows:
If risk is like a smoldering coal that may spark a fire at any

moment, then insurance is our fire extinguisher.
! !6
It further says countries and their citizens need something to spread risk
among large numbers of people and to move risk to entities that can
handle it. This is how insurance emerged.
The Life Insurance Corporation of India gives a wonderful description of

evolution and the need for insurance in the following words: The story of
insurance is probably as old as the story of mankind. The same instinct
that prompts modern businessmen today to secure themselves against loss
and disaster existed in primitive men also. They too sought to avert the
evil consequences of fire and flood and loss of life and were willing to make
some sort of sacrifice in order to achieve security. Though the concept of
insurance is largely a development of the recent past, particularly after the
industrial era – in the past few centuries – yet its beginning dates back
almost 6000 years.
Before we dwell deeper into the basic meaning of insurance and its related
concepts, let us understand the evolution of Insurance from the ancient
times till date.
1.2 Evolution of insurance from the ancient times till date

(in the world)
The concept of insurance has a deep-rooted history in India as well as in

the ancient world. History of Insurance dates back to early human society
which comprised of natural or non-monetary economies. These economies
used barter or trade with no standardised form of financial markets,
currency or instruments. Insurance in natural or non-monetary economies
existed in the form of agreements of mutual aid. For example, if one
family’s house gets destroyed, the neighbours are committed to help
rebuild it. Granaries embodied another early form of insurance to indemnify
against famines. The main aim of insurance of all types was to protect the
owner from a variety of risks by pooling of resources that could be
redistributed in times of calamities such as fire, floods, epidemics and
famine.
! !7
1.2.1 Insurance in the Pre-Greek Period
The first methods of transferring or distributing risk in a monetary

economy, were practiced by Chinese and Babylonian traders in the 3rd and
2nd millennia BC, respectively.
Chinese merchants travelling treacherous river rapids would redistribute

their wares across many vessels to limit the loss due to any single vessel’s
capsizing. In ancient times, farmers of China sent their crops to market on
boats. Inevitably, on occasion, a boat sank along the way. The farmers
began spreading their crops among numerous boats, so that if one boat
sank, any one family would only lose a small portion of their crops, thus
avoiding financial devastation. The loss was spread among many families,
and was therefore manageable for each one.
A type of Property Insurance first became popular about 3000 BC in China.

Chinese merchants, as well as their investors, wanted to ensure that they
would see a profit from their goods that they shipped overseas. In the
event that a ship was lost at sea or pirated, an insuring partner would
reimburse the owners of the ship and goods. To pay for the loss, the
merchant would be sold into slavery to the insurer until the debt was
repaid. This was a mutually beneficial arrangement since a merchant could
not afford to pay for the lost goods or even to buy a ship unless someone
invested. The merchant could become very rich and even own a fleet of
ships if he was successful.
! !8
Babylon was an ancient city-state in Mesopotamia, fifty-five miles south of

modern-day Baghdad, Iraq. The principal imports of Babylonia included
gold, silver, copper, tin, precious and semi-precious stones, ivory, woods
such as ebony, oil, essences, wine and slaves. During trade routes, bandits,
pirates, fire storms and death were common occurrings; the loss chances
were very high and the Babylon Merchants who extended credit on such
vulnerable collateral as cargo in transit charged risk premium above the
interest charges on capital. The borrower usually charged all his property
and his family in order to secure the loan. If the misfortune befell him, the
borrower lost everything and he and his family might be sold into slavery.
Under the pressure of high risk, trade declined and by 2250 BC, there was
little commercial activity along the trade routes of the Near East.
The Babylonians developed a system which was recorded in the famous

Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean
sailing merchants. If a merchant received a loan to fund his shipment, he
would pay the lender an additional sum in exchange for the lender’s
guarantee to cancel the loan should the shipment be stolen or lost at sea.
As for the lender, collecting these premiums from many traders made it
possible for him to absorb the losses of the few. The ancient Babylonians
also devised a system that protected both the merchants and their
customers against theft or loss, and this is one of the earliest recorded
examples of insurance. The system involved wealthy people guaranteeing
that they would pay for the loss of any ship that might sink, in exchange
for receiving an agreed amount of money from ship owners.
! !9
The “Hammurabi Code” was one of the first forms of written laws. The
Code of Hammurabi formalises concepts of civic responsibility, bottomry
and respondentia, improved trade conditions and established doctrines that
were to play significant roles in the evolution of insurance. The first written
insurance policy appeared in ancient times on a Babylonian obelisk
monument with the code of King Hammurabi carved into it. This policy was
paid by the traders in the form of a loan to guarantee the safe arrival of
their goods by caravan.
Bottomry and respondentia loans were maritime contracts on vessels or on

cargoes. A bottomry would be taken, but the repayment would be
contingent on the ship successfully completing the voyage. There were
three basic elements in such agreements:
1. A loan on the vessel, cargo, or freight

2. An interest rate on loan
3. A risk premium for the chance of loss of the venture and the consequent
cancellation of the debt.
! !10
Under the provisions of a bottomry bond, the borrower was freed of his
obligation on the event that the collateral was lost through no willful act of
his own. In the event of the death or total disability of the borrower, the
debt is cancelled.
“Adventures in Probability” by Michael Kaplan and Ellen Kaplan makes a

beautiful mention of Bottomry. It says Bottomry is an arrangement that is
easy to describe but difficult to characterise: not a pure loan, because the
lender accepts part of the risk; not a partnership, because the money to be
repaid is specified; not pure insurance, because it does not specifically
secure the risk to the merchant’s goods. It is perhaps best considered as a
futures contract: the insurer has bought an option on the venture’s final
value.
The Free Dictionary says Respondentia is a loan where a ship’s cargo is

the security, on similar terms to bottomry.
Achaemenian monarchs in Ancient Persia were presented with annual gifts

from the various ethnic groups under their control. This would function as
an early form of political insurance, and officially bound the Persian
monarch to protect the group from harm. The insurance tradition was
performed every year during festive occasions like Nowruz (beginning of
Persian New Year). When such a gift was given, it was registered in court
offices. Jahez, a historian and writer, writes in one of his books on ancient
Iran: “Whenever the owner of the present is in trouble or wants to
construct a building, set up a feast, have his children married, etc., the one
in charge of this in the court would check the registration. If the registered
amount exceeded 10,000 Derrik, he or she would receive an amount of
twice as much.”
Lex Rhodia: The Ancient Ancestor of Maritime Law – 800 BC makes a

mention of people of Rhodes between 1,000 BC and 600 BC, who
developed a strong commercial fleet which were soon everywhere in the
Mediterranean, as well as establishing trading colonies along the west coast
of Italy, France and Spain. At some point in the 1st millennium BC, the
inhabitants of Rhodes created the ‘general average’. This allowed groups of
merchants to pay to insure their goods being shipped together. The
collected premiums would be used to reimburse any merchant whose
goods were jettisoned during transport, whether to storm or sinkage.
! !11
In the 4th century BC, rates for the loans differed according to safe or
dangerous times of year, implying an intuitive pricing of risk with an effect
similar to insurance. The ancient Athenian “maritime loan” advanced
money for voyages with repayment being cancelled if the ship was lost.
In the 7th century, the early Islamic community developed an insurance

system called Takaful. It was a co-operative system of reimbursement in
case of loss, paid to people and companies concerned about hazards,
compensated out of a fund to which they agree to donate small regular
contributions managed on behalf by a Takaful operator. It is defined as an
Islamic insurance concept which is grounded in Islamic muamalat (Islamic
banking), based on Islamic economics. This concept has been practiced in
various forms since 622 CE. Muslim jurists acknowledge that the basis of
shared responsibility (in the system of aquila as practiced between Muslims
of Mecca and Medina) laid the foundation of mutual insurance
Soon the Phoenicians and then the Greeks, Hindus and Romans also had
similar concepts in place. Each culture had its own interesting twist on the
laws. For example, the Phoenicians were regarded as ‘rulers of the sea’
occupying what is now modern day Lebanon and the coastal parts of Syria
and Palestine from circa 1,200 BC for approximately one thousand years.
The Phoenician sphere of influence spread throughout the Mediterranean
and their trading activities reached as far as Cornwall for tin, and Indian
and China for spices and precious goods. This civilisation, though often
overlooked by the modern world, is credited with many discoveries
including the alphabet, insurance and remarkable trading and seafaring
abilities including the discovery of the pole star. The Roman’s had a
“jettison” law which stated that if a ship’s crew had to lighten the ship by
throwing things overboard, then the loss would be split between the
merchant and the insurer.
Bottomry agreements were common in Venice, Geneva, Florence, Naples

Tarentum and Bari before the year AD 1000 as evidenced by the Amalfitan
Sea Codes.
1.2.2 Ancient Greece Period
Bottomry was also practiced in Ancient Greece as early as the 4th

century BC. The Greek era of modern history witnessed the two most
! !12
significant developments of early times brought to a high degree of

refinement:
a. Well establishment of bottomry contract

b. Concept of averages evolved.
Risk premiums were differently charged based on various factors mostly

contemporary in the manner the insurance rates are set.
The Greeks and Romans introduced the origins of health and life insurance
in 600 BC when they created guilds called “benevolent societies” which
cared for the families of deceased members, as well as paying funeral
expenses of members. Private insurance in modern Greece’s business life
appeared initially within the frame of naval commercial activity. The first
legislative attempt to establish state supervision of the insurance industry
dates back to 1909, under which only domestic firms could offer insurance
coverage in Greece. A few months later, foreign insurers were also allowed
to operate in Greece and sought to further ensure the soundness of
insurance firms.
The world’s oldest insurance market, Lloyd’s of London was formed 300
years ago. Lloyd’s of London has a long established history of writing
insurance business from Greece, particularly marine insurance, but the first
insurance exchange is believed to have been established in Athens in the
early period similarly to the development of Lloyd’s of London.
1.2.3 Insurance in the Roman Empire
The Greek tradition in insurance was conveyed to the Romans who adopted
the practices of bottomry and its related contracts. The law of warranty and
general average was further refined. The Romans even had an insurance
exchange, although it is not believed to have been formalised as was the
one in Athens.
The Romans were perhaps the first to have burial insurance – people joined
burial clubs which paid funeral expenses to surviving family members.
Burial societies such as Eranoi and Thiasoi, existed in Greece for the
purpose of providing prepaid bunals for the members, but the Romans
provided more elaborate burial and benevolent services through their
! !13
collegia. The collegia represented the distinctive contribution of the

Romans to the history of insurance.
http://Humanscience.wikia.com gives detailed information on the burial

insurance as follows: In ancient Rome, a system was devised to assist the
families of injured or ill members, or if family members were in need of
financial assistance to pay for the burial of their loved one. This basic form
of insurance coverage was utilised by poor – free people, slaves, members
of the military and average citizens who were not wealthy enough to be
sure they could afford to be buried when they died. The people formed and
joined burial clubs called Fratres that originated with the intention of
paying for the funerals of those people who belonged to the clubs, and
financially helping surviving family members. The club members met every
month and at festival times. During their meetings, it was expected that
the insured would pay fees towards their continued membership. Other
rules required that new members, in addition to paying an entrance fee,
would have to contribute an agreed amount of wine to the group. And
during the meetings, after performing sacrifices, everyone shared a meal
that presumably included the donated beverage. There were also other
stipulations. For example, members who hadn’t paid their dues for six
months were not permitted to make claims for burial. Moreover, members
who committed suicide could not be buried in the same cemetery as the
other residents of the community, and their survivors could not make
claims against the burial clubs for financial assistance.
1.2.4 Insurance in the Dark and Middle Ages
The decay and disintegration of Roman empire in the fifth century AD

brought in its wake an era of negligible international commerce and the
development of small isolated self-sufficient and self-contained
communities. The collegia of Rome evolved into the guilds of the middle
ages. Most craftsmen were trained through the guild system.
Apprentices spent their childhoods working for masters for little or no pay.
Once they became masters themselves, they paid dues to the guild and
trained their own apprentices. The wealthier guilds had large coffers that
acted as a type of insurance fund. If a master’s practice burned down, a
common occurrence in the wooden hovels of medieval Europe, the guild
would rebuild it using money from its coffers. If a master were robbed, the
guild would cover his obligations until money started to flow in again. If a
! !14
master were suddenly disabled or killed, the guild would support him or his
widow and family. This safety net encouraged more and more people to
leave farming and take up trades. As a result, the amount of goods
available for trade increased, as did the range of goods and services
available. The style of insurance used by guilds is still around today in the
form of “group coverage”.
The early Anglo-Saxon guild was a family association loosely knit for the
purpose of providing mutual aid. When a youth attained the age of
fourteen years, the Norman conquerors of England required him to find
sureties to guarantee his keeping the peace. To meet this contingency
early, guilds were formed. In time, the guilds enlarged their functions to
include benefits to craftsmen, artisans and professional persons. The full-
fledged development led to religious, economic, political, and defensive
organisations. About the eight century, trade guilds in Flanders and West
Germany offered mutual protection against loss arising from fire damage to
livestock and against other misfortune.
In the twelfth century, after the establishment of Seljuk State in Anatolia,

Seljuk Sultan Ghiyas ad-Din Kaykhusraw I introduced a form of State
insurance which enabled reimbursing the traders for their loss from the
State treasury, if they would be robbed within the Seljuk territory.
Marine insurance made progress during the twelfth through fourteenth

centuries and there appears to have been a Chamber of Assurances at
Bruges, about 1310, at which merchants could insure their goods upon
payment of a stipulated percentage. The antecedents of fire insurance are
found in the custom, recorded as early as 1240 in the village of
verambacht which held that a person whose house burned down was to be
identified without delay by the whole village. By 1227, outside merchants
wishing to sell their wares at local fairs could be insured against loss by fire
or theft for a duty of four deniers.
By 1400, Europe’s trade pattern was well-developed, considering the

relatively low state of transportation technology. Small ships hugging the
coastline of Europe, caravans of small wagons travelling overland, and
countless peddlers carrying their inventories on their backs supplied a
network that moved goods in high demand to and from all parts of the
civilised world.
! !15
In the fourteenth century, separate insurance contracts were invented in

Genao. Genoa is the capital of Liguria and the sixth largest city in Italy. The
earliest authenticated insurance contract was a marine insurance contract
on a ship “The Santa Clara” dated 1347 in Genao. It displays the
characteristics of insurance in the sense of transfer of risk or loss due to a
fortuitous uncertain event in lieu of payment of consideration/premium.
The policy is in Italian language and is in the form of maritime loan to
avoid the Church prohibition against usury. The earliest insurers were
merchants underwriting risks for fellow merchants, on a part-time basis.
The earliest insurance contracts did not appear in the form of a modern
insurance contract, but rather was drafted in the form of either a fictional
sale or loan, until the insurance contract proper was recognised and
accepted.
In the fifteenth century, maritime insurance developed widely and

premiums were intuitively varied with risks. These new insurance contracts
allowed insurance to be separated from investment, a separation of roles
that first proved useful in marine insurance. Bottomry contracts were used
extensively throughout the renaissance of commerce and insurance was a
basic consideration in all shipping along major routes. A cargo of armor
shipped from Hamburg to London in 1560 was insured by the Hanse
underwriters at a rate of 6%. This rate is similar to the contemporary
levels.
1.2.5 Insurance Business in the 16th Century and Onwards
In 1575, during the reign of Queen Elizabeth I, the Chamber of Assurance

in the Royal Exchange was opened for the registration of marine parcels.
Following this, an Act of Parliament was passed in 1601 to deal with
disputes relating to marine insurance.
Insurance as a commercial business in the modern sense first emerged in

the UK at the end of the 16th century. It evolved and came of age with the
onset of industrial revolution. The practice of underwriting emerged in the
same London coffeehouses that operated as the unofficial stock exchange
for the British Empire. The origin of the word, “underwriter” is Italian, and
is derived from the ancient practice of signing contracts for marine
insurance in order to share in the profit or loss of a venture. The
participants in the contracts signed their names underneath the contract,
! !16
writing at the same time the amount of the risk that would be assumed by
each businessman.
In the late 1600s, shipping was just beginning between the New World and
the old as colonies were being established and exotic goods were ferried
back. A coffeehouse owned by Edward Lloyd, later of Lloyd’s of London,
was the primary meeting place for merchants, ship owners and others
seeking insurance. By 1654, Blaise Pascal, the Frenchman who gave us the
first calculator, and his countryman Pierre de Fermat discovered a way to
express probabilities and, thereby, understand levels of risk. Pascal’s
triangle led to the first actuary tables that were, and still are, used when
calculating insurance rates. These formalised the practice of underwriting
and made insurance more affordable.
In 1666, the great fire of London destroyed around 14,000 buildings.

London was still recovering from the plague had that ravaged it a year
earlier, and many survivors found themselves without homes. As a
response to the chaos and outrage that followed the burning of London,
groups of underwriters who had dealt exclusively in marine insurance
formed insurance companies that offered fire insurance. In 1680, Nicholas
Barbon opened an office to insure buildings and he established England’s
first fire insurance company to insure brick and frame homes. Armed with
Pascal’s triangle, these companies quickly expanded their range of
business.
By 1693, the first mortality table was created using Pascal’s triangle and
life insurance soon followed. In 1693, the astronomer Edmond Halley
created a basis for underwriting life insurance by developing the first
mortality table. He combined the statistical laws of mortality and the
principle of compound interest. However, this table used the same rate for
all ages.
The first mutual fire insurance company was established in 1696 with the
cumbersome name of “Contributorship for Insuring Houses, Chambers, or
Rooms from Loss by Fire by Amicable Contributions”. This company was
highly successful, eventually being absorbed by the Commercial Union
Assurance Company, Ltd. of London in 1905.
In 1704, the Lombard House inaugurated fire insurance for household and
business goods. In 1756, Joseph Dodson corrected this error and made it
! !17
possible to scale the premium rate to age. Until the 1800-1900s, premiums
were not determined by statistics kept as in the modern sense, but was
often arrived at as a result of haggling. In 1830s, the practice of classifying
risks was begun. In 1835 when the New York fire struck, the losses were
unexpectedly high and they had no reserves prepared for such a situation.
As a result of this, Massachusetts lead the states in 1837 by passing a law
that required insurance companies to maintain such reserves. Insurance
companies had to work together to find a solution to the challenge of large
losses. So, they got together and devised a system called reinsurance
whereby losses were distributed among many companies.
Although there was religious prejudice against the practice of insurance by

a church, after 1840, it declined and life insurance boomed. 1864 saw the
Travellers’ Insurance Company sell its first accident policy. Car insurance is
a spin-off of marine insurance. It was developed after policymakers
decided that operating a motor vehicle on public property was a privilege.
It was ordered that motorists must purchase car insurance to protect
innocent third parties against injury or property damage. The first car
insurance policy that offered liability coverage was written by an English
company in 1895. 1889 saw the first auto insurance policy. The first
liability car insurance policy written in the United States took place in 1898
and was written for Dr. Truman J. Martin.
Congress first authorised Federal Crop Insurance in the 1930s along with
other initiatives to help agriculture recover from the combined effects of
the Great Depression and the Dust Bowl. The Federal Crop Insurance
Corporation (FCIC) was created in 1938 to carry out the programme.
First pet health insurance policy is written for a dog in Sweden in 1924 and
first pet health policy was sold in Britain in 1947. Today, the UK has the
most mature pet health insurance market in the world with over 20% of
pets insured.
The Workmen’s Compensation Act of 1897 in Britain required employers to

insure their employees against industrial mishaps. This also fostered what
we know today as public liability insurance, which came strongly into play
when the automobile arrived on the scene. In the 19th century, many
societies were founded to insure the life and health of their members.
Fraternal orders were created to provide low-cost insurance strictly for
! !18
their members. Today, many of these fraternal orders and labour

organisations still exist.
In 1935, the Social Security Act came into effect, providing unemployment
compensation and old-age benefits. This took away some of the insurance
companies’ territory and it sent a clear signal that encouraged the industry
to begin regulating itself for fear of more government involvement. World
War II brought a wage freeze and companies, desperate to attract the
workers still in the country, started offering group life and health insurance.
These big policies went to large companies that could handle them. Most
employers offer group insurance policies for their employees, providing
them with life insurance, sickness and accident benefits, and pensions.
Throughout history, the types of insurance offered have been expanded in

reaction to new risks. With the explosion in insurance products and the
companies issuing them, the insurance industry was fraught with fraud and
scandal. These ranged from issuing companies that did not actually have
the capital to pay claims, running instead like fragile Ponzi schemes, to
insurers demanding unfairly high premiums or forcing out competitors in
an attempt to create a monopoly. Because the level of insurance
concentrated in urban centers could lead to huge losses and chaos in the
insurance industry if a mega disaster occurred, the insurance industry has
begun to repackage its risk in catastrophe-linked securities that trade on
the market and mitigate insurers’ risk.
Now, insurance policies can be found at institutions offering a range of

financial services Because of the demand and the range of insurance
policies available, insurance policies have increasingly become investments
in and of themselves. The internet changed the insurance industry by
blowing the field wide open. Now, people can go online to find the cheapest
rate, even as companies shop internationally for the right coverage. This is
one source of motivation for companies to merge with other financial
services. The increase in size gives them a global market and the
integration of services gives them a domestic advantage with customers
who are more concerned with convenience than price.
! !19
1.2.6 Globalisation of Insurance Markets
The increasing integration of the global economy based on trade in

industrial goods after World War II, reducing the legal barriers to cross-
border activities of financial services companies, the opening up of new
markets to foreign providers (e.g., Eastern Europe, China, India) and a
deregulation of many national markets played a key role in the process of
globalisation since 1970s. By offering products in several countries,
undertakings may benefit from economies of scale. Because it collects the
premium from a very large number of policyholders from different regions
of the country and thereby commands huge funds at their disposal.
Specific know-how obtained by Insurers from home markets can be used in
other countries as a competitive advantage. An increasingly important
motive for insurers of industrialised countries to engage in foreign activities
is their wish to participate in insurance markets with higher growth
prospects, particularly in emerging markets (e.g., Eastern Europe, Latin
America, China, and India). By offering products in several countries, risk
diversification becomes possible with regard to both business volume and
profits. Since there is no time lag occurrence of loss on one hand and
receiving the claim amount by the policyholders, the funds raised are used
for long-term projects which are not required to be paid immediately. Thus,
liquidity is created in the capital market.
However, manifold “natural” barriers in the form of culture, language,

society, mentality, risk situation (e.g., mortality, road safety), attitude of
the public towards risk and preferences with regard to a protection against
risks, as well as on actuarial calculations of insurers. The global insurance
industry has also undergone a major change after 11th September attack
on the World Trade Center in the United States. A few insurers have
disappeared from the global scene. Insurers have become cautious while
underwriting risk on global basis. Some of the insurers have even gone to
the extent of increasing the premium and freezing the insurance
boundaries.
Despite all the progress made in terms of liberalisation over the last few
years, direct barriers to entry for foreign financial services providers persist
in many countries worldwide; continue to have a significant impact on the
complete integration of primary insurance markets.
! !20
1.2.7 Insurance and the Developing World
Many of the world’s citizens and small businesses do not own insurance
because the premiums are too expensive. In many developing countries,
the only insurance available is government insurance products, which do
not tend to be heavily marketed and diversified. Insurance distribution has
historically been costly in developing economies due to infrastructure
weakness, geographical inaccessibility, and financial literacy. Insurers in
the developing country often have to deal with poor quality or missing
data, high transportation costs for face-to-face meetings, and low level of
customers’ financial education. With relatively low revenues per customer
from insurance sales, achieving profits require higher customer volumes.
The progress made in terms of liberalisation over the last few years have
recently recognised an attractive niche in serving the previously uninsured
customers. With an emerging middle class and a rapid increase in
innovative insurance products, insurance penetration is happening amongst
the millions of previously uninsured customers. The benefits of opening up
the insurance markets to competition is better customer service, new
insurance products, and technology and know-how transfer from the
private sector to the public sector and to local companies.
Asia, Latin American, and Eastern Europe are considered growth markets
for insurance companies, because many countries in these regions are
liberalising their insurance sectors, by opening it up to competition from
private companies. The growing middle class in these areas is demanding
more sophisticated insurance products and is willing to pay for them. Most
of these regions are starting to privatise social security systems, pension
plans, health insurance, and workers’ compensation insurance, thus there
are many opportunities for private insurance companies.
One of the challenges facing insurance companies who are trying to enter
these markets is that many of these developing countries do not require
their companies to follow generally accepted accounting principles (GAAP),
making it difficult for insurance companies to follow financial reporting
rules, such as Sarbanes Oxley.
! !21
1.2.8 Challenges Facing the Insurance Industry
Climate Change
According to the US Government Accountability Office, rising temperatures

will increase the number and severity of floods, hurricanes, droughts, and
other catastrophic weather events. Government and private insurances will
have to pay bigger claims that could deplete the insurers’ and reinsurers’
capital. In response, private insurance companies will charge higher
premiums and restrict coverage. Thus, more services will have to be
covered by governments; revenues will have to shift from other priorities
to pay for these services.
Terrorism
Terrorism risk poses fundamental challenges to our national security. The

9/11 attacks inflicted $35 billion in insured losses ($44 billion in 2014
dollars), making 2001 the most costly year in the history of insurance and
reinsurance up to that point. Similar to the issue of climate change,
resolving claims associated with terrorist attacks involves joint public and
private insurer involvement. The Terrorism Risk Insurance Act (TRIA) in the
United States covered insured firms up to $100 billion under a public-
private partnership. With its expiration at the end of 2014, the Risk Center
is actively involved with key decision-makers at developing a long-term
sustainable solution to terrorism risk financing. Other countries have also
initiated terrorism insurance programmes, including among others:
Australia, whose bill created a reinsurance pool to cover third party losses
and nullified commercial policies once a terrorist attack has been declared;
Belgium, which created a one billion euro pool; and, France, whose bill
provides a reinsurance pool, guarantees government payment of claims
exceeding a specified amount, and sets premiums based on insured
amount rather than riskiness of location.
A Directive for Europe—Solvency II
The EU’s insurer solvency regime was put in place in the 1970s. The idea
for EU-wide insurance legislation is to facilitate the development of a Single
Market in insurance services, whilst at the same time securing an adequate
level of consumer protection. The solvency margin is the amount of
! !22
regulatory capital an insurance undertaking is obliged to hold against

unforeseen events.
A solvency capital requirement may have the following purposes:
• To reduce the risk that an insurer would be unable to meet claims;
• To reduce the losses suffered by policyholders in the event that a firm is

unable to meet all claims fully;
• To provide early warning to supervisors so that they can intervene

promptly if capital falls below the required level; and
• To promote confidence in the financial stability of the insurance sector.
Solvency I directive was introduced in 1973 provided for minimum

harmonisation, which allowed differences to emerge in the way insurance
was regulated across Europe. Often called “Basel for insurers,” Solvency I
focused on the prudential standards for insurers and did not include
requirements for risk management and governance within firms. Solvency I
was only completed in the early 1990s with the third generation Insurance
Directives. The third generation Insurance Directives established an “EU
passport system” (single licence) for insurers based on the concept of
minimum harmonisation and mutual recognition.
The Solvency II Directive is an EU Directive that codifies and harmonises

the EU insurance regulation. It focuses on amount of capital that EU
insurance companies must hold to reduce the risk of insolvency. Following
an EU Parliament vote on the Omnibus II Directive on 11 March 2014,
Solvency II is scheduled to come into effect on 1 January 2016. Solvency II
will be based on economic principles for the measurement of assets and
liabilities. It will also be a risk-based system as risk will be measured on
consistent principles and capital requirements will depend directly on this.
While the Solvency I Directive was aimed at revising and updating the
current EU Solvency regime, Solvency II has a much wider scope.
Solvency II is a maximum harmonisation directive. The directive aims to

increase policyholder protection and consumer confidence in insurance
products by introducing greater transparency and disclosure requirements.
Solvency II also aims to introduce a more rigorous risk management
! !23
framework to allow for better strategic and operational decision-making by

insurers. With Solvency II, the regulators intend to achieve a consistent
approach across Europe in relation to:
• Market-consistent balance sheets

• Risk-based capital
• Own Risk and Solvency Assessment (ORSA)
• Senior management accountability
Solvency II requires a much deeper analysis of assets, and accurate data is

vital to an efficient use of capital. Solvency II allows investment in all asset
types, with different asset types attracting different capital charges.
Alongside Solvency II, insurers are also grappling with the long discussed
and debated International Financial Reporting Standards (IFRS) accounting
changes. For many insurance companies operating on a global stage,
consistency in accounting standards is vital to the efficacy of management
information.
1.2.9 General Trends for the Global Insurance Industry
Since the 1990s, the following trends have been broadly experienced by
the global insurance industry:
a. Concentration and centralisation processes: Formation of strategic

alliances between insurance and reinsurance companies; fusion of
banks, insurance companies, and credit companies to form transnational
financial groups; mergers between small and medium insurance
companies to form large international insurance companies.
b. Modification to traditional forms and types of insurance services

and new insurance products: Organising insurance coverage through
securitisation; insurer participation in pension insurance and reduced
participation of governments in providing payment of old-age and
disability pensions; new insurances against political, military, security,
and informational risks.
c. Change of market environments: Internet sales of insurance and

reinsurance products; insurances losses due to urbanisation, climate
change, and private property cost increases; liberalisation of state and
supra-state regulations of financial and insurance markets.
! !24
The world insurance market stands for approximately US$ 3 trillion in

Insurance premiums split equally between life and non-life insurance.
Development of insurance concept is the fastest in Europe. With a 35%
share of the global market, the European insurance industry is the largest
in the world, followed by North America (30%) and Asia (28%) [Source:
Swiss Re, Sigma No. 3/2014: “World Insurance in 2013”]. According to
“European Insurance – Key Facts, Insurance Europe, August 2014”, The
insurance sector is the largest institutional investor in the European Union,
with over €8 500 billion of assets under management invested in the
economy in 2013. This represents 60% of the GDP of the EU.
Developments in the investment portfolio of European insurers are mainly

driven by the life business, since the investment holdings of the life
insurance industry account for more than 80% of the total. The UK, France
and Germany jointly account for over 60% of all European insurers’
investments. For the European insurance industry, the creation of the
European Single Market for insurance in 1994, in particular, was an
important milestone. Since then, due to the introduction of a “single
passport”, it has been possible for insurers in the European Economic Area
to set up branches in other EEA countries or to offer insurance cover within
the EEA across borders directly from their home country by way of freedom
to provide services with the authorisation granted by their home country’s
supervisory authority only.
In America, the story was very different. Insurance was a latecomer to the
American landscape, largely because there were just too many known
risks, and even more unknown ones. Colonists’ lives were fraught with
dangers that no insurance company would touch. As a result of lack of
food, wars with indigenous people and disease, almost three out of every
four colonists died in the first 40 years of settlement. It took more than
100 years for insurance to establish itself in America. When it finally did, it
brought the maturity in both practice and policies that developed during
that same period of time in Europe. The first insurance company in the
United States underwrote fire insurance and was formed in Charles Town
(modern-day Charleston), South Carolina, in 1732. Benjamin Franklin
helped to popularise and make standard the practice of insurance,
particularly against fire in the form of perpetual insurance. In 1752, he
founded the Philadelphia Contributionship for the Insurance of Houses from
Loss by Fire. The first life insurance company in the United States began in
1735, for the benefit of the families of Presbyterian ministers.
! !25
In the words of Shaun Crawford, Global Insurance Leader in an EY

Publication titled 2014 Global Insurance Outlook, in 2014, the global
insurance industry is finally emerging from the combination of financial
turmoil and economic uncertainty that has challenged international
property-casualty and life-annuity insurance companies for the last several
years. Asia Pacific, which is witnessing, rising individual wealth and aging
populations are enticing areas of product expansion and revenue growth.
Latin America continues to offer substantial growth potential to insurers
that cleverly pursue specific niches. In the United States, Europe and
Canada, many insurers have rebuilt their capital positions in the wake of
the financial crisis and are poised to wisely allocate it to competitive
advantage and strength. All in all, the industry appears at the threshold of
much better times ahead. The above said EY Publication also makes a
detailed analysis of the region-wise challenges and opportunities as
follows:
In Asia Pacific, the regulatory changes are opening up the savings market
to new entrants. Insurers need to evaluate methods of product
development and distribution, such as forming a partnership with an
existing fund manager. Digital distribution strategies can improve customer
experience, but insurers must be alert to changing regulations and
environment. Insurers should seek to implement data analytics to improve
competitive standing and identify other areas to reduce expenses.
The Canadian Life insurance markets are leveraging operational flexibility

they have developed over the last few years to seize competitive
opportunity. Renewed focus on asset management and wealth
management with close monitoring of the interest rates, consumer
confidence and the equity markets compels development of innovative
attractive products that improves profitability. Insurers must improve
expense management and underwriting by streamlining existing processes,
increasing data analytics capabilities, outsourcing and focusing more
diligently on core operations. More stringent regulatory and accounting
changes compel insurers to improve their modeling capabilities, data
quality, data governance and the level of detail provided by their reporting
systems.
As the Eurozone and UK recover from the recent economic turmoil,

successful insurers must keep pace with evolving regulations, which are
becoming more stringent, affecting everything from capital requirements,
! !26
to commission rates and customer care. While the region’s aging

population and the personal and commercial non-life markets present
significant opportunities to increase sales, insurers must maintain focus on
profitability. As the low interest rate environment continues, insurers must
retool their investment strategies to increase investment yields and be
adequately compensated for increased risks added to the portfolio. The
development of a comprehensive, cross-functional enterprise data analytics
strategy will improve customer targeting, product design, pricing, agency
management, underwriting, claims and reporting.
In Latin America, despite growing risks of inflation, substantial

catastrophe exposures and currency exchange rate volatility, the region
presents rich growth potential to competitively astute insurers that pursue
specific niches. Insurers that develop efficient distribution alternatives are
in a good position to seize business from traditional sales channels that are
not growing in line with expanding populations or addressing more
demanding consumer expectations. To improve capital efficiency and
profitability, and prepare for more digital-focused competition, insurers
must overcome legacy insurance technology with investments in tools that
enhance underwriting and innovate distribution.
In US Life-annuity business in the highly competitive market conditions,

insurers must deepen their relationships with customers, which is vital to
retain this book of business and maintain sustained, profitable growth.
Insurers must streamline operational models and cost structures, resolving
legacy system challenges to achieve long-term operational excellence and
profitability. Insurers must also invest in enterprise data excellence to
improve data quality, access, integration, security and governance. Having
rebuilt their capital structure to weather the post-financial crisis, Insurers
can enhance shareholder returns by improving the yield on investments in
products and operations and restructuring capital through captives and
debt. In case of US property-casualty business, insurers should rationalise
their complex portfolio of products, simplify the delivery and processing of
these product offerings and reduce frictional costs. In the still-challenging
investment environment, insurers must invest in robust economic capital
modeling and enterprise risk management tools that assess evolving
liabilities, capital structures and business plans.
In its annual review, The South African Insurance Industry Survey 2012,
professionals services company KPMG focuses on reviewing insurance in
! !27
other African countries. It quotes Partner and National Head of Insurance

Gerdus Dixon in the following words, “the South African life and short-term
insurance markets are relatively mature, with few obvious merger and
acquisition opportunities, it is also ultra competitive, well regulated and, in
all likelihood, facing ongoing challenges regarding regulations such as SAM,
IFRS Phase II and Treating Customers Fairly.” The survey further says that
other African countries, however, present insurers with new untapped
markets, with massive potential customer populations and burgeoning
economic growth, which is forecasted by the International Monetary Fund
to be 5.5%, while Nigeria, Ghana and Angola’s growth rates are all in
excess of this.
According to PWC, the Australian insurance industry provides a broad

range of property and casualty, life, and health insurance coverage to
individuals and businesses. It acts as an important buffer for the Australian
economy, softening the financial impact of events on the public purse by
funding claims out of the private sector.
Looking Ahead
As the world is becoming increasingly interconnected and events in one

country deeply impacts events in another, the need for a wide range of
insurance policies is apparent. The success of insurance liberalisation can
been seen in many countries throughout the world. The traditional
insurance model of Insurer selling insurance products through its own sales
force and agents/brokers has been changed to insurer selling insurance
product not only through its own sales force and agent/broker but also
though a bank, retailer, e-commerce (internet, telesales), and other
intermediaries (employers). The share of online premium through online
sales has increased in many countries. Technology is breaking up the
traditional insurance distribution process. Consumers prefer to use
multichannel to interact with insurance providers to elicit advice, submit
claims, etc. on their own schedules. The insurance purchase journey has
been fragmented and dispersed across different touchpoints between
insurance carriers, intermediaries and customers. The internet and social
media is helping prospective customer to build awareness on the range of
insurance products that might be suitable for them, including the cost. At
the same time, the insurers are equipped with rich source of data about
their customers which can be put on various analytical tools to interpret
the complex information to improve product offerings, distribution system,
! !28
risk assessment, pricing and services to better match the evolving needs of
the customers.
Insurance is a big business across the globe, with billions and billions of
dollars being poured into insurance companies as premiums and then some
part of it being refunded for the claims.
Global Insurance Industry Insights – fourth edition of McKinsey’s annual in-

depth analysis of the global insurance industry, states that in 2012, the
global insurance industry grew by 4.4%, continuing the pattern observed in
the past few years of growth in insurance lagging slightly behind nominal
GDP growth (4.6%).
Swiss Re sigma study on world insurance in 2013 says premium growth

slowed largely due to weak life sales in advanced markets. Overall
profitability has improved in the life and non-life sectors. Profitability in the
insurance sector improved in 2013, with life insurers benefiting from
stronger equity markets and non-life insurers from rising insurance rates.
In 2013, interest rates started to rise, particularly in the US and UK, and
are expected to trend up through to 2017 as global economic recovery
accelerates.
Global Insurance Market Trends 2014 published by OECD states that in

2013, while the economic environment continues to be weak for a number
of OECD countries, particularly for the euro area, the situation in insurance
markets has started to improve with noticeable premium growth in many
countries. Insurance sectors in some countries have benefitted from new
business in unit-linked products as a result of the low deposit rates offered
by the banking sector. Insurance regulators in Europe remain focussed on
Solvency II implementation. Approximately one-third of reporting OECD
countries (Australia, Canada, Estonia, Finland, France, Germany, Hungary,
Israel, Mexico,Sweden, Switzerland and Turkey) experienced positive real
growth in gross premiums across both the life and non-life insurance
sectors. The largest life insurance markets outside the euro area (by
premiums) – the United States, Japan, United Kingdom and Korea –
experienced negative growth or limited growth, in gross life premiums in
2013, reversing two years of growth.
Insurance penetration refers to premiums as a percentage of GDP, whereas

insurance density (measured in $) refers to per capita premium or
! !29
premium per person. In 2011, Insurance density in advanced markets

increased to USD 3712 per capita (versus USD 118 in emerging markets)
while penetration shrank to 8.6%.
The Insurance Regulatory and Development Authority (IRDA), in its annual

report for 2012-13, said insurance penetration stood at 3.96%, while
insurance density stood at $ 53.2 for 2012. Although penetration declined
in China and India, it continued to increase in Russia and resumed its
uptrend in Brazil. According to a the World Economic Forum (WEF) report,
India may rank low in terms of overall financial development globally, but it
is the world’s top-ranked country in terms of life insurance density.
List of Top 10 Insurance Countries with the Largest Insurance

Market Value in the World and Largest Insurance Companies of the
World
1. USA
2. Japan
3. UK
4. France
5. Germany
6. China
7. Italy
! !30
8. Canada
9. South Korea
10.Netherlands
List of Largest Insurance Companies of the World
Sr. No. Insurance Company Country
1 Axa France
2 ING Netherlands
3 Berkshire USA
4 Allianz Germany
5 Generali Italy
6 Aviva UK
7 Munich Re Germany
8 AIG USA
9 Prudential UK
10 Zurich Switzerland
1.3 Evolution of insurance from the ancient times till DATE

(in India)
In India, Insurance has a deep-rooted history. Insurance in various forms

has been in the writings of Manu (Manusmrithi), Yagnavalkya
(Dharmashastra) and Kautilya (Arthashastra). These works show that the
system of credit and the law of interest were well developed in India. They
were based on a clear appreciation of the hazard involved and the means
of safeguarding against it. The fundamental basis of the historical reference
to insurance in these ancient Indian texts is the same, i.e., pooling of
resources that could be redistributed in times of calamities such as fire,
floods, epidemics and famines.
In Manu Dharmashastra, there are mentions about taking care of the

dependents of those dying as also taking care of people during in old age.
The provision of taking care of the dependents of those dying was practiced
! !31
even in the Indus Valley civilisations. The joint family system in Hindus is
an excellent example of social security and risk sharing of every member of
the family. The term ‘Yogakshema’ is found in Rig Veda thereby indicating
the existence of a joint family system. In the times of Buddha, the concept
of mutual welfare and Burial System was in abundant existence. The early
references to Insurance in these texts have reference to marine trade loans
and carriers’ contracts. Insurance in India has evolved over the heavy
drawing from other countries, England in particular.
1.3.1 Insurance in Its Current Form has its History Dating Back
until 1818
Insurance in its current form has its history dating back until 1818, when
Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata
to cater to the needs of European community, followed by the Bombay Life
Insurance Society in 1829 and the Oriental Life Assurance Company in
1874. Bombay Mutual Life Assurance Society heralded the birth of first
Indian life insurance company in the year 1870, and covered Indian lives at
normal rates. Starting as Indian enterprise with highly patriotic motives,
insurance companies came into existence to carry the message of
insurance and social security through insurance to various sectors of
society. Bharat Insurance Company (1896) was also one of such companies
inspired by nationalism. The Swadeshi movement of 1905-1907 gave rise
to more insurance companies.
With the efforts of eminent people like Babu Muttylal Seal, the foreign life
insurance companies started insuring Indian lives. But Indian lives were
being treated as sub-standard lives and heavy extra premiums were being
charged on them. Indians were charged an extra premium of upto 20% as
compared to the British. During these times, anyone could purchase an
insurance policy on anyone else, even a complete stranger. As a result, the
strangers being insured sometimes wound up murdered. Therefore, a
governing rule of insurance stated that the purchaser of the policy must
have a legitimate interest in the preservation of the insured. In 1907,
Hindustan Co-operative Insurance Company took its birth in one of the
rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in
Calcutta.
! !32
1.3.2 The First Attempt to Regulate the Life Insurance Business in

India
The first attempt to regulate the life insurance business in India was made
in 1912 with the enactment of The Life Insurance Companies Act, 1912
which made it necessary that the premium rate tables and periodical
valuations of companies should be certified by an actuary. But the Act
discriminated between foreign and Indian companies on many accounts,
putting the Indian companies at a disadvantage. Insurance eventually
evolved to where its basic premise came to be thought of as spreading the
risk among others, so that individuals could trust that they or their
survivors would be financially compensated in the event of loss. With the
increasing of number of Life Insurance Companies, the Government passed
the following legislations:
1912 The Indian Life Assurance Companies Act enacted as the first
statute to regulate the life insurance business.
1928 The Indian Insurance Companies Act enacted to enable the

government to collect statistical information about both life and
non-life insurance businesses.
1938 Earlier, legislation consolidated and amended to by the Insurance

Act with the objective of protecting the interests of the insuring
public.
The first two decades of the twentieth century saw lot of growth in
insurance business. From 44 companies with total business-in-force as `
22.44 crore, it rose to 176 companies with total business-in-force as ` 298
crore in 1938.
The Insurance Amendment Act of 1950 abolished principle agencies. By the

end of 1955, life insurance touched only a fringe of the urban population.
The immense benefits of modern concepts of life insurance remained
largely unknown to the large sections of the people and thus the country
did not derive full benefit from the system. The shortcomings noticed in the
insurance business were due to the unscrupulous business practices of
some insurance business magnates. Also, a large number of foreign
! !33
insurers charged a much higher premium compared to the Indian insurers,

thus catering to only the higher income groups. During the decade
1945-1955, as many as 25 life insurance companies went into liquidation
and another 25 had so frittered away their resources that their business
had to be transferred to other companies at a loss to the policyholders’
savings.
Indian and Foreign Insurance Companies Operating in India
Year Number of Indian Number of Non-Indian

Offices Offices
1928 97 138
1929 108 149
1938 200 143
1941 197 80
1945 234 81
Source: Dr. A.N. Agarwala, 1961, Life Insurance in India: A Historical and
Analytical Study.
Hence, effective mobilisation of people’s savings was given as one of the

major reasons for nationalisation as a nation’s savings are the prime mover
of its economic development. Leading insurers indulged in vigorous
development programmes after political independence and huge amount of
capital was available with the insurers. The Government found a great
opportunity to utilise these funds for its development plans and also to
ensure the investing public a better security as there are allegations of
unfair trade practices due to higher level of competition. The first step
towards nationalisation of life insurance was taken on 19 January, 1956 by
the promulgation of the Life Insurance (Emergency Provisions) Ordinance,
1956. In terms of this Ordinance, the management of the ‘controlled
business’ of insurers was vested in the central government.
Moving the Life Insurance (Emergency Provisions) Bill 1956 in the Lok
Sabha on 29th February 1956, the then Finance Minister, C.D. Deshmukh,
stated as follows:
! !34
“Insurance is an essential social service which a welfare state must make

available to its people and the State must assume responsibility for
rendering this service once it cannot be provided in any other manner. So
while it is the failure of the general run of insurance companies to live up
to the high traditions demanded of them that has led the Government to
take this step. I would like to emphasise that nationalisation in this field is
in itself justifiable. With the profit motive eliminated, and the efficiency of
service made the sole criterion under nationalisation, it will be possible to
spread message of insurance as far wide as possible, reaching out beyond
the more advanced urban areas and into hitherto neglected, namely, rural
areas.”
The Finance Minister had also revealed that the Government had taken up
the investigation of the functioning of the Life Insurance Industry in the
private sector sometime in 1951. It was observed that industry was not
playing the role expected of insurance in the modern times and efforts at
improving the standards were needed, extravagant expenses were incurred
by the private insurers. Post-sale services did not exist and lapses
continued to be high. There was a large-scale fraudulent investment
resorted to by the various companies with a view to divert the funds to
some other purposes. Insurance companies remained confined to urban
areas and the creamy layers of the insuring public totally neglecting the
ordinary people and the rural area, many companies systematically
postponed or avoided payment of claim until of course forced by the legal
means. In most of the complaints received by the Government alleging
delays and non-payment of claims and referred to the Controller of
Insurance under Section 47A of Insurance Act, 1938, it was found that the
insurance companies were wrong and there were clear attempts to defraud
the insuring public.
1.3.3 Nationalising the Life Insurance Sector
The Government of India issued an Ordinance on 19 January 1956

nationalising the Life Insurance sector and Life Insurance Corporation came
into existence in the same year. The Life Insurance Corporation (LIC)
absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies
—245 Indian and foreign insurers in all LIC formed by an Act of Parliament,
viz., LIC Act, 1956, with a capital contribution of ` 5 crore from the
Government of India.
! !35
“The nationalisation of life insurance is an important step in our march

towards a socialist society. Its objective will be to serve the individual as
well as the state. We require life insurance to spread rapidly all over the
country and to bring a measure of security to our people”. –
Jawaharlal Nehru
The Constitution of India is federal in nature and there is a division of

power between the Centre and the States. Insurance is included in the
Union List and the subjects included in this list are of the exclusive
jurisdiction of the Centre. The Central Legislature is empowered to regulate
the insurance industry and hence the law in this regard is uniform
throughout the country. The business activities of LIC are not of a purely
commercial nature. LIC is a statutory corporation being an ‘Instrumentality’
of the State within Article 12 of the Constitution. The contract of the life
insurance entered into by LIC are for the welfare and benefits of the
society. Hence, a writ under Article 226 can lie against the LIC for
enforcement of its liability. In Assam and Meghalaya SRTC v. Abdul Razak,
the court had observed, ‘Public policy should resist the temptation to
litigation like cantankerous litigants for insignificant amounts raising
technical pleas’. The Supreme Court has also said the same in Trustees,
Bombay Port Trust v Premier Automobiles Ltd. In a series of cases, the
judges have reiterated their strong disapproval of state undertakings like
LIC, GIC, etc. raising technical pleas to defeat honest claims of victims of
accidents by legally permissible but marginally unjust contentions.
The Central Office of the Corporation was located at Bombay. LIC had 5
zonal offices,33 divisional offices and 212 branch offices, apart from its
corporate office in the year 1956. Since life insurance contracts are long-
term contracts and during the currency of the policy, it requires a variety of
services, a need was felt in the later years to expand the operations and
place a branch office at each district headquarter. Reorganisation of LIC
took place and large numbers of new branch offices were opened. As a
result of reorganisation, servicing functions were transferred to the
branches, and branches were made accounting units. It worked wonders
with the performance of the corporation. It may be seen that from about
200.00 crore of new business in 1957, the corporation crossed 1000.00
crore only in the year 1969-70, and it took another 10 years for LIC to
cross 2000.00 crore mark of new business. But with reorganisation
! !36
happening in the early eighties, by 1985-86, LIC had already crossed `

7000.00 crore Sum Assured on new policies.
Mission of Life Insurance Corporation
“Explore and enhance the quality of life of people through financial security
by providing products and services of aspired attributes with competitive
returns, and by rendering resources for economic development.”
Vision of Life Insurance Corporation
“A transnationally competitive financial conglomerate of significance to

societies and pride of India.”
Objectives of Life Insurance Corporation
1. Spread Life Insurance widely and in particular to the rural areas and to
the socially and economically backward classes with a view to reaching
all insurable persons in the country and providing them adequate
financial cover against death at a reasonable cost.
2. Maximise mobilisation of people’s savings by making insurance-linked

savings adequately attractive.
3. Bear in mind, in the investment of funds, the primary obligation to its

policyholders, whose money it holds in trust, without losing sight of the
interest of the community as a whole; the funds to be deployed to the
best advantage of the investors as well as the community as a whole,
keeping in view national priorities and obligations of attractive return.
4. Conduct business with utmost economy and with the full realisation that
the monies belong to the policyholders.
5. Act as trustees of the insured public in their individual and collective

capacities.
6. Meet the various life insurance needs of the community that would arise
in the changing social and economic environment.
! !37
7. Involve all people working in the Corporation to the best of their

capability in furthering the interests of the insured public by providing
efficient service with courtesy.
8. Promote amongst all agents and employees of the Corporation a sense

of participation, pride and job satisfaction through discharge of their
duties with dedication towards achievement of Corporate Objective.
Today, LIC functions with 2048 fully computerised branch offices, 109
divisional offices, 8 zonal offices, 992 satellite offices and the Corporate
office. LIC’s Wide Area Network covers 109 divisional offices and connects
all the branches through a Metro Area Network. LIC has tied up with some
banks and service providers to offer online premium collection facility in
selected cities. LIC’s ECS and ATM premium payment facility is an addition
to customer convenience. Apart from online Kiosks and IVRS, Info Centres
have been commissioned at Mumbai, Ahmedabad, Bangalore, Chennai,
Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision
of providing easy access to its policyholders, LIC has launched its
SATELLITE SAMPARK offices. The satellite offices are smaller, leaner and
closer to the customer. The digitalised records of the satellite offices will
facilitate anywhere servicing and many other conveniences in the future. It
has crossed the milestone of issuing 1,01,32,955 new policies by 15th Oct,
2005, posting a healthy growth rate of 16.67% over the corresponding
period of the previous year. From then to now, LIC has crossed many
milestones and has set unprecedented performance records in various
aspects of life insurance business. The same motives which inspired our
forefathers to bring insurance into existence in this country inspire us at
LIC to take this message of protection to light the lamps of security in as
many homes as possible and to help the people in providing security to
their families [Source: LIC Website].
1.3.4 The History of General Insurance
The history of general Insurance dates back to the Industrial Revolution in

the west and the consequent growth of sea-faring trade and commerce in
the 17th century. It came to India as a legacy of British occupation. The
first general insurance company Triton Insurance Company Ltd. was
promoted in 1850 by British nationals in Calcutta. The first general
insurance company established by an Indian was Indian Mercantile
Insurance Company in Bombay in 1907. This was the first company to
! !38
transact all classes of general insurance business. With the growth of fire,
accident and marine insurance, a need was felt to bring non-life insurance
under the purview of the Act of 1912, but non-life insurance was finally
regulated through enactment of another insurance act, i.e., The Insurance
Act, 1938.
Some of the important milestones in the general insurance business in

India are:
1907 The Indian Mercantile Insurance Ltd. set up the first company to
transact all classes of general insurance business.
1957 General Insurance Council, a wing of the Insurance Association of

India, frames a code of conduct for ensuring fair conduct and
sound business practices.
1968 The Insurance Act amended to regulate investments and set

minimum solvency margins and the Tariff Advisory Committee set
up.
The reason why GIB was not brought into the public sector in
1956 was the fact that general insurance was considered a part
and parcel of the private sector of trade and industry and
functions on a yearly basis. Errors of omission and commission in
the conduct of its business did not directly affect the individual
citizen. Prior to 1973, general insurance was urban-centric,
catering mainly to the needs of organised trade and Industry.
! !39
1972 The General Insurance Business (Nationalisation) Act, 1972

nationalised the general insurance business in India with effect
from 1st January, 1973. One hundred and seven insurers
including branches of foreign companies operating in the country
were amalgamated. These were grouped into four companies,
viz., the National Insurance Company Ltd., the Oriental Insurance
Company Ltd., the New India Assurance Company Ltd., and the
United India Insurance Company Ltd. with head offices at
Calcutta, New Delhi, Bombay and Madras respectively. GIC was
incorporated as a company in 1972 and it commenced business
on 1st January, 1973. The oldest existing insurance company in
India is the National Insurance Company, which was founded in
1906, and is still in business. Before November 1972, a number
of Indian and many foreign companies did general insurance
business in India and this business was linked with their branches
abroad. In addition, LIC, some mutual companies and co-
operative societies also offered this product. In fact, on the eve of
nationalisation, 68 Indian (including LIC) and 45 non-Indian
entities carried out insurance business in India. Nationalisation
saw the business of all these organisations absorbed by the
General Insurance Corporation (GIC) with its four subsidiaries.
New standards of behaviour in their dealing with the policyholders, and

developing a new insurance jurisprudence have been set up by the
Judiciary in India. Both the Life Insurance Corporation and the General
Insurance Corporation as part of their duties to act in consonance with the
principles laid down in the directive principles in the Constitution.
Vision of General Insurance Corporation
“To be a leading global reinsurance and risk solution provider.”
Mission of General Insurance Corporation
To achieve our vision by:
• Building long-term mutually beneficial relationship with business partners
• Practicing fair business ethics and values
! !40
• Applying “state-of-the-art” technology, processes including enterprise

risk management and innovative solutions
• Developing and retaining highly motivated professional team of

employees
• Enhancing profitability and financial strength befitting the global position.
1.3.5 Insurance Sector Reforms in India
The process of reopening of the insurance sector began in the 1990s. A

committee was set up in 1993 under the chairmanship of R.N. Malhotra,
former Governor of the Reserve Bank of India, to make recommendations
for reforms in the insurance sector. The progress of the nationalised life
insurance business had to be judged by the rate of its progress towards the
realisation of the goals it set for itself.
R.N. Malhotra, former RBI Governor
! !41
The purpose of setting up the Malhotra Committee was to:
a. To suggest the structure of the insurance industry, to assess its

strengths and weaknesses of insurance companies in terms of
objectives of creating an efficient and viable insurance industry, which
will have a wide reach of insurance services, a variety of insurance
products and a high quality of services to the public and servicing as an
effective instrument for mobilisation of financial resources for
development.
b. To make recommendations for changing structure of insurance industry,

for changing general policy framework, etc.
c. To take specific suggestions regarding LIC and GIC with a view to

improve functioning of LIC and GIC.
d. To make recommendations on regulation and supervision of the

insurance sector in India.
e. To make recommendations on role and functioning of surveyors,

intermediaries like agents, etc. in the insurance sector
f. To make recommendations on any other matter which are relevant for

development of the insurance industry in India.
In 1974, the Administrative Reforms Commission of the Government put

forward certain recommendations in pursuance of which the LIC formulated
its objectives. Keeping in view these objectives, the committee stated that
LIC had achieved several of the objectives of nationalisation; but at the
same time, it pointed out several negative constraints.
The Committee appointed MARG to conduct a market survey among users

of life insurance to find out their satisfaction levels with LIC and to assess
their perceptions regarding a possible liberalisation of the insurance sector.
As per the findings as well as the statistics of growth furnished by LIC, the
Committee found the following:
! !42
A. On the positive side, LIC had:
1. spread the insurance culture fairly widely;
2. mobilised large savings for national development and financed

socially important sectors such as housing, electricity, water supply
and sewerage;
3. acquired considerable financial strength and gained confidence of the

insuring public;
4. and had built up a large talented pool of insurance professionals.
B. On the negative side, LIC had:
1. the vast marketing and services network of LIC was inadequately

responsive to customer needs;
2. insurance awareness was low among the general public;
3. marketing of life insurance with reference to the customer needs left

much to be desired;
4. term assurance plans were not being encouraged and unit linked
assurance was not available;
5. insurance covers were costly and returns from life insurance were
significantly lower compared to other savings instruments due to:
(a) excessive government directed investments of LIC funds;
(b) the marketing organisation was weak and turnover of agents

extremely high;
(c) development officers concentrated on their incentives to the

neglect of training the agents and building up an efficient agency
organisation;
(d) there was excessive lapsation of policies.
! !43
6. LIC management was top heavy and excessively hierarchical,

especially at the central and the zonal offices, and was overstaffed;
7. Work culture within the organisation was unsatisfactory;
8. Trade unionism had contributed to the growth of restrictive practices;
9. Failure to adequately computerise had seriously affected the

efficiency of the organisation and the quality of customer service;
10.The functioning of LIC was constrained in some respects as it was

covered by the definition of ‘State’ as well as governmental
interference.
On the issue of competition, the major resistance came from the

employees’ unions and representatives of agents. However, a majority of
those covered in the survey was in favour of liberalisation, albeit with
certain reservations with regard to the rural sector as well as the poor
man.
In 1994, the Malhotra Committee recommended introduction of a concept

of “professionalisation” in the insurance sector to make out a strong case
for paving the way for foreign capital. On the basis of the above report, the
Committee proposed the following recommendations:
Structure:
a. Government stake in the insurance sector to be brought down to

50%. Private sector be permitted to enter insurance industry with a
minimum paid-up capital of ` 100 crore. Foreign insurance
companies be allowed to enter by floating Indian companies,
preferably joint venture with Indian partners. All the insurance
companies should be given greater freedom to operate.
b. LIC be converted into a company and its capital be raised to ` 200

crore, 50% to be owned by the Government and the rest by the
public at large, with suitable reservation for its employees. The
capital of GIC be also raised to ` 200 crore with similar composition.
Government should take over the holdings of the GIC and its
subsidiaries so that these subsidiaries can act as independent
! !44
corporations. GIC should function exclusively as a reinsurance

company. Its four subsidiaries be completely delinked by acquisition
of entire stock by the Government. Capital of each subsidiary be,
thereafter, raised to ` 100 crore, with 50% equity held by the
Government and the rest by the public at large.
Competition
a. All insurance companies be treated on equal footing and governed by

the provisions of the Insurance Act. The Office of Controller of
Insurance be restored its full functions under the Act and should be
made independent. No company should deal in both life and general
insurance through a single entity.
b. Postal life insurance be permitted to transact life insurance business

in rural areas. It should be strengthened. Only one state level life
insurance company should be allowed to operate in each state.
c. Relief-oriented welfare schemes be transferred to the concerned

Government authorities.
d. The Insurance Act should be changed. The Insurance Regulatory and

Development Authority (IRDA) be constituted as an autonomous
body to regulate and develop the insurance sector. The Committee
felt the need to provide greater autonomy to insurance companies in
order to improve their performance and enable them to act as
independent companies with economic motives. The key objectives of
the IRDA would include promotion of competition so as to enhance
customer satisfaction through increased consumer choice and lower
premiums while ensuring the financial security of the insurance
market.
Customer Service
a. Brokers representing the customer be brought in as another

marketing and distribution channel, a practice prevalent in most
developed markets. LIC should pay interest on delays in payment
beyond 30 days.
! !45
b. Raise the level of professional standards in risk management and

underwriting and speed up the settlement of claims. Insurance
companies should be encouraged to set up unit linked pension plans.
Computerisation of operations and updating of technology to be
carried out in the insurance industry.
c. State-level co-operative societies not more than one in a state for

transacting life insurance business subject to regulation by the
Insurance Regulatory Authority. The capital base should be
appropriately lower.
Investments:
a. Mandatory investments of LIC Life Fund in government securities to

be reduced from 75% to 50%. GIC and its subsidiary not to hold
more than 5% in any company.
Overall, the committee strongly felt that in order to improve the customer
services and increase the coverage of the insurance industry, insurance
industry should be opened up to competition. But at the same time, the
Committee felt the need to exercise caution as any failure on the part of
new players could ruin public confidence in the industry. Hence, it was
decided to allow competition in a limited way by stipulating the minimum
capital requirements of ` 1 billion.
The move towards liberalisation was fiercely opposed by the National

Organisation of Insurance Workers. They claimed that the opening up of
the sector to foreign players will lead to exploitation of consumers,
wasteful expenditure and will lead to the same problems that were present
prior to nationalisation.
IRDA Bill
T h e I R D A B i l l wa s d ra f t e d ke e p i n g t h e M a l h o t ra C o m m i t t e e
recommendations in view and hence the Government has ruled out
privatisation of public sector companies like LIC and GIC. The IRDA Bill also
fixed minimum capital requirement for life and general insurance at ` 100
crore and for reinsurance firms at ` 200 crore. The minimum solvency
margin for private insurers is ` 500 million for life insurance companies, `
! !46
500 million or a sum equivalent to 20% of net premium income for general
insurance and ` 1 billion for reinsurance companies.
The IRDA Bill was passed in the parliament and, the IRDA was constituted
as an autonomous body in 1999 and incorporated as a statutory body in
April 2000. With the coming into force of the IRDA Act, 1999, the insurance
industry was opened up to the private sector.
Mission of IRDA
“To protect the interest of the policyholders, to regulate, promote and

ensure orderly growth of the insurance industry and for matters connected
therewith or incidental thereto.”
Duties, Powers and Functions of IRDA
The duties, powers and functions of IRDA have been specified under
Section 14 of IRDA Act, 1999. The IRDA Authority has the duty to promote,
regulate and ensure orderly growth of the insurance and reinsurance
businesses across India, subject to the provisions of this Act and any other
additional law that is being enforced.
Without prejudice to the generality of the provisions contained in sub-

section (1) of IRDA Act, the powers and functions of the Authority shall
include:
a. Issuing a certificate of registration to the applicant as well as modify,

renew, withdraw, suspend or cancel any such registration that is
deemed unfit.
b. Protecting the interests of the policyholders in matters concerning

assigning of insurance policy, nomination by policyholders, settlement of
insurance claim, insurable interest, surrender value of policy and other
terms and conditions based on contracts of insurance.
c. Specifying requisite qualifications, practical training and code of conduct

for insurance intermediaries, insurance brokers and agents.
d. Specifying the code of conduct for surveyors and loss assessors.
! !47
e. Promotion of efficiency in the conduct of insurance business.
f. Promoting and regulating professional organisations connected with the

insurance and reinsurance business across India.
g. Levying fees, commission and other charges for carrying out the
purposes of this Act.
h. Calling for data or information from, undertaking inspection of,

conducting enquiries and investigations, conducting audit of the
insurers, intermediaries, insurance intermediaries and other
organisations connected with the insurance business.
i. Under Section 64U of the Insurance Act, 1938 (4 of 1938), controlling

and regulation of the rates, advantages, terms and conditions, etc. that
may be offered by insurers (or Insurance Companies) in respect of
general insurance business not so controlled and regulated by the Tariff
Advisory Committee.
j. Specifying the manner and form in which books of account shall be

maintained and statement of accounts, financial statements, etc. shall
be rendered by insurers and other insurance intermediaries.
k. Keeping a tab, exercising control and regulating investment of funds by

insurance companies.
l. Regulating the maintenance of margin of solvency by the Insurers.
m. Adjudication of disputes between insurers and intermediaries or

insurance intermediaries, hospitals, healthcare organisations or with
customers.
n. To effectively supervise the functioning of the Tariff Advisory Committee.
o. Specifying the percentage of premium income of the insurer to finance

schemes for promoting and regulating professional organisations.
p. Specifying the percentage of life insurance business and general (or

non-life) insurance business to be undertaken by the insurance company
in the rural or social sector.
! !48
q. Exercising any such other powers that may be prescribed with passage
of time.
The primary regulator for insurance in India is the Insurance Regulatory

and Development Authority (IRDA) which was established in 1999 under
the government legislation called the Insurance Regulatory and
Development Authority Act, 1999.
1.3.6 Opening Up of Insurance Market
The IRDA opened the market in August 2000 with the invitation for
application for registrations. Foreign companies were allowed ownership of
up to 26%. Companies were required to submit business plans detailing
the proposed capital structure, the nature of business they planned to
carry out and their plans for selling insurance to the rural and social
sectors.
1.3.7 Impact of Globalisation on Indian Insurance Market
A thriving insurance sector is of vital importance to every modern

economy. Among the emerging economies, India is one of the least insured
countries, but the potential for further growth is phenomenal. Liberalisation
of insurance sectors has allowed foreign insurers to enter the Indian
markets. Most of the private insurers have found local partners within the
local market. The insurance industry is undergoing major restructuring as
firms are moving from being national to global in scope. The main
insurance areas that have already become globalised include marine,
aviation, alternative risk financing and reinsurance.
For a developing country like India, growth in per capita GNP and
education levels brings an increase in demand for life insurance products.
The demand for insurance is likely to increase with rising per capita
incomes, rising literacy rates and increase of the service sectors. Opening
of the sector to private firms will foster competition, innovation and variety
of products. It will also generate greater awareness on the need for buying
insurance as a service and not merely for tax exemption.
Opening up of insurance to private sector including foreign participation

has resulted into various opportunities and challenges in India. Opening up
of the sector will ensure a larger flow of funds. Further through
! !49
competition, a larger portion of savings will find its way into infrastructure
though insurance companies. Opening up of insurance sector will have a
bullish impact as insurance companies are major players in stock markets.
When more insurers enter the Indian markets, the long-term insurance
money flows can provide a marvellous impetus to growth. The opening up
of the insurance sector to private and global players will lead to
phenomenal growth in terms of number of new players, and new products
and services.
Globalisation of insurance market has resulted in reduction of transaction

costs, creation of liquidity and facilitated the economies of scale in
investments.
A list of public sector insurance companies and private sector insurance

companies are given below.
Public Sector Life Insurance Company:
1. Life Insurance Corporation of India
Public Sector Non-life Insurance Company
1. National Insurance Co. Ltd.

2. The New India Assurance Co. Ltd.
3. The Oriental Insurance Co. Ltd.
4. United India Insurance Co. Ltd.
The new players entered the Indian Insurance Market with opening up of
Insurance market and privatisation in both Life Insurance and Non-life
Insurance as follows:
A. Life Insurance
1. Bajaj Allianz Life Insurance Co. Ltd.

2. Birla Sun Life Insurance Co. Ltd.
3. HDFC Standard Life Insurance Co. Ltd.
4. ICICI Prudential Life Insurance Co. Ltd.
5. ING Vysya Life Insurance Co. Ltd.
! !50
6. PNB Met Life Insurance Co. Ltd.

7. OM Kotak Mahindra Life Insurance Co. Ltd.
8. SBI Life Insurance Co. Ltd.
9. Tata AIG Life Insurance Co. Ltd.
10.AMP Sanmar Assurance Limited
11.Dabur CGU Life Insurance Co. Ltd.
12.Reliance Life Insurance Co. Ltd.
13.Sahara India Life Insurance Co. Ltd.
14.Shriram Life Insurance Co. Ltd.
15.Bharati AXA Life Insurance Co. Ltd.
16.Exide Life Insurance Co. Ltd.
17.Future Generali India Life Insurance Co. Ltd.
18.IDBI Federal Life Insurance Co. Ltd.
19.Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.
20.AEGON Religare Life Insurance Co. Ltd.
21.DHFL Prameric Life Insurance Co. Ltd.
22.Star Union Dai-ichi Life Insurance Co. Ltd.
23.India First Life Insurance Co. Ltd.
24.Edelweiss Tokio Life Insurance Co. Ltd.
B. Non-life Insurance
1. Bajaj Allianz General Insurance Co. Ltd.

2. ICICI Lombard General Insurance Co. Ltd.
3. IFFCO Tokio General Insurance Co. Ltd.
4. Reliance General Insurance Co. Ltd.
5. Royal Sundaram Alliance Insurance Co. Ltd.
! !51
6. Tata AIG General Insurance Co. Ltd.

7. Cholamandalam MS General Insurance Co. Ltd.
8. HDFC ERGO General Insurance Co. Ltd.
9. Star Health and Allied Insurance Co. Ltd.
10.Apollo Munich Health Insurance Co. Ltd.
11.Future Generali India Insurance Co. Ltd.
12.L&T General Insurance Co. Ltd.
13.Max Bupa Health Insurance Co. Ltd.
14.SBI General Insurance Co. Ltd.
15.Religare Health Insurance Co. Ltd.
16.Shriram General Insurance Co. Ltd.
17.Bharti Axa General Insurance Co. Ltd.
18.Raheja QBE General Insurance Co. Ltd.
19.Cigna TTK Health Insurance Co. Ltd.
20.Magma HDI General Insurance Co. Ltd.
21.Liberty Videocon General Insurance Co. Ltd.
By 2012, Indian Insurance is a US$ 72 billion industry. However, only two

million people(0.2% of the total population of 1 billion) are covered under
Mediclaim, whereas in developed nations like USA, about 75% of the total
population are covered under some insurance scheme. Global reinsurer
Swiss Re’s sigma study on world insurance in 2013 said India stood at 15th
position in the world in terms of premium volume. In 2012, it was at 14th
position. The study showed insurance penetration in India fell to 3.9% in
2013 compared to 4% in 2012.
India’s life insurance penetration was 3.1%, while in non-life insurance it

was 0.8%. Insurance density stood at $ 52 (about ` 3,120) compared to $
53 (about ` 3,180) in 2012. In the world average too, both insurance
penetration and density saw a fall.
! !52
1.3.8 Insurance Repository Services in India
On 16th September 2013, IRDA launched ‘Insurance Repository’ services in

India. It is a unique concept and first to be introduced in India. This system
enables policyholders to buy and keep insurance policies in dematerialised
or electronic form. Policyholders can hold all his insurance policies in an
electronic format in a single account called electronic insurance account
(eIA). Insurance Regulatory and Development Authority has issued licenses
to five entities to act as Insurance Repository: NSDL Database
Management Limited, Central Insurance Repository Limited (CIRL), SHCIL
Projects Limited, Karvy Insurance Repository Limited and CAMS Repository
Services Limited.
1.3.9 Insurance Laws (Amendment) Ordinance 2014
On 23rd December, 2014, the Union Cabinet had approved the

promulgation of the Insurance Laws (Amendment) Ordinance 2014 to
amend the Insurance Act, 1938, the General Insurance Business
(Nationalisation) Act, 1972 and the Insurance Regulatory and Development
Authority Act, 1999, in accordance with the Insurance Laws (Amendment)
Bill 2008 as reported by the Select Committee of the Rajya Sabha, and for
suitably introducing it in the Parliament in the next session for
consideration and passing. The Insurance Laws (Amendment) Ordinance,
2014, has raised the foreign investment limit in the sector to 49% from
26%. However, it is silent on how will the limit can be raised — through
equity dilution by promoters or raising of fresh equity. The ordinance says
the new 49% limit applies to the aggregate holdings of equity shares by
foreign investors, including portfolio investors, of the paid-up equity
capital. It has to be Indian owned and controlled. The hike in FDI in
insurance has a potential to attract upto US 7-8 billion dollars from
overseas foreign investors. At present, total capital deployed in the private
life insurance is close to 35,000 crore rupees and the foreign equity is close
to 8,700 crore rupees when FDI cap is 26%. There are 52 insurance
companies operating in India among them 24 are in life insurance business
and 28 in non-life insurance business.
The Insurance Amendment Bill has been passed by the Parliament in March
2015, Press Information Bureau, Government of India, Ministry of Finance
(http://pib.nic.in/newsite/PrintRelease. aspx?relid=117043)
! !53
1. Major Highlights of the Insurance Laws (Amendment) Bill, 2015:

Passed by Parliament; provides for enhancement of the foreign
investment cap in an Indian Insurance Company from 26% to an
explicitly composite limit of 49% with the safeguard of Indian ownership
and control; provides Insurance Regulatory and Development Authority
of India (IRDAI) with flexibility to discharge its functions more
effectively and efficiently among others.
The Insurance Laws (Amendment) Bill, 2015 was passed by the Lok
Sabha on 4th March, 2015 and by the Rajya Sabha i.e., on 12th March,
2015. The passage of the Bill, thus, paved the way for major reform
related amendments in the Insurance Act, 1938, the General Insurance
Business (Nationalisation) Act, 1972 and the Insurance Regulatory and
Development Authority (IRDA) Act, 1999. The Insurance Laws
(Amendment) Act 2015 to be so enacted, will seamlessly replace the
Insurance Laws (Amendment) Ordinance, 2014, which came into force
on 26th December, 2014. The amendment Act will remove archaic and
redundant provisions in the legislations and incorporates certain
provisions to provide Insurance Regulatory and Development Authority
of India (IRDAI) with the flexibility to discharge its functions more
effectively and efficiently. It also provides for enhancement of the
foreign investment cap in an Indian Insurance Company from 26% to an
explicitly composite limit of 49% with the safeguard of Indian ownership
and control.
2. Capital Availability: In addition to the provisions for enhanced foreign

equity, the amended law will enable capital raising through new and
innovative instruments under the regulatory supervision of IRDAI.
Greater availability of capital for the capital intensive insurance sector
would lead to greater distribution reach to underserved/unserved areas,
more innovative product formulations to meet diverse insurance needs
of citizens, efficient service delivery through improved distribution
technology and enhanced customer service standards. The rules to
operationalise the new provisions in the law related to foreign equity
investors have already been notified on 19th February, 2015 under
powers accorded by the ordinance.
The four public sector general insurance companies, presently required

as per the General Insurance Business (Nationalisation) Act, 1972
(GIBNA, 1972) to be 100% government owned, are now allowed to
! !54
raise capital, keeping in view the need for expansion of the business in
the rural and social sectors, meeting the solvency margin for this
purpose and achieving enhanced competitiveness subject to the
Government equity not being less than 51% at any point of time.
3. Consumer Welfare: Further, the amendments to the laws will enable

the interests of consumers to be better served through provisions like
those enabling penalties on intermediaries/ insurance companies for
misconduct and disallowing multi-level marketing of insurance products
in order to curtail the practice of misselling. The amended law has
several provisions for levying higher penalties ranging from up to ` 1
crore to ` 25 crore for various violations including misselling and
misrepresentation by agents/insurance companies. With a view to serve
the interest of the policyholders better, the period during which a policy
can be repudiated on any ground, including misstatement of facts, etc.
will be confined to three years from the commencement of the policy
and no policy would be called in question on any ground after three
years.
The amendments provide for an easier process for payment to the

nominee of the policyholder, as the insurer would be discharged of its
legal liabilities once the payment is made to the nominee.
It is now obligatory in the law for insurance companies to underwrite

third party motor vehicle insurance as per IRDAI regulations. Rural and
Social sector obligations for insurers are retained in the amended laws.
4. Empowerment of IRDAI: The Act will entrust responsibility of

appointing insurance agents to insurers and provides for IRDAI to
regulate their eligibility, qualifications and other aspects. It enables
agents to work more broadly across companies in various business
categories; with the safeguard that conflict of interest would not be
allowed by IRDAI through suitable regulations.
IRDAI is empowered to regulate key aspects of Insurance Company

operations in areas like solvency, investments, expenses and
commissions and to formulate regulations for payment of commission
and control of management expenses.
It empowers the Authority to regulate the functions, code of conduct,
! !55
etc., of surveyors and loss assessors. It also expands the scope of

insurance intermediaries to include insurance brokers, re insurance
brokers, insurance consultants, corporate agents, third party
administrators, surveyors and loss assessors and such other entities, as
may be notified by the Authority from time to time.
Further, properties in India can now be insured with a foreign insurer

with prior permission of IRDAI; which was earlier to be done with the
approval of the Central Government.
5. Health Insurance: The amendment Act defines ‘health insurance

business’ inclusive of travel and personal accident cover and discourages
non-serious players by retaining capital requirements for health insurers
at the level of ` 100 crore, thereby paving the way for promotion of
health insurance as a separate vertical.
6. Promoting Reinsurance Business in India: The amended law

enables foreign reinsurers to set up branches in India and defines
‘reinsurance’ to mean “the insurance of part of one insurer’s risk by
another insurer who accepts the risk for a mutually acceptable
premium”, and thereby excludes the possibility of 100% ceding of risk
to a reinsurer, which could lead to companies acting as front companies
for other insurers. Further, it enables Lloyd’s and its members to operate
in India through setting up of branches for the purpose of reinsurance
business or as investors in an Indian Insurance Company within the
49% cap.
7. Strengthening of Industry Councils: The Life Insurance Council and

General Insurance Council have now been made self-regulating bodies
by empowering them to frame bye-laws for elections, meetings and levy
and collect fees, etc. from its members. Inclusion of representatives of
self-help groups and insurance co-operative societies in insurance
councils has also been enabled to broad base the representation on
these Councils.
8. Robust Appellate Process: Appeals against the orders of IRDAI are to

be preferred to SAT as the amended law provides for any insurer or
insurance intermediary aggrieved by any order made by IRDAI to prefer
an appeal to the Securities Appellate Tribunal (SAT).
! !56
(In May 2015, the Securities Appellate Tribunal (SAT), a statutory body
established under the the provisions of Section 15K of Securities and
Exchange Board of India Act, 1992 has for the first time admitted a petition
filed by SBI Life Insurance Company Limited to hear and dispose of appeal
against a penalty order of IRDAI dated 11th March, 2014. IRDA had asked
SBI Life insurance company to refund policyholders money on account of
misrepresenting one of its group insurance product.)
Thus, the amendments incorporate enhancements in the Insurance Laws in

keeping with the evolving insurance sector scenario and regulatory
practices across the globe. The amendments will enable the regulator to
create an operational framework for greater innovation, competition and
transparency, to meet the insurance needs of citizens in a more complete
and subscriber-friendly manner. The amendments are expected to enable
the sector to achieve its full growth potential and contribute towards the
overall growth of the economy and job creation.
The insurance industry is expected to get reenergised in 2015 with the

infusion of capital and become a game changer for the insurance industry.
The capital infusion is expected to be close to US$ 2 billion in the near
term and US$ 10 billion over the medium to long term. Since the foreign
reinsurers are now allowed to set up branches in India, the insurance
segment is expected to deepen with the coming in of global giants like
Berkshire Hathaway, Munich Re, Lloyd’s and Swiss Re. The Department of
Industrial Policy and Promotion (DIPP), is also encouraging foreign
companies, who are at present in joint ventures in the country, to increase
their investments. These include companies like Nippon Life of Japan, BUPA
of Britain and Metlife of the US.
FDI not only brings in capital and foreign exchange immediately into the
economy but enables companies to invest further in managerial ability,
technical knowledge, administrative organisation, and innovations in
products and processes. A lots of investments will be done in product
innovations for increasing market penetration.
Defaults by insurers will also attract heavy penalty. The Insurance

Amendment Bill also proposes to increase the overall quantum of penalty
on insurers from the current ` 5 lakh per incident of violation to ` 1 lakh
per day per incident, going up to a maximum of ` 1 crore per incident,
whichever is less in an attempt to increase insurers’ seriousness to any
! !57
default. The amendment Act has also approved Securities Appellate

Tribunal as the appellate authority for the insurance sector, which should
bring in more transparency and discipline in the sector.
The digitisation initiatives of the regulator with respect to Common Service

Centres (CSCs) and insurance repositories and new models of distributions,
including banks as brokers and Insurance Marketing Firms is going to
catalyse the growth of insurance industry in India. The existing insurers
might will have to get into serious discussions with foreign investors for
further elevating the trajectory of the insurance markets and introduction
of some extremely competitive plans.
Going forward in 2015, the insurance sector is expected to see changes in

the operational as well as ownership levels. First, the sector is expected to
witness consolidation, especially on the back of the proposed hike in the
FDI limit. New players could enter the market, while existing smaller
players can be taken over by the larger players. The range of product
offerings is also expected to increase in 2015. According to IBEF, India’s life
insurance sector is the biggest in the world with about 36 crore policies.
The insurance sector is expected to grow at a CAGR of 12% to 15% over
the next five years.
! !58
1.4 Summary
Insurance makes a major contribution to economic growth and

development. It facilitates economic transactions by providing risk transfer
and indemnification. It encourages risk management and the promotion of
safe practices. It promotes financial stability by providing long-term
investment in the economy. It encourages stable and sustainable savings
and pension provision.
The concept of insurance has a deep-rooted history in India as well as in

the ancient world. Development of insurance concept is the fastest in
Europe and it has sustained its progress in the present times. Insurance
was a latecomer to the American landscape but later it developed maturity
in both practice and policies.
The first methods of transferring or distributing risk in a monetary

economy, were practiced by Chinese and Babylonian traders in the 3rd and
2nd millennia BC, respectively. The Code of Hammurabi formalises
concepts of civic responsibility, bottomry and respondentia, improved trade
conditions and established doctrines that were to play significant roles in
the evolution of insurance. Soon the Phoenicians and then the Greeks,
Hindus and Romans also had similar concepts in place. The collegia of
Rome evolved into the guilds of the middle ages. Marine insurance made
progress during the twelfth through fourteenth centuries. Insurance as a
commercial business in the modern sense, first emerged in the UK at the
end of the 16th century.
Throughout history, the types of insurance offered have been expanded in

reaction to new risks. As time progressed, new types of insurance were
blooming along with the risks of an increasingly modern life. Insurance is
always in demand because people and businesses are always looking for
ways to minimise risk. Because of the demand and the range of insurance
policies available, insurance policies have increasingly become investments
in and of themselves. The internet changed the insurance industry by
blowing the field wide open. Now, people can go online to find the cheapest
rate, even as companies shop internationally for the right coverage. This is
one source of motivation for companies to merge with other financial
services. The increase in size gives them a global market and the
integration of services gives them a domestic advantage with customers
who are more concerned with convenience than price.
! !59
The process of globalisation is one of the major trends which the insurance
industry is facing worldwide. The benefits of opening up the insurance
markets to competition is better customer service, new insurance products,
and technology and know-how transfer from the private sector to the
public sector and to local companies. The insurance industry faces many
challenges like climate change, terrorism, etc. Opening up of insurance to
private sector including foreign participation has resulted into various
opportunities and challenges in India.
Life insurance activity in its modern form started in India in 1818 when
Oriental Life Insurance Company was incorporated at Calcutta. The General
insurance was started in India in 1850 through Tritron Insurance Company.
The first comprehensive legislation was introduced with the Insurance Act
of 1938 that provided strict state control over insurance business in the
country. The decision of nationalisation of life insurance business took place
in 1956. Subsequently, in 1973, non-life insurance business was
nationalised. in April, 1993 R.N. Malhotra Committee suggested reforms in
the insurance sector and resulted into introduction of Insurance Regulatory
Development Authority and privatisation of Insurance sector. IRDA’s
primary function is to protect consumer interests. Foreign companies were
allowed ownership of up to 26%. On 23rd December, 2014, the Union
Cabinet had approved the promulgation of the Insurance Laws
(Amendment) Ordinance 2014 and has raised the foreign investment limit
in the sector to 49%.
! !60
1.5 Activities for students
1. Evaluate the performance of the Indian Insurance Sector with European

Insurance Sector in both Life and Non-life Insurance.
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2. The Lloyd’s market has a long history of doing business with India.
Lloyd’s underwriters are authorised to write reinsurance originating from
India on a cross-border basis only. List out some more Global Insurance
Players who are authorised to write reinsurance originating from India
on a cross-border basis.
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! !61
1.6 Suggested readings and references
1. Insurance Principles and Practice by Dr. S.B. Misra and M.N. Misra.
2. Law of Insurance by Dr. S.R. Myneni.
3. Introduction to Insurance and Risk Management by Dr. P.K. Gupta.
4. General Principles of Insurance Law by R.N. Chaudhary.
5. India Insurance Guide by Dr. L.P. Gupta.
6. Modern Law of Insurance in India by Dr. K.V.S. Sarma.
1.7 Web Resources
1. http://www.swissre.com/sigma/
2. www.insuranceeurope.eu
3. http://en.wikipedia.org/wiki/Insurance
4. http://financialservices.gov.in/insurance
5. http://www.investindia.gov.in/
6. http://www.licindia.com/history.htm
7. http://www.in.capgemini.com/
8. http://www.oecd.org/
9. https://www.blackrock.com/
10.http://www.investopedia.com/
11.http://www.insuranceeurope.eu
12.http://www2.deloitte.com
13.http://ccs.in
14.http://www.ey.com
15.http://www.gdv.de/
16.http://www.banknetindia.com/
17.http://www.frontline.in/
18.http://humanscience.wikia.com/
19.http://finmin.nic.in/
20.http://www.pwc.com.au/
21.http://www.the-digital-insurer.com/
! !62
1.8 Self assessment Questions
Multiple Choice Questions
1. Insurance terminology are also derived from ancient practices of

mediterranean commerce. The word “policy” is of Italian origin –
derived from the Italian word “polizza” which means:
a. Security
b. Contract
c. Promise
d. Assurance
2. History of insurance dates back to early human society which comprised

of natural or non-monetary economies. These economies used barter or
trade with no standardised form of financial markets, currency or
instruments. Insurance in natural or non-monetary economies existed in
the form of agreements of mutual aid. State whether above statement
is true or false.
a. True
b. False
3. The Greeks and Romans introduced the origins of health and life
insurance in 600 BC when they created guilds which cared for the
families of deceased members, as well as paying funeral expenses of
members. What were these guilds called?
a. Benevolent societies
b. Bottomry
c. Respondentia
d. All of the above
4. The history of general insurance dates back to the industrial revolution

in the west and the consequent growth of sea-faring trade and
commerce in the 17th century. It came to India as a legacy of British
occupation. Which was the first general insurance company started by
the British in India?
! !63
a. Imperial General Insurance Company Ltd.

b. Triton Insurance Company Ltd.
c. Lloyd’s General Insurance Company Ltd.
d. Ferguson Non-Life Insurance Company Ltd.
5. In 1994, which of the following committee recommended introduction of

a concept of “professionalisation” in the insurance sector to make out a
strong case for paving the way for foreign capital?
a. Rangarajan Committee
b. Narasimhan Committee
c. Gupta Committee
d. Malhotra Committee
6. The duties, powers and functions of IRDA have been specified under
Section 14 of IRDA Act, 1999. Which of the following is a duty of IRDA?
a. Maximise mobilisation of people’s savings by making insurance-linked

savings adequately attractive
b. Conduct business with utmost economy and with the full realisation
that the moneys belong to the policyholders
c. Spread Life Insurance widely and in particular to the rural areas and
to the socially and economically backward classes with a view to
reaching all insurable persons in the country and providing them
adequate financial cover against death at a reasonable cost
d. All of the above
7. The first attempt to regulate the life insurance business in India was
made in 1912 with the enactment of which Act that made it necessary
that the premium rate tables and periodical valuations of companies
should be certified by an actuary?
a. General Insurance Act

b. Actuary Act
c. Life Insurance Companies Act
d. Underwriting Act
! !64
Answers:
1. (c)
2. (a)
3. (a)
4. (b)
5. (d)
6. (d)
7. (c).
! !65
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture - Part 1
! !66
BASIC CONCEPTS OF INSURANCE
Chapter 2
Basic Concepts of Insurance
Objectives
This chapter will help you to understand the basic concepts and ideas of
insurance which will help you to gain the knowledge you need to become a
professional in insurance and risk management.
! !67
Structure:
2.1 Introduction
2.2 Meaning of Insurance
2.2.1 Definition of Insurance

2.2.2 Essential Elements of insurance
2.2.3 Essential Elements of a Valid Insurance Contract
2.2.4 Principles of Insurance
2.2.5 Functions of Insurance
2.2.6 Characteristics of Insurance
2.3 Classification of Insurance

2.4 Benefits of Insurance
2.5 Limitations of Insurance
2.6 Summary
! !68
2.1 Introduction
Rigveda refers to the concept of “Yogakshema” which means the well-

being, prosperity and security of people. This very concept of well-being,
prosperity and security of people has been extended through various
concepts and ideas which has been formally named as Insurance over a
period of time. Manusmriti also mentions that the trader should be made to
pay taxes or duty taking into account the price of purchase, the price of
sale, the length of journey, incidental expenses and risk and safety. The
business of insurance is related to the protection of economic values of
asset. Human beings, house, furniture, motorcycle, etc. can be considered
as tangible assets, and liabilities, goodwill, etc. can be considered as
intangible assets. Every asset has a life span and must be replaced before
that, so that the value or income is not lost. One needs to know various
concepts and ideas about insurance in order to safeguard oneself against
perils, hazards and risks. Insurance helps to reduce the adverse economic
effects of the situation as well as helps to compensate for the economic
loss incurred due to the impact of adverse situations.
2.2 Meaning of Insurance
A simple meaning of insurance can be termed as an agreement by mutual

consent between the insured and the insurance company for enabling
protection against a possibility of loss. As per the agreement, the insurance
company promises to the insured the payment of a certain money, in case
of an event causing loss to the insured, The payment shall be on the basis
of terms and conditions agreed between the insured and insurance
company. Payment of premium by the insured to the insurance company is
one of the prominent terms and conditions of such an agreement.
The Indian Institute of Banking and Finance says that “Insurance is a

contractual arrangement whereby one party agrees to compensate another
for losses which may be suffered as a result of occurrence of certain
unforeseen events, in return for the payment of a consideration. The party
agreeing to pay for the losses is known as the insurer while the party who
is compensated for the loss suffered is called the insured. The
consideration that the insurer receives in return is known as the
premium.” A agreement of various terms and conditions related to
insurance are put in a written form which is known as insurance policy.
! !69
2.2.1 Definition of Insurance
The term insurance has been defined by various jurists, experts and
institutes. Some of these definitions have been stated below. The basic
purpose of collating all these definitions is bring out a clear picture
about insurance by integrating thoughts of various jurists, experts
and institutes.
The Oxford Dictionary meaning of insurance is “undertaking by a

company, society or the state to provide safeguard against loss, provision
against sickness, death, etc. in return for regular payments”.
Encyclopedia Britannica describes Insurance as “a social device whereby

a large group of individuals, through a system of equitable contributions
may reduce or eliminate certain measurable risks of economic loss
common to all members of the group”.
John Magee describes Insurance as “a plan by which large number of

people associate themselves and transfer to the shoulders of all, risks that
attach to individuals”.
Robert Mehr and Emerson says that “Insurance is purchased to offset

the risk resulting from hazards which exposes a person to loss”.
As per Disnadle, “Insurance is an instrument of distributing the loss of few

among many”.
Boon and Kurtz defines Insurance as “a substitution for a small known

loss (the insurance premium) for a large unknown loss which may or may
not occur”.
In the words of Thomas, “Insurance is a provision which a prudent man

makes against the loss or inevitable contingencies, loss or misfortunes”.
Riegel and Miller describes Insurance as “a social device whereby the

uncertain risks of individuals may be combined in a group and thus made
more certain, small periodic contributions by the individuals providing a
fund out of which, those who suffer losses may be reimbursed”.
! !70
As per M.N. Misra and S.B. Misra, “Insurance is a co-operative device of

distributing losses, falling on an individual or his family over a large
number of persons”.
As per Dr. L.P. Gupta, “Insurance can be termed as an agreement by

mutual consent between the insured and the insurance company which is
enforceable by law wherein insurance company promises to the insured on
receipt of the premium, the payment of money as per the terms and
conditions of the policy”.
As per Ghosh and Agarwal, “Insurance is a cooperative form of

distributing a certain risk over a group of persons who are exposed to it”.
Dr. P.K. Gupta says that “the term ‘Insurance’ can be defined in both
financial and legal terms. The financial definition focuses on an
arrangement that redistributes the cost of unexpected losses. That is the
collection of a small premium from all exposed and distributed to those
suffering loss. The financial definition provides for the funding of the
losses. The legal definition focuses on contractual arrangement whereby
one party agrees to compensates another party for losses. The legal
definition provides for the legally enforceable contract that spells out the
legal rights, duties and obligations of all parties to the contract.”
Dr. K.V.S. Sarma defines Insurance as “a contract either to indemnify a

person against a loss which may arise on the happening of an event or to
pay a sum of money on the happening of some or any event for an agreed
consideration. Under such a contract, one party agrees to take the risk of
another person’s life, property or liability in consideration of certain
comparatively small periodic payments. The person to be paid or
indemnified is called the insured or assured, the person who undertakes to
indemnify or pay money is called the insurer or assurer or underwriter, the
consideration received in the form of periodic payments is called the
premium or premia and the document containing the contract is called the
insurance policy”.
The Chartered Institute of Insurance defines insurance as “Insurance

is a contract between the insurance company (insurer) and the policyholder
(insured). In return for a consideration (the premium), the insurance
company promises to pay a specified amount to the insured on the
happening of a specific event”.
! !71
The Wikipedia defines Insurance as “a contract in which the insurer

(stock insurance company, mutual insurance company, reciprocal), agrees
to compensate or indemnify another party (the insured, the policyholder or
a beneficiary) for specified loss or damage to a specified thing (e.g., an
item, property or life) from certain perils or risks in exchange for a fee (the
insurance premium). For example, a property insurance company may
agree to bear the risk that a particular piece of property (e.g., a car or a
house) may suffer a specific type or types of damage or loss during a
certain period of time in exchange for a fee from the policyholder who
would otherwise be responsible for that damage or loss. That agreement
takes the form of an insurance policy.”
2.2.2 Essential Elements of Insurance
The first and foremost essential element of insurance is the

existence of an asset from which the insured derives an economic
value. Assets can be classified into two types:
Tangible assets: Physical things that a person owns can be considered as

tangible assets. Real estate or landed properties, personal property or
movable property can be considered as tangible assets.
Intangible assets: An individual’s good name and credentials in the

market or the goodwill of the company can be considered as best examples
of intangible assets.
In the case of most properties, the value may be clearly estimated by the
valuer, but the human life value is difficult to ascertain. The pain and
sufferings that follow the disablement or death of an individual cannot be
determined with degree of precision. Hence, insurance policies that
protect human life are known as policies of assurance. The amount
of compensation is pre-fixed at the time of contract and when a person
loses his or her life, or gets disabled, a pre-fixed amount is paid.
Dr. Solomon Stephen Huebner is known widely as “the father of

insurance education.” He originated the concept of “Human Life
Value” (HLV), which became a standard method of calculating insurance
value and need. To arrive at the amount of insurance cover that a person
should take out they need to assign a monetary value to human life.
Basically, HLV is a measure of economic loss to a family, if the bread earner
! !72
of the family dies prematurely. Through human life value (HLV), the
insurance company tries to measure the economic value of a person or
how much the person is worth in monetary terms. The loss is measured by
capitalising the present value of expected net earnings over the individual’s
economic lifetime.
The Human Life Value (HLV) Calculator available on Insurance company

websites, helps you identify your life insurance needs on basis of income,
expenses, liabilities and investments and secure your family’s future.
The second most essential element of insurance is the possibility of

loss due to exposure to a certain event that can cause the loss. The
event which can cause the loss is termed as risk.
Risk refers to the possibility that something unpleasant or dangerous might

happen, e.g., untimely death or an unforeseen disability. In insurance, risk
is applied to certain assets that can be insured, such as a human life, a
house, a car, etc. An asset is exposed to a loss situation, but the timing of
loss is not certain. As a general principle, insurance is only available for
risks that are uncertain. The level of risk is generally assessed in terms of
probability (or frequency) of a certain event happening and the extent (or
severity) of the event if it does not happen.
! !73
Perils and Hazards
The loss situation is caused by a Peril. Peril refers to a specific event which
might cause a loss, e.g., earthquakes, storms, floods, etc. Perils are the
risk being insured against, e.g., the risk that an individual will die during
the term of their policy. A hazard, on the other hand, is a condition that
either increases the chance that a peril will happen or may cause its effect
to be worse if it does. If lung cancer is a peril, then smoking can be a
hazard that may increase the chance that the peril (lung cancer) will occur.
A hazard influences the operation of the peril.
Hazards can be classified into two main categories:
1. Physical Hazards: Physical conditions increases the chance of a loss in

case of physical hazards, e.g., a defective construction in a building.
2. Intangible Hazards: Habits and attitude of persons increases the

chance of a loss in case of intangible hazards, e.g., consumption of
alcohol, character defects in an individual, etc.
Insurance cannot prevent the occurrence of these risks, but it can

reduce their impact should they occur. With pooling of risks, an
insurance company pools the premium collected from several
individuals to insure them against similar risks.
Separate pools will be maintained for by insurance companies for different

types of insurance like life insurance, car insurance, home insurance, etc.
The premium collected from the individuals is deposited in the pool
accounts. When there is a claim to be settled, it is paid out of this pool.
Law of Large Numbers
The principle of law of large numbers enables the insurance company to

determine the probability that a certain amount of claims will have to be
paid by them if a large number of people are insured for a similar risk. For
example, out of the 5,000 individuals insured by an insurance company, if
the probability of death is 1%, then the company will have to pay claims
for 50 people. The insurance company is expected to get a accurate
estimate about the number of claims while it determines a probability on a
large sample size in comparison to a smaller sample size. Since the
! !74
insurance company is able to get an estimate of the number of claims, it

can accordingly set the rates of its premiums over the term of the policy.
Insurable Risks
The device of Insurance contracts cover only risks that are static and
arising from unforeseen events. Risks arising from natural causes like fire
and earthquake, death and disease are examples of static risk. Dynamic
risks arising from changes in environment such as people’s tastes or
economy such as unemployment are not insurable.
Financial risks, Particular risks and Pure risks are considered as insurable
risks which can be insured by the insurance company.
Financial risk: The outcomes of risks that can be measured in monetary

terms are known as financial risks.. Loss of life, disease, disability,
retirement, etc. can be considered as causes of financial risk.
Particular risk: A particular risk has its origins in individual events and its
impact is felt locally either on individuals or on communities, e.g., theft of a
property, damage by accidents, etc. Risk arising due to dishonesty of
employees and others in the course of performance of their duties causing
loss of money and stocks to the employer are called fidelity risks.
Pure risk: Pure risks are those risks where there is no possibility of
making a profit but there is a possibility of a loss or no loss, e.g., a car can
meet with an accident or it may not meet with an accident. If the accident
does not happen, there is no gain to the insured. Contrarily, if the accident
occurs, the insurance company will indemnify the loss.
For pure risks to be insurable, it should possess the following

characteristics:
• There must be a sufficiently large number of homogenous exposure in

order that losses are reasonably predictable.
• The losses can be measured in money terms.
• The probability distribution of happening of adverse event is

determinable.
! !75
• The adverse event may or may not happen in future.
• The losses should be non-catastrophic, i.e., not all the units in the
homogenous group will be subject to an adverse event.
• The premium should be economically feasible and affordable by the

insured in the large homogenous group.
Insurable pure risk being static can be classified into:
a. Personal risk
b. Property risk
c. Liability risk
Personal risks directly affect the individual’s capability to earn income

due to various reasons like premature death, sickness, disability,
unemployment and old age.
Property risks can cause damage or loss to property in possession by a

person. The losses may be direct, indirect and even consequential.
Liability risks are arising out of the intentional or unintentional injury to

the persons or damages to their properties through negligence or
carelessness, e.g., liability of the employer under the Workmen’s
Compensation Act or other labour laws.
Methods of handling pure risks: Risk management may be defined as

the identification, analysis and economic control of those risks which can
cause damage to the assets which can ultimately culminate into loss. Risk
management is always an integrated and ongoing evaluation process.
The basic objective behind risk management is to prevent loss, control the
loss, transfer the loss or even retain the loss.
a. Risk Avoidance/prevention of risk which may lead to losses is

one of the methods of risk management, in which the individual
refuses to accept the risk by not engaging in the action that gives
rise to risk, e.g., avoiding manufacture of hazardous products.
! !76
b. Risk mitigation through loss prevention and loss reduction are

effective methods of controlling risk. Getting training before driving
can prevent loss due to accidents and deployment of fire-fighting
equipment can reduce loss due to fire.
c. Risk transfer to another individual or organisation can happen

through contractual agreements like insurance. In consideration of a
premium payment, the second party contracts to indemnify the first
party for a specified loss which may or may not happen.
d. Risk retention can happen in part as well as in full. In risk

retention, the individual is fully aware of the risk and its implications
but still prefers to retain it based on his risk appetite. If a risk is not
recognised, then such a risk is unconsciously retained. Risk that are
consciously retained generally lead to relatively small losses.
Speculative risks are those where there is a possibility of a gain as well

as loss, e.g., gains or losses in purchase of shares from stock market.
Speculative risks are not insurable. Gambling deals with speculative risks.
Law prohibits the use of insurance for gambling purposes because anti-
social activities like fraud and murder would increase thus making a social
device like insurance prohibitively expensive and therefore making the
system fail.
2.2.3 Essential Elements of a Valid Insurance Contract
Once an asset is identified along with the elements of risk, the

insurance company and the insured person is required to enter into
a contractual agreement to provide financial protection against a
specific set of risk for a price known as premium.
The contractual agreement contains a set of promises to be fulfilled by

both the insurance company and the insured. Such a contractual
agreement will be enforceable by law only if it complies with the following
essential elements of a valid contract mentioned in the Indian Contract Act,
1872.
• Offer and Acceptance: A contract comes into existence when one party
makes an offer which the other party accepts unconditionally. To
constitute an insurance contract, the insurance company makes an offer
! !77
to the insured to provide insurance. A contract is formed after the

acceptance of offer by the insured. A policy document is issued by the
insurance company to clearly specify the terms that have been agreed
between insured person and the insurance company, e.g., the details of
cover, period of cover, exceptions, conditions, the premium, etc. The
policy is not the contract of insurance in itself; rather, it is evidence of
the contract.
• Consideration: A contract must be supported by consideration in order

to be valid. In an insurance contract, the premium paid by the insured to
the insurance company is considered as consideration.
• Capacity to contract: Persons entering into contracts should be

competent to do so. An individual is said to be competent to enter into a
contract if they are of the age of majority; of sound mind; and not
disqualified, by law, from entering into contracts. The insured needs to
be legally competent to enter into an agreement with the insurance
company. Agreements entered by people who are not competent to enter
into a contract (like a minor or a person of unsound mind) will be treated
as null and void.
• Free consent: Parties entering into the contract should enter into it by
free consent, i.e., consent is not caused by coercion, undue influence,
fraud, misrepresentation or mistake. The insured should have understood
the features of the insurance policy in the same manner in which it was
explained to him by the agent of the insurance company.
• Legality of object or purpose: The objective of the insurance company

as well as insured should be to create a legal relationship which is not
immoral, not forbidden by law or opposed to public policy or which does
not defeat the provisions of any law. The purpose of the contract should
also be legal and not against public policy. If the purpose of the
insurance contract is to encourage illegal activities, then such contract
will be treated as null and void.
• Capability of performance: The contract must be capable of being

performed by the insured as well as insurance company. For example,
the insured must be capable of paying the premium required and the
insurance company must maintain its solvency to honour the claims of
the insured.
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2.2.4 Principles of Insurance
The contract of insurance involves the elements of general contract of

insurance and the elements of special contract relating to insurance. We
have already discussed the elements of general contract like offer and
acceptance, consideration, free consent, legality of object, capability of
performance, etc. The special contract of insurance involves the following
principles:
1. Insurable interest
2. Utmost good faith
3. Indemnity
4. Subrogation
5. Warranties
6. Proximate cause
7. Contribution
1. Insurable interest
Insurance contracts without insurable interests have no sanction of the law

as they amount to speculation. Insurable interest is said to exist when an
individual stands to gain or benefit from the property, and at the same
time, the individual would suffer a financial loss or inconvenience if there is
damage to the property. The owner of the property has absolute insurance
interest. By this principle, insurable interest exists to other parties like
lessor, lessee, financiers, etc.
Insurable interest has three essential elements:
a. There must be a property capable of being insured.

b. Such property must be the subject matter of insurance.
c. The insured benefits from the property and at the same time would
suffer a financial loss or inconvenience if there is a damage to the
property.
The insurable interest must exist both at the time of the proposal and at
the time of claims. However, in the case of marine insurance contracts
which are assignable without the consent of the insurers, insurable interest
must exist at the time of loss only.
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Every person is presumed to have insurable interest in his own life without
any imitation. Just as a person is presumed to have an insurable interest in
his own life, a wife has an insurable in the life of the husband and vice
versa. If the person has any pecuniary interest in the life of the child, he
can take out an insurance policy on the life of such child. A child is
presumed to have an insurable interest in the life of the parent because it
depends on the life of the parent for support. Sentimental interest based
on any close family relationship besides that of husband and wife may be
held to constitute sufficient insurable interest. The relationship by itself
may not create an insurable interest, but there must be an actual
dependence on the person whose life is assured. Any person who is legally
entitled to claim maintenance can take out insurance on such other
person’s life. A person has insurable interest in the assets they own
because they benefit from their use and they would be adversely affected if
the assets were to be damaged.
A wide variety of relations may acquire insurable interest by reason of

contractual relationship namely:
• Debtor and Creditor: A creditor has an insurable interest in the life of

the debtor.
• Mortgagee and Mortgagor: A mortgagee can insure life of his

mortgagor.
• Principal and Agent: A principal can insure life of his agent.
• Bailee: Bailee is entitled to insure full value of the goods in his

possession
• Lessor and Lessee: The lessor can insure for the full value of the
property in possession of the lessee.
• Surety and Principal Debtor and Co-surety: Surety has insurable

interest in the life of the principal debtor and also in the life of the co-
surety to the extent of the debt.
• Employee and Employer: Employee has insurable interest in the life of

their employer to the extent of their monthly salary.
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• Employer and Employee: Employers have insurable interest in the

well-being of all their employees to the extent of the value of their
services.
• Company: A company has insurable interest in the lives of certain

important people. The company can take out keyman insurance on the
lives of such people.
• Partners: Partners in a business have insurable interests in the lives of

each other.
Insurable interest is, thus, the legal right of the person to insure the
subject matter with which they have a legal relationship recognised by law.
2. Utmost Good Faith
Uberrima fidei is a Latin phrase meaning ‘utmost good faith’ is a name of a

legal doctrine which governs insurance contracts. The principle of uberrima
fidei requires all parties to an insurance contract is duty bound to disclose
all material facts relating to the risk covered.
‘Utmost Good Faith’ can be defined as: A positive duty voluntarily to

disclose, accurately and fully, all facts material to the risk being proposed,
whether requested or not.
Lord Mansfield widely referred to as the father of English Commercial and

Insurance Law had stated the principle of utmost good faith in the leading
case of Carter v. Boehm, thus: “insurance is a contract upon speculation.
The special facts upon which the contingent chance is to be computed lie
more commonly in the knowledge of the insured only; the underwriter
trusts to the insured’s representation and proceeds upon confidence that
he does not keep back any circumstance in his knowledge to mislead the
underwriter into a belief that the circumstance does not exist, and to
induce him to estimate the risk as if it did not exist. The keeping back of
such circumstance is a fraud and therefore the policy is void. Although the
suppression should happen through mistake without any fraudulent
intention, yet the underwriter is deceived and the policy is void; because
the risk run is really different from the risk understood and intended to be
run at the time of agreement…The governing principle is applicable to all
contracts and dealings. Good faith forbids either party by concealing what
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he privately knows, to draw the other into a bargain, form his ignorance of
that fact and his believing the contrary,”
The principle applies equally to both the proposer and the insurer
throughout the contract negotiations, but the law sees the proposer as the
main supplier of material facts to the contract.
The law subjects insurance contracts to a higher obligation by requiring

utmost good faith contracts and not just good faith contract. Material facts
can be defined as a fact which would influence the judgment of a prudent
insurer in fixing the premium or determining whether it will take the risk.
The duty to disclose all material facts applies to all insurance contracts.
Breaches of the duty of utmost good faith can be categorised as: non-
disclosure, or the omission to disclose a material fact, either inadvertently
or because the proposer thought it was immaterial, concealment of a
material fact, fraudulent misrepresentation or statements made with the
intention of deceiving the insurer, and innocent misrepresentation or
inaccurate statements which are believed to be true.
A failure to disclose, however, innocent entitles the other party (insurer) to

avoid the contract and such avoidance will take effect ab initio (from the
beginning), as if no contract has been formed. The insurer need not pay
any claims and if the non-disclosure is fraudulent, the insurer may even
keep the premium. In the first two years of the policy, if the insurance
company comes to know that some material fact has not been disclosed by
the proposer, it can declare the policy to be null and void.
In the case of life insurance, the duty of disclosure arises at the time of
proposal up until the time the risk is accepted by the insurance company
and the policy cover has commenced.
Thus, an insurance contract is a contract of utmost good faith in

which both the insured and the insurer must disclose all the
material facts and fully.
3. Indemnity
Every contract of insurance except life insurance is a contract of indemnity.

The Indian Contract Act, 1872 defines indemnity as “a contract by which
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one party promises to save the other from loss caused to him by the
conduct of the promisor himself or by the conduct of another person”.
In the case of non-life insurance, indemnity can be defined as the financial

compensation provided by the insurer to the insured, to place the insured
in the same financial position after a loss as the insured enjoyed
immediately before the loss occurred, under the terms and conditions of
the policy.
In the case of non-life insurance contracts, i.e., the contracts of fire and
marine insurance are contracts of indemnity because the subject matter
can be assessed in terms of money and can be substituted/reinstated or
substantiated.
Life insurance policy is called a contract of assurance and cannot be

considered as a contract of indemnity as human life is not accessible in
terms of money and there is no limitation as to the sum assured. A person
can take life policy for any amount. Whereas a contract of indemnity is
restricted to the amount of debt only. Similarly, personal accident
insurance and sickness insurance are non-indemnity contracts. General
insurance policies and health insurance policies are contracts of indemnity
whereby the insured is compensated for the loss incurred.
The principle of indemnity does not allow the insured to make profit out of
his loss. The insurer will put the insured in the same position before the
loss and nothing more than the position before the loss. In the absence of
application of the principle of indemnity to a non-life insurance contract,
the insurance industry would have to face the over insurance from the
insured to intentionally cause a loss to occur so that a financial gain could
be achieved. Hence, the principle of indemnity ensures that only the actual
loss becomes payable and not the assured sum which may be higher in
overinsurance.
The principle of indemnity makes sure that the insured is

compensated only to the extent to which they have suffered a loss
and cannot profit from insurance.
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4. Subrogation
Subrogation, in general, means the legal right of one person, having

indemnified the other in a contractual obligation to do so, to stand in the
place of another and avail of all the rights and remedies of the another,
whether enforced or not.
The doctrine of subrogation refers to the right of the insurer to stand in the
place of the insured, after the settlement of a claim, insofar as the
insured’s right of recovery from an alternative source is involved.
A loss may occur accidentally or by the action or negligence of third party.

The property owners have a right to proceed against the offending third
party to recover the loss/damage and also under their insurance policy but
not under both. If the insured opts to recover the loss under the insurance
policy which is faster and does not involve litigation, he will surrender his
rights against the third parties in favour of the insurers signing a letter of
subrogation on an appropriate stamp paper.
The effect of subrogation is that the insured does not receive more money
than the actual amount of his loss and the recovery effected from the third
party goes to the benefit of the insurer to reduce the amount of the loss.
An exception to this rule are the life insurance policies wherein insured/
beneficiaries can claim under an insurance policy and also proceed against
the offending third party. The doctrine of subrogation does not apply to
personal insurance because the doctrine of indemnity is not applicable to
such insurance.
The doctrine of subrogation can be illustrated with following examples:
a. If a cargo is damaged due to the negligence of a carrier (e.g.,

railways, truck operator, shipping company, airways, etc.) who have
an obligation to make good the loss of the insured, the insurer can
compensate the insured and would be entitled to the insured’s right
of recovery against the carrier.
b. A private car may be damaged in a collision burst by the rash and

negligent driving of a truck. The private car owner can be
compensated for the loss by the insurer and in turn the private car
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owner’s right of recovery can be transferred to the insurer who has

indemnified the loss.
The insurer is subrogated all the rights, claims, remedies and

securities of the damaged insured property after indemnification,
but he is entitled to get the benefits of subrogation only to the
extent of his payment.
5. Warranties
The term ‘warranty’ has been defined in the Sale of Goods Act, 1930 as a
stipulation collateral to the main purpose of the contracts, the breach of
which gives rise only to a claim for damages but not avoid the contract
altogether.
In all policies of marine insurance, any statement of fact bearing upon the
risk introduced into the policy is construed as a warranty. In contract of
insurance, particularly of marine insurance, the term warranty is important
aspect as to the interpretation of for determination of loss under the
contract.
According to Marine Insurance Act, 1963, “A warranty is that by which the

assured undertakes that some particular thing shall or shall not be done, or
that some conditions shall be fulfilled, or whereby he affirms or negatives
the existence of a particular state of facts.”
A warranty may be express or implied. Implied warranties are implied by

law or from circumstances. An express warranty may be in any form of
words from which the intention to warranty is to be inferred. The
warranties fulfilling certain conditions are called promissory warranties.
Many statements are made by the parties particularly to induce the other
party to enter into agreement. These statements are commonly known as
representation and when these representation are incorporated in the
contract of insurance, they become warranties.
A warranty is a condition which must be exactly complied with, whether it

be material to the risk or not. If it is not complied with, then subject to any
express provision in the policy, the insurer is discharged from liability as
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from the date of breach of warranty, but without prejudice to any liability
incurred by him before that date.
Non-compliance with a warranty is excused when by reason of a change of

circumstances, the warranty ceases to be applicable to the circumstances
of the contract.
Warranty is a very important condition in the insurance contract

which is to be fulfilled by the insured.
6. Proximate cause
The principle of proximate cause comes into application when a loss is

caused by two or more perils acting simultaneously or in succession. The
rule is that immediate and not the remote cause is to be regarded while
payment of the loss. If the real cause of the loss is insured, then the
insurer is liable to compensate the loss.
Proximate cause is a key principle of insurance and is concerned with how

the loss or damage actually occurred and whether it is indeed as a result of
an insured peril. Under this rule, insurer looks for the predominant cause
which sets into motion the chain of events producing the loss, which may
not necessarily be the last event that immediately preceded the loss, i.e., it
is an event which is closest to, or immediately responsible for causing the
loss.
In the chain of events, it is the dominant cause which would be the

proximate cause to be considered for the purpose of a claim. It is always
the duty of the insured to prove that the loss arose out of the insured peril,
which is proximate.
For example, a fire might cause a person to faint but the death of the
person may be because of a heart attack he had while he was taken to the
hospital. Despite the resultant loss being fainting and weak heart, the fire
would still be considered the proximate cause of the incident. If the
proximate cause, i.e., fire is not insured, then the insurer is not bound to
pay any claim.
Proximate cause is defined as the active and efficient cause that

sets in motion a chain of events which brings about a result,
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without the intervention of any force started and working actively

from a new and independent source.
7. Contribution
The principle of contribution implies that if the same property is insured

with more than one insurance company, the compensation paid by all the
insurers together cannot exceed the actual loss suffered. If insured were to
collect insurance money for the full value from all the insurers, insured
would make a profit from the loss. This would violate the principle of
indemnity.
The principle of contribution is a corollary to the principle of indemnity and

may be defined as the right of the insurers who have paid a loss under a
policy to recover a proportionate amount from other insurers who are liable
for the same loss. The insurer who has paid the first claim in full can claim
contribution form the other co-insurers.
For example, Mr. Aswin takes out a fire policy on his house valued at ` 50
lakhs with two insurance companies. He insures it for ` 25 lakhs with each
company. When the house is partially damaged in a fire, the loss is
estimated at ` 20 lakhs. He claims ` 20 lakhs each from the two insurers.
The two insurers decline to give him ` 20 lakhs each and pay 50% of the
loss, i.e., ` 10 lakhs, thus ensuring that the insured gets no more than the
value of the actual loss.
The principle of contribution does not apply in case of non-indemnity

policies like life insurance policies and personal accident policies. It is the
duty of the insured to disclose all details of his policies to all insurers as the
total amount for which he is covered cannot exceed the Human Life Value.
The right to contribution is given statutory recognition in the

Marine Insurance Act, 1963, which provides “When the assured is
overinsured by double insurance, each insurer is bound, as
between himself and the other insurers, to contribute rateably the
loss in proportion to the amount for which he is liable under the
contract. If any insurer pays more than his proportion of the loss,
he is entitled to maintain a suit for contribution against the other
insurers, and is entitled to the like remedies as a surety who has
paid more than his proportion of the debt.”
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2.2.5 Functions of Insurance
• The main function of the insurance is to provide protection against the

probable losses.
• Life insurance encourages ‘thrift’. It allows long-term savings since

payments can be made effortlessly because of the ‘easy installment’
facility built into the scheme.
• Insurance provides certainty of payment against different types of risk.
• Insurance shares risks with a large number of people who are exposed to
risk.
• Insurance premium collected from the insured provides capital to the

economy in order to invest it for productive purpose.
• Insurance eliminates worries and increases efficiencies of people and

industries.
• It is easy to acquire loans on the sole security of any policy that has
acquired loan value.
• Insurance catalyses economic progress.
2.2.6 Characteristics of Insurance
• Co-operative device
• Contract for compensating losses
• Helps risk sharing and risk transfer
• Premium is charged for the risk insured
• Payment is made at certain contingencies insured
• Number of persons insured is large
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• Risk is evaluated before insuring and premium is fixed on the basis of

risk
• Life Insurance is the best way to enjoy tax deductions on income tax
• A policy that has a suitable insurance plan or a combination of different

plans can be effectively used to meet certain monetary needs that may
arise from time to time.
2.3 Classification of Insurance
Insurance have been classified into various categories from different points
of view. Based on the various categories mentioned by different writers, we
can classify insurance as follows:
a. Classification of insurance contract from the business point of view
b. Classification of insurance contract according to the nature of interest

affected
c. Classification of insurance contract according to the nature of event
(a) Classification of insurance from the business point of view
The Insurance can be classified into three categories from the business
point of view as follows:
i. Life Insurance
ii. General Insurance
iii. Social Insurance
(i) Life insurance: The subject matter of life insurance is human life.
Life insurance is a contract that pledges payment of an amount to the
person assured (or his nominee) on the happening of the event
insured against. The contract is valid for payment of the insured
amount during the date of maturity, or specified dates at periodic
intervals, or unfortunate death, if it occurs earlier. The contract also
provides for the payment of premium periodically to the insurer by
the policyholder. Life insurance is universally acknowledged to be an
institution, which eliminates ‘risk’, substituting certainty for
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uncertainty and comes to the timely aid of the family in the

unfortunate event of death of the breadwinner. Under Life Insurance,
the highly popular insurance products are Endowment Assurance
(Participating), Money Back (Participating) and Pension. More than
80% of the life insurance business is derived from these products.
(ii)General Insurance: General (Non-life) Insurance includes Property

insurance, Liability insurance and Fidelity insurance. In India, Health
Insurance is placed under General Insurance category. Property
insurance includes Marine insurance, Fire insurance, Automobile
insurance, Cattle insurance, Crop insurance, Machinery insurance and
Theft insurance. Liability insurance includes Third party insurance,
Employees’ insurance, Motor insurance and Reinsurance. Fidelity
insurance includes Fiduciary insurance, Credit insurance and Privilege
insurance.
(iii)Social Insurance: Social insurance through various programmes

provides a safety net against the financial insecurity that can result
from premature death, unemployment, poor health, job related
disabilities and old age. These programmes are especially vulnerable
to individuals and families with limited incomes. GIC is pioneer in
social insurance. GIC has launched certain social insurance covers
like Krishi Bima Yojana, Personal Accident Social Security Scheme
and Hut Insurance Scheme. IRDA regulations have made social
insurance as a minimum percentage of total business mobilised.
(b)Classification of insurance contract according to the nature of

interest affected
A person may take out a policy protecting himself from loss likely to be
caused by loss of life or from any injury to his body or from damage or
loss of property or involvement in liability to others. Insurance can be
classified into four categories according to the nature of interest
affected as follows:
(i) Personal Insurance: Nature of interest affected is the life, health

and body especially when a person takes a life insurance, health
insurance or accident insurance
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(ii)Property Insurance: Proprietary interest of the person are

affected by the happening of an event, e.g., marine insurance, fire
insurance, etc.
(iii)Liability Insurance: Insured is exposed to some liability against

third parties due to the happening of an event. Risk of third
parties, compensation to employees, liability of automobile owners
and reinsurances are covered.
(iv)F i d e l i t y I n s u r a n c e : L o s s a r i s i n g d u e t o d i s h o n e s ty,
disappearance and disloyalty of the employers are covered. Loss to
the first party due to the failure of third party is covered.
(c)Classification of insurance contract according to the nature of

event
Insurance can also be classified according to the nature of event

happening, after which the insurer would be liable to pay the agreed
money to the insured. Insurance can be classified into four categories
according to the nature of event as follows:
(i) Life Insurance: Sum insured becomes payable on the death of

the insured or after certain period.
(ii)Fire Insurance: Sum insured is payable after destruction or

damage to property due to fire.
(iii)Marine Insurance: Sum insured is payable on the happening of

a perilous event at sea.
(iv)Miscellaneous Insurance: Variety of new insurance products

that has emerged in the modern time due to innovation in
insurance are covered under miscellaneous insurance, e.g., social
insurance, aviation insurance, industrial insurance, motor vehicles
insurance, etc.
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2.4 Benefits of Insurance
• Insurance provides peace of mind by eliminating fear and uncertainty.
• Insurance is an economic institution based on the principle of mutuality

for the purpose of raising a fund to eliminate Uncertainy of loss by perils.
• Insurance promotes trade and commerce by encouraging innovation,

providing adequate liability insurance and controlling malpractices.
• Insurance promotes financial stability by indemnifying those who suffer

loss or damage to economic assets and encourages individuals and firms
to invest and create wealth.
• Insurance complements governments security programmes by providing

indemnity plans for natural disasters and pension fund and life insurance.
• Insurance play a vital role in mobilising savings from the public through
insurance and financial intermediation and enables risks to be managed
more efficiently.
• Insurance fulfills the needs of the person both when he is alive and after
his death by taking care of family needs, readjustment needs, special
needs and old age needs.
2.5 Limitations of Insurance
Insurance provides lots of benefits, but at the same time it does have
certain limitations like:
• Static risks can be insured but dynamic risks cannot be insured. Hence,
all the risks cannot be insured.
• Contract of insurance becomes void in the absence of insurable interest.
• Unquantified loss arising from any event are not insurable.
• High premium rates are not affordable for certain category or people and
hence this limits insurance penetration.
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• False claims and malpractices becomes a cog in the wheel and hence it
becomes difficult to control moral hazards in insurance.
• Insurance business cannot be a source to acquire profits as its basic

objective is to provide security against risks.
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2.6 Summary
One needs to know various concepts and ideas about insurance in order to
safeguard oneself against perils, hazards and risks. Insurance helps to
reduce the adverse economic effects of the situation as well as helps to
compensate for the economic loss incurred due to the impact of adverse
situations.
Insurance is a contractual arrangement whereby one party agrees to

compensate another for losses which may be suffered as a result of
occurrence of certain unforeseen events, in return for the payment of a
consideration. The party agreeing to pay for the losses is known as the
insurer while the party who is compensated for the loss suffered is called
the insured. The consideration that the insurer receives in return is known
as the premium. A agreement of various terms and conditions related to
insurance are put in a written form which is known as insurance policy.
The first and foremost essential element of insurance is the existence of an

asset from which the insured derives an economic value. The second most
essential element of insurance is the possibility of loss due to exposure to a
certain event that can cause the loss. The event which can cause the loss
is termed as risk. As a general principle, insurance is only available for
risks that are uncertain. Perils are the risk being insured against, e.g., the
risk that an individual will die during the term of their policy. A hazard, on
the other hand, is a condition that either increases the chance that a peril
will happen or may cause its effect to be worse if it does. With pooling of
risks, an insurance company pools the premium collected from several
individuals to insure them against similar risks.
The principle of law of large numbers enables the insurance company to

paid by them if a large number of people are insured for a similar risk
The device of Insurance contracts cover only risks that are static and
arising from unforeseen events. Dynamic risks arising from changes in
environment such as people’s tastes or economy such as unemployment
are not insurable. Financial risks, Pure risks and Particular risks are
considered as insurable risks which can be insured by the insurance
company.
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The insurance company and the insured person is required to enter into a
contractual agreement to provide financial protection against a specific set
of risk for a price known as premium. Such a contractual agreement will be
enforceable by law only if it complies with the following essential elements
of a valid contract mentioned in the Indian Contract Act, 1872. The special
contract of insurance involves the following principles: Insurable interest,
Utmost good faith, Indemnity, Subrogation, Warranties, Proximate cause
and Contribution.
The main function of the insurance is to provide protection against the

probable losses. One of the main characteristics of insurance is acting as a
Co-operative device. One of the biggest benefit of insurance is to provide
peace of mind by eliminating fear and uncertainty. Insurance provides lots
of benefits, but at the same time it does have certain limitations too.
Insurance have been classified into various categories from different points
of view.
1. Prepare a small note on change in functions of insurance due to

clearance of the new Insurance Bill by the Parliament, which will bring
more Foreign Direct Investment in our country.
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2. List out the rights and duties of the insured and insurer on the basis of
principles of Insurance.
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2.8 Suggested readings and references
7. IC 33 and 34 of Insurance Institute of India.
8. The Chartered Insurance Institute.
9. www.cii.co.uk
10.http://en.wikipedia.org/wiki/Insurance
11.http://financialservices.gov.in/insurance
12.http://www.investindia.gov.in/
13.http://www.licindia.com/history.htm
14.https://www.irda.gov.in/
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1. In the case of most property, the value may be clearly estimated by the
valuer, but the human life value is difficult to ascertain. The pain and
sufferings that follow the disablement or death of an individual cannot
be determined with degree of precision. Hence, insurance policies that
protect human life are known as:
a. Policies of Indemnity
b. Policies of Assurance
c. Policies of Subrogation
d. Policies of Contribution
2. The second most essential element of insurance is the possibility of loss

due to exposure to a certain event that can cause the loss. The event
which can cause the loss is termed as risk. As a general rule, insurance
policies are available for risks that are:
a. Implied
b. Constant
c. Certain
d. Uncertain
3. The principle of law of large numbers enables the insurance company to

paid by them if a large number of people are insured for a similar risk.
State whether the above statement is true or false.
a. True
b. False
4. Risk management may be defined as the identification, analysis and

economic control of those risks which can cause damage to the assets
which can ultimately culminate into loss. Getting training before driving
prevent loss due to accidents can be considered as which type of risk
management technique?
! !97
a. Risk avoidance
b. Risk mitigation
c. Risk transfer
d. Risk retention
5. Once an asset is identified along with the elements of risk, the insurance
company and the insured person is required to enter into a contractual
agreement to provide financial protection against a specific set of risk
for a price known as premium. Which of the following is an essential
element of a valid insurance contract?
a. Offer and acceptance

b. Consideration
c. Competent parties
d. All of the above
6. Insurable interest is said to exist when an individual stands to gain or

benefit from the property, and at the same time, the individual would
suffer a financial loss or inconvenience if there is damage to the
property. Which of the following statement is not correct regarding
insurable interest?
a. A creditor has an insurable interest in the life of the debtor

b. A mortgagee can insure life of his mortgagor
c. A child has an insurable interest in the life of his pet dog
d. A principal can insure life of his agent
7. Mr. Harbhajan takes out a fire policy on his house valued at ` 100 lakhs
with two insurance companies. He insures it for ` 50 lakhs with each
company. When the house is partially damaged in a fire, the loss is
estimated at ` 40 lakhs. He claims ` 40 lakhs each from the two
insurers. The two insurers decline to give him ` 40 lakhs each.
Harbhajan can claim how much money from each insurance company?
a. ` 10 lakhs
b. ` 20 lakhs
c. ` 30 lakhs
d. ` 40 lakhs
! !98
Answers:
1. (b)
2. (d)
3. (a)
4. (b)
5. (d)
6. (c)
7. (b).
! !99
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !100
INSURANCE BUSINESS ENVIRONMENT IN INDIA
Chapter 3
Insurance Business Environment in India
Objectives
This chapter will help you to understand various types of insurance

institutions, insurance intermediaries and various aspects of insurance
business.
! !101
Structure:
3.1 Introduction
3.2 Insurance Regulatory and Development Authority of India (IRDA)
3.3 Registration of Insurance Companies
3.4 Appointment of Actuaries
3.5 Distribution Channels
3.6 Insurance Agents
3.7 Corporate Agents
3.8 Insurance Brokers
3.9 Surveyors
3.10 Third Party Administrators (TPAs)
3.11 Referral Providers
3.12 Web Aggregators
3.13 Self-regulatory Institutions
3.14 Insurance Repositories
3.15 Summary
! !102
3.1 Introduction
Insurance in India refers to the market for insurance in India which covers
both the public and private sector organisations. It is listed in the
Constitution of India in the Seventh Schedule as a Union List subject,
meaning it can only be legislated by the Central government.
Insurance business is primarily regulated by two acts, i.e., (a)

Insurance Act, 1938 and (b) Insurance and Regulatory
Development Authority Act, 1999. Apart from these, Life Insurance
Corporation of India is regulated by The Life Insurance Corporation Act,
1956 and General Insurance is regulated by General Insurance Business
(Nationalisation) Act, 1972.
There are 52 insurance companies operating in India; of which, 24

are in the life insurance business and 28 are in general insurance
business. The share of life insurance business for India was 79.6% while
the share of non-life insurance business was at 20.4%. In life insurance
business, India is ranked 11th among the 88 countries and 21st in global
non-life insurance markets. India’s share in global life insurance market
was 2.00% while that of non-life insurance premium was at 0.66% during
2013.
The Insurance Laws (Amendment) Bill, which provides for raising

the foreign investment cap from 26% to 49% has been passed by
the Parliament. The passage of the Bill, thus, paved the way for major
reform related amendments in the Insurance Act, 1938, the General
Insurance Business (Nationalisation) Act, 1972 and the Insurance
Regulatory and Development Authority (IRDA) Act, 1999. The
amendment Act will remove archaic and redundant provisions in
the legislations and incorporates certain provisions to provide
Insurance Regulatory and Development Authority of India (IRDAI)
with the flexibility to discharge its functions more effectively and
efficiently. With this background, the insurance industry is going to
blossom within the existing structure of insurance organisation, insurance
intermediaries and various aspects of insurance business.
! !103
3.2 Insurance Regulatory and Development Authority of

India (IRDA)
The primary regulator for insurance in India is the Insurance Regulatory

and Development Authority (IRDA) which was established in 1999 under
the government legislation called the Insurance Regulatory and
Development Authority Act, 1999. Insurance Regulatory and Development
Authority of India (IRDA) is an autonomous apex statutory body which
regulates and develops the insurance industry in India.
The aim of IRDA is “to protect the interest of holders of insurance

policies to regulate, promote and ensure orderly growth of
Insurance industry and for matters connected therewith or
incidental thereto.”
Mission Statement of IRDA
• To protect the interest of and secure fair treatment to policyholders;
• To bring about speedy and orderly growth of the insurance industry

(including annuity and superannuation payments), for the benefit of the
common man, and to provide long-term funds for accelerating growth of
the economy;
• To set, promote, monitor and enforce high standards of integrity,

financial soundness, fair dealing and competence of those it regulates;
• To ensure speedy settlement of genuine claims, to prevent insurance

frauds and other malpractices and put in place effective grievance
redressal machinery;
• To promote fairness, transparency and orderly conduct in financial

markets dealing with insurance and build a reliable management
information system to enforce high standards of financial soundness
amongst market players;
• To take action where such standards are inadequate or ineffectively

enforced;
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• To bring about optimum amount of self-regulation in day-to-day working

of the industry consistent with the requirements of prudential regulation.
Duties, Powers and Functions of IRDA
Duties: The Authority shall have the duty to regulate, promote and ensure
orderly growth of the insurance business and reinsurance business subject
to the provisions of any other provisions of the Act.
Powers and Functions
a. To issue to the applicant (Insurance Company or Insurance Agent or

Surveyors or Insurance Brokers or Third Party Administrators) a
certificate of registration; renew, modify, withdraw, suspend or cancel
such registration;
b. To protect the interests of the policyholders in matters concerning

assigning of policy, nomination by policyholders, insurable interest,
settlement of insurance claim, surrender value of policy and other terms
and conditions of contracts of insurance;
c. To specify requisite qualifications, code of conduct and practical training

for insurance brokers, agents, surveyors and third party administrator;
d. To specify the code of conduct for surveyors and loss assessors (who
assess the loss of policyholder in case of General Insurance);
e. To promote efficiency in the conduct of insurance business;
f. To promote and regulate professional organisations connected with the

insurance and reinsurance business;
g. To levy fees and other charges on Insurance Companies, Agents,

Insurance Brokers, Surveyors and Third Party Administrator;
h. To call for information from, undertaking inspection of, conducting

enquiries and investigations including audit of the insurers,
intermediaries, insurance intermediaries and other organisations
connected with the Insurance business;
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i. To control and regulate the rates, advantages, terms and conditions that
may be offered by insurers in respect of general insurance business not
so controlled and regulated by the Tariff Advisory Committee under
Section 64U of the Insurance Act, 1938;
j. To specify the form and manner in which books of accounts shall be

maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries;
k. To regulate investment of funds by insurance companies;
l. To regulate maintenance of margin of solvency, i.e., having sufficient

funds to pay insurance claim amount;
m. To settle the disputes between insurers and intermediaries or insurance

intermediaries;
n. To supervise the functioning of the Tariff Advisory Committee;
o. To specify the percentage of premium income of the insurer to finance

schemes for promoting and regulating professional organisations
referred to in clause (f);
p. To specify the percentage of life insurance business and general

insurance business to be undertaken by the insurer in the rural or social
sector; and
q. To exercise such other powers as may be prescribed.
3.3 Registration of Insurance Companies
The Insurance Regulatory and Development Authority Act prescribes that

no person shall start a new business on any branch of the insurance
business unless he has obtained a certificate of registration for the
particular class of insurance business he proposes to carry out.
An insurance company must be first registered under the Companies Act,

2013 and must also be registered with the Insurance Regulatory and
Development Authority.
! !106
Section 3 of the Insurance Act, 1938 provides that every application for
registration shall be made in a manner as may be determined by the
Insurance Regulatory and Development Authority.
Regulation for Product Approval
No Insurance Company can sell any insurance product unless and until the
product is approved by the IRDA. An insurer who wishes to introduce a
new product or to make changes to any existing product or to withdraw an
existing product shall submit the application in the prescribed proforma to
IRDA with full details and reasons to make changes in any existing product
or to withdraw an existing product.
3.4 Appointment of Actuaries
A person qualifying as a fellow of the Actuarial Society of India is a

qualified actuary and can be appointed as actuary by an insurer with the
approval of Insurance Regulatory and Development Authority.
Every insurer doing the life insurance business must appoint a qualified
actuary exclusively for himself to advice him on matters relating to tariff,
investments and manner of maintaining accounts. The actuary plays an
important role in the life insurance business particularly in product
development, determination of premium rates, study of mortality rates,
construction of mortality tables, laying down standards for underwriting,
valuation of assets and liabilities and method of distributing surplus. In
general insurance also, actuaries are consulted in matters related to rating
and technical matters.
3.5 DISTRIBUTION CHANNELS
The distribution channel of insurance sector is regulated by the Insurance

Act 1938. After nationalisation of insurance, the insurance product is being
sold either through an agent or directly by the company. The marketing
apparatus consisted of insurance agents, development officers and branch/
divisional manager (sales). After privatisation of insurance in 2000, the
distribution channel has been expanded creating additional sales channels
through corporate agents, brokers and online portals.
! !107
An Insurance Intermediary means individual agents, corporate agents

including banks and brokers – they intermediate between the customer
and the insurance company.
3.6 Insurance Agents
An agent is a person who is licensed by the Authority to solicit and procure

insurance business including business relating to continuance, renewal or
revival of policies of insurance. An agent could be an Individual Agent or a
Corporate Agent.
A Composite Insurance Agent means an insurance agent who holds a

licence to act as an insurance agent for a life insurer and a general insurer.
An Insurance Broker may represent more than one insurance company.
The Insurance Act, 1938 applies to all types of insurance business, i.e., life,
fire, marine, etc. done by companies incorporated in India or elsewhere. It
also governs the provident companies, mutual offices and co-operative
societies.
Section 42 – Licensing of Insurance Agents
The provisions relating to licensing of insurance agents are contained in

Section 42 of the Insurance Act, 1938.
1. The Authority or an officer authorised by him in this behalf shall, in the

manner determined by the regulations made by it and on payment of
the fee which shall not be determined by the regulations, which shall
not be more than two hundred and fifty rupees, issue to any person
making any application in the manner determined by the regulations, a
licence to act as an insurance agent for the purpose of soliciting or
procuring insurance business:
Provided that—
(i) in the case of an individual, he does not suffer from any of the
disqualification mentioned in sub-section (4); and
! !108
(ii)in the case of a company or firm, any of its directors or partners does
not suffer from any of the said disqualifications:
An agent can work for any one life insurance and one general insurance
company and the appointment of an agent will be as per regulation
prescribed by IRDA as explained below:
IRDA or an officer authorised by it in this behalf will issue a license. These

regulations specify:
• Authorises designated persons, being officers of Insurers to issue such

license for three years
• The license may be to act as an (a) Agent for the “Life Insurer” or (b)
Agent for the “General Insurer” or (c) Agent as a “Composite Insurance
Agent” means agent for life insurance as well as general insurance.
An applicant has to pass the insurance agency examination in the subjects

of Life, General and Health insurance as per the syllabus prescribed by
IRDA, to be eligible for appointment as an insurance agent
The applicant so appointed as an insurance agent will be provided an

identity card by the insurer which shall identify the agent with the insurer
of which he is acting as an agent.
An individual agent is one who has undergone requisite training, passed an

examination and been duly licensed by IRDA to sell insurance polices to the
public and provide after-sales service including assisting at the time of a
claim is required to comply with the code of conduct prescribed by IRDA as
follows:
Code of Conduct
1. Every person holding a licence, shall adhere to the code of conduct

specified below:
(i) Every insurance agent shall,—
a. identify himself and the insurance company of whom he is an

insurance agent;
! !109
b. disclose his licence to the prospect on demand;
c. disseminate the requisite information in respect of insurance

products offered for sale by his insurer and take into account the
needs of the prospect while recommending a specific insurance
plan;
d. disclose the scales of commission in respect of the insurance

product offered for sale, if asked by the prospect;
e. indicate the premium to be charged by the insurer for the

insurance product offered for sale;
f. explain to the prospect the nature of information required in the

proposal form by the insurer, and also the importance of disclosure
of material information in the purchase of an insurance contract;
g. bring to the notice of the insurer any adverse habits or income

inconsistency of the prospect, in the form of a report (called
“Insurance Agent’s Confidential Report”) along with every proposal
submitted to the insurer, and any material fact that may adversely
affect the underwriting decision of the insurer as regards
acceptance of the proposal, by making all reasonable enquiries
about the prospect;
h. inform promptly the prospect about the acceptance or rejection of

the proposal by the insurer;
i. obtain the requisite documents at the time of filing the proposal

form with the insurer; and other documents subsequently asked
for by the insurer for completion of the proposal;
j. render necessary assistance to the policyholders or claimants or

beneficiaries in complying with the requirements for settlement of
claims by the insurer;
k. advise every individual policyholder to effect nomination or

assignment or change of address or exercise of options, as the
case may be, and offer necessary assistance in this behalf,
wherever necessary;
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(ii)No insurance agent shall,—
a. solicit or procure insurance business without holding a valid

licence;
b. induce the prospect to omit any material information in the

proposal form;
c. induce the prospect to submit wrong information in the proposal

form or documents submitted to the insurer for acceptance of the
proposal;
d. behave in a discourteous manner with the prospect;
e. interfere with any proposal introduced by any other insurance

agent;
f. offer different rates, advantages, terms and conditions other than

those offered by his insurer;
g. demand or receive a share of proceeds from the beneficiary under

an insurance contract;
h. force a policyholder to terminate the existing policy and to effect a

new proposal from him within three years from the date of such
termination;
i. have, in case of a corporate agent, a portfolio of insurance

business under which the premium is in excess of fifty per cent of
total premium procured, in any year, from one person (who is not
an individual) or one organisation or one group of organisations;
j. apply for fresh licence to act as an insurance agent, if his licence

was earlier cancelled by the designated person, and a period of
five years has not elapsed from the date of such cancellation;
k. become or remain a director of any insurance company;
! !111
(iii)Every insurance agent shall, with a view to conserve the insurance

business already procured through him, make every attempt to
ensure remittance of the premiums by the policyholders within the
stipulated time, by giving notice to the policyholder orally and in
writing;
The new Insurance Law (Amendment) Bill, says that the agents will be
appointed by the insurance companies directly and insurers will be held
liable for all actions of the agent.
But IRDA, the insurance regulator, has powers to impose stiffer penalties.
If the regulator finds out that there has been a violation of regulations in
the appointment of the agent, it can penalise the agent with fine up to `
10,000. The insurance company can be held liable to pay penalty up to ` 1
crore.
The second change is with regard to multi-level marketing. In such a

model, an insurance agent used to enroll others into a chain scheme with
each of these agents in turn, enrolling more distributors in a pyramid
structure.
All members of the pyramid earned incentives based on their sales. The
new law forbids such multi-level marketing. This is a positive development
because it will ensure that every agent who deals with you is directly
employed by the insurance company. The Bill also holds that any agent
who offers an inducement to a policyholder directly or indirectly to take or
renew an insurance policy will be penalised to the extent of ` 10 lakhs.
This amount was earlier ` 500 (under Section 41(2)).
The third change is the introduction of a new provision, which says that an
individual can’t be an agent for more than one life insurance company, or
one general, or health insurance company. This is meant to eliminate
conflict of interest. But as each agent will only be able to sell products of
one insurer, it will be up to the investor to do his own research on product
selection.
The Insurance Act of 1938 specified limits on the commission that could be
paid to agents. Under Section 40A, the Act specified that in the life
insurance business, the commission paid should not exceed 40% of the
! !112
first’s year premium and 5% of renewal premium in traditional insurance

products.
In the new Bill, however, this Section has been omitted. There is now no
official cap on commission to agents on traditional products. Such a cap
may be decided by IRDA.
ULIPs, however, will continue to have a cap on net reduction in yield — of

maximum of 2.25%. So, watch out as the commissions on traditional plans
may even go up.
3.7 Corporate Agents
Corporate entities represent an insurance company and sell its policies.

Usually, they are engaged in a particular business and sell insurance
policies to their existing customers based on the situation. For example, a
travel agent may offer you a travel insurance policy or a vehicle dealer a
motor insurance policy.
When a bank becomes the corporate agent of an insurance company, it is

referred to as a bancassurance arrangement or partnership.
Banks offer insurance policies to their customers based on their knowledge

of their situation and needs.
Corporate Agents can represent one life insurer, one non-life insurer and
one stand-alone health insurer. In addition, they can represent the two
specialised insurance companies, Export Credit Guarantee Corporation and
Agriculture Insurance Corporation of India.
Regulation 9(1) of IRDA (Licensing of Corporate Agents)

Regulations, 2002 prescribes Code of Conduct for Corporate Agents
as under:
9. (1) Every Licensed Corporate Agent shall abide by the code of conduct
specified below:
Every corporate agent shall:
! !113
a. be responsible for all acts of omission and commission of its

corporate insurance executive and every specified person;
b. ensure that the corporate insurance executive and all specified

persons are properly trained, skilled and knowledgeable in the
insurance products they market;
c. ensure that the corporate insurance executive and the specified

person do not make to the prospect any misrepresentation on policy
benefits and returns available under the policy;
d. ensure that no prospect is forced to buy an insurance product;
e. give adequate pre-sales and post-sales advice to the insured in

respect of the insurance product;
f. extend all possible help and co-operation to an insured in completion

of all formalities and documentation in the event of a claim;
g. give due publicity to the fact that the corporate agent does not
underwrite the risk or act as an insurer;
h. enter into service level agreements with the insurer in which the
duties and responsibilities of both are defined.
(2)Every corporate agent or a corporate insurance executive or a specified

person shall also follow the code of conduct specified below:
i. Every corporate agent/corporate insurance executive/specified person

shall,—
a. identify himself and the insurance company of whom he is a

representative;
b. disclose his licence/certificate to the prospect on demand;
c. disseminate the requisite information in respect of insurance

products offered for sale by his insurer and take into account the
needs of the prospect while recommending a specific insurance
plan;
! !114
d. disclose the scales of commission in respect of the insurance

product offered for sale, if asked by the prospect;
e. indicate the premium to be charged by the insurer for the

insurance product offered for sale;
f. explain to the prospect the nature of information required in the

proposal form by the insurer, and also the importance of disclosure
of material information in the purchase of an insurance contract;
g. bring to the notice of the insurer any adverse habits or income

inconsistency of the prospect, in the form of a report (called
“Insurance Agent’s Confidential Report”) along with every proposal
submitted to the insurer, and any material fact that may adversely
affect the underwriting decision of the insurer as regards
acceptance of the proposal, by making all reasonable enquiries
about the prospect;
h. inform promptly the prospect about the acceptance or rejection of

the proposal by the insurer;
i. obtain the requisite documents at the time of filing the proposal

form with the insurer; and other documents subsequently asked
for by the insurer for completion of the proposal;
j. render necessary assistance to the policyholders or claimants or

beneficiaries in complying with the requirements for settlement of
claims by the insurer;
k. advise every individual policyholder to effect nomination or

assignment or change of address or exercise of options, as the
case may be, and offer necessary assistance in this behalf,
wherever necessary.
ii. No corporate agent/corporate insurance executive/specified person

shall,—
a. solicit or procure insurance business without holding a valid

licence/certificate;
! !115
b. induce the prospect to omit any material information in the

proposal form;
c. induce the prospect to submit wrong information in the proposal

form or documents submitted to the insurer for acceptance of the
proposal;
d. behave in a discourteous manner with the prospect;
e. interfere with any proposal introduced by any other specified

person or any insurance intermediary;
f. offer different rates, advantages, terms and conditions other than

those offered by his insurer;
g. demand or receive a share of proceeds from the beneficiary under

an insurance contract;
h. force a policyholder to terminate the existing policy and to effect a

new proposal from him within three years from the date of such
termination;
i. no corporate agent shall have a portfolio of insurance business

from one person or one organisation or one group of organisations
under which the premium is in excess of fifty per cent of total
premium procured in any year;
j. apply for fresh licence to act as an insurance agent, if his licence

was earlier cancelled by the designated person, and a period of
five years has not elapsed from the date of such cancellation;
k. become or remain a director of any insurance company.
iii. Every corporate agent shall, with a view to conserve the insurance
business already procured through him, make every attempt to
ensure remittance of the premiums by the policyholders within the
stipulated time, by giving notice to the policyholder orally and in
writing.
! !116
iv. No director of a company or a partner of a firm or the chief executive

or a corporate insurance executive or a specified person shall hold
similar position with another corporate agent of any other insurance
company.
3.8 Insurance Brokers
Insurance Brokers are licensed by IRDA to give policies from any insurance
company. They can provide expert advice on the insurance policies suitable
to the customer and are paid a brokerage by the company whose policy the
customer finally choose.
Insurance Regulatory and Development Authority (Insurance

Brokers) Regulations, 2002: Code of Conduct
1. Every insurance broker shall follow recognised standards of professional

conduct and discharge his functions in the interest of the policyholders.
2. Conduct in matters relating to clients relationship— Every insurance

broker shall:
a. conduct its dealings with clients with utmost good faith and integrity
at all times;
b. act with care and diligence;
c. ensure that the client understands his relationship with the broker
and on whose behalf the broker is acting;
d. treat all information supplied by the prospective clients as completely

confidential to themselves and to the insurer(s) to which the business
is being offered;
e. take appropriate steps to maintain the security of confidential

documents in their possession;
f. hold specific authority of client to develop terms;
g. understand the type of client it is dealing with and the extent of the
client’s awareness of risk and insurance;
! !117
h. obtain written mandate from client to represent the client to the

insurer and communicate the grant of a cover to the client after
effecting insurance;
i. obtain written mandate from client to represent the client to the

insurer/reinsurer; and confirm cover to the insurer after effecting
reinsurance, and submit relevant reinsurance acceptance and
placement slips;
j. avoid conflict of interest.
3. Conduct in matters relating to sales practices— Every insurance broker

shall:
a. confirm that it is a member of the Insurance Brokers Association of

India or such a body of brokers as approved by the Authority which
has a memorandum of understanding with the Authority;
b. confirm that he does not employ agents or canvassers to bring in

business;
c. identify itself and explain as soon as possible the degree of choice in

the products that are on offer;
d. ensure that the client understands the type of service it can offer;
e. ensure that the policy proposed is suitable to the needs of the

prospective client;
f. give advice only on those matters in which it is knowledgeable and

seek or recommend other specialist for advice when necessary;
g. not make inaccurate or unfair criticisms of any insurer or any

member of the Insurance Brokers Association of India or member of
such body of brokers as approved by the Authority;
h. explain why a policy or policies are proposed and provide

comparisons in terms of price, cover or service where there is a
choice of products;
! !118
i. state the period of cover for which the quotation remains valid if the
proposed cover is not effected immediately;
j. explain when and how the premium is payable and how such
premium is to be collected, where another party is financing all or
part of the premium, full details shall be given to the client including
any obligations that the client may owe to that party; and
k. explain the procedures to follow in the event of a loss.
4. Conduct in relation to furnishing of information— Every insurance broker

shall:
a. ensure that the consequences of non-disclosure and inaccuracies are

pointed out to the prospective client;
b. avoid influencing the prospective client and make it clear that all the
answers or statements given are the latter’s own responsibility. Ask
the client to carefully check details of information given in the
documents and request the client to make true, fair and complete
disclosure where it believes that the client has not done so and in
case further disclosure is not forthcoming, it should consider declining
to act further;
c. explain to the client the importance of disclosing all subsequent

changes that might affect the insurance throughout the duration of
the policy; and
d. disclose on behalf of its client all material facts within its knowledge
and give a fair presentation of the risk.
5. Conduct in relation to explanation of insurance contract— Every

insurance broker shall:
a. provide the list of insurer(s) participating under the insurance

contract and advise any subsequent changes thereafter;
b. explain all the essential provisions of the cover afforded by the policy
recommended by him so that, as far as possible, the prospective
client understands what is being purchased;
! !119
c. quote terms exactly as provided by insurer;
d. draw attention to any warranty imposed under the policy, major or

unusual restrictions, exclusions under the policy and explain how the
contract may be cancelled;
e. provide the client with prompt written confirmation that insurance

has been effected. If the final policy wording is not included with this
confirmation, the same shall be forwarded as soon as possible;
f. notify changes to the terms and conditions of any insurance contract

and give reasonable notice before any changes take effect;
g. advise its clients of any insurance proposed on their behalf which will
be effected with an insurer outside India, where permitted, and, if
appropriate, of the possible risks involved; and
6. Conduct in relation to renewal of policies— Every insurance broker shall:
a. ensure that its client is aware of the expiry date of the insurance
even if it chooses not to offer further cover to the client;
b. ensure that renewal notices contain a warning about the duty of

disclosure including the necessity to advise changes affecting the
policy, which have occurred since the policy inception or the last
renewal date;
c. ensure that renewal notices contain a requirement for keeping a

record (including copies of letters) of all information supplied to the
insurer for the purpose of renewal of the contract;
d. ensure that the client receives the insurer’s renewal invitation well in
time before the expiry date.
7. Conduct in relation to claim by client— Every insurance broker shall:
a. explain to its clients their obligation to notify claims promptly and to

disclose all material facts and advise subsequent developments as
soon as possible;
! !120
b. request the client to make true, fair and complete disclosure where it
believes that the client has not done so. If further disclosure is not
forthcoming, it shall consider declining to act further for the client;
c. give prompt advice to the client of any requirements concerning the

claim;
d. forward any information received from the client regarding a claim or

an incident that may give rise to a claim without delay, and in any
event within three working days;
e. advise the client without delay of the insurer's decision or otherwise

of a claim; and give all reasonable assistance to the client in pursuing
his claim.
Provided that the insurance broker shall not take up recovery

assignment on a policy contract which has not been serviced through
him or should not work as a claims consultant for a policy which has
not been serviced through him.
8. Conduct in relation to receipt of complaints— Every insurance broker

shall:
a. ensure that letters of instruction, policies and renewal documents

contain details of complaints handling procedures;
b. accept complaints either by phone or in writing;
c. acknowledge a complaint within fourteen days from the receipt of

correspondence, advise the member of staff who will be dealing with
the complaint and the timetable for dealing with it;
d. ensure that response letters are sent and inform the complainant of
what he may do if he is unhappy with the response;
e. ensure that complaints are dealt with at a suitably senior level;
f. have in place a system for recording and monitoring complaints.
! !121
9. Conduct in relation to documentation— Every insurance broker shall:
a. ensure that any documents issued comply with all statutory or

regulatory requirements from time to time in force;
b. send policy documentation without avoidable delay,
c. make available, with policy documentation, advice that the

documentation shall be read carefully and retained by the client;
d. not withhold documentation from its clients without their consent,

unless adequate and justifiable reasons are disclosed in writing and
without delay to the client. Where documentation is withheld, the
client must still receive full details of the insurance contract;
e. acknowledge receipt of all monies received in connection with an

insurance policy;
f. ensure that they reply is sent promptly or use its best endeavours to
obtain a prompt reply to all correspondence;
g. ensure that all written terms and conditions are fair in substance and
set out, clearly and in plain language, client’s rights and
responsibilities; and
h. subject to the payment of any monies owed to it, make available to

any new insurance broker instructed by the client all documentation
to which the client is entitled and which is necessary for the new
insurance broker to act on behalf of the client.
10.Conduct in matters relating to advertising— Every insurance broker

shall conform to the relevant provisions of the Insurance Regulatory and
Development Authority (Insurance Advertisements and Disclosure)
Regulations, 2000, and:
a. ensure that statements made are not misleading or extravagant;
b. where appropriate, distinguish between contractual benefits which

the insurance policy is bound to provide and non-contractual benefits
which may be provided;
! !122
c. ensure that advertisements shall not be restricted to the policies of

one insurer, except where the reasons for such restriction are fully
explained with the prior approval of that insurer;
d. ensure that advertisements contain nothing which is in breach of the

law nor omit anything which the law requires;
e. ensure that advertisement does not encourage or condone defiance

or breach of the law;
f. ensure that advertisements contain nothing which is likely, in the

light of generally prevailing standards of decency and propriety, to
cause grave or widespread offence or to cause disharmony;
g. ensure that advertisements are not so framed as to abuse the trust

of clients or exploit their lack of experience or knowledge;
h. ensure that all descriptions, claims and comparisons, which relate to

matters of objectively ascertainable fact shall be capable of
substantiation.
11.Conduct in matters relating receipt of remuneration— Every insurance

broker shall:
a. disclose whether in addition to the remuneration prescribed under

these regulations, he proposes to charge the client, and if so, in what
manner;
b. advise the client in writing of the insurance premium and any fees or
charges separately and the purpose of any related services;
c. if requested by a client, disclose the amount of remuneration or other

remuneration it receives as a result of effecting insurance for that
client. This will include any payment received as a result of securing
on behalf of the client any service additional to the arrangement of
the contract of insurance; and
d. advise its clients, prior to effecting the insurance, of their intention to

make any deductions from the amount of claim collected for a client,
! !123
where this is a recognised practice for the type of insurance

concerned.
Reserve Bank of India Permits Banks to Act as Insurance Brokers
The bancassurance guidelines, permitted a bank to act as a corporate

agent and sell policy of only one life insurer and one non-life insurance
company.
Seeking to increase insurance penetration in the country, the Reserve Bank

has allowed banks to act as brokers for insurers, set up their own
subsidiaries and also undertake referral services for multiple companies.
The banks have also been allowed to set up subsidiaries and joint venture
companies for undertaking insurance business with risk participation. The
new guidelines allow banks to act as brokers permitting them to sell
insurance policies of different insurance companies. RBI said that they can
act as corporate agents without seeking prior approval from the RBI, but
they will have to comply with the applicable IRDA guidelines.
IRDA Evaluating Fresh Norms for Banks as Insurance Agents
IRDA norms currently put a cap of business an insurer can source from
single broker within the same promoter group. As of date, if the broker and
insurer belong to the same promoter family, the broker can only source
upto 25% of its total business for the insurer within the same promoter
group.
Insurance sector regulator, IRDA, is evaluating fresh norms for banks to act
as intermediaries for insurers, following recent changes in law brought
through an Insurance Amendment Bill by the government.
3.9 Surveyors
Section 64UM of the Insurance Act, 1938, mandates licensing of Surveyors

and Loss Assessors (SLA) for settlement of losses above ` 20000/-
reported under a policy of general insurance. Further, the said section has
also laid down the qualification requirements for grant of licence to act as
SLA.
! !124
The enactment of IRDA Act, 1999, authorised IRDA to licence eligible

persons to act as Surveyor and Loss Assessors (SLA).
Surveyors and Loss Assessors are service providers to a general

insurance company, usually at the time of a fire or motor insurance
claim. They carry out claim surveys and estimate the quantum of
loss.
Surveyors play an important role at the final stages of an insurance policy.

As soon as the risk insured occurs, the insured has to inform the insurer
that it happened and the insurer immediately directs the surveyor to
assess the loss.
Surveyors assess the loss and submit their observations to the insurer on
whether the relevant warranties and conditions of the insurance policy are
complied or not. The surveyor also makes recommendations on the
payment to be made to the insured on the basis of his claim.
In order to manifest professionalism amongst surveyors, the IRDA

introduced a regulation called the Insurance Surveyors and Loss Assessors
(Licensing, Professional Requirements and Code of Conduct) Regulations
2000.
Insurance Regulatory and Development Authority (IRDA) guide on

Insurance Surveyors gives the following generic information on insurance
surveyors:
A surveyor and loss assessor is expected to behave ethically and with

integrity in professional pursuits, shall strive for objectivity in professional
and business judgment, act impartially when acting on instructions from an
insurer in relation to a policyholder’s claim under a policy issued by that
insurer, conduct himself with courtesy and consideration to all people with
whom he comes into contact during the course of his work.
Licenses are issued to both individuals and firms/companies to act as

Surveyor and Loss Assessors. There are eight areas in which surveyors
could be licensed to work, depending on their qualifications. These are Fire,
Motor, Miscellaneous, Engineering, Marine Cargo, Marine Hull, Loss of Profit
and Crop Insurance.
! !125
The IRDA (Protection of Policyholders Interests) Regulations, 2002 also

stipulates the time limit for appointment of surveyors, which is 72 hours
from date of intimation of claim to insurers/occurrence of the event
resulting in loss or damage and submission of survey report by surveyors,
which is one month from the date of appointment by insurer. The said
regulation casts responsibility on the policyholder to co-operate with the
surveyor and provide him with all the information/documents to enable him
to assess the loss. If the insured is unable to furnish all particulars required
by surveyor for assessment of the damage/loss, there will be delay in
assessment of the claim.
In exceptional circumstances, there could be a delay in submission of

survey report by a survey or beyond 30 days from the date of his
appointment, in which case he has to necessarily seek extension of time
from insurer. However, in no case, the time limit for submission of report
can exceed a period of 6 months from the date of his appointment.
Wherever the insurer finds the surveyor’s report incomplete in any respect,
he can ask the surveyor to furnish additional report within 15 days of
receipt of the original report. In such a case, the surveyor shall furnish the
additional report within 3 weeks of the receipt of such communication.
This is a false notion that surveyors are the representatives of insurance

companies and so they favour insurers. A surveyor and loss assessor shall
act impartially and maintain confidentiality, neutrality without jeopardising
the liability of the insurer and the claim of the insured.
An insurer has to take a decision on the claim within 30 days of receipt of

surveyor report or additional survey report by the surveyor. The insurer
must either offer a settlement of claim or give reasons for rejection of a
claim in writing. The insurers are not bound by the loss amount assessed
by the surveyor. The insurer has the right to pay or settle any claim at any
amount different from the amount assessed by the appointed surveyor.
Once an offer of claim settlement given by insurer is accepted by a
policyholder in writing, claim settlement amounts should be disbursed
within 7 days from the date of acceptance by policyholder. In case of any
delay in disbursement of the claim amount, the insurer is liable to pay
interest @ 2% rate above the bank rate prevalent on 1st April of that
financial year.
! !126
The list of licensed and categorised surveyors and loss assessors is placed
in the IRDA website, i.e., www.irda.gov.in from which one can know
whether the surveyor appointed is a licensed Surveyor or not.
3.10 Third Party Administrators (TPAs)
The Insurance Regulatory and Development Authority of India (IRDA)

defines TPA as a Third Party Administrator who, for the time being, is
licensed by the Authority, and is engaged, for a fee or remuneration, in the
agreement with an insurance company, for the provision of health services.
TPA was introduced by the IRDA in 2001.
Insurance Regulatory and Development Authority of India (IRDA), which

licenses and regulates the Third Party Administrator (TPA) has specified
some entry norms:
1. The primary objective of the company shall be to carry on business in

India in health service. The minimum capital of the company shall be in
equity shares amounting to ` 1 crore.
2. At no point of time of its functioning, the TPA shall have a working

capital of less than ` 1 crore.
3. At least one of the directors of the TPA shall be a qualified medical

doctor registered with the MCI.
4. The aggregate holdings of equity shares by a foreign company shall not

at any time exceed twenty-six per cent of the paid-up equity capital of a
third party administrator.
License is usually granted for a period of 3 years to a TPA. TPA ties up with
the hospitals and the hospitalisation services are provided on cashless
basis.
A Third Party Administrator (TPA) processes claims for both retail

and corporate policies and act as service providers to insurance
companies for processing health insurance claims and offering
facilities like cashless settlement of claims.
! !127
The risk of loss incurred remains with the insurance company. The
insurance company usually contracts a reinsurance company to share its
risk. An insurance company hires TPA to manage its claims processing,
provider network and utilisation review. While some TPA operates as units
of insurance companies, most are often independent.
3.11 Referral Providers
A referral entity provides data of its clients to an insurer who

wishes to sell policies to them. It does not actually sell the policies.
It may also introduce its clients to the insurer; provide space in its office
for the use of the employees of the insurer and for display of publicity
material to help the insurer sell policies.
3.12 Web Aggregators
Web Aggregators compile and provide information about insurance

policies of various companies on a website.
Some of the salient features regarding Web Aggregators referred from

Insurance Regulatory and Development Authority (Web Aggregators)
Regulations, 2013 are as follows:
“Distance Marketing” for the purpose of these regulations refers to the

process of solicitation or sale of insurance products or services where the
consumer is physically not present at the point of solicitation or sale or the
conclusion of the sale, and the process is accomplished through telephone
or Short Messaging Service (SMS) or e-mail or Internet or web services;
“Lead” for the purpose of these regulations means information pertaining

to a person who has accessed the website of a web aggregator and has
submitted contact information of any kind, for obtaining information on
prices or features/benefits of insurance products;
“Lead Generation” for the purpose of these Regulations, is the process of

collecting the details of the prospects to ascertain their intention to
purchase insurance, before proceeding with solicitation of insurance
products;
! !128
“Lead Management System” (LMS) for the purpose of these Regulations

refers to the Software implemented by the Web Aggregator for recording,
filtering, validating, grading, distribution, follow-up and closure of leads
from the enquiries received on the website of the Web Aggregator;
“Solicitation” for the purpose of these Regulations is defined as the

approach of a Prospect by an insurer or an intermediary with a view to
convince the Prospect to purchase an insurance policy;
“Tele caller” for the purpose of these Regulations is a person engaged by

a Telemarketer for carrying out the Telemarketing and Distance Marketing
related work;
“Telemarketer” for the purpose of these Regulations, is an entity

registered with Telecom Regulatory Authority of India under Chapter III of
The Telecom Commercial Communications Customer Preference
Regulations, 2010 (as amended from time to time);
“Web Aggregator” for the purpose of these regulations is a person

licensed by the Authority under these Regulations;
Duties and Functions of Web Aggregators
a. The Web Aggregator shall
(i) Display Information, as per Regulation 13, pertaining to the insurers

who have signed agreement with the Web Aggregators.
(ii)Carryout the activities for the purpose of Lead Generation for

insurers.
(iii)Ensure that the information systems (both hardware and software)

including the aggregation website(s)/portals, Lead Management
System and the Data Centers hosting the website(s)/Portal(s)/Lead
Management System are in compliance with the generally accepted
information security standards and procedures in force in India from
time to time.
! !129
(iv)Ensure that the leads and other data is transmitted to the insurers
and others using secured layer data encryption technologies like 128
bit encryption.
(v)Use only RBI licensed payment gateways for collection and transfer of
premium to insurers when the web aggregator is authorised by the
insurer to collect the premium on behalf of the insurer.
(vi)Ensure to get the information systems (both hardware and software)

including the aggregation website(s)/portals, Lead Management
System and the Data Centers hosting the website(s)/Portal(s)/Lead
Management System Audited by CERT-In empanelled Information
Security Auditing organisations once in a financial year and submit a
copy of the Audit Certificate/Report to IRDA and the insurers with
whom the web aggregator has entered into an agreement, within 15
days from the date of receipt of the same.
b. The Web Aggregators shall not:
(i) Display any information pertaining to products or services of other

Financial institutions/ FMCG or any product or service on the website.
(ii)Display advertising of any sort, either pertaining to any product or

service including insurance product or service, other financial
products or service/or any other product or service in the Web
Aggregators’ Website.
(iii)Operate multiple websites or tie up with other approved/unapproved/

unlicensed entities/websites for lead generation/comparison of
product etc. subject to the following exceptions:
a. Using multiple Domain names or same domain names with

suffixes such as .com or .in or .co.in for the primary website of
the Web Aggregator used for comparison of insurance products
is allowed provided:
1. The domain names of primary or secondary or product

category specific websites or mobile sites are owned and
registered in the name of the Web Aggregator.
! !130
2. The Web Aggregator should inform the Authority in writing

about the date of registration and also date of launching of
domain names of such websites or mobile sites in the
application for grant of license and thereafter within 15 days
from the date of Domain Name Registration and date of
launching respectively in case of any change in the name(s)
of the existing websites or new websites.
(iv)Operate the websites of other financial/commercial/marketing or

sales or service entities or use other Social Media sites, etc. for
comparison of products, etc.
(v)Operate in any other manner for the purpose of transmitting leads to

any entity engaged in insurance business except as provided under
these Regulations.
c. Nomenclature of Web Aggregators
(i) All Web Aggregators shall have the word ‘Insurance Web Aggregator’
or ‘Insurance Web Aggregators` in the name of the Insurance
Broking Company to reflect its line of activity and to enable the public
to differentiate IRDA licensed insurance Web Aggregator from other
non-licensed insurance related entities. The application of the new
applicant companies making an application to seek the license to act
as web aggregator shall not be considered in the absence of the
compliance of the nomenclature requirement.
(ii)Every licensed insurance Web Aggregator shall display in all its

correspondences with all stakeholders its name registered with the
Authority, address of the Registered and Corporate Office, IRDA
license number and validity period of the license.
(iii)Insurance web aggregators are not permitted to use any other name
in their correspondence/literature/letterheads without the prior
approval of the Authority.
! !131
Agreement of Insurer with a Web Aggregator
a. An Insurer desirous of obtaining leads from web aggregator shall enter

into an “agreement” with the web aggregator approved by the Authority
which shall necessarily include details relating to, though not limited to,
the following:
i. Timeframe and mode of transmission of leads to be shared.
ii. Onus of complying with regulatory and other legal requirements on

both the parties to the agreement.
iii. Identifying the different data elements to be shared (viz., name of

prospect/client (visitor of the website), contact details etc.).
iv. The timeframe for providing the premium and feature tables of the
agreed products to the Web Aggregator after concluding the
agreement and keeping them up-to-date.
b. The agreement between an insurer and web aggregator shall be valid

for a period of three years from its date, subject to the validity of
license of web aggregator.
c. The web aggregator shall file the agreement with the Authority within
fifteen days from the date of entering the agreement.
Display of Product Comparisons on the Website
a. Web aggregators shall disclose prominently on the homepage, a notice

that:
(i) “The prospect’s/visitor’s particulars could be shared with insurers.”
(ii)“Insurance is the subject matter of solicitation.”
(iii)“The information displayed on this website is of the insurers with

whom our company has an agreement.”
b. Product information displayed by web aggregators shall be authentic

and be based solely on information received from insurers.
! !132
c. Web aggregators shall not display ratings, rankings, endorsements or

bestsellers of insurance products on their website. The content of the
websites of the web aggregators shall be unbiased and factual in
nature; they shall desist from commenting on insurers or their products
in their editorials or at any other location in their websites.
Products will be categorised as:
i. Life:
a. Whole Life Policies

b. Term Insurance Products
c. Endowment Products
d. Health Insurance Products
e. Retirement – Immediate Annuities
f. Retirement – Deferred Annuities
g. Children’s Products
ii. Non-life:
a. Home Insurance
b. Motor Insurance
c. Health Insurance
d. Travel Insurance
e. Personal Accident Insurance
f. Rural Insurance
Basic features of products may be compared, such as:
(i) Eligibility criteria
(ii)Plan/Policy Term/Premium Term/Min and Max SA/Age/Min and Max

Maturity, etc.
(iii)Inbuilt Benefits/riders (Additional Riders to be compared separately)
(iv)Premiums for different age groups
(v)Surrender benefits/loans, etc
! !133
(vi)Benefits such as Survival Benefits/Maturity Benefits/Death Benefits,

etc.
(vii)Returns as per the Benefit Illustrations as approved by IRDA from time

to time
(viii)Any other additional information/special product features relating to

the products.
Templates can be mutually worked out between the Web Aggregators and
Insurers whose products are compared.
Product comparisons that are displayed shall be up-to-date and reflect a

true picture of the products.
Web Aggregators shall display product information purely on the basis of

the information furnished to them by insurers.
Web Aggregators can use published data for “Additional Information to

Customers” based on IRDA Data.
Web Aggregators can integrate their websites with the insurers website for:
i. Online Sale;
ii. Registration of Customer data or Proposal Form.
Transmission of Leads to be Shared
a. Web Aggregator shall use a Lead Management Systems (LMS) capable

of recording the full details of the visitors to the designated website of
the Web Aggregator and the Leads generated including the preference
of the visitor.
b. LMS data should be shared with the Insurance companies that have
signed agreements with the Web Aggregators.
c. LMS should ensure transparency and Accountability.
! !134
d. Web Aggregators shall disclose prominently on the homepage that the

prospect’s/ visitor’s particulars could be shared with insurers.
e. Web Aggregators should provide an option to select up to three insurers

by the visitor, to whom the lead can be transmitted simultaneously.
f. Web Aggregator shall not transmit the data of a Prospect to Insurer(s)

other than the one(s) preferred by the Prospect.
(i) Provided that, if the Prospect evinces interest in buying insurance but
does not prefer any Insurer, Web Aggregator shall not transmit the
lead to more than three Insurers in the same class of insurance
business.
g. Web Aggregator shall transmit the data of Prospects to Insurer:
(i) Not later than three days of visit to the website;
(ii)Reasonably securing the information of Prospects from unauthorised

access and misuse;
(iii)With a reasonable level of suitability, reliability and correctness, and;
(iv)In compliance with generally accepted IT security procedures.
h. Web Aggregators should deploy an Audit Firm to audit the process of

LMS systems at least once in 12 months.
i. The Audit Report of the Audit Firm should be submitted to IRDA and to
the Insurers who have signed contract with the Web Aggregators within
15 days from the date of receipt of the report.
j. Insurers, on conversion of lead into to a policy, must post back the

policy details on the LMS of the Web Aggregator from whom the lead
was received.
k. The time limit for tracking the leads received on LMS of Web Aggregator
by the insurer for passing on the credit of the sale, is to be mutually
decided by the Insurer and Web Aggregator which shall be specified in
the agreement entered into.
! !135
3.13 Self-Regulatory institutions
Self-regulation in insurance is through the Life Insurance Council and the

General Insurance Council. These Councils include all registered life and
general insurance companies as their members respectively and are
statutory bodies constituted under the Insurance Act, 1938.
3.14 Insurance Repositories
Insurance policies were issued in physical mode only, irrespective of

whether a policyholder submits a proposal in physical form or online. The
dependents normally have hard time in identifying all the insurance policies
and making claims with various insurance companies.
In order to overcome this difficulty and to collate and keep a safe custody
of all the insurance policies of an individual at a single location,
dematerialisation of insurance policies is conceived. The insurance policies
including the existing ones can be converted in an electronic form and held
with an ‘Insurance Repository’.
The Insurance Repository in India is a database of insurance

policies in electronic form. It allows policyholders to make
revisions to a policy with speed and accuracy. It was launched on 16
September 2013. It is the world’s first of its kind.
To implement the Insurance Repository System, IRDA has granted

Certificate of Registration to the following five entities to act as Insurance
Repositories.
• NSDL Database Management Limited – www.nir.ndml.in
• Central Insurance Repository Limited – www.cirl.co.in
• SHCIL Projects Limited– – www.shcilir.com
• Karvy Insurance Repository Limited – www.kinrep.com
• CAMS Repository Services Limited – www.camsrepository.com
! !136
A policyholder can buy and keep all the policies under an electronic
Insurance Account (eIA) with any one of the Insurance Repository of his/
her choice. The existing policies in physical mode too can be dematerialised
and held in the eIA. The access to all the policies is then available at a click
of a button. The Insurance Repository System not only provides
policyholders a facility to keep insurance policies in electronic form but also
enables them to undertake changes, modifications and revisions in the
insurance policies with speed and accuracy. In addition, the Repository acts
as a ‘single stop shop’ for policy servicing.
! !137
3.15 Summary
Insurance business is primarily regulated by two acts, i.e., (a) Insurance

Act, 1938 and (b) Insurance and Regulatory Development Authority Act,
1999. The aim of IRDA is “to protect the interest of holders of Insurance
policies to regulate, promote and ensure orderly growth of Insurance
industry and for matters connected therewith or incidental thereto.” There
are 52 insurance companies operating in India; of which, 24 are in the life
insurance business and 28 are in general insurance business. The
amendment Act will remove archaic and redundant provisions in the
legislations and incorporates certain provisions to provide Insurance
Regulatory and Development Authority of India (IRDAI) with the flexibility
to discharge its functions more effectively and efficiently. IRDA prescribes
that no person shall start a new business on any branch of the insurance
business unless he has obtained a certificate of registration. No Insurance
Company can sell any insurance product unless and until the product is
approved by the IRDA.
The actuary plays an important role in the life insurance business

particularly in product development, determination of premium rates, study
of mortality rates, construction of mortality tables, laying down standards
for underwriting, valuation of assets and liabilities and method of
distributing surplus.
The distribution channel of insurance sector is regulated by the Insurance

Act 1938 and consisted of agent, branch manager and development officer.
After privatisation of insurance in 2000, the distribution channel has been
expanded creating additional sales channels through corporate agents,
brokers and online portals.
An agent is a person who is licensed by the Authority to solicit and procure

insurance business including business relating to continuance, renewal or
revival of policies of insurance. An agent could be an Individual Agent,
Corporate Agent or a Composite Agent. Insurance Brokers are licensed by
IRDA to give policies from any insurance company.
Surveyors and Loss Assessors are service providers to a general insurance

company, usually at the time of a fire or motor insurance claim. In case a
grievance of a policyholder is not redressed by the insurer, alternate
! !138
grievance redressal mechanism is provided for in the insurance sector

through the institution of Insurance Ombudsman.
A Third Party Administrator (TPA) processes claims for both retail and
corporate policies and act as service providers to insurance companies for
processing health insurance claims and offering facilities like cashless
settlement of claims.
A referral entity provides data of its clients to an insurer who wishes to sell
policies to them. It does not actually sell the policies.
Web Aggregators compile and provide information about insurance policies

of various companies on a website.
Self-regulation in insurance is through the Life Insurance Council and the

General Insurance Council.
The Insurance Repository in India is a database of insurance policies in

electronic form. It allows policyholders to make revisions to a policy with
speed and accuracy
! !139
1. Make a pictorial chart comprising of the regulatory bodies, the insurers,

insured customers, the various insurance intermediaries involved in
direct marketing as well as those who enable quick administrative work
like processing of claims.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………….
2. Print a application form from IRDA website which is filled by an agent

applying for a licence to sell insurance policies and fill all the relevant
details as if you are going to apply for an insurance agent licence.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………….
! !140
9. www.cii.co.uk
11.http://www.nios.ac.in
16.http://www.policyholder.gov.in
! !141
1. The aim of IRDA is “to protect the interest of holders of insurance

policies to regulate, promote and ensure orderly growth of insurance
industry and for matters connected therewith or incidental thereto.”
Which of the following statement is included in the mission statement of
IRDA?
a. To set, promote, monitor and enforce high standards of integrity,

financial soundness, fair dealing and competence of those it regulates
b. To take action where such standards are inadequate or ineffectively

enforced
c. To bring about optimum amount of self-regulation in day-to-day

working of the industry consistent with the requirements of
prudential regulation
d. All of the above
2. A qualified actuary exclusively advices the insurer usually at the time of

a fire or motor insurance claim. State whether the above statement is
true or false.
a. True
b. False
3. The insurers are mandated to appoint a licensed surveyor to assess and

settle the loss as soon as a loss is reported by the insured. Is it
mandatory for an insurer to appoint surveyor for each and every loss
reported under a policy of general insurance?
a. Yes
b. No
! !142
4. In exceptional circumstances, there could be a delay in submission of

survey report by a survey or beyond 30 days from the date of his
appointment, in which case he has to necessarily seek extension of time
from insurer. However, in no case, the time limit for submission of report
can exceed a period of:
a. 2 months
b. 3 months
c. 6 months
d. 12 months
5. Corporate entities represent an insurance company and sell its policies.

Usually, they are engaged in a particular business and sell insurance
policies to their existing customers based on the situation. For example,
a travel agent may offer you a travel insurance policy or a vehicle dealer
a motor insurance policy. When a bank becomes the corporate agent of
an insurance company, it is referred to as:
a. Bancassurance
b. Bancinsurance
c. Bancreassurance
d. Bancindemnify
6. The Insurance Regulatory and Development Authority of India (IRDA)

defines TPA as a Third Party Administrator who, for the time being, is
licensed by the Authority, and is engaged, for a fee or remuneration, in
the agreement with an insurance company, for the provision of health
services. TPA was introduced by the IRDA in:
a. 1995
b. 2001
c. 2003
d. 2008
7. The Insurance Repository in India is a database of insurance policies in

electronic form. To implement the Insurance Repository System, IRDA
has not granted Certificate of Registration to which of the following
entities to act as Insurance Repositories?
! !143
a. NSDL Database Management Limited

b. SHCIL Projects Limited
c. Karvy Insurance Repository Limited
d. Central Electronic Securities Limited
Answers:
1. (d)
2. (b)
3. (b)
4. (c)
5. (a)
6. (b)
7. (d).
! !144
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !145
CONCEPTS OF RISK AND RISK MANAGEMENT
Chapter 4
Concepts of Risk and Risk Management
Objectives
This chapter will help you to understand the basic concept of risks and
learn the technicalities of risk management, which will help you to
optimally use insurance as a financial tool for reducing the financial impact
of unforeseen events.
! !146
Structure:
4.1 Introduction
4.2 The Concept of Risk
4.3 Scope of Risk
4.4 Elements of Risk
4.5 Factors Affecting Risk
4.6 Sources of Risk Information
4.7 Measurement of Risk
4.8 Risk Management by Individuals
4.9 Factors Affecting Individuals Demand for Insurers
4.10 Risk Management by Corporates
4.11 Summary
! !147
4.1 Introduction
“An investment in knowledge pays the best interest.”
– Benjamin Franklin
‘Risk’ is a term that we use to refer to the chance of suffering a loss as a

result of uncertain events. We face many such risks in our day-to-day life
including risks to our life, health, property and so on. It is possible for us to
take measures to reduce the financial consequences that arise due to the
above-mentioned risks and protect ourselves financially. One of the ways
by which this is normally done is with the help of knowledge about risk
which helps us to design measures to avoid risk, mitigate risk, transfer risk
or even retain risk. Once we have knowledge about risk, we can use
Insurance as a mechanism of risk transfer and sharing by pooling of risks
and funds among a group of individuals who are exposed to similar kinds of
risks for the benefit of those who suffer loss on account of the risk.
Insurance is, thus, a financial tool specially created to reduce the financial
impact of unforeseen events and to create financial security. In this
chapter, we are going to understand the basic concept of risks and learn
the technicalities of risk management, which will help us to optimally use
insurance as a financial tool for reducing the financial impact of unforeseen
events. Since our purpose is to relate risk with insurance, our focus will be
on a risk which creates the possibility of financial loss.
4.2 The Concept of Risk
Risk is central to the study of insurance and it is essential to know the

concept of risk before we step into the vast horizon of insurance. People
express risk in different ways. To some, it is a chance or possibility of loss;
to others, it may be uncertain situations or deviations or dispersions from
the expectations which can be either positive or negative. Different authors
have defined risk differently.
According to Macmillan Dictionary, risk refers to the possibility that

something unpleasant or dangerous might happen.
According to Emmett Vaughan, Risk is a condition in which there is a

possibility of an adverse deviation from a desired outcome that is expected
or hoped for.
! !148
According to S.E. Harrinton and G.R. Michaus, at its most general level,
risk is used to describe any situation where there is uncertainty about what
outcome will occur. Life is obviously risky.
In most of the cases, the term risk includes exposure to adverse situations
which causes uncertainty or loss. The indeterminateness of outcome is one
of the basic criteria to define a risk situation. Since the outcome is
indeterminate, there is a possibility that some of them may causing
adverse situation and therefore need a special emphasis. These definitions
avoid situations where there is no likelihood of loss. The degree of risk
refers to the likelihood of occurrence of an event.
Since uncertainty of loss abounds most of the activities, a great deal of

efforts are being devoted to the measurement of risk. In measuring risk,
we try to place some value on our belief as to the likelihood that some
event will or will not take place. This evaluation of likelihood attempts to
quantify the uncertainty that surrounds the loss.
4.3 Scope of Risk
In Xantho, the Wilson Son’s and Co v Xantho case, the scope of the risk is
beautifully described as “It is open to the parties by agreement to extend
or limit the liability of the insurer in respect of the operation of risk.”
In the absence of such agreement:
(i) The risk includes the loss caused, i.e., risk brought about by the
negligence of insured as well his servants or strangers.
(ii)The risk does not include the loss caused by willful misconduct of the
insured, loss due to ordinary wear and tear, etc.
Based on the above facts, we can conclude that the insurer indemnifies the
insured only against the loss caused during the period insured. The direct
and proximate cause of such loss caused should be the peril insured
against. Insurer is not obliged to compensate the loss caused by a peril not
insured.
It is the duty of the insured to do things that will prevent the happening of
the risk as well as not to do anything which will accelerate the happening
! !149
of the risk. Once the risk takes place, the insured should take reasonable
steps to minimise the loss or damage.
The insurer is liable if the contingency takes place during the subsistence
of the insurance policy. Hence, time of loss is closely related to the cause of
risk. The insurer is not liable if the peril begins before the operation of the
insurance policy or after the cessation of the insurance policy. The date and
time of commencement of risk under the insurance policy is a matter of
agreement between the insurer and the insured.
4.4 Elements of Risk
Risk depends on the various elements of the event happening sooner or

later. The severity and frequency of the happening or not happening of the
event will decide the magnitude of loss. The perils which cause the loss or
the contingency and the hazards which increase the severity of loss needs
to be identified first before accepting the proposal of insurance.
!
Risk practitioners experience repeated difficulty in assessing the probability
that a given risk might occur. Hence, it is very essential to disclose such
elements of the event by the applicant for insurance to the insurer to
calculate the premium with reference to these elements.
The evaluation of risk to determine whether the proposal presented by the

applicant for insurance should be accepted or not and conclude that the
degree of risk identified is commensurate with the premium established for
! !150
persons in his category or some additional premium should be charged is

an important process before underwriting insurance proposals.
An insurer cannot charge one premium for all persons inspite of different
people having different degree of risk as it would be a great injustice to
those people who are facing lesser degree of risk. However, it is not
possible to charge so many different premium for so many applicants
exhibiting different degree of risk. Hence, for practical purposes, risks are
classified to determine the premium accordingly. Insurance risk is classified
into standard and sub-standard risk which enables the insurer to decide
what risks are to be accepted at normal rate of premium, what at extra
premiums and what not to be accepted at all.
4.5 Factors affecting risk
Risk is all about losses. In the absence of possibility of loss, there would be
no risk. Thus, it is important to know about the factors, which cause or
contribute towards the occurrence of loss or extent of loss. The insured has
to assess various factors affecting risk based on the type of insurance
cover provided. In case of Life insurance, the factors affecting the longevity
of the person will be very important to assess the risk whereas in case of
property insurance, the nature of property and its exposure to danger can
be considered an important factor. In marine insurance, the voyage and its
nature can be considered as an important factor affecting risk.
The various factors that can affect risk in case of Life Insurance can be
listed as follows:
a. Age: Age is an incredibly important factor to affect mortality. Except for

the few years of the childhood especially the new borns, where the
premium is high because the risk is high, the premium is determined at
every year of the completion of age. The minimum age limit is to avoid
risk infant mortality. The maximum age limit is to avoid adverse
selection as the mortality is certainly increased at maximum age. The
younger you are the lower your premium rate will be. This is why
insurance experts recommend buying a policy young.
b. Physique: Physique of the proposed life includes height, weight, the

distribution of weight and chest expansion. The relationship between
them are the basic determinants of mortality expectations.
! !151
c. Physical conditions: The physical conditions of the proposed life, e.g.,

sight, hearing, heart, arteries, lungs, tonsils, teeth, kidney, nervous
system, etc. has a direct bearing on the mortality of the life. The
experts in the field can assess the longevity or mortality of a person due
to impairment of certain organs.
d. Family history: Family history requires information of habit, health,

occupation and insurance of parents, brothers, sisters and other family
members.
e. Personal history: Health record, past habits, previous occupation and

insurance history can reveal vital details of the proposed life. If you
have a history of any kind of chronic disease or other potential health
problems, it makes you a target of higher risk for the insurance
company, resulting in higher premium rates.
f. Occupation: Occupation of hazardous nature seriously affect the risks,

e.g., exposure to chemical environment can poison the body organs
which can culminate into lower mortality of workers.
g. Residence: A residence in a polluted area will create higher risk,

whereas the risk will be lesser in a good climate. The geographical
location, atmosphere, political stability, climate, construction of house,
etc. are important factors affecting risk.
h. Present habits: Indulging in bad habits like drinking, smoking,

gambling, etc. can pose serious threats to life. Similarly, good habits
tend to increase the longevity of the person.
i. Morals: Mortality is improved with living life ethically and following

moral standards. Unethical conduct is considered to be moral hazard.
Insurance is generally not given to dishonest persons.
j. Nationality: Countries near to equator have more mortality. The

climate and the way of life of a country affects the health conditions of
the people.
k. Sex: Mortality among female sex is higher than that of male sex
because the physical hazard of maternity is present in the former case.
Experts also believe that females having lesser education, embracing
! !152
conservatism and facing regular non-employment can have lower

mortality.
l. Economic status: Higher economic status, better education and

professional consciousness increase mortality and provides a better field
for insurance. The chances of death for economic reasons is lower in
higher strata of the society.
m. Defence services: Sometimes, restrictive clauses are imposed on

persons engaged in activities that are considered as hazardous, e.g.,
flying, gliding, etc.
n. Plan of insurance: Certain plans involve more responsibility to insurer

at death and hence, these plans are restricted to only first class lives.
In Property Insurance, the elements of risk due to fire can be listed as

follows:
• Nature of property
• Character and constitution
• Area
• Situation and locality
• Exposure to outside dangers
• Use and habits of the assured
• The title to the property
In marine insurance, the elements of risk due to voyage can be listed as

follows:
• Nature of voyage
• Route of voyage
• Winds and storm in the locality
• Danger of war and pirates
• Mutiny of the crew
! !153
4.6 Sources of Risk Information
Information on the factors affecting risk is collected before it can be

evaluated to determine the degree of risk. Such information can be
collected from various sources namely:
a. Proposal Form: The proposer is required to disclose all the material

facts in the proposal form truly and fully. Questions pertaining to home,
address, term of insurance, sum to assured, mode of premium
payment, date of birth, object of insurance, name of nominee, previous
insurance history, etc. are covered in the application form which forms
the first part of the proposal form. In the second part called the
personal statement, family history of father, mother, brother, sister in
connection with their health and illness and questions about bodily
impairments, habits, operation, accident, injury, death, etc. are covered.
The proposal form gives major information to assess and evaluate risk.
b. Medical Examiner’s Report: The main objective of medical examiner’s

report is to identify the applicant by capturing age, general health,
habit, deformity, etc. in the medical report. The medical report also
makes the doctor’s observations on height, weight, conditions of teeth,
gums, ears, heart, digestive tract, genitor-urinary system, nervous
system, etc.
c. Agent’s Report: The agent has to balance his act of acquiring the
proposal as well as disclosing details about the life of the assured with
important information like sum assured, acquaintances with the
proposer, occupation of the proposer, general state of health, social
position of the proposer, etc.
d. Inspection Report: The insurers can sometimes arrange a secret

investigation by their own staff to verify the details mentioned in the
proposal form. The inspecting staff may interview the applicants
neighbours, friends, physician, bankers, employer, etc. to gather a frank
and fair information for evaluating the risk. Such information is done
when the assured amount is large and the applicant have some peculiar
habits.
! !154
4.7 Measurement of Risk
The insurer fixes the cost which is also called the premium to be charged
on a particular risk. The cost includes all expenses of the business plus
small profit margin. The insurer can use various methods to first quantify
the risk before fixing the premium.
In case of single factor, the individual decisions of experienced persons in

the medical, actuarial, underwriting and other departments are considered
for acceptance or rejection of risk. This method can sometimes become
harmful for insurance business due to the bias or inexperience of the
individual.
When large number of factors enter into the composition of risk, the
numerical rating system is used. In the Numerical Rating System,
applicants are given a standard mortality rate, which has been determined
using statistical mortality rates. Applicants are then given either debits
(unfavourable factors) or credits (favourable factors) based on extra
mortality. The final mortality assessment is determined through the sum of
each credit and debit.
Based on the rate received, the underwriter may apply appropriate policy
terms and conditions. It is the role of the actuary to determine appropriate
premiums based on mortality rates.
Mortality Table
Mortality tables have been used by actuaries to measure the probability of

death occurring within a defined period of time. Probability of death is low
in the earlier stages of life and rises later in life as the chance of mortality
increases.
Mortality tables are based on characteristics such as gender and age. A

mortality table gives probabilities based in deaths per thousands, or the
number of people per 1,000 living who are expected to die in a given year.
Mortality tables are used to help determine premium amounts for life
insurance companies, making sure the insurance company will receive
enough in premiums and investments to cover the face amounts of the
policies it sells.
! !155
A mortality table typically covers the timeframe from birth through 100
years of age, in one-year increments. You can use a mortality table to look
up the probability of death for someone of any age. As you age, the
probability of your death increases.
Mortality tables are mathematically sound and accurate for group

populations, but slightly less so for any one individual. Mortality probability
is a factor of more than just age and gender, and as many variables as
possible must be taken into consideration in the insurance process.
The sources of mortality construction can be obtained from population

statistics and records of life insurers.
When buying life insurance, or if there is an unexpected change in your

rates, it is a good idea to inquire about the mortality tables and information
used to calculate the premiums. One should discuss any risk factors with
the agent to make sure the correct mortality table has been used to
calculate the premium or to rate one’s policy.
The risks are measured or evaluated for fixation of premium by value of

service method also. The value of service determines the rate of premium
according to the utility of insurance to each proponent. Since the value of
utility to each person differs, the premium rate will also vary.
The standard risks are accepted at standard or normal premium rates. The
sub-standard risks are given a special treatment or additional premium is
charged according to the incidence and intensity.
4.8 Risk Management by Individuals
Individual risk management refers to the identification of pure risk faced by

an individual or family and to the selection of most appropriate technique
for treating such risk.
Risk Management for Life Insurance
Life insurance underwriters must use the information to assess the risk of
loss (death) of a particular applicant. The questions on the proposal form
and other reports are used to uncover warranties and representations
necessary for the underwriting process. The proposed insured is classified
! !156
into standard risk, sub-standard risk and declined risk. Standard risk will
be charged normal premium. Sub-standard risk will be charged higher
premium. In case of declined risk, the insurer will not accept the insurance
proposal.
Life insurance underwriting enables the insurer to select suitable risks in

order to prevent guaranteed losses. The risk management process also
helps the underwriter to charge a premium that is related to the level of
risk.
Risk Management for Home Insurance
Home insurance is a type of property insurance, in which the insurance

policy is implemented for safeguarding of one’s home and its possessions
due to natural or man-made disasters. A comprehensive home insurance
policy covers risk against fire and allied perils, burglary and robbery of
jewellery, domestic appliances, electronic equipments, etc. The home
insurance coverage consists of a replacement cost policy at part with the
market value of the house.
Risk Management for Vehicle Owners
Vehicle insurance is insurance purchased for cars, trucks, two-wheelers and

other vehicles. As per Motor Vehicles Act, all vehicles that ply in the public
place should possess the compulsory third party insurance cover. The risk
management is primarily focused on providing protection against losses
incurred as a result of traffic accidents and against liabilities that could be
incurred in an accident. The premium depends upon the expected costs of
future claims, profile of the driver, car characteristics and the usage of the
car. A bigger access to the vehicle can result into lower premium. Teenage
drivers who have no driving record will have higher insurance premium
while a women driver’s lower accident involvement may result into lower
premiums than men. The consumer will be protected with different
insurance coverage based on what coverage the insured purchases.
Risk Management for Commercial Properties
The intent of the insurance is to indemnify the insured. Payment on the

actual cash value basis is most consistent with the indemnity principle, but
property insurers often offer coverage on a replacement cost new basis
! !157
which does not deduct depreciation in valuing the loss. Some insurers also
indemnify deductibles in the insurance policies.
Risk Management in Worker’s Compensation
Organisation relationships and methods of communication play an

important role in risk management. The function of the risk manager is to
co-ordinate the efforts of the managers to prevent injuries and illness of
the workers.
4.9 Factors affecting individuals demand for insurers
Individual demand for insurance depends on various factors. Some of the

factors affecting the individual demand for insurance are mentioned below:
a. The cost of the insurance vis-à-vis other products.
b. If the individual feels that insurer’s calculation of risk and expected

losses is better than his own, he will opt for insurance cover.
c. Insurance demand is positively correlated with the income and wealth of

the potential insured.
d. Good social programmes by the government will lower the demand for
private insurers.
4.10 Risk Management by Corporates
Risk management by business firm differs substantially from risk aversion

by individuals. Business insurance will always focus on efficient method of
purchasing claims processing and loss control services. The main objective
of purchasing insurance will be to reduce the expected cost of financing
losses, reduce the likelihood of raising costly external capital for new
replacement projects, reduce expected tax payments, reduce the likelihood
of financial distress and thereby improve the terms at which the firm will
be able to contract with other claimants such as employees, suppliers,
lenders and customers.
! !158
4.11 Summary
Risk is central to the study of insurance and it is essential to know the

express risk in different ways. To some, it is a chance or possibility of loss;
to others, it may be uncertain situations or deviations or dispersions from
the expectations which can be either positive or negative.
The insurer indemnifies the insured only against the loss caused during the
period insured. The insurer is liable if the contingency takes place during
the subsistence of the insurance policy. Hence, time of loss is closely
related to the cause of risk. The insurer is not liable if the peril begins
before the operation of the insurance policy or after the cessation of the
insurance policy.
Risk depends on the various elements of the event happening sooner or

later. The severity and frequency of the happening or not happening of the
event will decide the magnitude of loss. The perils which cause the loss or
the contingency and the hazards which increase the severity of loss needs
to be identified first before accepting the proposal of insurance. The various
factors that can affect risk in case of Life Insurance age, physique, physical
conditions, family history, personal history, occupation, residence, habits,
morals, nationality, sex, economic status, plan of insurance, etc.
Information on the factors affecting risk is collected before it can be

evaluated to determine the degree of risk. Such information can be
collected from various sources namely proposal form, medical examination
report, agents report, inspection report, etc.
The insurer fixes the cost which is also called the premium to be charged
on a particular risk. The cost includes all expenses of the business plus
small profit margin. The insurer can use various methods to first quantify
the risk before fixing the premium. Mortality tables have been used by
actuaries to measure the probability of death occurring within a defined
period of time
Individual risk management refers to the identification of pure risk faced by

an individual or family and to the selection of most appropriate technique
for treating such risk.
! !159
Risk management by business firm differs substantially from risk aversion

by individuals. Business insurance will always focus on efficient method of
purchasing claims processing and loss control services.
1. Visit any insurance company’s website and use the risk management
calculator to calculate your risk score after entering all the details
pertaining to yourself.
…………………………………………………………………………………………………………………………
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2. Presume you are owning a online company and have a good turnover of
e-commerce transactions. List out the various factors that can affect
risk.
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! !160
4.13 Suggesting Readings and References
5. India Insurance Guide by Dr. L. P. Gupta.
9. Emmett Vaughan’s Risk Management, John Wiley & Sons.
10.S.E. Harrinton and G.R. Michaus’s Risk Management and Insurance,

McGraw-Hill.
11.www.cii.co.uk
! !161
1. Risk is central to the study of insurance and it is essential to know the

express risk in which of the following ways?
a. Chance or possibility of loss

b. Uncertain situations
c. Deviations or dispersions from the expectations
d. All of the above
2. The insurer indemnifies the insured against the loss caused to the
insured and collects premium for establishing a insurance contract.
Which of the following statement is not correct regarding indemnifying
act of the insurer?
a. The insurer indemnifies the insured against the loss caused during
the period insured
b. Insurer is obliged to compensate the loss caused by a peril not

insured.
c. The insurer is not liable if the peril begins before the operation of the
insurance policy.
d. The insurer is not liable if the peril begins after the cessation of the
insurance policy
3. The younger you are the higher your premium rate will be. This is why
insurance experts discourage youngsters from buying a insurance policy.
a. True
b. False
! !162
4. The insured has to assess various factors affecting risk based on the
type of insurance cover provided. In case of marine insurance, which of
the following can be an important factor that can affect risk?
a. Physique
b. Area
c. Voyage
d. Habits
5. Sometimes, restrictive clauses are imposed on persons engaged in

activities that are considered as hazardous. Which of the following can
be considered as hazardous activity?
a. Flying
b. Driving
c. Running
d. Dancing
6. The proposer is required to disclose all the material facts in the proposal
form truly and fully. The main objective of a medical examination report
is to:
a. Acquire the proposal

b. Secret investigation
c. Identify the person
d. Understand the social position of the applicant
7. Risk management by business firm differs substantially from risk

aversion by individuals. business insurance will always focus on which of
the following?
a. Efficient method of purchasing claims processing

b. Efficient method of loss control services
c. To reduce the expected cost of financing losses
d. All of the above
! !163
Answers:
1. (d)
2. (b)
3. (b)
4. (c)
5. (a)
6. (c)
7. (d).
! !164
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
Video Lecture
! !165
INSURANCE DOCUMENTATION
Chapter 5
Insurance Documentation
Objectives
This chapter will make you understand the different types of documents
that are essential to evidence the existence of a insurance contract and to
learn the utility of each document.
! !166
Structure:
5.1 Introduction
5.2 Proposal Stage Documentation
5.2.1 Prospectus
5.2.2 Proposal Form
5.2.3 Agent’s Report
5.2.4 Medical Examiner’s Report
5.2.5 Moral Hazard Report
5.2.6 Age Proof
5.2.7 Anti-Money Laundering (AML)
5.2.8 Know Your Customer (KYC)
5.2.9 Freelook Period
5.3 Policy Stage Documentation
5.3.1 First Premium Receipt

5.3.2 Policy Document
5.3.3 Life Insurance Riders
5.4 Summary
! !167
5.1 Introduction
Insurance is a complex product representing a promise to compensate the

insured or third party according to specified terms and conditions in the
event of the occurrence of a covered contingency. Documents are
necessary to evidence the existence of a contract. In both life insurance
and non-life insurance, several documents are in vogue. The documents
stand as a proof of the contract between the insurer and the insured.
Insurance is a legally enforceable contract between two parties and it is,
therefore, necessary that the terms and conditions of the agreement must
be suitably documented in a manner that would make it clear that both
parties to the contract understand the same thing in the same sense or are
of the same mind on the same subject. This is possible provided all the
terms and conditions, rights and duties, and privileges and obligations are
properly documented in terms which can be clearly interpreted in a court of
law.
5.2 Proposal stage documentation
Proposal stage is the time of offer made by the applicant to the insurer for
the acceptance of the insurer. The acceptance of offer culminates into an
insurance policy. It is essential to understand the purpose of each stage of
documentation in order to comply with the essentials of a legal insurance
contract.
! !168
5.2.1 Prospectus
One should always ask for brochures and sales literature pertaining to the
product one is considering to buy from the agent/insurer.
A prospectus is a formal legal document used by insurance companies that

provides details about the product. The prospectus helps the prospective
policyholder to get familiar with the company’s products.
The prospectus issued by the insurer should contain the following

information:
a. The terms and conditions

b. Scope of benefits – guaranteed and non-guaranteed
c. The entitlements
d. The exceptions
e. Whether the plan is participative or non-participative.
5.2.2 Proposal Form
The application document used for providing all details of the prospective
policyholder is commonly known as the ‘proposal form’. The proposal form
carries an offer made by the applicant and requires acceptance from the
insurer to fulfill the first stage of offer and acceptance of a valid legal
contract.
The proposal form has been defined under IRDA (Protection of

Policyholders’ Interests) Regulations, 2002 as:
“It means a form to be filled in by the proposer for insurance for

furnishing all material information required by the insurer in
respect of a risk, in order to enable the insurer to decide whether
to accept or decline, to undertake the risk, and in the event of
acceptance of the risk, to determine the rates, terms and
conditions of a cover to be granted.”
The applicant has to disclose all material information in the proposal form
which will enable the insurer to assess and evaluate the risk and stipulate a
premium for the insurance cover desired by the applicant.
! !169
The IRDA has issued the IRDA (Standard Proposal Form for Life Insurance)
Regulations, 2013. All insurers are required to design their application form
on the basis of this standard proposal form suggested by IRDA.
5.2.3 Agent’s Report
The agent is the primary underwriter. All material facts and particulars
about the policyholder, relevant to risk assessment, need to be revealed by
the agent in his/her report. Matters of health, habits, occupation, income
and family details need to be mentioned in the report.
5.2.4 Medical Examiner’s Report
The medical examiner’s report is required typically when the proposal

cannot be considered under non-medical underwriting because the sum
proposed or the age of the proposed life is high or there are certain
characteristics which are revealed in the proposal, which call for
examination and report by a medical examiner.
5.2.5 Moral Hazard Report
Moral hazard impacts the risk, and hence underwriters look out for it. Moral
hazard is the likelihood that a client’s behaviour might change as a result
of purchasing a life insurance policy and such a change would increase the
chance of a loss. Moral hazard report has to be submitted by an official of
the insurance company. Before completion of the report, the reporting
official should satisfy himself regarding the identity of the proposer. He
should meet him preferably at his residence before completing the report.
The reporting official should make independent enquiries about the life to
be assured’s health and habits, occupation, income, social background,
financial position, etc.
5.2.6 Age Proof
The risk of mortality in life insurance increases with age and hence, the
premium is charged as per the age group. Valid age proofs may be
standard or non-standard.
! !170
Standard age proof documents are:
i. School or college certificate

ii. Birth certificate extracted from municipal records
iii. Passport
iv. PAN card
v. Service register
vi. Certificate of baptism
vii. Certified extract from a family bible if it contains the date of birth
viii. Identity card in case of defence personnel
ix. Marriage certificate issued by a Roman Catholic church.
When standard age proofs like the above are not available, the life
insurer may allow submission of a non-standard age proof. Some
documents considered as non-standard age proofs are:
(i) Horoscope
(ii) Ration card
(iii) An affidavit by way of self-declaration
(iv) Certificate from village panchayat.
5.2.7 Anti-Money Laundering (AML)
Anti-Money Laundering law applies to banks, insurers, finance companies,

capital market intermediaries, etc. A proposer of the insurance policy can
be considered as a client under Anti-Money Laundering and is thus covered
by Anti-Money Laundering law. A recent photograph of the client along with
a valid document of proof of identity and proof of address is to be taken
from the proposer. Though IRDA guidelines do not allow cash payment
beyond ` 50000, integrally connected transactions where cash per person
may be less than ` 10 lakhs during a month but collectively greater than `
10 lakhs needs to be reported to the regulator. All suspicious transactions
also needs to be reported to the regulator.
Each insurer is required to have an AML policy and accordingly, file a copy
with IRDA. The AML Programme should include:
i. Internal policies, procedures and controls

ii. Appointment of a principal compliance officer
iii. Recruitment and training of agents on AML measures
! !171
iv. Internal audit/control

v. Compliance officer for AML purpose
vi. Customer’s due diligence
vii.Reporting to Financial Intelligence Unit, Government of India
viii.AML Policy to be approved by Board of Directors of Insurers
Suspicious and Unusual Transaction
• Application for a policy from a potential customer in a distant place

where comparable policy could be provided closer to home
• Cash-based suspicious transactions for payment of premium and top-ups

over and above a certain amount per person per month
• Frequent freelook cancellations
• Top-ups inconsistent with clients income/profile
• Frequent request for change in address
• Customer insisting on anonymity
• Assignments to unrelated parties without valid considerations
• Purchase of policy for an amount beyond his apparent need
• Overpayment of premiums with a request for refund of overpaid amount
• Application for insurance outside the policyholder’s normal pattern of

business
• A transfer of the benefit of a product to an apparently unrelated third

party
• Applicant for insurance appears to have policies with several institutions
• Applicant for insurance business wants to borrow the maximum cash

value of a single premium policy, soon after paying for the policy.
! !172
5.2.8 Know Your Customer (KYC)
The objective of KYC guidelines is to prevent financial institutions from

being used by criminal elements for money laundering activities.
Insurers should determine the true identity of their customers. Agents

should ensure that proposers submit the proposal form along with the
following as part of the KYC procedure:
i. Photographs
ii. Age proof
iii. Proof of address – driving license, passport, telephone bill, electricity

bill, bank passbook, etc.
iv. Proof of identity – driving license, passport, voter ID card, PAN card,
etc.
v. Income proof documents in case of high-value transactions.
5.2.9 Freelook Period
IRDA has built into its regulations a consumer-friendly provision termed as

a “freelook period’ or as “cooling period.”
During this period, if the policyholder has bought a policy and does not
want it, he/she can return it and get a refund subject to the following
conditions:
i. He/she can exercise this option within 15 days of receiving the policy
document.
ii. He/she has to communicate to the company in writing.
iii. The premium refund will be adjusted for proportionate risk premium for
the period on cover, expenses incurred by the insurer on medical
examination and stamp duty charges.
! !173
IRDA (STANDARD PROPOSAL FORM FOR LIFE INSURANCE)

REGULATIONS, 2013 NOTIFICATION F.NO. IRDA/REG./
10/68/2013 DATED 16-2-2013
In exercise of the powers conferred by Sections 14(2)(b) of IRDA Act, 1999

(Act 41 of 1999) and 114(A)(zc) and (zd) of the Insurance Act, 1938 (4 of
1938), the Authority, in consultation with the Insurance Advisory
Committee, hereby makes the following regulations, namely:—
CHAPTER I INTRODUCTORY
Short Title and Commencement
1. These regulations may be called the IRDA Regulations for Standard

Proposal Form for Life Insurance, 2013.
2. They shall come into force on the date of their publication in the Official
Gazette.
Definitions
In these regulations, unless the context otherwise requires,
1. ‘Act’ means the Insurance Act, 1938 (4 of 1938).
2. ‘Recommendation’ means advice provided by an agent or bancassurance

or broker or an insurer where no agent or broker is involved, to an
individual consumer that results in a purchase of a life insurance policy
in accordance with that advice.
3. ‘Suitability’ means a determination based on information provided in the

standard proposal form that, based upon a particular prospect’s risk
profile, financial situation, and investment objectives, a product is
appropriate for that prospect.
4. ‘Suitability information’ means information that is reasonably

appropriate to determine the suitability of a recommendation as
provided for in the standard proposal form.
! !174
5. ‘Standard Proposal Form’ means Standard Proposal Form format as

attached to these Regulations as Annexure A consisting of four parts,
namely: (A) Details of the prospect, (B) Specialised/Additional
information, (C) Suitability Analysis, (D) Recommendation, apart from
the standard declarations to which no additions or deletions shall be
made, where Sections A and D are standard and mandatory, Section B
may be modified as required and Section D is standard and highly
recommended or such form as may be prescribed by the Authority from
time to time.
6. All words and expressions used herein and not defined but defined in
the Insurance Act, 1938 (4 of 1938), or in the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999), or in any Rules or
Regulations made thereunder, shall have the meanings respectively
assigned to them in those Acts or Rules or Regulations.
Objective
The Objective of these Regulations is to provide for a standard proposal

form for individual policies in Life Insurance that has an inbuilt flexibility for
seeking additional/specialised information that is product specific or
specific to a particular risk category, with a view to ensuring that it takes
into consideration all relevant questions that are required to understand
the need for a particular product and make a recommendation to the
prospect bringing in transparency and thereby protecting the prospect’s
interests.
Complementarity
These regulations are complementary to the provisions relating to the

proposal form provided for under the law, rules and regulations, in
particular Sections 45 and 51 of the Insurance Act, 1938, Regulations 7(d)
and 4 of the 1RDA Regulations for protection of Policyholders’ Interests,
2002 and Rule 12 of the Insurance Rules, 1939.
CHAPTER II OBLIGATIONS
Applicability and Scope
! !175
1. These Regulations apply to all individual policies issued by life insurance

companies, irrespective of the segment and type of product.
2. The obligations under these Regulations apply to Insurers and

Intermediaries as defined therein.
Standard Proposal Form
1. It shall be mandatory for all life insurance companies to adopt the

Standard Proposal Form.
2. A separate form is to be collected for each individual life proposed.
Determination of Suitability
1. An Insurer or Agent or Bancassurance or Broker or the insurer’s

employees where direct sales are involved, shall make reasonable
efforts to obtain a consumer’s ‘suitability information’ prior to making a
recommendation.
2. Based on the suitability of information gathered from the prospect, the

Insurer or Agent or Bancassurance or Broker or the insurer’s employees
where direct sales are involved, must have reasonable grounds to
believe that the product being recommended to the prospect is suitable
for him/her.
3. In recommending the purchase of a life insurance product, the Insurer

or Agent or Bancassurance or Broker or the insurer’s employees where
direct sales are involved, shall ensure the following:
a. The prospect has been informed of the products available and the
details of the features of the particular product being recommended.
This would include but not be limited to the benefits, various charges
such as surrender charge, administration charge and all other
charges as applicable, market risks etc. – in other words, all relevant
features of the product necessary for the prospect to make an
informed decision.
! !176
b. The Insurer or Agent or Bancassurance or Broker or the insurer’s

employee where direct sale is involved, believes that a particular
product would suit the needs of the prospect.
Insurers to Establish Supervisory Procedures
1. An insurer shall establish a supervision system that is designed to

achieve compliance with these guidelines including but not limited to the
following:
a. The insurer shall maintain procedures to inform Agents,

Bancassurance, Brokers or and its employees where direct sales are
involved, of the requirements of these guidelines and of the need to
collect the standard proposal form/s for the purpose of suitability
analysis and making a Recommendation.
b. The Agents, Bancassurance, Brokers and its employees where direct

sales are involved, shall be adequately trained to determine
suitability.
c. The insurer shall maintain procedures for review of each

recommendation prior to issuance of a product that is designated to
ensure that there is a reasonable basis to determine that a
recommendation is suitable. Such review procedures shall include a
screening system for the purpose of identifying selected sale
transactions for a detailed review. Such review may be accomplished
electronically or through other means including but not limited to
physical review.
d. The insurer shall maintain procedures to detect recommendations

that are not suitable. This may include, but not limited to
confirmation of suitability information, systematic consumer surveys,
verification calls or interviews, confirmation letters and programmes
of internal monitoring. An insurer may apply sampling procedures for
confirming suitability information after issuance or delivery of the
product.
! !177
Record Keeping
1. Insurers, Agents, Bancassurance or Brokers shall maintain and make

available to the Authority for inspection or whenever called for by the
Authority, records of information collected from the prospect and other
information used in making the recommendations that were the basis
for insurance transactions for five years after the insurance transaction
is completed by the insurer when required by the Authority.
2. The records may be maintained in physical or electronic form or any

process that accurately reproduces the actual document and can stand
legal scrutiny.
Training
Agents, Bancassurance and the insurer’s employees where direct sales are
involved shall be adequately trained on seeking information for suitability
analysis. Brokers shall also be given the necessary inputs for sale of the
products of a particular insurer. Further, insurer shall ensure that Agents,
Bancassurance, Brokers and direct sales personnel are given thorough
training regarding the various specific products of the insurance company.
LIFE INSURANCE CORPORATION OF INDIA

(downloaded from www.licindia.in FOR SPECIMEN PURPOSE)
(Established by the LIC Act 1956)
Branch Office __________ Proposal No. __________ Agent’s Name

_________
Licence No. __________ Date of Expiry __________ Agent’s & DO

Code _________
NOTE:
This form has to be filled in by the proposer in his/her own handwriting. If

he/she cannot write in the language of this form or he/she is illiterate, the
proposal form can be filled in by the Agent/Third party as per normal rules.
! !178
1. (a) Name in full (IN BLOCK LETTERS): Mr./Mrs./Miss

_________________________________________________________
(b) Short Name

_________________________________________________________
(c) Address for Correspondence

_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
(d) Nationality
_________________________________________________________
(e) Are you resident in India?

_________________________________________________________
(f) Father’s Name in full

_________________________________________________________
2. (a) Table/Term ____________________
(b) Sum Assured ___________________
(c) Amount of Deposit ________________
(d) Date of Birth _____________________
(e) Age Proof _______________________
3. (a) Nominee under Section 39 of the Insurance Act, 1938, to whom

policy monies will be payable in the event of death.
Nominee’s full name: ___________________________________

(IN BLOCK LETTERS)
Age ________ Relation to yourself ________________________
! !179
Full Address _________________________________________

___________________________________________________
___________________________________________________
___________________________________________________
(b) Appointee’s name with signature to whom the policy money is

payable in the event of the claim arising during the minority of
the nominee.
Full Name of the Appointee: ____________________________

(IN BLOCK LETTERS)
Full Address _________________________________________

___________________________________________________
___________________________________________________
___________________________________________________
Signature of the Appointee ______________________________
Relationship to the Nominee _____________________________
Age of Appointee ______________________________________
4. (a) Present Occupation ____________________________________
(b) Nature of duties _______________________________________
(c) Annual Income ________________________________________
(d) Total Sum Assured under Previous policies under Table 132
_____________________________________________________
5. (a) Has a proposal on your life or an application for revival of a policy on

your life made to this or any other Office of the Corporation ever
been? _______________________________________________
i. Declined: Yes/No ___________________________________
ii. Accepted with extra; if yes, state the highest extra Imposed
(excluding age extra): _______________________________
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(b) Is any proposal/application for revival pending with any office of the
Corporation, if so, give the details: _________________________
6. Your exact Height without shoes (in cms): ______________________
Your exact Weight (in Kgs.): _________________________________
Answer ‘Yes’ or ‘No’ (If ‘No’, give details): _______________________
7. Are you at present in good health?: ____________________________
8. Have you ever been admitted to a Hospital/Nursing Home for taking

treatment for a week or more during The last 3 years? (If ‘Yes’, give
details): __________________________________________________
9. Have you any physical deformity? If Yes, give details and total Sum
Assured in force under all previous policies taken during last five
calendar years including current year: ___________________________
10.To be answered by female proposer only
(a) Total sum assured in force under all Previous Policies taken during
last 5 calendar years including current year: ___________________
(b) If you are married
i. Are you pregnant now?: _______________________________
ii. Have you had any pregnancy related problems at any time?:
___________________________________________________
DECLARATION BY THE PROPOSER
I ______________________________ do hereby declare that the

foregoing statements and answers have been given by me after fully
understanding questions and the same are true, and complete in every
particular. I agree that if any untrue averment by me contained therein the
said contract shall be absolutely null and void and all monies which have
been paid in respect thereof shall stand forfeited in part or full to the
Corporation.
! !181
Dated at ________ on the ________ day __________ 199 __________
Name of witness ____________________________________________
Signature of witness _________________________________________
Occupation ________________________________________________
Address __________________________________________________
_________________________________________________________
_________________________________________________________
_________ Signature or thumb impression of the person whose life is
proposed to be assured
If the answers to the questions in this form are given in vernacular and the
proposer signs in vernacular, then the proposer should declare in his/her
own handwriting above his/her own signature that all questions were
explained to him/her and that his/her replies were given after fully and
properly understanding the same.
OR
In case the proposer is illiterate, the thumb impression of the proposer

should be attested by a person of standing whose identity can easily be
established but unconnected with the Corporation and this declaration
should be made by him/her.
I hereby declare that I have fully explained the above questions to the
proposer in ____________________ (language) and I have truthfully
recorded the answers and explained to the proposer and that the proposer
has affixed his/her thumb impression to the proposal form after duly
understanding the contents thereof.
Address of the declarant _______________________________________

___________________________________________________________
_____________________________________(Signature of the Declarant)
NOTE: In case of dispute in respect of interpretation of terms, the English

version shall stand valid.
! !182
Some More Clauses Appearing in ICICI PRU Proposal Form:
Freelook Period (15/30 Day Refund Policy)
The freelook period starts from the date you receive the policy document.
It is 15 days in case of Non-distance Marketing policies and 30 days in case
of Distance Marketing policies.
During this period, you are required to go through documents sent to you
in welcome kit. If you are not satisfied with the same, please return the
policy document to the company along with the request for cancellation
within the period mentioned above.
We will cancel the policy and return the premium after deducting the stamp
duty, expenses borne by the company on medical examination, if any and
fluctuation in NAV.
Proposal Form for ICICI Pru Loan Protect: Some More Clauses
Are you a Politically Exposed Person (Proposer/Life to be

Assured)?
Politically Exposed Persons (PEPs) are individuals who are or have been
entrusted with prominent public functions in a foreign country, for
example, Heads of State or of Governments, senior politicians, senior
government/judicial/military officials, senior executives of state owned
corporations, important political party officials, etc., including their family
members and close relatives.
Declaration and Authorisation
I declare that I have answered the questions in the application form and
have duly signed it after understanding its contents. I have fully
understood the nature of the questions including health related questions
and the importance of disclosing all material information while answering
such questions. I declare that the answers given by me to all the questions
in the application form and the information given to ICICI Prudential Life
Insurance Co. Ltd. as to the state of health and habits of the life to be
assured are true and complete in every respect and that I have not
withheld any material information or suppressed any material fact. I have
! !183
made no statement to the Insurance Advisor, Medical Examiner or any

other person associated with the Company which in any way modifies the
answer given by me in this application form. I undertake to notify the
Company of any change in the information given by me in the application
form with respect to the life to be assured subsequent to the signing of this
application form and before the receipt of the policy document. I also
understand that the terms and conditions including the premium and the
benefits payable under the Policy are subject to variation/taxes/duties/
charges in accordance to applicable laws. I confirm that all premiums will
be paid from bonafide sources. I agree that I will not use fraudulent means
for making claims. I declare that there have been no criminal proceedings
(pending or commenced) against me in the last 5 years. I hereby authorise
the Bank and/or any other external agencies to provide details of my KYC
documents available with them to ICICI Prudential Life Insurance Company
Limited for the purpose of issuing a policy on the basis of the information
provided by me in this application form.
I hereby authorise ICICI Prudential Life Insurance Co. Ltd. to assess the
health status and conduct screening/confirmation/telephonic verification/
reconfirmation of the life to be assured including the health status through
medical examinations which may include Laboratory tests, cardiology,
radiological investigations and other medical tests including blood tests to
detect bacterial/viral/fungal infections. I hereby give my consent to
undergo HIV1/2 test. I am aware that this test is only for screening
purpose and not confirmatory for HIV/AIDS. I hereby authorise ICICI
Prudential Life Insurance Co. Ltd. to mail all service related
communications to the e-mail ID as mentioned in the application form
(applicable only if e-mail ID provided). The Company reserves the right to
accept, decline or offer alternate terms on my application for Life
Insurance. In order to enable the Company to assess the risk under this
application and any time thereafter, I hereby, authorise the past and
present employer(s)/business associates/medical practitioner(s)/hospital
and medical source/any life and non-life insurance company or
organisation or Life Insurance Association’s medical register to release to
the Company and the Company to release to any life and non-life insurance
company/or Life Insurance Association or medical register, such details and
provide the records of employment/business or other details as may be
considered relevant. This application form shall be a part of the life
insurance policy contract, in case of its acceptance by the Company.
! !184
I/We understand that in case of fraud or misrepresentation by me/us, the

policy shall be cancelled immediately by paying the surrender value,
subject to the fraud or misrepresentation being established by the
Company in accordance with Section 45 of the Insurance Act, 1938.
Sections of the Insurance Act 1938 (4 of 1938)
Section 41 – Prohibition of rebates: (1) No person shall allow or offer

to allow, either directly or indirectly, as an inducement to any person to
take out or renew or continue an insurance in respect of any kind of risk
relating to lives or property in India, any rebate of the whole or part of the
commission payable or any rebate of the premium shown on the policy, nor
shall any person taking out or renewing or continuing a policy accept any
rebate, except such rebate as may be allowed in accordance with the
published prospectuses or tables of the insurer: Provided that acceptance
by an insurance agent of commission in connection with a policy of life
insurance taken out by himself on his own life shall not be deemed to be
acceptance of a rebate of premium within the meaning of this sub-section
if at the time of such acceptance the insurance agent satisfies the
prescribed conditions establishing that he is a bonafide insurance agent
employed by the insurer. (2) Any person making default in complying with
the provisions of this section shall be punishable with fine which may
extend to five hundred rupees.
Section 45 – Policy not to be called in question on ground of

misstatement after two years: No policy of life insurance effected
before the commencement of this Act shall after the expiry of two years
from the date of commencement of this Act and no policy of life insurance
effected after the coming into force of this Act shall, after the expiry of two
years from the date on which it was effected be called in question by an
insurer on the ground that a statement made in the application for
insurance or in any report of a medical officer, or referee, or friend of the
insured or in any other document leading to the issue of the policy was
inaccurate or false unless the insurer shows that such statement was on a
material matter or suppressed facts which it was material to disclose and
that it was fraudulently made by the policyholder and that the policyholder
knew at the time of making it that the statement was false or that it
suppressed facts which it was material to disclose.
! !185
Provided that nothing in this section shall prevent the insurer from calling
for proof of age at any time if he is entitled to do so and no policy shall be
deemed to be called in question merely because the terms of the policy are
adjusted on subsequent proof that the age of the life insured was
incorrectly stated in the application.
I hereby authorise from which I have availed the home loan, to share any
documents, information and any other particulars related to me with ICICI
Prudential Life Insurance Company Limited. I further authorise the financial
institution to provide details of my KYC documents available with them to
ICICI Prudential Life Insurance Company Limited on the basis of the
information provided by me in this application.
In the event where the first premium deposit is being funded by the
Financial Institution from whom I have availed the loan, I hereby authorise
ICICI Prudential Life Insurance Company Limited to refund the amount
subject to deductions, if any to the same, in case of decline/withdrawal of
this application.
Advisor Confidentiality Report (Online Cases): ICICIPruLife Website
Customer Name:________________Application No.:__________________
1. Nature of Proposal: Medical __________ Non-medical ____________
2. Purpose of Insurance: _______________________________________
3. Nature of Work: ____________________________________________
4. How do you know the Life Assured/Proposer?: ____________________
5. How long have you known the Life Assured/ Proposer?: Years _______
Months _______
6. Is the Life Assured/ Proposer related to you? Yes/No
If yes, give details: _________________________________________
7. Income details of Proposer: Salary/Business/Agricultural/Others

Total: ` __________ per annum
! !186
Income Proof verified: ITR/Form 16/Pay-Slip/Balance Sheet/P&L
Others – Please specify
8. Personal Assets:
House: Owned/Rented/Co Provided
Vehicle: 4 wheeler/2 wheeler/None
9. General health details of Life to be assured as observed/informed to

you:
Physical Handicap/ Deformity: Yes/No
Mental Retardation: Yes/No
History of Illness/Surgery: Yes/No
Medical Investigation: Yes No
10.Any other risk associated with Occupation, Sports Pursuit, Financial/

Social Position or Personal Habits of Life to be Assured/Annuitant that
could affect the risk in the Insurance Proposal, please provide details:
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
11.Other Remarks: ____________________________________________

_________________________________________________________
_________________________________________________________
I hereby declare that foregoing statements are true to the best of my

knowledge and belief. I state that the proposal has been filled up by the
proposer/person authorised by the proposer after fully understanding the
nature of the questions in the proposal form and importance of disclosing
all material information that has been explained by me to the proposer. I
! !187
recommend this proposal for insurance. I confirm having verified the

identity and address of the customers and proofs submitted for the same.
Date: ____________________________________
Place: ___________________________________
(Signature of specified person)
5.3 Policy Stage documentation
Once the insurer accepts the proposal of the prospective policyholder,

various new documents take birth and each document has its unique
purpose.
5.3.1 First Premium Receipt
First Premium Receipt (FPR) is a proof of commencement of an insurance

contract.
The first premium receipt contains the following information:
i. Name and address of the life assured
ii. Policy number
iii. Premium amount paid
iv. Method and frequency of premium payment
v. Next due date of premium payment
vi. Date of commencement of the risk
vii.Date of final maturity of the policy
viii.Date of payment of the last premium
ix. Sum assured
! !188
After the issue of the FPR, the insurance company will Renewal Premium
Receipts (RPR) on renewal of insurance by further payment of premium.
5.3.2 Policy Document
The policy document is the evidence of the contract between the assured
and the insurance company as it is signed by the insurer and stamped
according to the Indian Stamp Act.
A policy document can have various provisions and its recitals

change from one insurer to another. Policy documents contains
terms and conditions to be fulfilled by the insurer as well as
insured.
As per Omlin’s Law Dictionary, “policy of assurance or insurance is an

instrument entered into by the insurers of lives, ships and merchandise,
etc. to the persons insuring obligatory for the payment of the sum insured,
in case of death or loss.”
According to Section 6(1) of Insurance Regulatory and Development

Authority (Protection of Policyholders’ Interests) Regulations,
2002, a life insurance policy shall clearly state:
! !189
a. the name of the plan governing the policy, its terms and conditions;
b. whether it is participating in profits or not;
c. the basis of participation in profits such as cash bonus, deferred bonus,

simple or compound reversionary bonus;
d. the benefits payable and the contingencies upon which these are
payable and the other terms and conditions of the insurance contract;
e. the details of the riders attaching to the main policy;
f. the date of commencement of risk and the date of maturity or date(s)

on which the benefits are payable;
g. the premiums payable, periodicity of payment, grace period allowed for

payment of the premium, the date the last installment of premium, the
implication of discontinuing the payment of an installment(s) of
premium and also the provisions of a guaranteed surrender value.
h. the age at entry and whether the same has been admitted;
i. the policy requirements for: (i) conversion of the policy into paid-up
policy, (ii) surrender, (iii) non-forfeiture and (iv) revival of lapsed
policies;
j. contingencies excluded from the scope of the cover, both in respect of

the main policy and the riders;
k. the provisions for nomination, assignment, loans on security of the

policy and a statement that the rate of interest payable on such loan
amount shall be as prescribed by the insurer at the time of taking the
loan;
l. any special clauses or conditions, such as, first pregnancy clause,

suicide clause, etc.;
m. the address of the insurer to which all communications in respect of the

policy shall be sent; and
! !190
n. the documents that are normally required to be submitted by a claimant

in support of a claim under the policy.
The Insurance Institute of India in IC 33 mentions the following standard

components of a policy document:
a. Policy Schedule
b. Standard Provisions
c. Specific Policy Provisions
a. Policy Schedule: The policy schedule forms the first part. It is usually
found on the face page of the policy. They would normally contain the
following information:
i. Name of the insurance company
ii. Some specific details for the particular policy like:
• Policy owner’s name and address
• Date of birth and age last birthday
• Plan and term of policy contract
• Sum assured
• Amount of premium
• Premium paying term
• Date of commencement, date of maturity and due date of last

premium
• Whether policy is with or without profits
• Name of nominee
• Mode of premium payment – yearly; half-yearly; quarterly; monthly;

via deduction from salary
! !191
• The policy number – which is the unique identity number of the policy
contract.
iii. The insurer’s promise to pay. This forms the heart of the insurance
contract.
iv. The signature of the authorised signatory and policy stamp.
v. The address of the local Insurance Ombudsman.
b. Standard Provisions: The standard provisions are normally present in

all life insurance contracts, unless specifically excluded. These standard
provisions define the rights and privileges and other conditions, which
are applicable under the contract.
c. Specific Policy Provisions: Specific provisions generally are linked to

the particular contract between the insurer and insured and are specific
to the individual policy contract.
Policy Conditions and Privileges
a. Grace period: The “Grace Period” clause grants the policyholder an

additional period of time to pay the premium after it has become due.
The standard length of the grace period is one month or 31 days. The
provision enables a policy that would otherwise have lapsed for non-
payment of premium, to continue in force during the grace period. The
premium, however, remains due and if the policyholder dies during this
period, the insurer may deduct the premium from the death benefit. If
premiums remain unpaid even after the grace period is over, the policy
would then be considered lapsed and the company is not under
obligation to pay the death benefit.
b. Lapse and Reinstatement/Revival: All the permanent life insurance

contracts permit reinstatement (revival) of a lapsed policy.
Reinstatement is the process by which a life insurance company puts
back into force a policy that has either been terminated because of non-
payment of premiums or has been continued under one of the non-
forfeiture provisions. Revival of a policy cannot result in an increase in
risk for the insurance company. The policyholder must pay such amount
of premiums with interest, as would lead to creation of the same
! !192
reserve it would have accumulated if the policy had not lapsed. The
policy owner must complete the revival application within the timeframe
stated in the provision for such reinstatement. In India, revival must be
affected within a specific time period, say five years, from the date of
lapse. The insured must present to the insurance company satisfactory
evidence of continued insurability of the insured. The policy owner is
required to make payment of all overdue premiums with interest and
must also pay any outstanding policy loan or reinstate any indebtedness
that may have existed. Revival is often more advantageous because
buying a new policy would call for a higher premium rate based on the
age the insured has attained on date of revival.
c. Surrender values: Surrender Value arrived as a percentage of

premiums paid is called Guaranteed Surrender Value. The actual amount
of cash one gets in hand on surrender may be different from the
surrender value amount prescribed in the policy because paid-up
additions, bonuses or dividend accumulations, advance premium
payments or gaps in premiums, policy loans, etc. may result in additions
or subtractions from the cash surrender value accrued. The policyholder
ultimately receives net surrender value. Surrender Value is a percentage
of paid-up value. The surrender value is calculated based on the amount
of premium paid. Hence, the surrender value will be low if the duration
of policy has been low. The surrender value will be lower for a long-term
policy compared to short-term policy if both are surrendered after the
same number of years.
The surrender value factor is a percentage of paid-up value plus

bonus. It is zero for the first three years and keeps rising from
third year onwards. It differs from company to company and
depends on various factors.
There are two ways in which an insurance policy can be surrendered:
• surrender by the policyholder; or

• surrender by the insurer (foreclosure).
When a policy is surrendered (cancelled) by an insurer, it is known as

foreclosure. The policy will be foreclosed by the insurer only in the
case of lapsed policies.
! !193
There can be two major reasons for foreclosure:
• the borrower has chosen to repay the loan during the policy term and
is unable to do so; or
• the debt (loan) has accumulated over the policy term until the claim
arises, and the accumulated debt (loan) has exceeded the surrender
value of the policy.
The foreclosed policy can be reinstated before the discharge voucher

is submitted by the policyholder for collecting the balance surrender
value.
d. Paid-up value: If the policyholder faces financial problems and is not in

a position to continue paying the premiums, he can opt convert his
policy into a paid-up policy rather than surrendering the policy. On the
maturity of such policies, the proportionate reduced sum insured is paid
out by the insurance company.
The formula for calculating paid-up value is:
[{Number of premiums paid/Number of premiums payable} ×

Sum insured] + Bonus = Paid-up value.
In the case of paid-up policies, the surrender value will not grow as fast
as the accumulated interest. The principal and interest could become
more than the surrender value at some time. In that case, foreclosure
becomes necessary.
e. Policy loans: Life insurance policies that accumulate a cash value also
have a provision to grant the policyholder the right to borrow money
from the insurer by using the cash value of the policy as a security for
the loan. The policy loan is usually limited to a percentage of the policy’s
surrender value (say 90 per cent).
Special Policy Provisions and Endorsements
a. Nomination: Under Section 39 of the Insurance Act 1938, the holder of

a policy on their own life may nominate the person or persons to whom
the money secured by the policy shall be paid in the event of their
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death. The life assured can nominate one or more than one person as
nominees. The sum assured is paid by the insurance company to the
nominee after the death of the life assured. Nominees are entitled for
valid discharge and have to hold the money as a trustee on behalf of
those entitled to it. A person having a policy on the life of another
cannot make a nomination. Nomination can be changed by making
another endorsement in the policy. With a joint life policy, nomination
may not be required, as on the death of one of the lives insured the
policy monies are payable to the surviving life insured. However,
nomination can be made jointly by both the lives insured nominating a
person to receive the sum insured, in case both the lives insured die
simultaneously. Nomination only gives the nominee the right to receive
the policy monies in the event of the death of the life insured. A
nominee does not have any right to the whole (or part) of the claim. In
cases where the nominee is a minor, the policyholder needs to appoint
an appointee. The appointee needs to sign the policy document to show
their consent to acting as an appointee. The appointee loses their status
when the nominee reaches their majority. The life insured can change
the appointee at any time. If no appointee is given and the nominee is a
minor, then on the death of the life insured, the death claim is paid to
the legal heirs of the policyholder. Where more than one nominee is
appointed, the death claim will be payable to them jointly, or to the
survivor or survivors. No specific share for each nominee can be made.
The nomination can also be done in favour of successive nominees such
as: ‘Payable to Mr. AB, failing him to Mr. BB, failing him Mr. CB’. If the
nominee die after the death of the life insured, but before the payment
of the death claim, then the sum insured would form a part of the estate
of the life insured and would be paid to their legal heirs.
b. Assignment: In India, assignment is governed by Section 38 of

Insurance Act. The term assignment ordinarily refers to transfer of
property by writing as distinguished from transfer by delivery. The
assignment of a life insurance policy implies the act of transferring the
rights, title and interest in the policy (as property) from one person to
another. The person who transfers the rights is called assignor and the
person to whom property is transferred is called assignee. Once the
policy has been assigned, the assignee has ownership of the policy and
does not need the consent of the assignor in matters relating to the
policy. An assignment once made cannot be cancelled or altered in any
form by the assignor. However, the policy can be ‘reassigned’ by the
! !195
assignee in favour of the assignor. Section 38 of the Insurance Act

specifies the legal provisions relating to the assignment of insurance
policies. It states that:
• the assignment can be done by an endorsement on the policy or by a

separate deed. When assignment is made by an endorsement on the
policy itself, no stamp duty is necessary. Separate deeds have to be
stamped;
• it must be signed by the assignor or their duly authorised agent;
• the signature must be attested by a witness;
• the assignment becomes effective on execution;
• the insurance company needs to be informed about the assignment

along with a notice;
• the insurance company considers the assignment to be effective only

when it receives the notice regarding the assignment; and
• when there is more than one instrument of assignment, the priority of

the claims shall be determined by the order in which the notices are
delivered to the insurer. There are two kinds of assignment: In
conditional assignment, the interest in the property automatically
reverts to the assignor on the occurrence of the specific condition. In
absolute assignment, the assignee becomes the title holder in the
policy and can deal with the policy in any manner.
5.3.3 Life Insurance Riders
Riders are add-on options (benefits) that can be added to a basic Life
Insurance Policy – to provide additional coverage. They help to customise
different coverage requirements of a person under a single insurance
policy.
The most common riders are as follows:
a. Accident Death/Permanent Disability Rider: In case of death due

to accident, the rider provides additional benefit over and above the
! !196
basic policy covers. In case of disability due to accident, the rider

provides additional benefits and waiver of future premium too.
b. Critical Illness Rider: Protects the insured in the event of diagnosis of

critical illness during the term of the policy. The most common critical
illness are cancer, heart attack, kidney failure and cardiac surgery.
c. Guaranteed Insurability Rider: Use full for young individuals whose

current income is low and who want to buy additional insurance at
various stages of life.
d. Term rider: Payment of additional benefit on death over and above

what payable under basic policy.
e. Waiver of Premium Rider: Waiver of future premium after occurrence

of contingency like death, disability, etc.
f. Spouse Insurance Rider: Insurance coverage for spouse without he or

her having to purchase separate policy.
Riders gets terminated automatically after discontinuation of policy. It may

also get terminated after payment of benefit or due to the occurrence of
the insured event.
Alterations in Insurance Policy
After the policy is issued, the policyholder in a number of cases finds the
terms not suitable to him and desires to change them. The insurance
company may allow certain types of alterations during the lifetime of the
policy. However, no alteration is permitted within one year of the
commencement of the policy with some exceptions. A fee for the change or
alteration in the policy may be charged by the insurer for giving effect to
the alteration.
The following alterations are allowed:
• Alteration in class or term.

• Reduction in the Sum Assured
• Alteration in the mode of payment of premiums
• Removal of an extra premium
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• Alteration from without profit plan to with profit plan

• Alternation in name
• Correction in policies
• Settlement option of payment of sum assured by installments
• Grant of accident benefit
• Grant of premium waiver benefit under Children Deferred Endowment
Assurance policies
• Alteration in currency and place of payment of policy monies
Duplicate Policy
A duplicate policy confers on its owner the same rights and privileges as
the original policy. The following are the requirements for issuing a
duplicate policy:
1. Insertion of an advertisement at the policyholder’s cost in one English

daily newspaper having wide circulation in the State where the loss is
reported to have occurred. A copy of the Newspaper in which the
advertisement appeared should be sent to the servicing office one
month after its appearance. If no objection has been lodged with the
insurer regarding the policy in question, a duplicate policy will be issued
after complying further requirements, i.e., Indemnity Bond and payment
of charges for preparing duplicate policy and stamp fee.
2. However, the requirement of advertisement and Indemnity Bond may be

dispensed with or modified in certain circumstances as given below:
• Loss of policy by theft

• Destruction of policy by fire
• Loss of policy while in custody of an office of government
• Mutilated or damaged policy
• Policy in torn and a part of it is missing
• Policy partially destroyed by white ants
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5.4 Summary
Documents are necessary to evidence the existence of a contract. In both

life insurance and non-life insurance, several documents are in vogue. The
documents stand as a proof of the contract between the insurer and the
insured. Insurance is a legally enforceable contract between two parties
and it is therefore, necessary that the terms and conditions of the
agreement must be suitably documented in a manner that would make it
clear that both parties to the contract understand the same thing in the
same sense or are of the same mind on the same subject.
Proposal stage is the time of offer made by the applicant to the insurer for
the acceptance of the insurer. The acceptance of offer culminates into an
insurance policy. It is essential to understand the purpose of each stage of
documentation in order to comply with the essentials of a legal insurance
contract.
A prospectus is a formal legal document used by insurance companies that

provides details about the product.
The proposal form carries an offer made by the applicant and requires
acceptance from the insurer to fulfill the first stage of offer and acceptance
of a valid legal contract.
All material facts and particulars about the policyholder, relevant to risk
assessment, need to be revealed by the agent in his/her report.
The medical examiner’s report is required typically when the proposal

cannot be considered under non-medical underwriting.
Moral hazard report has to be submitted by an official of the insurance

company. Before completion of the report, the reporting official should
satisfy himself regarding the identity of the proposer.
The risk of mortality in life insurance increases with age and hence, the
premium is charged as per the age group. Valid age proofs may be
standard or non-standard.
Each insurer is required to have an AML policy and accordingly, file a copy
with IRDA.
! !199
Insurers should determine the true identity of their customers. Agents

should ensure that proposers submit the proposal form along with the
essential documents such proof of identity, proof of address, age proof, etc.
as part of the KYC procedure.
During the freelook period, if the policyholder has bought a policy and does
not want it, he/she can return it and get a refund subject to the certain
conditions.
Once the insurer accepts the proposal of the prospective policyholder,

various new documents take birth and each document has its unique
purpose.
An insurance contract commences when the life insurance company issues

a first premium receipt (FPR).
After the issue of the FPR, the insurance company will issue subsequent
premium receipts when it receives further premiums from the proposer.
These receipts are known as renewal premium receipts (RPR).
The standard policy document typically has three parts: (a) Policy
Schedule, (b) Standard Provisions and (c) Specific Policy Provisions.
Riders are add-on options (benefits) that can be added to a basic Life
Insurance Policy – to provide additional coverage. They help to customise
different coverage requirements of a person under a single insurance
policy.
The insurance company may allows certain types of alterations during the
lifetime of the policy. A duplicate policy may also be issued after following
certain procedure.
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1. Visit the branches/websites of various Insurance companies and

compare the proposal form for both life and non-life insurance.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………….
2. Visit the branches/websites of various Insurance companies and

compare the policy document for both life and non-life insurance.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
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…………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………….
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9. www.cii.co.uk
! !202
1. Suresh wants to take a life insurance policy. His agent shows him the
prospectus of a insurance company. What information will Suresh obtain
from the prospectus?
a. Terms and conditions

b. Benefits
c. Entitlements and exceptions
d. All of the above
2. An agent is the primary underwriter and hence he can disclose only

those material facts about the policyholder which he feels are important
to facilitate assessment of risk. State whether the above statement is
true or false.
a. True
b. False
3. KYC stands for “know your customer”. Know your customer (KYC) policy
is an important step developed globally to prevent identity theft,
financial fraud, money laundering and terrorist financing. Which of the
following document is not required for fulfilling KYC norms by a client?
a. Photograph
b. Income proof document
c. Age proof document
d. Solvency certificate
4. Every prospective policyholder has to pay premium along with the

accepted proposal form. Which of the following document shall convince
the prospective policyholder that the insurance contract has indeed has
commenced?
a. Prospectus
b. Policy
c. First Premium Receipt
d. Renewal Premium Receipt
! !203
5. Every policyholder need not panic if he misses the due date for payment
of insurance premium as the grace period clause grants the policyholder
an additional period of time to pay the premium after it has become
due. the standard length of the grace period is:
a. 7 days
b. 15 days
c. One month
d. Three months
6. In India, assignment is governed by Section 38 of Insurance Act. The

term assignment of a life insurance policy implies.
a. Transfer of rights title and interest in the property

b. Transfer of property by delivery
c. Transfer by symbolic lien
d. Transfer by hypotheca
7. Riders are add-on options (benefits) that can be added to a basic life
insurance policy – to provide additional coverage. Payment of additional
benefit on death over and above what payable under basic policy is
available under which of the following rider?
a. Term rider
b. Guaranteed insurability rider
c. Spouse rider
d. Bonus rider
Answers:
1. (d)
2. (b)
3. (d)
4. (c)
5. (c)
6. (a)
7. (a).
! !204
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !205
UNDERWRITING AND INSURANCE PRICING
Chapter 6
Underwriting and Insurance Pricing
Objectives
This chapter will help the student to understand the basic rules of
underwriting – both individual and group lives and to familiarise with
different types of premiums.
! !206
Structure:
6.1 Introduction
6.2 Meaning of Underwriting
6.3 The Need for Underwriting
6.4 Non-medical Underwriting
6.5 Medical Underwriting
6.6 Group Underwriting
6.7 Underwriting Supported by IT Systems
6.8 Premium Calculation
6.9 Summary
! !207
6.1 Introduction
In the early days of underwriting, frequency and severity of the risk were
primary considerations for premium determination. In Life insurance,
consideration changed to mortality and morbidity risk, which was followed
by the introduction of human value concept by Prof. Huebener to determine
the optimum insurance. Mortality is an important factor in determining the
premium amount on the basis of risk assessed with underwriting tools.
Modern underwritings take help from the development of information
technology, biotechnology, financial technology, predictive modelling of
demographics, etc. In the 21st century, a host of underwriting tools is are
designed to develop time-synchronous innovative insurance products.
When a new proposal comes to the insurance company, its underwriting
department scrutinises the proposal whether or not it fulfills the criteria
laid down by the company.
6.2 Meaning of Underwriting
In insurance, underwriting is to accept liability and guaranteeing payment

in case loss or damage occurs. Once the underwriting agreement is struck,
the underwriter bears the insurance risk.
Insurance underwriters evaluate the risk and exposures of prospective

policyholders. They decide how much coverage the prospective policyholder
should receive, how much they should pay for it, or whether even to accept
the risk and insure them. Underwriting involves measuring risk exposure
and determining the premium that needs to be charged to insure that risk.
The underwriter needs to balance the act of protecting the company’s
books from risk and at the same time, issue insurance policies at a
premium that is commensurate with the risk exposure of the prospective
policyholder.
The INVESTOPEDIA defines Underwriting as follows:
“A financial professional that evaluates the risks of insuring a particular

person or asset and uses that information to set premium pricing for
insurance policies. Insurance underwriters are employed by insurance
companies to help price life insurance, health insurance, property/casualty
insurance and homeowners insurance, among others.
! !208
Underwriters use computer programs and actuarial data to determine the

likelihood and magnitude of a payout over the life of the policy. Higher-risk
individuals and assets will have to pay more in premiums to receive the
same level of protection as a (perceived) lower-risk person or asset.
Insurance companies walk a tightrope between being too aggressive or too

conservative in their underwriting duties. If they are too aggressive,
greater-than-expected claims could cut into company earnings; if they are
too conservative, they will be outpriced by the competition and lose
business.”
The definition of underwriting includes two main elements:
a. Selection
b. Classification
a. Selection is the process whereby an insurer evaluates individual

applications for insurances to determine the degree of risk represented
by the prospective policyholder.
b. Classification is the process of assigning the prospective policyholder

to a group of insured having same expected loss probabilities as the
prospective policyholder.
The term “Equity” means that applicants who are exposed to similar
degrees of risk must be placed in the same premium class. To usher equity,
the underwriter engages in a process known as risk classification, i.e.,
individual lives are categorised and assigned to different risk classes
depending on the degree of risks they pose. The degree of risks are based
on various factors like age, gender, physical conditions, personal history,
family history, habits, occupation, residence, financial status and
speculation, defence service, hazardous activities, etc. Genetic processes
underly perhaps the majority of the factors that affect insurability. New
genetic information can be potentially of enormous benefit to underwriters
and actuaries. The possibility of testing for abnormal genes has raised
fears about insurance and insurability. Insured who learn to carry genes
linked to medical conditions worry that their coverage may be cancelled or
their premiums raised.
! !209
Insured obtain information about prospective insureds from several sources

including:(a) applications, (b) physical examinations, (c) laboratory testing,
(d) agents, (e) attending physicians, (f) industry sponsored databases, etc.
Field level or primary underwriting includes information gathering by an

agent or company representative to decide whether an applicant is suitable
for granting insurance coverage.
Underwriting at the department or office level involves specialists and other

underwriting executives who carefully consider all the facts before taking a
decision to select or not and on what terms. The employees who practice
underwriting are called underwriters.
6.3 The Need for underwriting
Underwriting is necessary to all types of insurance, especially because the

insurer has to take care of the losses. In any insurance plan, the insured
contributes to the common fund pool from which claims are paid to the
insureds who suffer loss. If this arrangement is to function smoothly, each
insured’s contribution should be based on the expected loss potential. In
other words, each insured should pay actuarially fair price. Underwriting
seeks to determine the expected loss potential and select the price
commensurate with risk.
Insureds with low loss propensity would be subsidising those with higher
los propensities. This principle applies to both individual and group
insurance. If complete information on each proposed insured is available
with the underwriter, underwriting can be done simply on judgment basis.
With the complexity of information, underwriters will have to use the
Numerical Rating method for evaluating the risk and deciding the premium.
Insurers have no option but to underwrite and the need of underwriting

increases with competition. Competition drives businesses in general and
insurers in particular constantly to seek advantage over rivals. Mortality
and morbidity studies and research enables the actuaries and underwriters
to gain a better understanding of the factors influencing mortality and
morbidity. The stronger this understanding, more precise can be the
insurer’s pricing and underwriting.
! !210
Underwriting promotes market efficiency, better consumer choice and value

in the long run. Additionally, it can also fulfill the society’s goal of providing
protection against risk efficiently.
6.4 Non-medical Underwriting
Each insurance company has its own set of underwriting guidelines to help
the underwriter determine whether or not the company should accept the
risk. The information used to evaluate the risk of an applicant for insurance
will depend on the type of coverage involved.
A large number of life insurance proposals may typically get selected for
insurance without conducting a medical examination to check the
insurability of a life being insured. Such cases are termed as non-medical
proposals. Such cases are entertained subject to certain limits being
imposed on age at entry, sum assured, plan of insurance and class of lives.
A contract of life insurance underwritten on the basis of an insured’s
statement of his health with no medical examination required is called non-
medical insurance.
Non-medical underwriting is a term referring to the use of information

declared personally by the prospective policyholder in a personal
statement/declaration to enable the insurer to underwrite a risk. In non-
medical underwriting, instead of a medical report, the insurance is based
on the physical characteristics of the individual, such as age, height,
weight, etc. as revealed by the proposal form.
The principles of Utmost Good Faith has to be strongly followed by the

prospective policyholder while submitting information in the personal
statement/declaration.
The underwriters deploy various rating factors related to various aspects

like age and gender, financial situation, lifestyle, habits, family history,
personal history of health, sum assured and other personal circumstances
in the prospective policyholder’s life that may pose a hazard and increase
the risk. The higher the coverage and the older the applicant, the more the
insurance company is at risk and therefore, the more information they will
seek from you. Underwriting involves identifying these hazards and their
likely impact and classifying the risk accordingly.
! !211
As we have non-medical cover under individual insurance, we can also

have free cover limit in the group insurance. Group underwriting is done on
the basis of group profile, age groupings, profession of the group, etc. The
premium rates are adjusted periodically on the basis of experience.
Financial underwriting is used to make sure that the person who is

being insured qualifies for an amount of insurance that does not exceed
their insurable interest. An individual’s personal and family income is
considered for financial underwriting.
Type of Questions Asked in Non-medical Underwriting
The information given in the proposal form is first checked by the insurance
agent/field officer who becomes the first underwriter.
Generally, applicants under 45 years are considered for non-medical

underwriting. Such applicants will likely only have to answer a few
questions on the application to satisfy underwriting requirements. Common
questions include the applicant’s personal history of disease and illness and
history of hospitalisation within the past 10 years. Special categories of
people like people working in defence services, professionals like doctors,
engineers, architects, chartered accountants, etc. can be considered under
non-medical scheme.
Questions on occupation will give complete picture regarding the extent of

hazard, if the life to be assured is engaged in any hazardous occupation
like electrical industry or mining or chemical industry, etc.
Name and address of the present employer is useful for contact and also to
appreciate his social standing. Similarly, information regarding education,
annual income, sources of income and whether the prospect is an income
tax payee indicate his social and financial status.
The underwriter can question the proposed insured on the detailed list of
all previous policies submitted along with the proposal form. With the help
of present status, the underwriter is able to know the total life cover that
this proposer has taken and proposes to take. No insurer would like that
anybody should take a fresh insurance immediately after surrendering the
previous policy.
! !212
The underwriter can refer to information from the income tax authorities
and tax consultants regarding a proposer’s income tax records, tax
deduction report, etc. This will enable the underwriter to determine
whether the proposer has any outstanding tax commitments or has
defaulted on them in the past.
Certain special questions are asked to female proposals relating to

pregnancy, and previous history of miscarriages, if any. These questions
are health related and therefore correct information is relevant to the
insurer. Information relating to husband are important to know about the
financial standing of the family vis-à-vis his total insurance.
All the answers must be given completely and clearly and no ambiguity is
to be left. Only then a plan could be carefully selected taking into
consideration the special need of the life to be insured. Underwriters will
pay careful attention to the financial aspects of a proposed risk for reasons
other than to identify any fraudulent intentions.
Safeguards Adopted in Non-medical Business
Because the chances of adverse selection are greater with medical

underwriting, insurance companies practice the following safeguards:
• A restriction on selection;
• Putting limits on the sum insured;
• A restriction on maximum entry age;
• A restriction on the maximum term for which the policy can be issued;
• A restriction on the maximum age at maturity;
• A restriction on the types of insurance plans allowed;
• Restrictions on high risk plans;
The agent can speed up the underwriting process by submitting the

required documents and the proposal form in a timely manner. Should an
additional medical check-up be required, the agent should help the
proposer make the necessary appointment with the doctor and ensure the
doctor’s report is submitted as quickly as possible.
! !213
6.5 Medical underwriting
Medical underwriting is a health insurance term referring to the use of

medical or health information in the evaluation of an applicant for
coverage, typically for life or health insurance. As part of the underwriting
process, an individual’s health information may be used in making two
decisions: whether to offer or deny coverage; and what premium rate to
set for the policy.
Medical underwriting is generally preferred when the insurance limit

crosses the non-medical limits. The medical format gives the insurer vital
information about the prospective insured. The medical examination brings
out certain information that the prospective insured might want to hide
from the insurer. There may be a necessity for special medical reports like
the X-ray, ECG, CBC, ECR, FBS, Treadmill, Serum Cholesterol, ELISA tests
for HIV, etc. Medical check-up can be either general or more
comprehensive depending upon the age of the proposer, their medical
history and the amount of insurance cover they are asking for. Personal
information such as your history of illness and smoking status will also help
the underwriter assess your risk, as is the case with life insurance. When
you take out a private health insurance plan, the insurer needs to decide
how to treat any pre-existing medical conditions you may currently have or
have had in the past before offering cover. This allows the insurer to
prevent any likely claims for conditions that people may have already
suffered by placing some kind of exclusion on the policy. Insurance is
designed to cover future events, rather than events that have already
happened.
However, depending on the method of underwriting used (which is a choice

for you with most insurers), it may be possible to gain cover for past
aliments. Because payout of a benefit for critical illness insurance happens
at the diagnosis of disease, it has a much higher incidence rate than
payout for life insurance, which only takes place at death. Therefore, the
level of risk is higher and underwriting is more stringent, making it harder
to qualify for critical illness insurance than life insurance. From an
underwriting perspective, especially in type 2 diabetes, blood pressure and
lipid control as well as the absence of smoking are probably just as
important as the HbA1c in the risk of heart attack and stroke claims.
! !214
If the proposer is found to be in perfect health, then they would be

considered as low risk by the underwriter. A medical underwriter drafts
insurance policies for personal healthcare insurance. His or her job tasks
include reviewing insurance documents to determine whether an offer to
provide health insurance should be made, determining coverage types and
limits and calculating premium costs.
A life underwriter has to examine the reports pertaining to all the systems
of the body belonging to the proposer in a detailed manner taking into
account the self-declaration made by the applicant as well as medical
reports. This will help him to understand the lifestyle and habits of the
prospective insured. Insurer fully depends upon the expertise of the life
underwriter to come to a reasonable assessment of risk. A little amount of
medical knowledge, diseases of the human body and their affects are
supposed to be known to the underwriter which will help him in the task.
Absence of a medical underwriting would encourage moral hazard. Medical

underwriting is crucial for an insurer so that people do not buy health
insurance coverage only when they are sick or require medical care. This
will make the premiums for a health insurance policy very expensive.
If you’re interested in purchasing critical illness insurance and were

wondering if you would qualify, complete the pre-underwriting checklist
with your agent. If you have ever been diagnosed with any of the listed
illnesses, you are not eligible for critical illness insurance. The list varies by
insurance company and is not limited to cancer, heart disease, kidney
disease and insulin-dependent diabetes.
Thorough and complete applications are underwritten more quickly and

fairly, as they help the underwriter get to know you well enough to
evaluate you as an insurance risk. With a better idea of who you are, the
underwriter is able to complete the evaluation sooner and with less
additional evidence.
Moratorium Underwriting is one of the method of underwriting. With

this method, there is no need to provide the insurer with any health
information but you accept that any medical conditions for which you have
sought medical advice for in the last five years would be excluded from the
policy.
! !215
The vast majority of insurers use a two-year rolling moratorium, which

means that the insurer would consider claims for any medical conditions
that you suffered in the 5 years before the policy started provided that you
do not need to seek any form of medical advice (including treatment) for
those conditions for two years after taking out the policy.
A very limited number of healthcare insurers use what is called a ‘fixed

moratorium’. The same principle applies that any medical conditions
suffered in the last five years wouldn’t be covered, but with this method, it
wouldn't matter if medical advice was needed in the two years following
the policy commencement.
With Full Medical Underwriting, you would complete a health

questionnaire as part of the application process. The insurer would then
review that information and decide if they need to place any exclusions on
the plan.
If an exclusion is placed on the plan, then that exclusion would be

permanent unless you request the exclusion to be reviewed at the policy
renewal. Whether the healthcare insurer decides to lift the exclusion will
depend on the information provided by your GP?
With full medical underwriting, it is common for serious medical conditions

to be excluded, even if they occurred over 5 years ago. For more minor
conditions, it is usually possible to avoid an exclusion if they occurred a
number of years ago but an exclusion is likely if you suffered that condition
within the last two or three years.
Advantages of Qualified Medical Underwriting
• For the policyholder
➡ Fair underwriting process

➡ Full protection
➡ Prompter payment in the event of claims
➡ Reduces point of claims underwriting to non-disclosure cases
• For the insurer
➡ Less administrative work in the event of a claim
! !216
➡ Risk-adequate premium
➡ Better portfolio performance
➡ Less “negative press”
6.6 Group Underwriting
In July 2005, the insurance industry regulator (IRDA) issued guidelines on

group insurance policies. In a group insurance policy, the insurance
company issues one master policy covering all the members of the group.
Group insurance is a contract covering a number of lives for a reasonably

homogenous group. Each group participant is required to complete a short
application form which usually consists of the individual’s name, address,
etc.
Uniform cover is granted depending on various factors that are relevant for
group underwriting, namely:
• Size of the group

• Type of the group (voluntary ore compulsory)
• Geographic distribution of employees
• Industry
• Sex distribution
• Age distribution
• Number of dependents including age and sex distribution
• Number of dependent children
• Salaries of insured group
• Policyholder’s (employer’s) administrative facilities
• Mortality rate
Group is not formed solely for the purpose of insurance and hence,
insurance is incidental. A master policy is issued in the name of the
employer which has a free cover limit. Group insurance involves mass
administration and simple underwriting practices which ultimately results
into low cost for group insurance. However, a minimum size of group for
underwriting is required for viability. Premium depends on the risk
coverage and accumulation of funding.
Group business is underwritten according to the structure and needs of the

insured group. Normally, the underwriting is done for a year. Since the
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group is generally dynamic in which old members go out and new members
come in periodically, on yearly renewal, the employer can add or delete the
names of employees for underwriting. The group underwriter typically will
be concerned with the number of new group entrants. Insurers are not
necessarily fond of groups that have no turnover. If the insurer’s loss ratio
is to be favourable, some employees must leave the group due to
retirement or terminations and new (and hopefully younger) employees
must take their place. This turnover of employees helps bring a measure of
stability in terms of insurance losses and possible adverse selection. This
gives the insurer an opportunity to revise the premium on the basis of the
composition of the group as well as on the claim experience of earlier year.
This kind of rating on basis of claim experience is called experience rating.
The insurer generally adds 10% to 20% to the existing premium under the
hope that the new inclusions for the year would be taken care of.
If the group plan is non-contributory (one in which the employer pays the
entire insurance premium), each individual becomes immediately covered
after the probationary period ends. If the plan is contributory (the
employee pays at least part of the premium), the employee must first fulfill
his or her probationary period, then must enroll within the eligibility period
in order to avoid medical underwriting.
The scale of benefit is generally uniform for the group and there is no
choice for individual employees. However, the groups can be categorised as
managerial, supervisory, clerical subordinate, etc. and accordingly,
different benefits and premium collection can be planned for each category.
The insurer may cede some portion of his risk to another insurer in order
to share the risk. The other insurer is called the reinsurer and this process
is called reinsurance. Reinsurance ensures that the loss is shared by a
larger group and thus helps in assessing the future risk more accurately.
6.7 Underwriting supported by IT systems
An IT-based assessment system can “guarantee” a consistent approach.

The insurance industry has certainly experienced its share of technological
disruption.
During the mid-1990s, commercial insurers recognised that policy

administration systems were unable to support increasingly sophisticated
! !218
underwriting processes. Because no dedicated underwriting technology

existed at the time, insurers were forced to develop their own systems.
Many of these early applications simply aggregated information from
disparate client and policy systems to provide underwriters with a cohesive
view of their accounts and enable tracking of milestone processes. By the
early 2000s, a few software companies saw an opportunity to develop
packaged underwriting solutions. While a big step forward, these packaged
offerings still required extensive customisation to meet the unique
processes and environments of individual carriers. Underwriting desktops
have certainly matured during 2013. Underwriting systems now use
complex, rules-based methodologies such as profiling techniques and
predictive models to best align risk selection with appetite and pricing with
exposures, optimise contractual terms and conditions and tailor risk
management programmes.
Importantly, underwriting systems provide real-time insights into results.

Underwriting and operations management teams benefit from more
granular and timely data to analyse the leading indicators of their book
performance such as hit and retention ratios, flow and mix of submission
activity against plan and deviations from underwriting and pricing rules.
Furthermore, these underwriting systems support more reliable compliance
with regulatory requirements and enable rapid adjustments to processing
due to external factors such as emerging risks or internal factors such as
organisational change.
The major benefits of using technology in underwriting are as follows:
• Reduced loss ratios through better risk selection, more accurate pricing
and enhanced risk mitigation through improved terms and loss
prevention.
• The institutional expertise of the best underwriters is codified in the

underwriting solution to promote continual learning and consistent
decision-making.
• Increased productivity and efficiency through automation of low-value

manual tasks – this enables underwriters to focus on producer
relationships, market growth, key account retention and higher-value
analytical activities.
! !219
6.8 Premium calculation
The pricing of the insurance policy is an important decision for the

insurance company. The definition of ‘premium’ as used in insurance
business is “the consideration for a contract of insurance.” An insurance
policy without premium is invalid. The premiums that are collected by
insurance companies for traditional plans are invested as mandated in the
Insurance Act 1938.
According to Porter, premium is ‘price paid for the contract of insurance’.

In Lucena v. Crawford, Lawrebce J. defined premium as ‘a price paid
adequate to the risk.’
The premiums that are calculated should not only be sufficient to meet
claims, expenses and produce profits at the desired level but the company
will also be keen to ensure that premiums are competitive so that it does
not lose business to other insurance companies. The process of calculating
the premium should also be simple, easily understood and not needing to
be changed too frequently. Premiums can be paid periodically, i.e.,
monthly, quarterly, half-yearly or annually. Insurance premiums for
services differ from company to company, so it is advisable that individuals
shop around for insurance premiums.
The amount of insurance premiums charged by the insurance companies is

determined by statistics and mathematical calculations done by the
underwriting department of the insurance company. The actuaries are also
responsible for studying mathematical data and compiling “mortality and
sickness” tables, which are used to predict prospective losses due to death
and sicknesses. All insurance companies incur expenses in going about
their business. The addition of these expenses to the premium is called
loading.
Types of Insurance Premium
Net premium is based on mortality and interest rates whereas the gross
premium depends upon the mortality rate, the assumed interest rate, the
expenses and the bonus loading.
The policyholder can pay the premium in a number of ways:
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• Single premium plan: The policyholder pays a single lump sum

payment at the inception of the policy.
• Level premium plan: The policyholder pays the same amount of

premium for the entire duration of the policy.
• Flexible premium plan: The policyholder can pay the premium amount
at their convenience. The premium amount can generally increase by 5%
annually, but the exact terms will depend on the insurance company.
• Liens: Liens enables the underwriter to associate the diminishing risk

over a period of time with calculation of premium. The underwriter can
accept the proposal with a lien. As the risk is assumed to diminish over a
period of time, the lien is operable for that period on a diminishing basis.
A lien is generally used as a substitute to charging a high premium for a
high risk.
How to Calculate Insurance Premium?
Step 1: The process of calculating insurance premium is initiated with the

calculation of risk premium. The risk premium is the premium that has to
be charged just to meet the claims of those who die during the year. All the
future claims on the company are settled using this common fund. Risk
premium can be calculated by the following formula:
Risk Premium = Mortality rate × Sum insured
Step 2: Based on the risk premium, the level premium is calculated:
The Insurance company can arrive at a single rate of premium which can
be collected uniformly through out the term of the policy after considering
the future expenses and claims, effects of inflation, etc. Hence, the level
premium will be higher than the risk premium. The higher premium
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collected in the early years is put into a reserve by the insurance company
to meet the cost of future claims and expenses. In an ideal scenario, the
reserve fund will increase in the initial years, break even in later years, and
then begin to diminish in later years until it finally becomes nil.
Step 3: Based on the risk premium calculate the net premium
The premium that is invested in securities earn interest as income from

their investments. Based on the estimate of these interest earnings, the
premium charge is reduced by deducting the interest earnings from the
premium.
Net Premium = Premium – Interest earning
Step 4: The loading needs to be added to Net premium
Loading is added to net premium to take into account the expenses and
profits of the insurance company. When loading is added to net premium,
we arrive at the gross premium.
The type of policy, i.e., whether it is a single premium plan, a level

premium plan, flexible premium plan or an annually renewable plan, will
affect the gross premium to be charged. The insurance company needs to
take into account various factors like the number of policyholders that are
likely to take up the plan, the number of death claims it will expect to have
to pay during the policy term, periodicity of premium payment, etc. Most
insurance companies first calculate the annual premium and then make a
further adjustment for monthly, quarterly and half-yearly premium
payment.
Insurance advisors have ready-made tables of rates for calculating

premiums. The premium quoted in the Table of rates is for ` 1000/- sum
assured. The premium in the tabular rates is for attained age and term
chosen. While calculating the premium, the following factors have to be
taken into account:
• Identify the tabular premium for the age concerned for the plan and term
• Add loadings, if any, proposed for reasons of health, occupation or

physical impairments
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• Add extra premium for accident benefit if asked for and allowed
• Apply premium waiver benefit under children deferred assurance

schemes
• Apply rebates for large sums assured as prescribed in the prospectus
• Apply adjustments for mode of premium payments, i.e., monthly

quarterly, half-yearly and yearly
• Apply rebate for deduction from salary.
Various Methods to Reduce the Cost of Buying Life Insurance
• Buy insurance at an early age (while the risk is lower)
• Insure yourself for a long period
• Insure yourself for a large sum assured; offer to pay premium annually,
thereby receiving discounts
• Select a low-cost policy such as a term product, which offers negligible to

minimum returns upon maturity
• Do not buy riders or additional benefits that do not seem to add value to
you or are available as other insurance policies at lower prices.
Mode of Payment of Premium
The premium can be paid by cash, cheque, demand draft or by innovative

electronic channels like ECS, ATM transfers, etc. The mode of premium
payment is indicated in the Insurance policy. The insurer normally serves a
notice to the insured to pay premium on or before the due date or within
the days of grace. The grace period is generally 15 days for monthly
premium payments and 30 days for other periods of premium payments.
Non-payment of premium may result into forfeiture of policy as per the
terms and conditions of the policy. The premium paid till forfeiture goes to
the insurer and the insured cannot have any claim against the insurer.
! !223
Relevance of Premium Payment and Valid Cover
When an insurance policy is purchased, the risk gets transferred from the
insured to the insurance company. In consideration for this transfer of risk,
the policyholder has to pay a premium to the insurance company. If a
proposer never pays any premium, the policy will never come into force.
As soon as the proposal is accepted and the first premium is paid, the
insurance company becomes liable to pay a death claim, subject to the
terms and conditions of the policy. However, if the policyholder fails to
make subsequent premium payments, the policy will become lapsed and
they will no longer be entitled to the benefits of the policy should the worst
happen.
As long as the delay in payment falls within the days of grace given by the
insurance company, then the insurance company is liable to pay the full
claim to the nominee or legal beneficiary. The insurance company will
deduct the unpaid premium from the claim amount.
The premium is deemed to be paid only when the insurance company

receives the funds. If the payment has been made by cheque, demand
draft or money order, then the payment is deemed to be paid when the
amount has been deposited in the insurance company account. However, in
practice, the premium is deemed to be paid when any form of payment is
received.
If the life insured dies while the cheque/demand draft/money order is in

transit, i.e., the cheque/demand draft/money order has already been
issued by the policyholder but the insurance company has not received it,
then the insurance company will seek ‘proof of sending these instruments’.
The proof can be provided for instruments such as ‘demand drafts’ and
‘money orders’. The insurance company in these cases deems that the
premium has been paid on submission of the proof.
How to Calculate Bonus?
The policyholders who purchase participating insurance policies (with-profit

policies) are entitled to participate in the profits of the insurance company.
These profits are distributed to the policyholders in the form of bonuses.
There are four types of bonus given by insurance companies.
! !224
(i) Simple revisionary bonus: Simple revisionary bonus is paid out at

the time of the claim or the maturity of the policy, or at any other
time as specified by the insurance company.
(ii)Compound revisionary bonus: Compound revisionary bonus is

added to the sum insured and the next year’s bonus is calculated on
the enhanced amount.
(iii)Terminal bonus: Terminal bonus is given by the insurance company

as an incentive to the insured to continue with the company in the
long term, i.e., until the end of the policy.
(iv)Interim bonus: Interim bonus is paid at the rates as at the last

valuation to those policyholders who have left the insurance
company’s books before the valuation date.
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6.9 Summary
In the early days of underwriting, frequency and severity of the risk were
primary considerations for premium determination. Modern underwritings
take help from the development of information technology, biotechnology,
financial technology, predictive modelling of demographics, etc. In the 21st
century, a host of underwriting tools is are designed to develop time-
synchronous innovative insurance products.
Insurance underwriters evaluate the risk and exposures of prospective

policyholders. They decide how much coverage the prospective policyholder
should receive, how much they should pay for it, or whether even to accept
the risk and insure them.
Underwriting is necessary to all types of insurance, especially because the

insurer has to take care of the losses. In any insurance plan, the insured
contributes to the common fund pool from which claims are paid to the
insureds who suffer loss. If this arrangement is to function smoothly, each
insured’s contribution should be based on the expected loss potential. In
other words, each insured should pay actuarially fair price.
Non-medical underwriting is a term referring to the use of information

declared personally by the prospective policyholder in a personal
statement/declaration to enable the insurer to underwrite a risk. In non-
medical underwriting, instead of a medical report, the insurance is based
on the physical characteristics of the individual, such as age, height,
weight, etc. as revealed by the proposal form.
Medical underwriting is a health insurance term referring to the use of

medical or health information in the evaluation of an applicant for
coverage, typically for life or health insurance.
Group insurance is a contract covering a number of lives for a reasonably

homogenous group. Each group participant is required to complete a short
application form which usually consists of the individual’s name, address,
etc.
An IT-based assessment system can “guarantee” a consistent approach.

The insurance industry has certainly experienced its share of technological
disruption.
! !226
The pricing of the insurance policy is an important decision for the

insurance company. The definition of ‘premium’ as used in insurance
business is “the consideration for a contract of insurance.” An insurance
policy without premium is invalid.
1. Visit an insurance company and collect a proposal form for medical

insurance and non-medical insurance. What sort of additional
information is asked for by the non-medical form compared to the
medical form? Prepare a summary report to help you to understand the
difference in the two approaches.
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………………………………………………………………………………………………………………………….
2. Visit any insurance company website and use premium calculators for
calculating yearly premiums for a young married 25-year old, a married
person 35 year-old and a married person 45-year old for both male and
female prospective insured person and analyse the difference in the
premium rates.
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! !227
9. Life Insurance Underwriting by K.C. Mishra and R. Venugopal.
10.www.cii.co.uk
18.http://www.drewberryinsurance.co.uk/
19.http://www.actuariesindia.org/
! !228
1. Underwriting involves measuring risk exposure and determining the

premium that needs to be charged to insure that risk. The underwriter
needs to balance the act of:
a. Protecting the company’s books from risk
b. issue insurance policies at a premium that is commensurate with the

risk exposure of the prospective policyholder
c. Keeping premium calculation process simple
d. All of the above
2. An underwriting process involves various elements. In which process of

underwriting, an insurer evaluates individual applications for insurances
to determine the degree of risk represented by the prospective
policyholder?
a. Selection
b. Classification
c. Analysis
d. Evaluation
3. Field level or primary underwriting includes information gathering by an

agent or company representative to decide whether an applicant is
suitable for granting insurance coverage. Insured obtain information
about prospective insureds from which of the following sources?
a. Acknowledgement form
b. Industry sponsored databases
c. IRDA
d. Credit rating agency
! !229
4. Which of the following type of underwriting is a term referring to the use

of information declared personally by the prospective policyholder in a
personal statement/declaration to enable the insurer to underwrite a
risk?
a. Medical underwriting
b. Information underwriting
c. Non-medical underwriting
d. Financial underwriting
5. From an underwriting perspective, especially in type 2 diabetes, blood

pressure and lipid control as well as the absence of smoking are
probably just as important as the Hba1c in the risk of heart attack and
stroke claims. State whether the above statement is true or false?
a. True
b. False
6. Group business is underwritten according to the structure and needs of

the insured group. Group insurance is a contract covering a number of
lives for which of the following type of groups.
a. Scattered
b. Heterogenous
c. Homogenous
d. Large groups
7. The premiums that are calculated should not only be sufficient to meet
claims, expenses and produce profits at the desired level but the
company will also be keen to ensure that premiums are competitive so
that it does not lose business to other insurance companies. What is the
first step to calculate the insurance premium payable by the insured?
a. Calculate net premium

b. Calculate risk premium
c. Calculate gross premium
d. Calculate level premium
! !230
Answers:
1. (d)
2. (a)
3. (b)
4. (c)
5. (a)
6. (c)
7. (b).
! !231
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !232
VARIOUS TYPES OF LIFE INSURANCE PRODUCTS
Chapter 7
Various Types of Life Insurance Products
Objectives
This chapter will help you to understand the various types of insurance
products that are offered by Insurance companies in the modern times.
! !233
Structure:
7.1 Introduction
7.2 Types of Insurance Products
7.3 Term Plans
7.4 Endowment Plans
7.5 Whole Life Policies
7.6 Survivorship Plans
7.7 Single Premium Policy
7.8 Level Premium Policy
7.9 Policies According to the Number of Persons Insured
7.10 Policies According to the Payment of Claim/Policy Amount
7.11 Non-conventional Policies
7.12 Summary
! !234
7.1 Introduction
As per Insurance Act, 1938, Life Insurance business means the business of
effecting contracts of insurance upon human life, including any contract
whereby the payment of money is assured on death (accept death by
accident only) or on happening of any contingency dependent on human
life, and any contract which is subject to payment of premiums for a term
dependent on human life and shall be deemed to include:
a. the granting of disability and double and triple indemnity accident

benefits, if so provided in the contract of insurance;
b. the granting of annuities upon human life and
c. the granting of superannuation allowances and annuities payable out of

any fund applicable solely to the relief and maintenance of persons
engaged or who have been engaged in any particular profession, trade
or employment or of the dependents of such persons.
A life insurance policy is not only a tool of protection from uncertainties but
the modern insurance products also offer various elements of investment.
Term plans are typically low-cost insurance plans that provide full
protection and financial stability to the loved ones in case of any
unforeseen events.
Market Share of Major Companies in Terms of Total Life Insurance

Premium Collected
! !235
LIFE INSURANCE PREMIUM CAGR 16.5%
FY13 ! $53 Bn
FY12 ! $60 Bn
FY11 ! $ 64 Bn
FY10 ! $56 Bn
FY09 ! $48 Bn
FY08 ! $50 Bn
FY07 ! $35 Bn
FY06 ! $24 Bn
FY05 ! $18 Bn
FY04 ! $14 Bn
FY03 ! $12 Bn
Source: http://www.ibef.org/
LIC is the market leader, with 72.7% share in FY13, followed by

ICICI Prudential, with 4.7% share.
Savings and Investment plans are life insurance plans that offer multiple
avenues to save and to grow your money. These plans help in systematic
and disciplined investment ensuring that you and your family achieve your
financial goals. Child insurance plans and education policies can give
promise of a secure future for the child and watch him/her soar high to
fulfill his/her dreams with child investment plans. Women’s plans are a set
of specially created products which suit the needs of women at different
stages of their life; such as protection, health, retirement, child’s education
and long-term savings and investments. Inspite of the high cost of living
and rising inflation, Retirement and Pension Plans provides financial
security so that when the professional income starts to ebb, the retired
person can still live with pride without compromising on his/her living
standards. Group insurance policies covers a homogenous group of
individuals under a single policy called ‘Master Policy’ which underwrites by
assessing the broad risk characteristics of the group as a whole. Due to
reduced underwriting and lower administrative costs to the insurers, the
! !236
premium rate is lower. Due to changing lifestyles, health issues have not
just escalated, but they have increasingly become more complex in nature.
Hence, a variety of Health Insurance Plans and Mediclaim Policies are
designed to offer financial security to meet health related contingencies.
The different elements in different policies enables insurance policyholders
the freedom to choose the best insurance product according to their
requirements.
The level of insurance penetration depends on a large number of factors

like level of economic development of the country, the extent of the
savings in financial instruments and the size and reach of the insurance
sector. Insurance penetration in India at 3.9% was below the world
average of 6.3% in 2013.
LIFE INSURANCE PREMIUM CAGR 13.8%
2012 ! $43
2011 ! $49
2010 ! $56
2009 ! $48
2008 ! $41
2007 ! $40
2006 ! $33
2005 ! $18
2004 ! $16
2003 ! $13
2002 ! $12
Insurance penetration, measured as the ratio of premium to Gross

Domestic Product, was 3.1% of life insurance and 0.8% for general
insurance in 2013. The insurance industry plans to hike penetration levels
to five per cent by 2020, and could top the US$ 1 trillion mark in the next
seven years. Amongst the G20 countries, insurance penetration is highest
! !237
for South Africa (15.4%). In relation to BRICS countries, India’s insurance

penetration was better than China (3%) and Russia (1.6%) but well below
South Africa.
The total market size of India’s insurance sector is projected to touch US$
350-400 billion by 2020 from US$ 66.4 billion in FY13.
Insurance sector of India needs capital infusion of ` 50,000 crore (US$

8.06 billion) to expand, maintain a healthy capital base and improve
solvency standards, according to Insurance Regulatory Development
Authority (IRDA).
India’s insurable population is anticipated to touch 75 crore in 2020, with

life expectancy reaching 74 years. Furthermore, life insurance is projected
to comprise 35% of total savings by the end of this decade, as against
26% in 2009-10. Demographic factors such as growing middle class, young
insurable population and growing awareness of the need for protection and
retirement planning will support the growth of Indian life insurance. Since
the stock market has been showing positive signs of growth, there is
interest towards buying equity-linked products. Demand for Ulips is also
expected to take a further uptick.
7.2 Types of Insurance Products
! !238
Life Insurance policies can be categorised on the basis of various factors

like:
a. Duration of policy: Term Insurance, Whole Life Insurance Policy,

Endowment Insurance Policy, Survivorship Policy, etc.
b. Method of premium payments: Single Premium Policy, Level

Premium Policy, etc.
c. Participation in profit: With-profit or Participation Policies, Without

Profit or Non-participation Policies, etc.
d. Number of lives covered: Single Life Policies, Multiple Life Policies,
Joint Life Policies, Last Survivorship Policy, etc.
e. Method of payment of claim amounts: Lump Sum Policies,

Installment or Annuity Policies.
f. Non-conventional policies: Policies designed mainly to meet

investment objectives.
g. Insurance policies based on various stages of life: Child Plan,

Investment Plans for Unmarried Individual, Investment Plans for
Unmarried Individual, Pension Plan for Retired People, Protection Plans
for Married Couple, etc.
h. Insurance policies based on protection needs: Protection of

Income, Medical Needs, Needs of Dependents, Protection of Assets,
Family’s Maintenance, etc.
7.3 Term Plans
In this plan, the life insurance company promises to pay a specified

amount (sum insured) if the insured dies during the term of the plan. If the
life insured survives the entire duration of the plan, then they will not be
entitled to anything, meaning that there is no maturity benefit with such
policies.
Term plan policies are the simplest form of insurance plans and are
considered to be the cheapest polices. A term insurance policy charges you
only for the cost of insurance. Term plan policies are offered for a specified
! !239
term. Normally, the term starts from 5 years and runs to 10, 15, 20, 25
and 30 years or any other term chosen by the insured and agreed by the
insurer.
Main Features
1. Life insurance company promises to pay a specified amount (sum

insured) if the insured dies during the term of the plan.
2. If the life insured survives the entire duration of the plan, then they will
not be entitled to any maturity benefits.
There are various types of term insurance covers that you should
understand so that you can choose according to your needs.
a. Pure term plan: The simplest and cheapest of all – this one pays a
fixed sum assured on the death of the policyholder. However, if the
policyholder survives the term, he gets back nothing. The premium on
term plans depends on three factors: age, term of the policy and the
sum assured you choose. Even as term plans are the cheapest
insurance product you get a further discount by buying them online.
b. Return of premium plan: Return of premium plans are slightly more

expensive policies since they promise a return of premium. The
policyholder gets the part of the premium, or the entire premium, from
the insurance company according to the terms of the policy. Return of
premium at the end of the term, but if the insured dies midway, the
nominee gets the sum assured. In another variant of term insurance
plans, some companies also pay some interest along with the premium
on the maturity of the plan if the life insured survives until maturity.
c. Decreasing plan: In this plan, the sum assured decreases every year,
as does your outstanding loan amount, especially in mortgage products.
The premiums on these plans are lower than that of a level term plan
since every year the sum assured decreases. The amount of premium
gets added to the total debt liability, which is paid by the borrower
through an increased EMI.
d. Increasing plan: In this plan, the amount of cover increases by about

5% every year until the sum assured increase by 50% or doubles up in
! !240
value. The premiums are on the higher side as the insurer puts more
money at risk every year.
e. Convertible plans: This plan combines the benefits of a term plan with
a savings plan. Here, initially the insured buys a term plan, which can
be converted into an investment-cum-insurance plan later. The premium
may change at the time of conversion.
f. Renewable plans: This plan enables the policyholder to renew the

term policy at the expiry of the term without additional period medical
examination. The premium may change according to the age attained at
the time of renewal. This policy is suitable for those whose health is
deteriorating and will be uninsurable at an advanced age.
ICICI Pru iCare II Term Plan Product Features (From ICICI

prolife.com Website)
ICICI Pru iCare II Term Plan is backed with a promise of one of the best
claim settlement records in the industry at 94.10%. With ICICI Pru iCare
II, one can protect one’s family’s future and ensure that they lead their
lives comfortably without any financial worries, even in your absence.
Key Benefits of ICICI Pru iCare II
• Flexibility to choose protection cover based on your needs from:
➡ Option I: Death benefit equal to Sum Assured chosen by you.
➡ Option II: An additional death benefit equal to Sum Assured chosen

by you or` 50 lakhs, whichever is lower, payable only in case of death
due to accident. This option is available only with the Regular Pay
option.
• Insurance cover at extremely affordable premiums.
• Tax benefits on the premiums paid.
Death Benefit
! !241
In the unfortunate event of the death of the Life Assured during the term
of the policy, the nominee shall receive the following death benefit:
Plan Type Benefit Paid Out to the Nominee
iCare II Option I Sum Assured chosen by you
iCare II Option II (applicable only for Sum Assured chosen by you +

Regular Pay option) Accidental Death Benefit
Accidental Death Benefit — An amount equal to the Sum Assured

chosen by you (subject to a maximum of ` 50 lakhs) will be paid only in
the unfortunate event of death of the Life Assured due to an accident.
Maturity or Paid-up or Survival Benefit
There is no maturity, paid-up value or survival benefit available under this

product.
Key Features
Minimum/maximum age at 18/60 years (age last birthday)

entry
Maximum age at maturity 65 years (age last birthday)
Premium payment options Regular Pay, One Pay
Policy term Regular Pay: 5/10/15/20/25/30 years

One pay: 5/10 years
Accidental Death Benefit Equal to Sum Assured chosen by you, subject

(Only with iCare II Option to a maximum of ` 50 lakhs
II)
Minimum Premium ` 2,400 excluding service tax and cesses, as

(Annual premium/Single applicable
premium)
Minimum Sum Assured that For annual premium paying Regular Pay
can be chosen policies with the following characteristics, the
minimum Sum Assured is as follows:
Age Policy Minimum Sum

Term Assured
! !242
Option I Option II
60 5 ` 87,423 ` 85,875
18 30 ` 3,06,478 ` 2,88,257
Maximum Sum Assured that Unlimited

can be chosen
Mode of premium payment Regular Pay: Yearly, Half-yearly and Monthly

One Pay: Single premium
Tax benefits Premium paid towards the policy will be

eligible for tax benefits u/s 80C of the Income
Tax Act, 1961
Benefits paid out to nominee
iCare II Option I Sum Assured chosen by you

(absolute amount assured to be paid on
death)
iCare II Option II Sum Assured chosen by you

(applicable only for Regular Pay PLUS Accidental Death Benefit
option) (absolute amount assured to be paid on
death)
Minimum death benefit Age at entry less Age at entry 45 years

than 45 years and above
One Pay Highest of 125% of Highest of 110% of the

the single premium single premium or any
or any absolute absolute amount
amount assured to assured to be paid on
be paid on death death
Regular Pay, where the policy Highest of 5 times Highest of 5 times the
term is five years or more but the annualised annualised premium or
less than ten years premium or 105% 105% of all the
of all the premiums premiums paid as on
paid as on date of date of death or any
death or any absolute amount
absolute amount assured to be paid on
assured to be paid death
on death
! !243
Regular Pay, where the policy Highest of 10 times Highest of 7 times the
term is greater than or equal to the annualised annualised premium or
10 years premium or 105% 105% of all the
of all the premiums premiums paid as on
paid as on date of date of death or any
death or any absolute amount
absolute amount assured to be paid on
assured to be paid death
on death
Maturity or paid-up or There is no maturity, paid-up value or survival

survival benefit benefit available under this product
Surrender In case of Regular Pay, your policy does not

have a surrender value
In case of One Pay, the Surrender Value will

be calculated as given below:
Surrender Value = Surrender Value Factor *

Single Premium
Surrender Value Factors are provided below:
Policy Year of Surrender/ 5 years 10 years

Policy Term
Year 1 30% 45%
Year 2 25% 40%
Year 3 15% 35%
Year 4 10% 30%
Year 5 0% 25%
Year 6 N/A 20%
Year 7 N/A 15%
Year 8 N/A 10%
Year 9 N/A 5%
Year 10 N/A 0%
! !244
Illustration
The table below provides annual premium, for a Regular Pay option
(exclusive of service tax and cesses, as applicable) for various
combinations of age and Sum Assured for a healthy male, opting for a
policy term of 25 years.
Age (years)/ iCare II Option I iCare II Option II+

Sum Assured Rupees Rupees
25 lakhs 50 lakhs 75 lakhs 25 lakhs 50 lakhs 75 lakhs
30 5,475 7,600 10,500 6,725 10,100 13,000
35 7,400 10,700 14,925 8,650 13,200 17,425
40 10,625 15,850 22,350 11,875 18,350 24,850
+ICICI Pru iCare II Option II offers an additional Accidental Death Benefit

equal to the Sum Assured (subject to a maximum of ` 50 lakhs). This will
be paid out in the unfortunate event of death of the Life Assured due to an
accident .
Terms and Conditions
1. Freelook period: If you are not satisfied with the policy, you may
cancel it by returning the policy document to the Company within:
• 15 days from the date you received it, if your policy is not purchased
through Distance marketing.
• 30 days from the date you received it, if your policy is purchased
through Distance marketing.
Distance marketing includes every activity of solicitation (including lead

generation) and sale of insurance products through the following modes:
(i) Voice mode, which includes telephone calling, (ii) Short Messaging
Service (SMS), (iii) Electronic mode which includes e-mail, internet and
interactive television (DTH), (iv) Physical mode which includes direct postal
mail, newspaper and magazine inserts and (v) Solicitation through any
means of communication other than in person.
! !245
On cancellation of the policy during the freelook period, we will return the
premium paid subject to the deduction of:
a. Stamp duty paid under the policy,

b. Expenses borne by the Company on medical examination, if any,
c. Proportionate risk premium for the period of cover.
The policy shall terminate on payment of this amount and all rights,
benefits and interests under this policy will stand extinguished.
2. Accidental death benefit: For the purpose of Accidental Death Benefit

payable on accident, the following conditions shall apply:
a. Death due to accident should not be caused by the following:
i) Attempted suicide or self-inflicted injuries while sane or insane, or

whilst the Life Assured is under the influence of any narcotic
substance or drug or intoxicating liquor; or
ii) Engaging in aerial flights (including parachuting and skydiving)

other than as a fare paying passenger on a licensed passenger
carrying commercial aircraft (being a multi-engined aircraft)
operating on a regular scheduled route; or
iii) The Life Assured with criminal intent, committing any breach of
law; or
iv) Due to war, whether declared or not or civil commotion; or
v) Engaging in hazardous sports or pastimes, e.g., taking part in (or

practising for) boxing, caving, climbing, horse racing, jet skiing,
martial arts, mountaineering, off piste skiing, pot holing, power
boat racing, underwater diving, yacht racing or any race, trial or
timed motor sport.
b. Death due to accident must be caused by violent, external and visible

means.
c. The accident shall result in bodily injury or injuries to the Life Assured
independently of any other means. Such injury or injuries shall,
within 180 days of the occurrence of the accident, directly and
! !246
independently of any other means cause the death of the Life

Assured. In the event of the death of the Life Assured after 180 days
of the occurrence of the accident, the Company shall not be liable to
pay this benefit.
d. The policy must be in force at the time of accident.
e. The Company shall not be liable to pay this benefit in case the death
of the Life Assured occurs after the date of termination of the policy.
3. Tax benefits: Tax benefits under the policy are subject to conditions
under Sections 80C and 10(10D) of the Income Tax Act, 1961. Service
tax and education cess will be charged extra, as per applicable rates.
The tax laws are subject to amendments from time to time.
4. Suicide clause: If the Life Assured whether sane or insane, commits

suicide within one year from the date of commencement of this policy,
the policy shall be void and the policy will terminate. The Company will
refund the premium and all rights, benefits and interests under this
policy will stand extinguished. In the case of a reinstated Regular Pay
policy, if the Life Assured, whether sane or insane, commits suicide
within one year from the date of reinstatement of the policy the
Company will refund 80% of the premiums paid till the date of death.
5. Grace period: A grace period for payment of premium of 15 days

applies for monthly premium payment mode and 30 days for other
modes of premium payment. If the premium is not paid within the grace
period, the policy shall lapse and cover will cease.
6. Premium discontinuance: If the premium is not paid either on the

premium due date or within the grace period, all benefits under this
policy will cease. No benefit shall become payable in case of death of
the Life Assured while the policy is in lapsed condition. This is applicable
only for Regular Pay option.
7. Policy revival: Policy revival is applicable only for Regular Pay option. A
policy, which has lapsed for non-payment of premium within the days of
grace, may be revived subject to the following conditions:
! !247
• The application for revival is made within 2 years from the due date of
the first unpaid premium and before the termination date of policy.
Revival will be based on the prevailing Board approved underwriting
policy.
• The Policyholder furnishes, at his own expense, satisfactory evidence of

health of the Life Assured as required by the Company.
• The arrears of premiums together with interest, at such rate as the

Company may charge for late payment of premiums are paid.
The revival of the policy may be on terms different from those applicable
to the policy before it lapsed, for example, extra mortality premiums or
charges may be applicable. The Company reserves the right to refuse to
reinstate the policy. The revival will take effect only on its being
specifically communicated by the Company to the Policyholder.
8. Sum Assured and Plan Type once chosen at the inception of the
policy cannot be changed.
9. No loans are allowed under this policy.
10.The bases for computing Surrender Value factors will be reviewed

from time to time and the factors applicable to existing business may be
revised subject to the prior approval of the IRDA.
11.Section 41: In accordance with Section 41 of the Insurance Act, 1938,

no person shall allow or offer to allow, either directly or indirectly, as an
inducement to any person to take or renew or continue an insurance in
respect of any kind of risk relating to lives or property in India, any
rebate of the whole or part of the commission payable or any rebate of
the premium shown on the policy, nor shall any person taking out or
renewing or continuing a policy accept any rebate, except such rebate
as may be allowed in accordance with the published prospectuses or
tables of the insurer. Provided that acceptance by an insurance agent of
commission in connection with a policy of life insurance taken out by
himself on his own life shall not be deemed to be acceptance of a rebate
of premium within the meaning of this sub-section if at the time of such
acceptance the insurance agent satisfies the prescribed conditions
establishing that he is a bonafide insurance agent employed by the
! !248
insurer. Any person making default in complying with the provisions of

this section shall be punishable with fine which may extend to five
hundred rupees.
12.Section 45: No policy of life insurance effected before the

commencement of this Act shall after the expiry of two years from the
date of commencement of this Act and no policy of life insurance
effected after the coming into force of this Act shall, after the expiry of
two years from the date on which it was effected be called in question
by an insurer on the ground that statement made in the proposal or in
any report of a medical officer, or referee, or friend of the insured, or in
any other document leading to the issue of the policy, was inaccurate or
false, unless the insurer shows that such statement was on a material
matter or suppressed facts which it was material to disclose and that it
was fraudulently made by the policyholder and that the policyholder
knew at the time of making it that the statement was false or that it
suppressed facts which it was material to disclose. Provided that nothing
in this section shall prevent the insurer from calling for proof of age at
any time if he is entitled to do so, and no policy shall be deemed to be
called in question merely because the terms of the policy are adjusted
on subsequent proof that the age of the life insured was incorrectly
stated in the proposal.
13.In case of fraud or misrepresentation, the policy shall be cancelled

immediately by paying the surrender value, if any, subject to the fraud
or misrepresentation being established by the Company in accordance
with Section 45 of the Insurance Act, 1938.
14.For further details, please refer to the policy document and the benefit
illustration.
Our Government has recently announced insurance schemes for reaching a

large number of population who cannot afford to but an insurance policy.
PRADHAN MANTRI JEEVAN JYOTI BIMA YOJANA Scheme (source

http://financialservices.gov.in) offer life insurance cover for death due to
any reason. The scheme will be a one year cover, renewable from year to
year and would be offered/administered through LIC and other Life
Insurance companies willing to offer the product on similar terms with
necessary approvals and tie ups with Banks for this purpose. Participating
! !249
banks will be free to engage any such life insurance company for
implementing the scheme for their subscribers. All savings bank account
holders in the age 18 to 50 years in participating banks will be entitled to
join. In case of multiple saving bank accounts held by an individual in one
or different banks, the person would be eligible to join the scheme through
one savings bank account only. Aadhar would be the primary KYC for the
bank account.
This scheme has been launched for the cover period 1st June, 2015 to 31st
May, 2016. Subscribers will be required to enroll and give their auto-debit
consent by 31st May, 2015. Late enrollment for prospective cover will be
possible up to 31st August, 2015, which may be extended by Government
of India for another three months, i.e., up to 30th of November, 2015. The
cover shall be for the one year period stretching from 1st June to 31st May.
Delayed enrollment with payment of full annual premium for prospective
cover may be possible with submission of a self-certificate of good health.
Individuals who exit the scheme at any point may rejoin the scheme in
future years by submitting a declaration of good health in the prescribed
proforma.
Benefits: ` 2 lakhs is payable on member’s death due to any reason.
Premium: ` 330/- per annum per member. The premium will be deducted
from the account holder’s savings bank account through ‘auto debit’ facility
in one installment, as per the option given, on or before 31st May of each
annual coverage period under the scheme.
Master Policyholder: Participating Banks will be the Master policyholders.

A simple and subscriber-friendly administration and claim settlement
process shall be finalised by LIC/other insurance company in consultation
with the participating bank.
Termination of Assurance: The assurance on the life of the member

shall terminate on any of the following events and no benefit will become
payable thereunder:
1. On attaining age 55 years (age near birthday) subject to annual renewal

up to that date (entry, however, will not be possible beyond the age of
50 years).
! !250
2. Closure of account with the Bank or insufficiency of balance to keep the

insurance in force.
3. In case a member is covered under PMJJBY with LIC of India/other

company through more than one account and premium is received by
LIC/other company inadvertently, insurance cover will be restricted to `
2 lakhs and the premium shall be liable to be forfeited.
4. If the insurance cover is ceased due to any technical reasons such as

insufficient balance on due date or due to any administrative issues, the
same can be reinstated on receipt of full annual premium and a
satisfactory statement of good health.
5. Participating Banks shall remit the premium to insurance companies in

case of regular enrolment on or before 30th of June every year and in
other cases, in the same month when received.
Appropriation of Premium
1. Insurance Premium to LIC/Insurance Company: ` 289/- per annum per

member.
2. Reimbursement of Expenses to BC/Micro/Corporate/Agent: ` 30/- per

annum per member.
3. Reimbursement of Administrative Expenses to Participating Bank: ` 11/-

per annum per member.
7.4 Endowment Plans
An Endowment Plan is designed to pay back a lump sum amount after a

specified term or on death of the policyholder. It provides a living benefit to
the policyholder as periodic payouts along with insurance coverage. It pays
back the face value to the insured either at death or after certain years of
the premium payment.
Typical maturities are ten, fifteen or twenty years up to a certain age limit.
In addition to the basic benefits discussed above, an insurance company
also provides additional benefits like Double Endowment, Joint Life
Endowment, Fixed Term Marriage Endowment Plans, Educational Annuity
! !251
Plans, Tripple Benefit Plans, Mortgage Redemption Assurance Plan, etc. An

endowment plan allows the policyholder to add riders for critical illnesses,
major surgical assistance, etc.
Policies are typically traditional with-profits or unit-linked (including those

with unitised with-profits funds). Endowments can be cashed in early (or
surrendered) and the holder then receives the surrender value which is
determined by the insurance company depending on how long the policy
has been running and how much has been paid into it.
Pure Endowment Plan
Pure Endowment Plan is the opposite of a term insurance plan. In this plan,
the life insurance company promises to pay the life insured a specified
amount (sum insured) only if they survive the term of the plan. If the life
insured dies during the tenure of the plan, then they will not be entitled to
anything. This plan offers only maturity benefit in the event of the life
insured surviving the entire tenure of the plan. There is no death cover. A
pure endowment plan has the elements of investment and grants
protection against living long. It can be a great boon for old age protection.
This policy can be useful for persons who do not want to undergo medical
examination.
Main Features:
1. If the life insured dies during the tenure of the plan, then they will not
be entitled to death cover.
2. Maturity benefit will be paid in the event of the life insured surviving the
entire tenure of the plan.
Endowment Insurance Plan
Endowment Insurance Plan is a combination of a term insurance plan and a

pure endowment plan. It offers death cover if the life insured dies during
the term of the policy or survival benefit if the life insured survives until
the maturity of the policy. Thus, this policy serves both purposes, i.e.,
family protection and the investment. The term of the policy is specified
and the sum assured is payable either on the life assured’s death during
the period or on his survival to the end of the period. Premiums are paid
! !252
throughout the term of the policy or to a limited period or till the death of
the life assured. The net premium rate for an ordinary endowment policy is
equal to the net premium of the term and pure endowment policies issued
at the same age for the same period of time. Compulsory savings is
possible in this type of policy for meeting future expenses that has to be
incurred on marriage, education or other requirements of the family.
Main Features:
1. Offers death cover if the life insured dies during the term of the policy.
2. Survival benefit if the life insured survives until the maturity of the
policy.
3. Net premium rate for an ordinary endowment policy is equal to the net
premium of the term and pure endowment policies.
Participating and Non-participating Policies
Most endowment policies have a savings element included in the premium.

This amount is invested by the insurance company on behalf of the
policyholders and earns a profit on it which is again distributed back to the
policyholders in the form of bonuses. Such plans where the policyholders
are entitled to participate in the profits of the insurance company are
known as ‘with-profits’ plans or ‘participating’ plans. Most endowment,
moneyback and whole life plans are participating plans.
Plans in which the policyholders are not entitled to participate in the profits
of the insurance company are known as ‘without-profits’ plans or ‘non-
participating’ plans. Pure term insurance plans are an example of without-
profit plans.
Endowment – Without Profit or Term Products
Endowment – Without Profit Products offer the nominee the sum assured
only, upon death of the insured. Upon surviving the term of the policy or
upon maturity, the insured may receive the sum assured or a portion of the
sum assured or a refund of the premium only. Typically, such policies are
low-cost policies.
! !253
Endowment with Profit Policies
1. Upon death of the insured, the nominee receives sum assured plus
bonus for the number of years the policy was in force.
2. Upon surviving the term of the policy or upon maturity, the insured
receives sum assured plus bonus for the term of the policy. The amount
receivable upon maturity is tax-free.
3. Many people prefer to buy such policies for terms that mature during
their retirement period. Often, the maturity amount is utilised to
supplement the pension income (pension income is taxable).
A Joint Life Endowment Policy
A Joint Life Endowment Policy covers more than one life under a single
policy. The sum assured is payable on the expiry of the term or on the
death of one of the assured lives during the endowment period. The
premium is calculated with some modification according to the age of all
insured partners. This policy is suitable and beneficial to the partners of a
firm and a couple. The ceiling on the sum assured is determined by the
earned income and previous insurance held.
Double Endowment Policy:
1. If the life assured dies during the endowment period, the basic sum
assured is payable
2. If the life assured survives to the end of the term, double of the sum
assured is payable.
3. Premiums are quoted according to the endowment period, irrespective

of the age at entry.
4. Maturity age is not beyond 65.
5. Beneficial to the person who are confident of living long but would like
to have some cover in the event of their death.
! !254
Triple Benefit Plan
1. Guaranteed and steadily increasing family provision during the selected

period along with old age.
2. Premiums are payable throughout the term or till the death of the life
assured.
3. The provision for the family does not terminate when the old age benefit
is paid at the end of the period.
4. If the death occurs within the stipulated period, the sum assured is
payable to the dependents along with a guaranteed bonus per annum
for each year’s premium paid excluding the first year’s premium.
5. On survival to the selected term, the basic sum assured is paid along
with a paid-up whole life assurance for a like amount payable at death
thereafter
Fixed Term Marriage Endowment Plan
1. The sum assured is payable at the end of a stipulated period.
2. Premium payment ceases after the death of the policyholder during the
policy period, but the policy will remain fully paid until the maturity
date.
3. This plan is issued without profit basis.
4. Suitable for those who want to make a provision of certain sum for
marriage of a female dependent.
5. There is loan available under this plan.
Education Annuity Plan
1. Premium needs to be paid till maturity or earlier death.
2. There are inbuilt benefits like Premium Waiver Benefit and Accidental
Death Benefit.
! !255
3. There are additional riders like Critical Illness Benefit and Term Benefit
riders.
4. The sum assured is payable in equal installments over a period of time.
5. Installments are payable in half-yearly installments for a specified term.
6. Suitable for those who want to make a provision for the education of
children.
7. The father or guardian undergoes a medical examination.
Progressive Protection Plan with Profits
1. Provides additional insurance benefits for additional responsibilities.
2. Only first class lives are accepted under this plan.
3. This policy will be deemed to be for double the sum assured for non-
medical scheme.
4. The sum assured increases automatically by half the initial sum assured
at the end of five years and again half the initial sum assured at the end
of ten years, irrespective of the state of health of the policyholder at
that time.
5. Premiums will be payable for the initial sum assured for the first five
years and at the end of five years and again at the end of ten years, the
premiums will increase with the increase in the sum assured.
6. Bonus will be paid at the end of the selected term or at the death of the
life assured.
7. Maximum age at entry is 45 years and the maturity age is 65 years.
Mortgage Redemption Assurance Policy
1. The Mortgage Redemption Assurance Policy (Without Profits) Plan is

designed to meet the requirements of the policy holding individual who
! !256
seeks to ensure that all his outstanding loans and debts are
automatically paid up in the event of his demise.
2. The policies are usually issued only to male lives aged 50 years or lesser
and the proponent has to undergo a medical examination.
3. The policies are subject to a condition that the insurance cover would
not extend beyond 65 years. All loans must be liquidated by the time
the borrower attains the age of 65.
4. The policies bear no surrender value.
5. Survival benefits are nil but all outstanding loans declared at the
beginning of the financial year would be payable on death of the life
assured.
6. The minimum sum assured is ` 50000 and maximum sum assured will
be ` 10 lakhs.
7. No loan is available on a Mortgage Redemption Assurance Policy.
8. Middle-aged to elderly professionals whose dependents might need

assistance in clearing their debts in case of their unexpected demise are
most suited for the Mortgage Redemption Assurance Policy.
Children’s Deferred Endowment Assurance Plan
1. A parent or a guardian or near relative of a child takes an insurance

policy on the life of the child under which the premium is paid by the
proposer during the first few years and by the life assured thereafter.
2. This endowment plan allows payment of a lower premium period since

the premium paying period is significantly more.
3. An assurance for a relatively large amount is secured for the child, at a

substantially small premium amount
4. An option is available as regards the age at commencement of risk on

the life of the child which may be 18 years (complete) or 21 years
! !257
(complete). On the deferment date, the child should have attained

majority.
5. The period from the commencement of the policy to the age at which it
vests, i.e., risk commences, is called Deferred period.
6. On expiry of deferred period, the policy automatically vests on life

assured. The life assured receives the full sum assured on survival date
of maturity or on early death.
7. No medical exam is required where the deferment period is 10 years or

more.
8. In case the child happens to die before the deferred date, i.e., before
the policy vests, the premiums paid are refunded.
9. In case, the proposer, i.e., the parent happens to die during the
deferment period, the policy has to be continued by regular payment of
premiums. The policy allows a waiver of premiums on the death of the
proposer by payment of an additional premium.
10.Before the expiry of the deferred period, the proposer can receive the
cash option available under the policy by making a request in writing.
What is a Moneyback Plan?
Moneyback policies combine the dual benefits of savings and insurance,

and are somewhat similar to endowment plans in terms of features.
In an endowment plan, the insurer will receive a lump sum amount either
at death during the term or at maturity of the term.
Unlike endowment plans, in moneyback policies, the policyholder gets

“periodic partial payments” during the term of the policy and a lump sum
amount on surviving its term in fixed proportions or variable proportions
during the policy term as per the terms and conditions of the policy. In the
event of death during the term of the policy, the beneficiary gets the full
sum assured, without any deductions for the amounts paid till date, and no
further premiums are required to be paid. These type of policies are very
popular, since they can be tailored to get large amounts at specific periods
! !258
as per the needs of the policyholder. The benefits received by the

policyholder at specific intervals are tax-free according to prevailing tax
laws.
MetLife Junior Endowment (from PNBMetlife.com Website)
PNB MetLife offers ‘MetLife Junior’ – a flexible endowment plan that

combines savings and security. Your children’s well-being is your highest
priority. So, we offer a plan which offers both timely and efficient “Return
on Investment” – all with a guarantee.
Reasons to Buy
1. An endowment plan that offers both savings and life insurance.
2. Different premium paying options to suit various income cycles.
3. Available in both par and non-par versions.
4. A plan which participates in the bonuses declared by the company (par).
5. Tax benefits as applicable.
Coverage Term
Par Non Par
Minimum Entry Age of the Child 0 years 0 years
Maximum Entry Age of the Child 14 years 14 years
Coverage Terms 15-30 years 15-30 years
Premium Payment Terms 15, 20, 25 or 30 15, 20, 25 or 30

years years
Minimum Sum Assured ` 50,000 ` 50,000
Maximum Sum Assured No limit No limit
Riders Not available
! !259
Death Benefit
MetLife Junior – Non-par
• In the event of death of the Person Insured, the nominee will receive the
Sum Assured.
• If death occurs before age 7, then the death benefit is equal to the
return of premiums plus interest on premiums.
MetLife Junior – Par
• In the unfortunate event of death of the Person Insured, the nominee will
receive the Sum Assured, the Reversionary Bonus and the Terminal
Bonus, if any.
• If death occurs before age 7, then the death benefit is equal to the
return of premiums plus interest on premiums.
• No bonuses are payable for the first two policy years or until the Insured
attains age 7, whichever is later.
Maturity Benefit
MetLife Junior – Non-par
• On attaining maturity, the Person Insured will receive the Sum Assured.
MetLife Junior - Par
• On attaining maturity, the Person Insured will receive the Sum Assured,
the Reversionary Bonus and the Terminal Bonus, if any.
ICICI Pru Guaranteed Savings Insurance Plan (From ICICI

prolife.com Website)
ICICI Pru Guaranteed Savings Insurance Plan is a limited pay endowment

product that allows you to enjoy the benefits of a long-term savings plan
ensuring that you and your family are free of any financial worries.
! !260
Important milestones: Your house, your child’s education and marriage,

retirement kitty, etc. can easily be planned by insurance products like ICICI
Pru Guaranteed Savings Insurance Plan.
Guaranteed Savings Insurance Plan at a Glance
Minimum/Maximum Age at Entry 0/60 years
Minimum/Maximum Maturity Age 18/75 years
Premium Payment Term 7 years 10 years
Policy Term 15 years 20 years
Minimum Annual Premium (`) 18,000 12,000
Sum Assured Annual Premium * Premium Paying

Term
Premium Paying Modes Yearly, half-yearly or monthly
Grace Period 15 days for monthly mode, 30 days for

yearly and half-yearly modes
Features and Benefits of Guaranteed Savings Insurance Plan
Limited pay: You have a choice of paying premiums for either 7 or 10

years, while enjoying a long-term savings benefit under the plan.
Guaranteed benefits: Receive guaranteed benefit at the end of the policy

term in form of Guaranteed Maturity Benefit (GMB):
• In the beginning, the GMB would be equal to sum of all premiums

payable under the plan.
• This GMB would increase every year by guaranteed Regular Additions

(RAs), to increase your savings payable at maturity of plan. The Regular
Addition expressed as a percentage of the SA, will be declared at the
beginning of every policy year.
Additional maturity benefit: Receive additional amount in form of

Maturity Addition (MA) at the end of the policy term.
! !261
Death benefit: Receive a Guaranteed Death Benefit (GDB) equal to the

sum of all premiums paid till date compounded at the rate of 5% per
annum.
Easy to purchase: Easy and hassle-free application process with no

medicals.
Tax benefits: Tax benefits on the premium paid and benefits received
under the policy, as per the prevailing Income Tax laws.
How does the ICICI Pru Guaranteed Savings Insurance Plan Work?
Select your premium paying term – 7 years or 10 years
Choose your Premium or Sum Assured (SA)
(SA = Premium * Premium payment term)
At maturity of the policy, you will receive sum of:
Sum Assured (SA) – Which is the sum of all premiums in the policy.
Regular Additions (RA) – This guaranteed addition, expressed as a

percentage of the SA, will be declared at the beginning of every policy year.
Maturity Addition (MA) – A lump sum amount expressed as a percentage of

the SA.
On death during the term of the policy, while the policy is in force:
Receive a Guaranteed Death Benefit (GDB) which is sum of all premiums

paid till date compounded at the rate of 5% per annum.
Benefit Illustration
This illustration highlights estimated benefits that would be available to an

individual on survival till the end of premium paying term.
! !262
Age at entry: 30 years Premium paying mode: Yearly
Premium paying term: 7 years Policy term: 15 years
Sum Assured (SA) ` 1,75,000
Year 1 Regular Addition (RA)* 4% of SA ` 7,000
Year 2 Regular Addition (RA)* 4% of SA ` 7,000
Year 3 Regular Addition (RA)* and onwards 4% of SA ` 7,000
Accumulated RAs ` 105,000
(A) Guaranteed Maturity Benefit (GMB) ` 2,80,000
(B) Maturity Addition (MB)* ` 74,292
Estimated Total Maturity Benefit (A + B) ` 3,54,292
“If your policy offers guaranteed returns, then these will be clearly marked
“guaranteed” in the Benefit Illustration on this page. These assumed rates
for the RA and the MA are projected assuming a gross interest rate of 8%
for this illustration only. The maturity benefit of your policy is dependent
on a number of factors, including future performance.”
*RA will accrue at the end of each policy year. It will be disclosed at the
start of that policy year. The RA shall be calculated as percentage of the
SA. This percentage is guaranteed to be 50% of the annualised gross
redemption yield (GRY) of the 10-year G-Sec, rounded down to the lower
0.2%, as at the Review Date immediately preceding the start of the policy
year. The Review Date shall be the 7th of the first month of every quarter.
In case the 7th is not a working day, the GRY of the next working day shall
be considered for this purpose.
7.5 Whole Life Policies
Whole life insurance, is a life insurance policy which is guaranteed to

remain in force for the insured’s entire lifetime, provided required
premiums are paid, or to the maturity date. The life assured cannot get the
policy amount during his lifetime, but his dependents will get the benefits
of this policy.
! !263
The death benefit of a whole life policy is normally the stated face amount.
However, if the policy is “participating”, the death benefit will be increased
by any accumulated dividend values and/or decreased by any outstanding
policy loans
The single premium payment is less popular in comparison to limited

period pay premium as it is convenient for the policyholder to arrange the
payment of premium during his income earning period. In continuous
premium payment, the policyholder has to pay the premium upto his
death. This plan is cheaper and suits an young man with limited resources,
but his requirement for family protection is maximum.
During the individual’s lifetime, they can make partial withdrawals to meet
emergency requirements. An individual can also take out loans against the
policy.
Whole Life Policies can also have an option to get it converted into
endowment policy after a predetermined period.
A whole life policy is said to “mature” at death or the maturity age of 100,
whichever comes first.
ICICI Pru Whole Life Product Features (From ICICI prolife.com

Website)
ICICI Pru Whole Life provides you with a unique double advantage of
savings and protection that not only allows you to meet your goals but also
seeks to ensure that your dear ones will continue to live their lives in
comfort without financial worries in case of unforeseen eventuality.
! !264
ICICI Pru Whole Life at a glance
Term Whole Life
Minimum/Maximum Age at Entry 0/60 years
Minimum/Maximum Age at End of 30/70 years

Premium Paying Term
Minimum/Maximum Premium Paying 10/30 years

Term
Minimum Sum Assured ` 1,00,000
minimum premium ` 6,000 per annum
Premium Paying Modes Yearly, half-yearly or monthly
Grace Period 15 days for monthly mode, 30 days

for yearly and half-yearly modes
Features and Benefits of ICICI Pru Whole Life
Triple Advantage of ICICI Pru Whole Life:
1. Survival benefit: Create a corpus to meet your desired goal at the end
of a chosen premium paying term. You are entitled to the chosen Sum
Assured and all the bonuses declared, if any, during the premium paying
term.
2. Life cover benefit: In case of your untimely demise during your

premium paying years, your family would receive twice the Sum
Assured along with all bonuses accumulated during the premium paying
term of the policy.
3. Whole life cover benefit: You are also entitled to an additional Sum
Assured payable in case death occurs after the completion of the
premium paying term or on completion of 100 years of age, whichever
is earlier, allowing you to leave a legacy to your dear ones.
! !265
Key Features of the Plan:
• Life cover of double Sum Assured and vested reversionary bonuses, if

any, during the premium paying term.
• Wealth creation through regular bonus additions declared at the end of

each financial year.
• Survival benefit of Sum Assured plus vested reversionary bonuses and

terminal bonus, if any, at the end of the premium paying term.
• Additional life cover for the chosen Sum Assured post-premium payment
term, for whole life.
• Enhanced coverage through riders – Accident and Disability Benefit Rider,

Critical Illness Rider and an Income Benefit Rider.
• Avail of tax benefits on the premium paid and benefits received under the
policy, as per the prevailing Income Tax laws. Service tax and education
cess will be charged extra, as per applicable rates. The tax laws are
subject to amendments from time to time.
Rider Benefits
Critical Illness Rider: This rider provides protection in case of 9 critical

illnesses, namely: Cancer, Coronary Artery Bypass Graft (CABG), Heart
Attack, Kidney Failure, Major Organ Transplant, Stroke, Paralysis, Aorta
Surgery and Heart Valve Replacement Surgery. The Sum Assured under the
rider is payable only on survival for 28 days post the diagnosis of a critical
illness.
Accidental and Disability Benefit Rider: On death of the Life Assured

due to an accident, the nominee will receive an additional Sum Assured as
covered under this rider in addition to the Base Sum Assured. In case of
accidental death while travelling by mass surface transport, the nominee
will get twice the Sum Assured of the rider. In case of total and permanent
disability due to an accident, 10% of the rider Sum Assured is paid out
every year for 10 years.
! !266
Income Benefit Rider: In case of death of the Life Assured during the
premium payment term of the policy, 10% of the rider Sum Assured will be
paid to the nominee every year for the remaining years till the end of the
premium paying term. However, no benefits will be payable if the Life
Assured whether sane or insane, T&C1 commits suicide within one year
from the date of issue of the policy.
Savings Benefit
On survival of the Life Assured and subject to the Policy being in force at
the end of the premium paying term, Savings Benefit equivalent to the
Sum Assured plus vested reversionary bonuses and terminal bonus, if any,
shall become payable.
Death Benefit
Subject to the policy being in force, in the unfortunate event of death of

the Life Assured during the premium paying term of the policy, the
nominee shall receive an amount equal to two times the Sum Assured
along with vested reversionary bonuses, interim bonus and terminal bonus,
if any. The policy shall terminate thereafter.
In case the Life Assured is below 7 years of age at the time of death, only
the premiums paid excluding extra premiums and premiums paid for rider
benefits will be returned, without interest. The policy shall terminate
thereafter.
In the unfortunate event of death of the Life Assured after the payment of
all the premiums due and payable during the premium paying term of the
policy, the nominee shall receive an amount equal to the Sum Assured. The
policy shall terminate thereafter.
Other Benefits
1. Loans: You can also avail of loans under this policy after the completion
of three policy years provided you have paid premiums for the first
three years and the policy has attained a Surrender Value. Loan of up to
80% of the Surrender Value can be availed.
! !267
The policy will be foreclosed in case the outstanding policy loan with
accrued interest exceeds the surrender value.
2. Large Sum Assured Discount: Large Sum Assured discounts on the

premium, excluding extra premium and premiums paid towards rider
benefits, if any, will be given as follows:
Sum Assured (`) Rebate per Thousand SA
Less than ` 2 lakhs Nil
` 2 lakhs to less than ` 3 lakhs 4.3
Greater than or equal to ` 10 lakhs 7.5
3. Modal Loading: For premium paying frequency other than yearly, a

modal loading will be levied on the premium including any extra
premium.
These are as follows:
Mode Percentage (%) of Premium
Monthly 4.5%
Half-yearly 2.5%
Yearly Nil
What Happens If I Discontinue My Policy?
Your policy will acquire a Guaranteed Surrender Value on payment of

premium for at least 3 policy years.
The Guaranteed Surrender Value will be equal to 35% of the base policy
premiums paid less the first year’s premium. Any survival benefits paid,
extra premiums paid and premiums paid towards riders shall be excluded.
A discounted value of the bonuses allocated will also be added.
! !268
The actual Surrender Value payable will depend on Sum Assured, vested
reversionary bonus, policy term and the number of premiums paid.
If the policy has acquired a Surrender Value and no future premiums are
paid, the policy may continue as a ‘Paid-up’ policy for a reduced Sum
Assured (Paid-up Sum Assured), as indicated below:
Paid-up Sum Assured = Sum Assured x (Total number of premiums paid/

Total number of premiums payable)
Bonuses already vested to the policy will be added to this amount. The
policy will, however, not be eligible for any future bonuses.
The rider benefits will cease to be payable in case of a paid-up policy.
Revival of the Policy
A policy, which has lapsed for non-payment of premium within the days of
grace, may be revived subject to the following conditions:
• The application for revival is made within 2 years from the due date of
the first unpaid premium and before the end of the premium paying
term. Revival will be based on the revival norms than applicable.
• The policyholder furnishes, at his own expense, satisfactory evidence of

health of the Life Assured, as required by the Company.
• The arrears of premiums together with interest, at such rate as the

Company may declare from time to time, for late payment of premiums
are paid.
• The revival of the policy may be on terms different from those applicable
to the policy before it lapsed; and the revival will take effect only if it is
specifically communicated by the Company to the Life Assured or the
applicant.
• Any change in revival conditions will be subject to prior approval from

IRDA and will be disclosed to policyholders.
! !269
Terms and Conditions
Suicide clause: If the Life Assured whether sane or insane,commits

suicide within one year from the date of issue of this policy, the policy shall
be void and no benefits shall be payable. Where the policy is revived, the
surrender value shall become payable if the Life Assured, whether sane or
insane, commits suicide within one year from the date of reinstatement of
the policy.
Freelook period: A period of 15 days is available to the policyholder to

review the policy. If the policyholder does not find the policy suitable, the
policy document must be returned to the Company for cancellation within
15 days from the date of receipt of the policy.
On cancellation of the policy during the freelook period, we will return the
premium paid subject to the deduction of:
a. Stamp duty paid under the policy,

b. Expenses borne by the Company on medical examination, if any.
The policy shall terminate on payment of this amount and all rights,
benefits and interests under this policy will stand extinguished.
Tax benefits: Tax benefits under the policy will be as per the prevailing
Income Tax laws. Service tax and cess will be charged extra, as per
applicable rates. The tax laws are subject to amendments from time to
time.
Sum Assured and premium paying term chosen at inception of policy

cannot be changed.
Nomination requirements: The Life Assured, where he is the holder of

the policy, may, at any time before the Maturity/Termination date of policy,
make a nomination (under Section 39 of the Insurance Act, 1938) for the
purpose of payment of the monies secured by the policy in the event of his
death. Where the nominee is a minor, he may also appoint an appointee,
i.e., a person to receive the money during the minority of the nominee.
Any change of nomination, which may be effected before the termination of
the policy shall also be communicated to the Company.
! !270
The Company does not express itself upon the validity of or accept any
responsibility for the assignment or nomination in recording the
assignment or registering the nomination or change in nomination. The
product shall comply with Section 39 of the Insurance Act.
Assignment requirements: An assignment of the policy (under Section

38 of the Insurance Act, 1938) may be made by an endorsement upon the
policy itself or by a separate instrument signed in either case by the
assignor specifically stating the fact of assignment and duly attested. The
first assignment may be only made by the policyholder. Such assignment
shall be effective, as against the Company, from and upon the service of a
written notice upon the Company and the Company recording the
assignment in its books. Assignment will not be permitted where policy is
under the Married Women’s Property Act, 1874. The product shall comply
with Section 38 of the Insurance Act.
Section 41: In accordance with Section 41 of the Insurance Act,1938, no

person shall allow or offer to allow, either directly or indirectly, as an
inducement to any person to take or renew or continue an insurance in
respect of any kind of risk relating to lives or property in India, any rebate
of the whole or part of the commission payable or any rebate of the
premium shown on the policy, nor shall any person taking out or renewing
or continuing a policy accept any rebate, except such rebate as may be
allowed in accordance with the published prospectuses or tables of the
insurer. Provided that acceptance by an insurance agent of commission in
connection with a policy of life insurance taken out by himself on his own
life shall not be deemed to be acceptance of a rebate of premium within
the meaning of this sub-section if at the time of such acceptance the
insurance agent satisfies the prescribed conditions establishing that he is a
bonafide insurance agent employed by the insurer.
Any person making default in complying with the provisions of this section
shall be punishable with fine which may extend to five hundred rupees.
Section 45: No policy of life insurance effected before the commencement

of this Act shall after the expiry of two years from the date of
commencement of this Act and no policy of life insurance effected after the
coming into force of this Act shall, after the expiry of two years from the
date on which it was effected be called in question by an insurer on the
ground that statement made in the proposal or in any report of a medical
! !271
officer, or referee, or friend of the insured, or in any other document

leading to the issue of the policy, was inaccurate or false, unless the
insurer shows that such statement was on a material matter or suppressed
facts which it was material to disclose and that it was fraudulently made by
the policyholder and that the policyholder knew at the time of making it
that the statement was false or that it suppressed facts which it was
material to disclose.
for proof of age at any time if he is entitled to do so, and no policy shall be
incorrectly stated in the proposal.
Guaranteed benefit is available only if all due premiums have been paid
and policy is in force.
7.6 Survivorship Plans
Survivorship policies insure two lives, typically a husband and wife, under
one life insurance policy and pays a death benefit on the death of the
surviving insured. The Death Benefit is generally used to help pay estate
taxes and other estate settlement costs.
The sum assured is payable if the life assured dies before another specified
person or counter life. If the counter life dies first, nothing is payable and
the contract ceases.
The rate of premium depends upon the age of the insured and counter life.
7.7 Single Premium Policy
Single premium policy is a type of life insurance policy in which a lump sum
of money is paid into the policy at the beginning of the policy, in return for
a death benefit that is guaranteed to remain paid up until you die.
The single premium is costlier in comparison to annual premium payable,

but as compared to aggregate of all annual premium payable, it is much
! !272
smaller. Insurer has the advantage in receiving all the premium in advance
and can earn additional income on the advance receipt of premiums.
This type of policy can be afforded by those who have a lump sum income
to spare. As life insurers would say, a single premium plan secures your
family’s financial protection at one go, doing away with the obligation of
annual payments. It would also suit the requirements of those with an
unpredictable, seasonal or uneven income stream. Likewise, if you have
earned a handsome bonus or have made a windfall gain from say sale of a
property, you can consider direct your money to single premium plans.
With single-premium life insurance, the cash invested builds up quickly

because the policy is fully funded. The size of the death benefit depends on
the amount invested and the age and health of the insured. The larger the
amount of capital you initially contribute to your policy, the greater your
death benefit will be as well.
Single premium whole life pays a fixed interest rate based on the insurance
company’s investment experience and current economic conditions. Single
premium variable life allows policy owners to select from a menu of
professionally managed stock, bond and money market investments.
You can generally take a loan equal to 90% of the policy’s cash surrender
value.
The agents’ commission – which are deducted from the premium in the
form of charges before it is invested – is capped at just 2% as per law.
Besides, a single premium plan will not attract annual administration
charges, too. This means that more of your money will be invested as
against regular policies where the charges corner a sizeable chunk of the
premium.
Best Single Premium Policies in India – 2013 (http://

www.policybazaar.com)
A Single Premium Policy works in a more evolved way. It needs the insured
to pay once and offers a coverage throughout the chosen policy
tenure. Apart from the convenience, the reason why single premium
policies are preferred over regular policies is that it leads to substantial
cost savings. Here’s how, suppose Mr. Kansal opts for a 1,00,000 life
! !273
cover. As can be seen from the table below, he can save up to 30% when
he chooses to buy a single premium plan instead of a regular plan.
Policy Term 5 Years 10 Years 15 Years
Regular Premium (Annual) 1000 × 5 = 1200 × 10 1400 × 15 =

5000 = 12000 21000
Single Premium 4000 9000 15000
Savings 1000 3000 6000
But that’s not all, a single premium policy offers even more benefits to the
insured such as:
• No obligation to remember and keep up with the premium due date.
• It is convenient for those who are too lazy to make a regular payment or
those who do not have a steady cash flow.
• It is good for those who are in their most productive years and can afford
to make a one-time payment.
• It works quite well for frequent travellers.
The tax benefits are more or less similar in single premium policies as in
regular polices. Under Section 80C, the premium paid is eligible for tax
deduction. Under Section 10(10D), the maturity benefit is tax-free.
However, IRDA issued new tax rules in the year 2012 for single premium
policies according to which, the criteria for eligibility of tax benefit is that
the premium should not be more than 20% of the sum assured. The tax
benefit under Section 80(C) will be restricted to 20% of the sum assured.
If the premium exceeds the 20% of the sum assured, the tax benefit under
Section 10(10D) will not be applicable on the plan any more. The tax
benefit on this type of plan will be applicable just for the year in which you
make the one-time payment. Thereafter, there will be no more tax benefit
as no subsequent contribution is made.
Further, when there’s a turning point in life like you get married or you get
a promotion at your workplace, it offers no flexibility in changing the
! !274
coverage. So, it’s more apt to get a single premium plan when you are a
married, well settled individual in your mid-30s.
Financial experts have discovered a serious flaw in single premium plans.

They reveal that getting a life cover proves to be costlier in single premium
plans compared to the regular plans.
Here’s an illustration to understand the same. Suppose Mr. Bansal opts for
regular payment of premium (` 5,000 annually) on a 10-year life cover of
` 5,00,000. He dies in the 3rd year of the policy due to an accident. His
beneficiary gets the death benefit. The death benefit costed Mr. Bansal `
5,000 × 3 = ` 15,000. However, if he had opted to pay a single premium
(let’s assume `30,000) for the same term and same cover. The death
benefit in that case would have costed him ` 30,000 (almost twofold
compared to a regular policy).
But even after these glitches, single premium policies continue to be a

favourite among buyers. This is primarily because they are seen as the last
resort of saving taxes at the end of the financial year.
! !275
7 Best Single Premium Plan Policies for the Year 2013
Insurance LIC Aviva IndiaFirst HDFC Bajaj Max New ICICI

Company Life Allianz York Life Pru
Name of Jeevan Life Bond Smart Single New Risk SMART iAssure
the Plan Vriddhi Save Plan Premium Car II Steps Single
Pension Single Premium
Super Premium
Type Endow- ULIP ULIP Pension Term Plan Child ULIP Endow-
ment ULIP ment Plan
Plan
Entry-Exit 8-50 2-65 5-60 years 40-75 18-60 21-50 8-75

Age years years years years years years (for
a 5 year
policy
3 months term)
to 15 13-75
years years (for
a 10 year
policy
term)
Policy 10 10-73 15 10 5-40 10-25 5 or 10

Term
Premium 30,000 50,000 – 45,000 – 25,000 5,000 – 50,000 – 20,000 –

No limit No limit No limit 3,00,000 No limit
3,00,000
and above
Sum 1,50,000 Single Single Higher of 2,00,000 Single Single

Assured premium premium the two – – No limit Premium premium
×5 × 1.25 (up Fund ×5 × 1.25
(Option to 45 Value/
A) years) Single
Single Single premium
premium premium × 1.1
× 1.2 × 1.1
(Option (above 45
B) years)
1. LIC Jeevan Vriddhi
LIC rules the rooster when it comes to single premium policies. LIC has
launched many successful single premium policies in the market out of
which we picked out Jeevan Vriddhi. The guaranteed maturity sum assured
on this plan depends on the single premium amount and the entry age of
! !276
the insured. The policy can be surrendered just after an year with 90% of
the single premium paid back.
Other benefits include loyalty additions to the maturity benefit if the

insured stays invested for a term as specified in the plan. The insured also
gets to enjoy incentives for higher single premium (up to 3%, when
premium > ` 1,00,000). Moreover, a loan can be applied against this plan
at an optimal interest rate.
2. Aviva Life Bond Advantage
Life Bond is a very flexible single premium ULIP with one of the widest
bracket for the policy term. The premium starts with ` 50,000 with no
maximum limits. The sum assured is 5 times the premium, hence the
insured becomes eligible for the tax benefits under the new IRDA
guidelines.
Owing to its beneficial features, Life Bond Advantage is a great value for
money. The plan comes with an inbuilt Accidental Death Benefit. The
insured can opt for systematic partial withdrawals after a lock-in period of
5 years. It also offers top-ups to earn additional life cover. The top-ups
start with a minimum of ` 5,000. But the string of benefits doesn’t end
here, the insured also gets to earn loyalty additions (4% of fund value) for
staying invested for 10 years.
3. IndiaFirst Smart Save Plan
IndiaFirst is fast emerging as one of the leading life insurers in India. The
brand is renowned for designing new innovative insurance products. Smart
Save is one such plan boasting of a gamut of features. It is an ULIP with a
fixed policy term of 15 years. However, the insured can make partial
withdrawals as and when need arises.
The investment can be made in a choice of five funds with different growth
potentials. The insured can allocate the premium proportionately among
these five funds and enjoys the freedom of switching from one fund to
another. The minimum sum assured is 125% of the single premium in case
the entry age is 45 years or below and 110% of the single premium in case
the entry age is above 45 years. The maximum sum assured is 500% of
! !277
the single premium in case the entry age is 50 years or below and 110% of
the single premium in case the entry age is above 50 years.
4. HDFC Life Single Premium Pension Super
Single Premium Pension Super is a Pension ULIP. The USP of this plan is
that the minimum sum assured is figured out as the higher of either two –
fund value or at least 101% of the sum of all the premiums. So, it’s a win-
win proposition for the buyer. It’s like getting the ULIP advantage minus
ULIP uncertainty.
The policy can be surrendered after a lock-in period of 5 years. The insured
can also buy top-ups starting with a minimum of ` 10,000 to enhance the
existing coverage. The investment is made in equity and debt instruments
in a way so as to maximise potential of returns without exposing the funds
to risk.
The maturity benefit can be availed in either of the following modes:
• 1/3rd amount will be paid as a lump sum and will not be taxable, the rest
2/3rd will be paid as a regular annuity and will be taxable.
• The entire proceeds is converted to annuity.
• The entire proceeds is used to purchase another single premium health

plan.
• The policy term is extended if you haven’t reached the age of 55 yet.
5. Bajaj Allianz New Risk Care II
New Risk Care II is a pure term plan where you get a cover for a specific
term by paying a single premium. The reason why it made it to our list is
that it offers a high insurance cover at a very low premium.
Since it’s a pure term plan, there are no maturity benefits (that’s why the
premium is so low). The cover can be enhanced by opting for additional
riders and benefits. If the insured opts for a high sum assured, he gets to
enjoy discount in premium. The plan offers insured the flexibility in
choosing the sum assured and policy term.
! !278
6. Max New York SMART Steps Single Premium
What can be better to invest a surplus amount than to secure a brighter

future for your child. SMART Steps from Max New York is a Child ULIP
offering the insured, liquidity and flexibility. The investment is made in a
wide choice of funds such as frontline equity fund, dynamic floor fund,
dynamic bond fund and so forth. Apart from the regular maturity benefits
and death benefits, the insured gets to enjoy tax benefits under Section
80C and Section 10(10D).
The policy offers the insured top-ups starting with a minimum of ` 5,000.
The buyer can also avail partial withdrawals benefit for meeting unplanned
expenses.
7. ICICI Pru iAssure Single Premium
iAssure Single Premium is an endowment plan offering a substantial risk-

free return along with a life cover. In case the insured dies, during the
policy term, the beneficiary gets either sum assured or guaranteed
maturity benefit, whichever is higher. Guaranteed maturity benefit is
calculated taking into account factors such as premium amount, age,
gender, policy term, sum assured multiple and the applicable reference
rates.
The minimum sum assured is 125% of the single premium. The maximum
sum assured is 500% of the single premium in case the entry age is 55
years or below and 125% of the single premium in case the entry age is
above 55 years.
7.8 Level premium policy
• A type of term life insurance for which the premiums remain the same
throughout the duration of the contract.
• Level premium is lesser than single premium as it is spread over the

entire period.
• The equal installments can be paid monthly, quarterly, half-yearly and

yearly.
! !279
The level premium does not increase with age but remains constant
throughout the contract period. The premiums collected in early years
would be more than the amount needed to cover death claims of those
dying at these ages, while premiums collected in later years would be less
than what is needed to meet claims of those dying at the higher ages. The
level premium is an average of both. This means that the excess premiums
of earlier ages compensate for the deficit of premiums in later ages.
SBI Life – Saral Shield is a Traditional Non-participating Pure Term

insurance Plan (http://www.sbilife.co.in)
Key Features
• Hassle-free, convenient and easy issuance.
• Financial security.
• Freedom from your liability by choice on one of the following plan

options:
➡ Level Term Assurance;

➡ Decreasing Term Assurance (Loan Protection);
➡ Decreasing Term Assurance (Family Income Protection)
• Special premium discounts for women.
• Large sum assured rebates.
• Enhance your protection by availing two riders: SBI Life – Accidental

Death Benefit Rider and SBI Life – Accidental Total and Permanent
Disability Rider.
• Tax benefits as per prevailing norms under the Income Tax Act, 1961.
! !280
Premium Paying Term Regular Premium – pay premium till the

chosen policy term
Single Premium – pay premium once for

coverage till the chosen policy term
Premium Modes For Level Term Assurance:
Single Premium (SP), or
Regular Premium (RP): Yearly/Half-yearly/

Quarterly/Monthly
For Decreasing Term Insurance (Loan

Protection) and Decreasing Term
Insurance (Family Income Protection):
Single Premium
Minimum Premium Amounts Regular Premium:
Yearly: ` 2,000/-
Half-yearly: ` 1,100/-
Quarterly: ` 600/-
Monthly: ` 250/-
Single Premium: ` 10,000/-
All the references to age are age as on last birthday
! !281
Instant Premium Reckoner##
Age of For SA – ` 10 Lakhs For SA – ` 20 Lakhs

Life Assured Policy Term (in years)/Premium Policy Term (in years)/
(Years) (in `) Premium (in `)
10 15 20 25 10 15 20 25
25 NA** NA** NA** 2187 3120 3120 3366 3774
30 NA** 2184 2457 2839 3382 3768 4314 5078
35 2518 2904 3422 4042 4436 5208 6244 7484
40 3378 4064 4850 5783 6156 7528 9100 10966
45 4914 5943 7131 NA** 9228 11286 13662 NA**
##Note: The above annual level term assurance premiums are for a
standard, healthy male life and are inclusive of large sum assured rebate.
The above rates are exclusive of service tax.
SA: Sum Assured.
NA**: Not Available for this combination.
7.9 Policies according to the number of persons insured
Life insurance can give you the precious peace of mind of knowing that any
dependents will be financially secure in the event of your death. Before
deciding whether a single or a multiple life policy is right for your situation,
it’s important to understand the differences between these two kinds of
plan.
If you opt for joint life cover, for example, then you and a partner will be
protected by a single plan on the same terms and conditions. But if you
take out two policies, these will be entirely separate. That means, if a claim
is made on one, it will have no impact on the other. If you opt for a joint
policy, it’s important to remember there will only be one payout. So, if a
married couple had a joint policy, and both died in a car accident, their
dependents would only receive one lump sum payment from the policy. If,
however, the same couple had taken out individual policies, each one would
make a payout. Having separate policies avoids this sort of issue.
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Whether you opt for a single or joint policy, it’s essential to compare life
insurance quotes from lots of different providers to ensure you find the
most competitive deal possible.
i) Single Life Policy: A ‘single’ life insurance policy covers one person
only, and pays out the chosen amount of cover if that person dies during
the length of the policy.
ii) Multiple Life Policy
a. Joint Life Policy: A ‘joint’ life insurance policy cover two lives,
usually on a ‘first death’ basis. This means the chosen amount of
cover is paid out if the first person dies, during the length of the
policy, after which the policy would end.
b. Last Survivorship Policy: Under Last Survivorship Policy, the

claim amount is not paid till the last death which means so long as
any one of the insured is alive, no payment is made.
Although two separate policies will provide you with greater cover
overall, if premiums aren’t affordable, having a joint policy is much
better than not having life insurance at all.
7.10 Policies according to the payment of claim/policy

amount
A formal request to an insurance company asking for a payment based on

the terms of the insurance policy happens after the happening of the
insured event defined in the policy or at the maturity of the policy.
Accordingly, the policy amount may be paid in lump sum or in installments.

Policy amount is generally paid in lump sum after the happening of the
event defined in the policy or at the maturity of the policy. However, the
policy amount is payable in installments for the benefit of the insured in old
age, such policies are generally termed as annuity policies. For example,
Max Life Immediate Annuity Plan from Max Life Insurance Co. Ltd. is a
pension plan to meet the post-retirement financial needs, ensuring you a
complete peace of mind. A lump sum amount, or the accumulation one has
made in deferred annuity plans or accumulations one has made with any
other life insurance/pension company, or the accumulated savings called
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the Purchase Price is accepted by the insurer to offer the insured a choice
between different annuity options like Annuity for Life, Annuity Certain plus
Life thereafter, Annuity for Life with return of the Purchase Price, etc.
Depending upon the age of the insured, the annuity option chosen by the
insured and the frequency of payment that the insured decides, the insurer
will determine the annuity as per their prevalent annuity rates. These
annuity rates will be as approved by Insurance Regulatory and
Development Authority (IRDA).
7.11 Non-Conventional Policies
The conventional or traditional policies focus more on attributes of

protection at early death or living too long.
The non-conventional policies or non-traditional plans are not bound by

traditional methods of underwriting; because they are marketed to a
specific category of people. Lots and innovation and creativity is injected to
design and market non-conventional policies, e.g., newer plans may not
insist of medical exams, may take higher risk, provide graded benefits and
guarantees, etc. as shown in the picture below:;
Non -
Exam
Child to Guarante
Adult ed Issue
Non -
Traditional
Plans
Smokers High Risk
Graded
Benefit
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The non-conventional policies also create attractive features that takes

care of majority of population who are also interested in getting value by
investing the money paid through premiums. These concept has given birth
to new type of insurance products like Unit Linked Insurance Plan (ULIP). A
Unit Linked Insurance Plan (ULIP) is a product offered by insurance
companies that unlike a pure insurance policy gives investors the benefits
of both insurance and investment under a single integrated plan. The first
ULIP was launched in India in 1971 by Unit Trust of India (UTI). With the
Government of India opening up the insurance sector to foreign investors
in 2001 and the subsequent issue of major guidelines for ULIPs by the
Insurance Regulatory and Development Authority of India (IRDAI), in
2005, several insurance companies forayed into the ULIP business to serve
the investment needs of those looking to invest in an investment-cum-
insurance product.
We are going to understand more about ULIPs, Insurance policies

based on various stages of life and Insurance policies based on
protection needs in our next chapters.
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7.12 Summary
A life insurance policy is not only a tool of protection from uncertainties but
the modern insurance products also offer various elements of investment.
The different elements in different policies enables insurance policyholders
the freedom to choose the best insurance product according to their
requirements.
Life Insurance policies can be categorised on the basis of various factors

like duration of policy, method of premium payment, participation in profit,
number of lives covered, method of payment of claim amounts, non-
conventional policies, policies designed mainly to meet investment
objectives and Insurance policies based on protection needs.
Insurance policies can also be based on various stages of life. For example,
Child Plan, Investment Plans for Unmarried Individual, Investment Plans
for Unmarried Individual Pension Plan for Retired People, Protection Plans
for Married Couple, etc.
Term Insurance, Whole Life Insurance Policy, Endowment Insurance Policy,

Survivorship Policy, etc. are examples of life Insurance policies that can be
categorised on the basis of duration of policy.
Single Premium Policy, Level Premium Policy, etc. are examples of life
Insurance policies that can be categorised on the basis of method of
premium payments.
With-profit or Participation Policies, Without-profit or Non-participation

Policies, etc. are examples of life Insurance policies that can be categorised
on the basis of participation in profit.
Single Life Policies, Multiple Life Policies, Joint Life Policies, Last
Survivorship Policy, etc. are examples of life Insurance policies that can be
categorised on the basis of number of lives covered.
A formal request to an insurance company asking for a payment based on

the terms of the insurance policy happens after the happening of the
insured event defined in the policy or at the maturity of the policy.
Accordingly, the policy amount may be paid in lump sum or in installments.
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The non-conventional policies or non-traditional plans are not bound by

traditional methods of underwriting. Lots and innovation and creativity is
injected to design and market non-conventional policies. The non-
conventional policies also create attractive features that takes care of
majority of population who are also interested in getting value by investing
the money paid through premiums. These concept has given birth to new
type of insurance products like Unit Linked Insurance Plan (ULIP).
1. Visit the websites of five insurance companies and study the features of
the various endowment plans offered by them. Make a comparison chart
of the features of endowment plans of the five companies. Which
company do you think is offering the best endowment plan and why?
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2. This chapter gives you a detailed classification of various types of

insurance plans. List out all the plans and identify the scenarios/
situations in which an individual should opt for them.
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7. IC 33 of Insurance Institute of India.
16.http://www.investopedia.com
17.http://www.moneycontrol.com/
18.http://www.moneysupermarket.com/
19.http://www.ibef.org/
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1. In case of a term plan, the life insurance company promises to pay a

specified amount (sum insured) if the insured dies during the term of
the plan. The premium paid for term plan is which of the following in
comparison to whole life insurance?
a. Higher
b. Lower
c. Equal
d. Substantially higher
2. Term insurance provides valid cover not only during a certain time
period that has been specified in the contract but also till the death of
the insured. State whether the above statement is true or false.
a. True
b. False
3. An endowment assurance contract is actually a combination of two plans

– a term assurance plan which pays the full sum assured in case of
death of the insured during the term and a:
a. Pure Endowment Plan

b. Moneyback Plan
c. Level Premium Plan
d. Annuity Plan
4. Which of the following life insurance policy is designed to meet the

requirements of the policy holding individual who seeks to ensure that
all his outstanding loans and debts are automatically paid up in the
event of his demise?
a. Term
b. Whole
c. Mortgage
d. Endowment
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5. Which of the below statement is incorrect with regards to life insurance

policies according to the number of persons insured?
a. A ‘single’ life insurance policy covers one person only

b. A ‘joint’ life insurance policy cover two lives
c. Under ‘Last Survivorship’ policy, the claim amount is not paid till the
last death
d. A ‘multiple’ life insurance policy cover may cover one or two lives
6. Under children’s deferred endowment assurance plan, a parent or a

guardian or near relative of a child takes an insurance policy on the life
of the child under which the premium is paid by the proposer during the
first few years and by the life assured thereafter. Which of the below
statement is correct with regards to children’s deferred endowment
assurance plan?
a. This endowment plan allows payment of a lower premium period

since the premium paying period is significantly more
b. The period from the commencement of the policy to the age at which
it vests, i.e., risk commences, is called Deferred period
c. An assurance for a relatively large amount is secured for the child at

a substantially small premium amount
d. All of the above
7. The non-conventional policies or non-traditional plans are not bound by

traditional methods of underwriting; because they are marketed to a
specific category of people. Which of the following is generally not a
feature of non-conventional policies?
a. Newer plans may not insist of medical exams

b. Newer plans may take higher risk
c. Newer plans may focus more on attributes of protection at early
death
d. Newer plans may provide graded benefits
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Answers:
1. (b)
2. (b)
3. (a)
4. (c)
5. (d)
6. (d)
7. (c).
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REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !292
SPECIAL TYPES OF INSURANCE PLANS
Chapter 8
Special Types of Insurance Plans
Objectives
To understand the innovation and creativity injected in traditional insurance

plans to design and market non-conventional policies, create attractive
features that takes care of majority of population who are also interested
in getting value by investing the money paid through premiums.
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Structure:
8.1 Introduction
8.2 Financial Planning
8.3 Features and Benefits of Insurance Savings Products
8.4 Insurance Pension Plans and Annuities
8.5 Health Insurance
8.6 Unit Linked Insurance Plans
8.7 Tax Saving Life Insurance Plans
8.8 Group Insurance Plans
8.9 Summary
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8.1 Introduction
Planning for financial requirements provides direction and meaning to your

financial decisions. By spreading your investment across different asset
classes, you create a diversified portfolio where the loss that you may
make on a certain asset class can be compensated by the profits that you
make on another. Thus, you reduce the overall risk of your investments.
There is a strong need for an individual to protect the income that they are
currently earning and expect to earn the future. It is essential to take into
account your ability to take risks while deciding on your investment mix.
Investment planning is all about selecting the right investment strategy to

help you meet your financial goals. It usually begins after you have taken
into account your current and expected income level. An individual also
needs to assess various reasons for which a person needs financial
protection in the form of insurance. A person who has adequate financial
resources at their disposal can provide money for all their protection
needs. But a person who has limited financial resources cannot provide
money for all their protection needs at the same time. This is where the
concept of prioritising needs comes into consideration. An individual has to
prioritise his need towards fulfilling important goals and objectives of life
like protection of future income, protection of self and family from medical/
health problems, planning for education and marriage of children,
protection against home loan and car loan, planning for retirement, etc.
Parents always want to give their children the best, particularly when it is a
question of their Education. Parents need to plan well in advance for their
child’s education. A child insurance plan can help to address this issue in
the absence of the parent. Marriage brings additional responsibilities and
thus additional expenses. and hence, one should plan one’s finances wisely.
To fulfil their dream, parents will start investing for their child’s wedding
right from the beginning of the child’s life. A child insurance plan for
meeting marriage expenses can also help provide protection against the
untimely death of the parent. Most people aspires to own a house, have
dreams of exotic overseas vacations, wishes to secure our family, etc.
Home insurance or additional term insurance can provide protection for
homes. Additional term insurance can provide protection against the credit
card dues, personal loans, car loan and any other loans in case of the
untimely death of the income provider. Medical emergencies strike when
they are least expected. If ill-health strikes in old age, treatment costs can
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burn a big hole in the pocket of a family’s income provider. Hence, a health
insurance is essential in the present days of hectic life. The insured
should also make sure that they have enough life insurance to take
care of their family in the case of an early death. Here, a term
insurance plan can provide a lump sum amount to the family, or a
pension plan can provide regular income.
Your financial needs like educating children, providing for their

wedding expenses and keeping sufficient cushion for retirement
need substantial money. Life insurance innovative products like
pensions, annuities, ULIPs and the likes locks up your savings like in a
bank vault and prevents you from withdrawing for your short-term
consumption needs. Perfect investment plus insurance plan can help one to
achieve each and every dream! Most insurers offer attractive and special
offers in the form of an insurance cover on your life and additionally helps
you grow and develop a body of wealth through market linked
investments. Linked insurance products are different from the
traditional insurance products and are subject to the risk factors.
Even then you can build your savings systematically, through
investments in various funds.
8.2 Financial Planning
Historically, the word ‘savings’ was used to describe the process of setting
aside small amounts of funds on a regular basis to accumulate capital. The
word ‘investment’ has been used mainly to describe the use of lump sum
capital or surplus income in certain products with an expectation of good
returns. These days, the words ‘savings’ and ‘investment’ are being used
almost interchangeably.
Most individuals do not make wise decisions in terms of investments as

they will often invest in certain products without fully evaluating the
product features and their own financial needs. The tendency to spend
rather than save is greater as the immediate appeal of consumer goods is
more apparent and persuasive than the intangible, future benefits of
saving. Individuals concentrate more on meeting their short-term needs
rather than on their long-term requirement for funds.
Many people undertake financial planning in a rather disorganised

way by saving for a particular need or goal and not going through a
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comprehensive financial planning process where they identify all

their financial needs.
The comprehensive financial planning process should generally include the

following:
• Tax planning
• Building a contingency/emergency fund to meet unexpected financial

difficulties owing to a medical contingency, temporary job loss, etc.
• Planning and investing for children’s higher education.
• Planning and investing for children’s marriages.
• Buying a home or a second home and repaying the home loan as early as
possible.
• Planning and investing for other goals like buying a car, annual vacations
with the family, planning and investing for children’s primary education,
accumulating initial capital for their own business and donating money to
charity, etc.
• Planning and setting up a retirement fund to maintain the same standard

of living when regular monthly income stops, without compromising on
anything.
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Professional insurance agents help individuals by taking them through the

financial planning process in which they can identify their present and
future financial needs. Evaluating the tax efficient returns of the products,
taking into account the tax treatment of the products and the tax eligibility
criteria of the individuals is also an important aspect of financial planning
process. Saving in a purposeful and needs based manner, and not
necessarily just for maximising returns is one of the important goals of
financial planning process.
The amount of disposable income will vary at different times in an

individual’s life. For example, an individual who is married with young
children would have higher liabilities and their income would be low
compared to an individual who is married with older children. As a result of
this, the surplus amount available for investment will be low. As the
individual moves into the next life cycle stage, their income will increase
which will result in higher savings and also higher investments. Therefore,
a suitable product which provides considerable flexibility to the individual
with respect to their savings needs should be chosen.
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Typical Life Stages of a Client
Childhood: Children normally do not have any income of their own and
hence, the parents/guardians plan to provide for their children’s future
expenses and to secure their children’s financial position. Parents/
guardians will be interested in children insurance plans for providing future
expenses as well as securing financial position.
Young unmarried: The individual’s protection need is low as there are no

dependents. The need to invest any surplus income and earn high returns
gains priority. Insurance investment plans such as ULIPs will take care of
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capital appreciation as well as tax benefits. If the individual is a income

provider for the family, then a suitable life insurance plan would also be
essential to take care of protection needs of the family.
Young married: The individual may look forward to saving money toward
purchasing a house, providing health insurance for parents, for income
protection in case of single earning member, term life insurance plan for
both partners if both partners are working, etc. Investment in unit linked
insurance plans (ULIPs) can fetch high returns with wealth accumulation
for the future in case of both earning partners.
Young married with children: In case of single income family, income

protection by a suitable term life insurance is very important. Once the
income protection need is taken care of, a child investment plan should be
given priority. A family floater health insurance plan covering the couple
and children is also advisable. In case both the parents are earning, a
suitable individual term life insurance plan for both partners, child
investment plan, and a family floater health insurance plan covering the
couple and their children is advisable.
Married with older children: The financial responsibility of the couple

towards their children will be in respect of their higher education and
marriage. A review of their investments to ensure that there will be
sufficient funds to cover the cost of higher education and the marriages of
their children and a focus on investments towards their retirement fund
also gains importance. As their age increases, the couple will be more
vulnerable to sickness and disease and should therefore also look at
enhancing their health cover.
Pre-retirement: Entire focus is shifted towards the retirement fund and

health protection as other needs are mostly taken care of. Review of
investments already made towards the retirement fund and health cover is
also essential. Investment for retirement, income protection, review of
health cover and plan to leave inheritance for children are the main goals
of pre-retirement life stage.
Retirement: The income of an individual/couple is limited to the returns

on investments that they made in the earlier stages of their working life.
The individual can use their accumulated retirement fund and their
employee benefits amount from provident fund, gratuity, leave
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encashment, etc. to buy an annuity plan from an insurance company. This

will provide a regular monthly income to take care of living expenses for
the rest of their lives.
8.3 Features and benefits of insurance savings products
Insurance Savings Products that Provide Capital or Income Growth
Some savings products provide regular income, some provide capital

growth and others provide a mixture of the two. The innovative insurance
products like ULIPs and retirement products are designed to provide either
capital appreciation or regular income.
Insurance Savings Products that Provide Guaranteed Income
Insurance products should be chosen based on the risk profile of the

individual client. Those who do not want to take risks are interested in
guaranteed returns in the form of annuity. Some products are available
with guaranteed returns, some provide variable returns and others provide
a mixture of guaranteed and variable returns.
Insurance Savings Products that Require ‘Lock-In’ Period
Some savings insurance products have a stipulated ‘lock-in’ period during

which the funds cannot be withdrawn by the individual. In case you plan to
exit ULIPs before the completion of certain period, then you shall be liable
to pay tax on all the deductions claimed against the premium paid till the
year of termination. You will also have to pay a high surrender charge.
Therefore, the client should carefully determine their needs and the length
of time for which their money will be inaccessible before deciding which
product to invest
Penalties
Penalties are associated with the premature withdrawal of funds from fixed
term contracts. For example, you will also have to pay a high surrender
charge if you exit ULIP before completion of certain period. This is an
important consideration which needs to be evaluated before investing in
such products.
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Risk
All savings products carry a level of risk and these can be rated as low risk,
medium risk and high risk. Low risk products offer lower returns compared
to high risk products. Hence, the products should be carefully chosen
based on the individual’s circumstances and their risk appetite.
Flexibility
Flexibility refers to the ability to switch between different forms of

investment, the payment of variable contributions, and even to temporarily
stop making contributions altogether. These features can easily increase
the attractiveness of the product. Flexible products also allow for the
partial withdrawal of funds without affecting the product in force. Generally,
the greater the product flexibility, the more suitable it is.
Many life insurance products, along with the primary life cover, come with a
savings element. The savings component of the premium is invested by the
insurance company on behalf of the policyholders and the returns earned
are shared among policyholders in the form of bonuses.
In participating plans like endowment plans and whole life plans, the
insurance company takes the investment risk. In ULIPs, the investment
risk is borne by the policyholder.
Besides meeting protection needs, life insurance products are an excellent

choice for investors to invest funds for long-term goals like children’s
education and marriage, retirement and others.
Our vulnerability to illness and disease increases as we grow older. Major

hospitalisation and treatment expenses paid from the individual’s own
pocket can push back the financial planning of an individual by a few years.
Hence, this need assumes significant priority and a family floater
health insurance plan can address this need. Insurance companies
offer healthcare products to meet the medical expenses that arise
in these circumstances. Adequate health insurance provide cover
for the entire family to meet any medical emergencies.
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8.4 Insurance Pension Plans and Annuities
Insurance companies cover the risk of early death through traditional

products However, pension/retirement products cover the risk of living too
long by providing retired people with the means to pay for their continued
living expenses in the absence of any regular income.
Pension plans are savings and investment plans tied to the provision of
pension benefits for individuals and their dependents. Once contributions
are paid into a pension scheme, they are locked in the scheme until
retirement or earlier death. Insurance companies provide retirement plans
in which an individual can invest a lump sum amount, or during their
working life they can make regular contributions towards a retirement plan.
This amount is invested by the insurance company on behalf of the

policyholder. Initially an individual can start providing for their retirement
needs with a small amount as they have other high priority needs to take
care of. Later, as the individual’s income increases, they can step up
investments for their retirement fund. These accumulated funds
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(retirement funds) are then used to buy an annuity plan. In an annuity

plan, the insurance company makes regular periodic payments to the
annuitant after retirement as per the terms of the plan.
Features and Benefits of Pension Plans
Accumulation phase: Individual makes regular contributions or a lump

sum contribution which is invested by the insurance company on the
client’s behalf. During the accumulation phase, the individual can choose to
invest in a traditional pension plan or a unit linked pension plan, based on
their risk appetite. A traditional pension plan invests most of the funds in
Government securities, whereas in a unit linked retirement plan, the
individual can choose to invest the funds in an equity fund, a debt fund, a
balanced fund or any other fund from the available options.
Regular annuity phase: On retirement, the individual can use the fund
accumulated during the accumulation phase to buy an annuity plan from
the same insurance company or from another insurance company.
Commutation: Before receiving regular/periodic annuity payments, the

individual can make a lump sum tax-free withdrawal up to a third of the
accumulated fund. The remaining two-thirds must be used to buy the
annuity payments for the individual.
Annuities
Annuities can be either immediate or deferred annuities. Immediate

annuities vest (become payable) immediately after they have been
purchased with a lump sum. Deferred annuities are paid for in advance.
The annuity purchase price may be a lump sum paid at commencement
before the annuity is due to vest (be paid).
In case of life annuity, the annuitant keeps receiving annuity payments

from the insurance company throughout their lifetime. In case of
Guaranteed Period Annuity, the annuitant can choose to receive the
annuity payment for a minimum fixed number of years such as 5, 10, 15,
and 20 or 25 years regardless of whether the annuitant is still alive. In
case of Joint Life, last survivor annuity, after the first death, regardless of
who dies first, the remaining spouse continues to receive the same level of
annuity payment throughout their lifetime. In case of Life Annuity with
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return of purchase price (value of the investment at the end of the

accumulation phase), the annuitant receives regular annuity payments
during their lifetime. On their death, the original purchase price is returned
to the nominee/beneficiary. In case of Increasing Annuity, the annuity
increases every year by a fixed percentage or in line with an agreed
inflation index.
BASIS OF CLASSIFICATION OF ANNUITIES
Annuity Annuity Time of annuity Length of annuity Fixed and

purchase paid payment to begin payout period variable
annuity
The annuity may be purchased on a single premium basis or periodic

premium payment basis.
Annuities can be paid on monthly, quarterly, half-yearly or yearly basis.

Hence, Annuity can be classified on the basis of how they are paid.
Annuity can be due immediately or on a deferred basis, i.e., after a certain

period. Hence, Annuity can be classified on the basis of when the
annuity payment is due to begin.
Annuity can be paid throughout the life, after life to the nominee, shall
cease with the death, etc. Hence, Annuity can be classified on the basis
of the length of the payout period.
The Annuity payout amount may be fixed (guaranteed) or variable

(contingent on investment performance). Hence, Annuity can be classified
on the basis of whether the annuity payout amount is fixed or
variable.
Regular annuity or pension received by the individual is taxable as per the

tax slab and tax rate applicable to them.
Annuity plans or pension plans do not provide any insurance cover

during the regular annuity phase, and on the death of the
annuitant, the payments stop unless there is a guaranteed period.
Pension Plans for Retirement Planning by HDFC Life is as follows:
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Retirement and Pension Plans provide you with financial security so that
when your professional income starts to ebb, you can still live with pride
without compromising on your living standards. Given the high cost of
living and rising inflation, Retirement Planning has become all the more
important.
HDFC Life Single Premium Pension Super
HDFC Life Single Premium Pension Super Plan, a unit linked single
premium policy that creates a corpus over the policy term to generate
post-retirement income for life.
Features:
• Assured maturity benefit (on vesting) of 101% of single premium and all
top-up premiums on the pension plan
• Flexibility to choose single premium amount with option to invest further

through top-up premiums
• Flexibility to plan your retirement date
• Guaranteed regular income on the annuity purchased from us
Advantages:
• At the end of the policy term, you will receive higher of the fund value or
assured benefit of 101% of single premium paid including top-up
premiums.
• Premiums invested in a fund that allocates assets dynamically between

equities and fixed income assets.
• At vesting (on maturity), you have the opportunity to purchase an

annuity plan from a range of options. You will get guaranteed income for
life for yourself and your spouse. You also have the option to commute
up to one-third of the benefit at vesting tax-free as per prevailing tax
laws.
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• In the event of demise during the policy term, your nominee will receive
the higher of Fund Value or 105% of total premiums paid, i.e., single
premium and top-up premium.
Eligibility:
Policy Term Age 10 years

Minimum/Maximum Entry age 40-75 years
Minimum/Maximum Age at Maturity (Vesting) 50-85 years
Age has to be taken as of “last birthday” basis.
For more details on risk factors, terms and conditions, please read the
Product Brochure carefully and/or consult Financial Consultant before
taking a decision.
Reliance Immediate Annuity Plan starts with a meaning full quote “Who
says we have retired, I gifted myself a salary for life.” Get guaranteed
regular income for your entire life and then follows with the information on
Reliance Immediate Annuity as follows:
Reliance Immediate Annuity helps you earn a regular income for your
entire life. This is a Single Premium plan where you pay a lump sum
premium amount, and opt for a suitable Annuity Option as per your
requirements. Based on the opted Annuity Option and selected payout
frequency, you start receiving regular annuity income.
5 Reasons to Buy
1. Convert your earnings in to regular income

2. Get regular income (annuity) for your entire life
3. Leave behind a legacy for your family
4. Live life to the fullest, even after retirement
5. Receive tax benefits
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Benefits:
One-time payment: Pay premium only once
Whole life guaranteed income: Get guaranteed whole life income

(annuity)
Flexibility: Choose your annuity from three different annuity payout

options:
• Life Annuity
• Life Annuity with return of purchase price
• Life Annuity guaranteed for 5, 10 or 15 years and payable for life
thereafter
Select your annuity payout frequency: Monthly, quarterly, half-yearly

or annually
Ease of enrollment: No medical tests required
Tax benefits: Enjoy tax benefits on the premiums paid and benefits
received, as per applicable income tax laws
How Does the Plan Work? Explanation Comes with an Example
1. Selects Annuity option – Life Annuity with return of purchase price on

death and chooses the annuity payout frequency.
2. Pays one-time premium of ` 5,00,000 p.a. (excluding service tax).
3. Receives guaranteed monthly income of ` 2,371 p.m. (i.e., ` 28,455

p.a.).
4. Enjoys regular monthly income for whole of life.
5. Assuming that Mr. Mohan dies at the age of 80 years, the total income
he receives till his death is ` 5.7 lakhs.
6. His nominee receives the Purchase Price of ` 5 lakhs (premium paid

excluding service tax) as lump sum death benefit.
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8.5 Health Insurance
!
Health insurance is a type of insurance coverage that covers the cost of an
insured individual’s medical and surgical expenses. Depending on the type
of health insurance coverage, either the insured pays costs out-of-pocket
and is then reimbursed, or the insurer makes payments directly to the
provider. Health insurance policies are available from a sum insured of `
5,000 in micro-insurance policies to even a sum insured of ` 50 lakhs or
more in certain critical illness plans. After a claim is filed and settled, the
policy coverage is reduced by the amount that has been paid out on
settlement. Any number of claims is allowed during the policy period unless
there is a specific cap prescribed in any policy. However, the sum insured is
the maximum limit under the policy. Out of 28 non-life insurance
companies, 5 private sector insurers are registered to underwrite policies
exclusively in Health, Personal Accident and Travel insurance segments.
They are Star Health and Allied Insurance Company Ltd., Apollo Munich
Health Insurance Company Ltd., Max Bupa Health Insurance Company Ltd.,
Religare Health Insurance Company Ltd. and Cigna TTK Health Insurance
Company Ltd.
Health insurance policies are not issued for less than one-year period. Most
non-life insurance companies offer health insurance policies for a duration
of one year. Some health insurance policies are issued for two, three, four
and five years duration also. Life insurance companies have plans which
could extend even longer in the duration. The policy will be renewable
provided you pay the premium within 15 days (called as Grace Period) of
expiry date.
Family Floater is one single policy that takes care of the hospitalisation
expenses of your entire family. The policy has one single sum insured,
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which can be utilised by any/all insured persons in any proportion or

amount subject to maximum of overall limit of the policy sum insured.
Quite often, Family Floater plans are better than buying separate individual
policies. Family Floater plans takes care of all the medical expenses during
sudden illness, surgeries and accidents.
If an individual works in the public sector, their need for medical related
insurance plans will not be high, as public sector employers offer health
insurance for their family. The need for a health insurance plan is greater in
the case of private sector employees, as all private sector employers may
not provide health insurance for their family.
Health risks tend to increase as an individual gets older and their chances
of obtaining life and health protection will be reduced. There can also be
instances where a person may suffer from continued bad health,
irrespective of their age. If insurance companies accept these risks, they
may modify the conditions of acceptance and/or charge a higher premium.
A Health Insurance Policy would normally cover expenses reasonably and
necessarily incurred under the following heads in respect of each insured
person subject to overall ceiling of sum insured (for all claims during one
policy period).
• Room, boarding expenses
• Nursing expenses
• Fees of surgeon, anesthetist, physician, consultants, specialists
• Anesthesia, blood, oxygen, operation theatre charges, surgical

appliances, medicines, drugs, diagnostic materials, X-ray, dialysis,
chemotherapy, radio therapy, cost of pace maker, artificial limbs, cost or
organs and similar expenses.
The Sum Insured offered may be on an individual basis or on floater basis

for the family as a whole. Health Insurance policies may offer Cumulative
Bonus wherein for every claim free year, the Sum Insured is increased by a
certain percentage at the time of renewal subject to a maximum
percentage. Health policies may also contain a provision for reimbursement
of cost of health check-up.
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In order to become eligible to make a claim under the policy, minimum

stay in the Hospital is necessary for a certain number of hours. Usually,
this is 24 hours. This time limit may not apply for treatment of accidental
injuries and for certain specified treatments.
Expenses incurred during a certain number of days prior to hospitalisation

and post-hospitalisation expenses for a specified period from the date of
discharge may be considered as part of the claim provided the expenses
relate to the disease/sickness.
A Critical Illness Benefit policy provides a fixed lump sum amount to the
insured in case of diagnosis of a specified illness or on undergoing a
specified procedure.
Some common definitions in health insurance are:
i. Inpatient: Insured who undergoes treatment after getting admitted in

the hospital.
ii. Outpatient: Insured who undergoes treatment without getting

admission/staying in the hospital.
iii. Day Care Centre: With the advancement of technology and medical
science, many complicated surgical procedures have been simplified
and do not require more than a day’s stay in the hospital or less than
24 hours at times; for e.g., lithotripsy, cataract, etc. Centre where
such procedures are carried out are known as Day Care Centre.
Insurance companies have tie-up arrangements with a network of hospitals

in the country. If policyholder takes treatment in any of the network
hospitals, there is no need for the insured person to pay hospital bills.
The Insurance Company, through its Third Party Administrator (TPA), will
arrange direct payment to the hospital. Expenses beyond sublimits
prescribed by the policy or items not covered under the policy have to be
settled by the insured direct to the hospital. This type of facility is called
cashless facility.
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The insured can take treatment in a non-listed hospital in which case he

has to pay the bills first and then seek reimbursement from Insurance Co.
There will be no cashless facility applicable here.
Insurance companies offer various other benefits as “Add-ons” or riders.

There are also stand-alone policies that are designed to give benefits like
“Hospital Cash”, “Critical Illness Benefits”, “Surgical Expense Benefits” , etc.
Age is a major factor that determines the premium, the older you are the
premium cost will be higher because you are more prone to illnesses.
Previous medical history is another major factor that determines the
premium. If no prior medical history exists, premium will automatically be
lower. Claim-free years can also be a factor in determining the cost of the
premium as it might benefit you with certain percentage of discount. This
will automatically help you reduce your premium. Pre-existing conditions
can be considered for payment only after completion of 48 months of
continuous insurance cover.
When you get a new policy, generally, there will be a 30 days’ waiting
period starting from the policy inception date, during which period any
hospitalisation charges will not be payable by the insurance companies.
However, this is not applicable to any emergency hospitalisation occurring
due to an accident.
Exclusions
The following are generally excluded under health policies:
• All pre-existing diseases (the pre-existing disease exclusion is uniformly

defined by all non-life and health insurance companies).
• Under first year policy, any claim during the first 30 days from date of
cover, for sickness/disease is not applicable for accidental injury claims.
• During first year of cover – cataract, Benign prostatic hypertrophy,

Hysterectomy for Menorrhagia or Fibromyoma, Hernia, Hydrocele,
Congenital Internal diseases, Fistula in anus, piles, sinusitis and related
disorders.
• Circumcision unless for treatment of a disease
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• Cost of specs, contact lenses, hearing aids
• Dental treatment/surgery unless requiring hospitalisation
• Convalescence, general debility, congenital external defects, VD,

intentional self-injury, use of intoxicating drugs/alcohol, AIDS, Expenses
for Diagnosis, X-ray or lab tests not consistent with the disease requiring
hospitalisation.
• Treatment relating to pregnancy or child birth including cesarean section
• Naturopathy treatment.
• Health insurance comes with attractive tax benefits as an added

incentive. Section 80D of the Income Tax Act which provides tax benefits
for health insurance.
Dedications available from taxable income are as follows: For

individuals who are not senior citizens, amount of health insurance
premium paid or ` 25,000, whichever is lesser. For senior citizens, amount
of health insurance premium paid or ` 30,000, whichever is lesser. Budget
2015 has made a provision to include any payment upto ` 30,000 made on
account of medical expenditure on very senior citizens (i.e., individuals
above 80 years of age) as a eligible deduction under Section 80D of the
Income Tax Act. However, this deduction shall only be allowed if no
payment has been made to keep in force the health insurance of a very
senior citizen.
Deduction in respect of Medical Insurance Premium (Mediclaim) paid to

keep in force insurance by individual either on his own health or on the
health of spouse, dependent parents and children or HUF on the health of
any members of the family are eligible for claiming tax benefits.
The Insurance Regulatory and Development Authority (IRDA) has

issued a circular making it effective from 1st October, 2011, which
directs the insurance companies to allow portability from one insurance
company to another and from one plan to another, without making the
insured to lose the renewal credits for pre-existing conditions, enjoyed in
the previous policy. However, this credit will be limited to the Sum Insured
(including Bonus) under previous policy.
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As per IRDA Regulations issued in February 2013, all health

insurance policies are required to have the below features/benefits:
i. Freelook period of 15 days from the date the documents are received by
the customer. During this period, the customer can decide whether or
not to continue with the policy. In case she decides not to continue with
it, the premium, after making some deductions for expenses, may be
refunded in full.
ii. 30 days’ grace period is allowed beyond the expiry date of the policy, for
renewal.
iii. Lifetime coverage on all policies made mandatory. Wherever a product

has a maximum age limit for a certain category of insured, the insurer
will offer to migrate, the member to another suitable product, by
providing credits for the number of all the continuous years of coverage.
iv. All health policies are to have a provision for nomination.
v. There has to be standardisation of Customer Information Summary.
vi. A one page summary of benefits, terms and conditions has to be issued
for each product.
Health Insurance Plans information given by Apollo Munich Health

Insurance company is as follows:
Optima Restore Individual
Optima Restore Plan offers a unique Restore benefit that automatically

reinstates the basic sum insured in case one exhaust it in a policy year. It
also rewards you with a multiplier benefit in case one doesn’t claim in the
policy. The multiplier benefit doubles the sum insured in two claim-free
years!
Eligibility: 5 years onwards with maximum entry age of 65 years. A

dependent child can be covered from the 91st day (if either parents are
covered under this policy). You and/or your family members namely
spouse, dependent children, dependent parents/parents-in-law are eligible
for buying this cover on individual sum insured basis. (Apollo Munich offer
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a family discount of 10% if two or more family members are covered under
the same policy).
Maximum 6 members can be added in a single policy. In an individual

policy, a maximum of 4 adults and a maximum of 5 children can be
included in a single policy.
Your premium at renewal may change due to a change in your age or

changes in the applicable tax rate.
The policy period options include period of 1 or 2 year(s). (Apollo Munich

offer 7.5% discount if you opt for a 2 year policy).
Plan Benefits
Inpatient Hospitalisation: The medical expenses for coverage for

hospitalisation of more than 24 hours with no room rent limits.
Pre-hospitalisation: The medical expenses that you incur due to illness

during 60 days immediately before you are hospitalised.
Post-hospitalisation: The medical expenses you incur in the 180 days

immediately after you are discharged from hospital.
Day-care Procedures: The medical expenses for all day-care procedures

covered, which do not require 24 hours’ hospitalisation due to technological
advancement, are covered.
Domiciliary Treatment: The treatment expenses involved in getting a

treatment done at home which otherwise would need hospitalisation.
Organ Donor: Treatment expenses for the organ donor at the time of
organ transplant.
Daily Cash for Choosing Shared Accommodation: A lump sum amount

given for selecting a shared room in a network hospital.
Emergency Ambulance: Expenses incurred if ambulance service is used

on the way to hospital for hospitalisation (up to ` 2,000).
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Health Check-up: A comprehensive health check-up involving a number

of medical tests only once at the end of a block of two continuous policy
years (for sum insured above ` 15 lakhs).
Restore Benefit: Automatic reinstatement of the basic sum insured, if the

basic sum insured and multiplier benefit has been exhausted during the
policy year. Basic sum insured will be reinstated only once in a policy year.
E-opinion: On request of the Insured person diagnosed with a critical

illness, we will arrange for a second opinion from a medical practitioner
selected by the insured person from our panel. This benefit can be availed
once in a policy year.
Other Benefits
Multiplier Benefit: You get a bonus of 50% of the basic sum insured for
every claim-free year accumulating up to 100%. (In the event of a claim,
the bonus shall be reduced by 50% of the Basic Sum Insured at the time of
renewal.)
Cashless Service: You need to obtain a pre-authorisation for all planned

admissions at least 48 hours prior to actual admission or regularise any
‘emergency’ admission within 24 hours post the admission. The details of
the process and the documentation requirements are given in the
guidebook sent along with the policy.
Sum Insured Enhancement: Sum Insured can be enhanced only at the

time of renewal subject to no claim have been lodged/paid under the
policy. If the insured increases the sum insured one grid up, no fresh
medicals shall be required. In cases where the sum insured increase is
more than one grid up, the case shall be subject to medicals. In case of
increase in the sum insured, waiting period will apply afresh in relation to
the amount by which the sum insured has been enhanced. However, the
quantum of increase shall be at the discretion of the company.
Portability: If you are insured with some other company’s health

insurance and you want to shift to us on renewal, you can. Our portability
policy is customer-friendly and aims to achieve the transfer of most of the
accrued benefits and makes due allowances for waiting periods, etc.
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Tax Benefits: With the Optima Restore Individual Health Insurance Plan,
you can presently avail tax benefits for the premium amount under Section
80D of the Income Tax Act. (Tax benefits are subject to changes in Tax
Laws.)
Stay Healthy Package
With increasing stress levels and work pressure, we help you take care of
your wealth by managing your health! We bring to you our “Stay Healthy”
Programme that offers:
• Online health assessment
• Customised diet and exercise plan from our experts
• E-storage facilities to store your medical reports for 24 × 7 access
• Great offers and discounts on heath products and services
• Set alerts to track your health appointments and medicinal intake
• Exclusive health newsletter and helpline services
The above benefits are offered for policies with sum insured greater than `
5 lakhs.
In addition, Health Line Services and Discounts at our listed partner’s

network are provided in all sum insured – You just need to call us and
quote your customer ID to reach our experts and avail their help in primary
consultation, health-related counseling, individual referrals, health
information, nutrition and diet.
Renewal Policies
• Our Optima Restore Policy offers lifelong renewability, i.e., there is no

maximum cover ceasing age in this policy.
• Grace Period of 30 days for renewing the policy is provided under this
policy.
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• Waiting periods as mentioned in the policy wording gets reduced by 1

year on every continuous renewal of your Optima Restore Insurance
Policy.
• Renewal premium are subject to change with prior approval from IRDA.
Any change in benefits or premium (other than due to change in age) will
be done with the approval of the IRDA and will be intimated at least 3
months in advance.
Exclusions
• All treatments within the first 30 days of cover except any accidental
injury.
• Any pre-existing condition will be covered after a waiting period of 3

years.
• 2 years’ waiting period for specific diseases like cataract, hernia, joint
replacement surgeries, surgery of hydrocele, etc.
• Expenses arising from HIV or AIDS and related diseases.
• Congenital diseases, mental disorder or insanity, cosmetic surgery and

weight control treatments.
• Abuse of intoxicant or hallucinogenic substances like intoxicating drugs

and alcohol.
• Hospitalisation due to war or an act of war or due to a nuclear, chemical

or biological weapon and radiation of any kind.
• Pregnancy, dental treatment, external aids and appliances unless covered

under the specific Easy Health Insurance Plan.
• Items of personal comfort and convenience.
• Experimental, investigative and unproven treatment devices and

pharmacological regimens.
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• One should always refer to policy wording for the complete list of
exclusions.
Portability of Health Insurance: When you change your health

insurance policy from one insurance company to another, you don’t have to
lose the benefits you have accumulated. Now, IRDA protects you by giving
you the right to port your policy to any other insurer of your choice. It has
laid down that your new insurer “shall allow for credit gained by the
insured for pre-existing condition(s) in terms of waiting period”. Your new
insurer has to insure you at least up to the sum insured under the old
policy. The two insurers should complete the porting as per the timelines
prescribed in the IRDA (Protection of Policyholders’ Interests) Regulations
and Guidelines.
8.6 Unit linked Insurance Plans
Unit linked insurance plans (ULIPs) are a category of goal-based financial

solutions that combine the safety of life insurance protection along with
long-term wealth creation opportunities. In ULIPs, a part of the premium
goes towards providing you life cover and the remaining portion is invested
in fund(s) which in turn is invested in stocks or bonds. The value of
investments alters with the performance of the underlying fund opted by
you. Unit linked contracts, charges to pay for the insurance and expenses
component are clearly specified. Once these charges are deducted from the
premium, the balance of the account and income from it is invested in
units. The value of these units is fixed with reference to some pre-
determined index of performance. Typically, the value of the units is given
by the net asset value (NAV), which reflects the market value of assets in
which the fund is invested.
ULIP PREMIUM
EXPENSES MORTALITY INVESTMENT
Unit linked policies carry a higher risk than with-profit policies and contain
fewer guarantees. However, they are much more flexible. Unit linked
policies are suited to people prepared to undertake some investment risk
to obtain the benefits of flexibility. Unit linked products allows policyholder
to choose between different kinds of funds, i.e., debt, balanced and equity
funds. A debt fund implies investment of most of one’s premiums in debt
! !319
securities like gilts and bonds. An equity fund would imply that units are
predominantly in equity form. One may choose between a growth fund,
predominantly invested in growth stocks, or a balanced fund, which
balances need for income with capital gain. There is also provision to
switch from one kind of fund to another if performance of one or more
funds is not perceived to be up to the mark. Returns are subject to
movements in the capital markets where investments such as equities
(shares) are traded.
The life insurer, while being expected to manage an efficient portfolio, does
not give any guarantee about unit values. It is, thus, relieved here of the
greater part of the investment risk. The latter is borne by the unit holder.
The life insurer may, however, bear the mortality and expense risk. Unlike
conventional plans, unit linked policies work on a minimum premium basis
and not on sum assured. The insured decides on the amount of premium
he or she wishes to contribute at regular intervals. Insurance cover is a
multiple of the premiums paid. In case of death, the death benefit would
be the higher of the sum assured or the fund value standing to one’s
account.
Salient Features of ULIPs
• In a unit linked policy, you can choose the extent of life insurance cover
that you can enjoy. In most ULIPs, the minimum life insurance cover that
you get is 10 times the annual premium. The upper limit can be as much
as 100 times of your annual premium or even higher, depending on the
policies of the insurance companies.
• In traditional plans, the insurance company takes a decision on the

investments to be made on behalf of the insured. However, in a ULIP, the
insured has a variety of funds to choose from like equity funds, debt
funds, balanced funds, money market funds, etc. for their investments.
Depending on the investment preference, unit linked insurance plans
allow one to invest in various asset classes like equity, debt or money
market. One can also switch between these asset classes seamlessly with
almost no charges.
• ULIPs allows one to invest an additional amount, called top-up any time,
at a very nominal charge to enjoy the benefit of greater savings.
! !320
• ULIPs have a partial withdrawal option, so that you can withdraw your
money in case of emergencies. These partial withdrawals are usually free
of cost.
• ULIPs are structured to help you secure your key goals such as
retirement planning or saving for your child’s education.
• Apart from the Life Insurance benefit, ULIPs provide advantage of returns
on investment. ULIPs give the insured the option to participate in the
growth of the capital markets.
• On the death of the insured, the sum insured or the market value of the
investment (fund value), whichever is higher, is paid.
• On maturity of the plan, the fund value is payable.
Settlement Option
Instead of taking a lump sum amount, some plans provide the policyholder
with the option to receive the maturity benefit amount as a structured
payout (periodic installments) over a period of time (say, 5 years or any
time up to 5 years) after maturity. This is known as the settlement option.
If the policyholder wishes to take the settlement option, they need to
inform the insurance company well in advance.
Like most insurers, SBI Life presents a wide range of ULIPs so that you
continue to Celebrate Life!
SBI Life – Smart Wealth Builder
Key Features:
• Guaranteed Additions (Conditions Apply#) up to 125% of one annual

regular premium on a regular premium policy, for a 30 year policy term,
subject to the Policy being in force till the maturity date.
• Guaranteed Additions# starting as early as 10th policy year onwards.
• No Policy Administration fees for first 5 years for Regular and Limited
Premium Paying Term (LPPT) plans, thereby boosting your fund value.
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• No Premium Allocation Charge from 11th year onwards.
• Enhanced investment opportunity through 7 varied Fund Options.
• Life Insurance coverage, with minimum Sum Assured based on your age.
• Flexible product with an option to increase/decrease your Sum Assured

from 6th policy year onwards.
Product Snapshot
Age* at Minimum: 7 years

Entry
Maximum: For Regular Premium and Limited Premium: 60

years
For Single Premium: 65 years
Age* at 70 years
Maturity
Plan Type Regular Premium/Limited Premium/Single Premium
Policy Term^ Regular and Limited Premium Payment: 10 years, 15 to 30

years (both inclusive)
Single Premium: 5 to 30 years
Premium For LPPT:

Payment 5/8 years for Policy Term of 10 years
Term 5/8/10 Years for Policy Term of 15-30 Years (both inclusive)
Regular Premium: Same as Policy Term
Single Premium: One-time payment at policy inception
Premium Plan Type Premium Minimum Maximum

Amount (× Frequency
100)
Regular premium Annual ` 30,000
Limited premium Annual ` 40,000 ` 3,00,000
Single premium Single ` 65,000
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Premium Single/
Modes Yearly
Sum Assured Premium Minimum (in `) Maximum (in `)

Mode
Age below Age 45 Age below Age 45
45 years years or 45 years years or
above above
Regular Higher of Higher of (7 20 × AP 20 × AP

Premium [(10 × AP) × AP) or
or (0.50 × (0.25 × Term
Term × x AP)]
AP)]
Limited 15 × AP 15 × AP
Premium
Single 1.25 × SP 1.1 × SP 3 × SP 1.25 × SP

Premium
* All the references to age are age as on last birthday.
# Guaranteed Additions at the specified percentages for RP, LPPT and SP,
will be given at the end of 10th policy year and every five years thereafter
for policies which are in- force.
^ In case of minor lives, policy term should be appropriately chosen so as

to ensure that at the time of maturity life assured should be a major. In
case of minor lives, date of commencement of policy and date of
commencement of risk shall be same.
Various charges such as ‘Premium Allocation Charges’, ‘Policy

Administration Charges’, ‘Fund Management Charges’, etc. are deducted.
For the complete list of charges and their workings, one should refer the
Sales Brochure.
Benefits:
Maturity Benefit (applicable only for in-force policies): On

completion of Policy Term, Fund Value will be paid.
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Death Benefit (applicable only for in-force policies): Higher of the

Fund Value or Sum Assured## is payable; with a minimum of 105% of
total basic premiums paid till the date of intimation of death.
Tax Benefits:
Tax deduction under Section 80C is available. However, in case the

premium paid during the financial year, exceeds 10% of the sum assured,
the benefit will be limited up to 10% of the sum assured.
Tax exemption under Section 10(10D) is available at the time of maturity/

surrender, subject to the premium not exceeding 10% of the sum assured
in any of the years during the term of the policy. However, death proceeds
are completely exempt.
Tax benefits are as per the Income Tax laws and subject to change from
time to time. Please consult your tax advisor for details.
One should also note the following two important messages given by SBI
Life in the interest of the policyholders.
In this policy, the investment risk in investment portfolio is borne

by the policyholder. “The Linked Insurance products do not offer any
liquidity during the first five years of the contract. The policyholders will
not be able to surrender/withdraw the monies invested in Linked Insurance
Products completely or partially till the end of fifth year.”
Beware of spurious phone calls and fictitious/fraudulent offers.

IRDA clarifies to public that:
• IRDA or its officials do not involve in activities like sale of any kind of
insurance or financial products nor invest premiums.
• IRDA does not announce any bonus. Public receiving such phone calls are
requested to lodge a police complaint along with details of phone call,
number.
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8.7 Tax saving life insurance plans
Tax Planning for Individuals
Life insurance products are eligible for income tax benefits under
the Income Tax Act 1961. Insurance products qualify for income
tax benefits at the time of investing as well as at the time of
maturity.
An Individual/salaried can avail following tax benefits on premium paid by

way of deductions from taxable income. Under Section 80C, Income Tax
Act, 1961 you can enjoy tax benefits on the premium you invest. You also
get tax benefits on the benefits you receive at maturity of your plan, under
Section 10(10D), Income Tax Act, 1961 as mentioned below.
Section 80C: Premium paid on Life Insurance policies to keep the

insurance policy in-force on life of self, spouse and children by individuals
are eligible for deduction upto ` 1,50,000 from taxable income. Premium
paid on pure term, endowment and ULIP product eligible for 80C benefit.
Section 80CCC: Section 80CCC allows deduction of premiums paid under

a pension scheme. Maximum deduction allowed is ` 1,50,000, the overall
limit provided under the Income Tax Act for payments/deposits specified
under Sections 80C, 80CCC and 80CCD (contribution to pension scheme of
Central Government) in aggregate. Income will be taxed if, in the financial
year, one receives an amount on surrender (whole/part) of annuity plan
(including accrued interest/bonus) or receives an amount as Pension.
Section 80D: Premium paid on health insurance policies: deduction upto `

35,000/- is allowed (` 15,000 deduction is allowed for self, spouse and
dependent children and additional ` 15,000 for parents or ` 20,000 for
parents above 60 years of age).
Maturity proceeds from Life Insurance policies are exempt under Section
10(10D) subject to specified conditions.
One can easily secure one’s future by investing in a Life Insurance Policy
that reaps in great benefits along with making sure that your hard-earned
money stays with you. Tax laws and benefits under the said laws are
! !325
subject to change. One should consult one’s tax advisor for the latest tax
benefits on Life Insurance plans.
Tax Implications on Insurance Products
a. Investment stage: The premium paid for life insurance plans qualifies
for deduction from taxable income under Section 80C of the Income Tax
Act. The Act specifies certain conditions for tax benefits to be granted.
The following condition should be fulfilled:
• as per current tax laws the premium paid should be 20%, or less than
20%, of the sum insured; or
• the sum insured should be five times, or more than five times, the
premium paid.
Under Section 80C, the maximum tax deduction that can be gained for
premium paid is ` 1,50,000 in a financial year.
b. Maturity stage: As per current tax laws, the maturity benefit amount
received by the life insured or the death cover amount received by the
nominee/beneficiary is tax-free under Section 10(10D) of the Income
Tax Act. However, the condition of premium not exceeding 20% of sum
insured also applies to maturity benefits.
8.8 Group insurance plans
In July 2005, the insurance industry regulator (IRDA) issued guidelines on

group insurance policies. A group insurance policy provides insurance
protection to a group of people who are brought together for a common
objective.
• In a group insurance policy, the insurance company issues one master

policy covering all the members of the group. For example, the insurance
company will issue a master policy to an employer covering all the
employees of the company. The employer would be known as the ‘master
policyholder’. The employees are not a direct party to the insurance
contract. Underwriting is based on assessment of risk for the group as a
whole. There is no separate provision for individual life. Group must be
homogenous and the group must have been formed for a purpose other
! !326
than the purpose of insurance, i.e., the group should be already existing.
There should a minimum participation in the group. Due to lower
administrative costs, the premium is generally low for group insurance,
but the group premium is charged on the basis of experience rating, i.e.,
the premium may increase or decrease depending about the character of
the group and its mortality experience.
Group insurance schemes are also used by the Government as instruments

of social welfare to provide insurance cover to the masses. The master
policies can be of two types:
a. Contributory Plans in which the employee pays share of premium
b. Non-contributory Plans in which the employee does not contribute to the

premium.
Group Insurance Schemes Available in India
i. Employee Deposit Linked Insurance Scheme (EDLI)
EPF contribution, mandatory for all companies with 20+ permanent

employees, is enforced by Government of India under the EPF and MP Act
1952. Under the same Act, Government also mandates the employers,
contributing to EPF, to provide life insurance cover to employees, via
Employee Deposit Linked Insurance Scheme (EDLI).
Under EDLI scheme, employees are given life insurance cover, i.e., in the
event of natural or accidental death of the insured employee, the
beneficiary nominated by the employee is entitled to get lump sum money.
For this, a small amount as insurance premium is contributed by the
employer which employers include in the cost to company of employees.
ii. Group Gratuity Scheme
Life Insurance Corporation of India offers its Group Gratuity Cash

Accumulation Scheme to enable employers to meet their gratuity liability in
a very simple and efficient manner. The scheme is formulated in
compliance with Part C of the Schedule IV of Income Tax Act and tax
benefits are available as provided in Income Tax rules.
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The gratuity arrangement with LIC provides the following services to the
company:
• Fund management under interest accumulation system
• Claim settlement on exit as per company rules/gratuity act
• Built-in Insurance arrangement for the employees for future service
• MIS related to Income Tax and trusts accounts and actuarial valuation.
The insurance premium paid towards the above said benefits is treated as
deductible business expenses to the company. The premium is not treated
as perks in the hands of the employees.
iii. Group Superannuation
Superannuation also called Pension benefit is one of the most important

benefit for the employee. This is a retirement benefit offered to employees
to help them save a portion of their incomes during their tenure of
employment, so as to secure their financial future post-retirement. ICICI
Pru Group Superannuation Plan has a unique plan to enable the employees
of a company to grow the savings made over the years by investing into
ICICI Prudential Superannuation Plans and help build a corpus to purchase
an annuity on retirement, which will take care of their financial
requirements, be it their medical needs or taking care of their loved ones.
ICICI Prudential Superannuation Plans are designed to meet the
“Accumulation Phase” requirement to grow the employee’s savings in line
with their risk appetite and provide a substantial kitty at the time of
retirement from employment.
Benefits of Funding Superannuation with ICICI Prudential
Scheme set-up assistance: ICICI Prudential shall assist in customising

solutions specific to the client’s needs.
Assistance in liability estimation: ICICI Prudential shall assist in

providing an estimate of the Defined Benefit superannuation liability.
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Manage your investments: ICICI Prudential offers a complete and

competitive range of investment options keeping your needs in mind.
ICICI Prudential offer endowment policy that aims at offering a steady

appreciation on the investments along with guaranteeing the capital
invested by the client.
Dedicated service team: ICICI Prudential has a dedicated group service

team to help service the clients requirements.
Claim settlement: ICICI Prudential undertakes to settle claims and

payouts within specified turnaround times.
Annuity payment: ICICI Prudential offers a complete solution for the

client with a Group Immediate Annuity Plan and further offers concessions
for superannuation customers. ICICI Prudential offers five annuity options
for the employees to choose from. Alternatively, they also provide open
market option for them to buy annuities from any other life insurance
company in the market.
Tax Benefits Obtained by Funding the Superannuation Liabilities
Employer:
Contribution allowed as expenditure/deduction in computing taxable

income in upto 27% of the employees annual salary (PF and SA) [Section
36(1)(iv) read with Rule 88].
Any income from the fund is tax-free [Section 10(25)(iii)].
Employee:
Benefits payable on death are tax-free [Section 10(13)].
Commuted value on retirement is tax-free [Section 10(13)].
Employees’ contribution qualifies for tax deduction under Section 80C of

the Income Tax Act.
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Contributions paid by the employer in excess of ` 1 lakh are treated as

perquisites in the hands of the employees.
iv. Group Savings Linked Insurance Scheme
LIC has come out with an attractive insurance scheme, viz., Group Savings
Linked Insurance scheme at a very low cost. The Scheme can be
introduced by employers provided certain percentage of employees is
willing to join the Scheme. Any employee irrespective of his present state
of health is eligible to join the scheme subject to certain conditions. The
only insurability condition is that the employee should not be absent on
medical ground on the date of commencement of the scheme. All
employees who have not crossed the retirement age are eligible to join the
scheme. All future employees have to join the scheme compulsorily.
Objectives of the Scheme:
• Protection at low cost without individual evidence of health.

• Attractive returns on savings to meet post-retirement needs.
• Simple procedures for granting life cover to large groups under one
umbrella.
Premia: The premium is decided on the basis of group size and the
occupation of the group. Premium has two components, i.e., Risk Premium
and Savings Premium. Risk Premium is utilised to offer life cover and the
Savings Premium is accumulated in member’s account.
Accident Benefit: Double accident benefit can be allowed to the extent of

the Sum Assured for an extra premium.
Interest on Savings: The present rate of interest allowed on saving

portion of premium is 8% compounding yearly.
Tax Benefits: Employees’ total contribution, savings as well as risk

premium is entitled for income tax rebate under Section 80C of the Income
Tax Act. The entire claim amount including interest earned payable on
retirement or leaving service or on death is free from income tax. The
premium paid by the employer towards insurance cover is treated as
business expenses.
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v. Group Leave Encashment Scheme
LIC’s New Group Leave Encashment Plan is a non-linked non-participating,

fund-based Variable Insurance Product. This plan helps to meet the
employer’s Liability for providing leave encashment facility to their
employees. The Plan also offers Life Cover Benefit so that in case of death
of a group member an amount equal to sum assured in respect of that
member will be paid. The amount of life cover in respect of each member
shall be guided by the scheme rules of the employer. Each policy year, a
policyholder shall pay contributions to secure Leave Encashment Benefit as
per Scheme Rules and also to provide Life Cover Benefit. A Single Policy
Account is maintained in respect of all contributions received from
policyholder.
Benefits payable on death of a member while in service: The benefit

payable will be equal to the sum of following:
• Sum assured and

• Leave Encashment Benefit as per the Scheme Rules.
Benefits payable on retirement/leaving service before retirement:

The Leave Encashment Benefits shall be payable as specified in the
Scheme Rules.
The total Mortality Charge to be deducted from Policy Account Value shall
be the sum of Mortality Charges in respect of each member covered under
the policy. A Market Value Adjustment (MVA) will be applicable on Bulk
Exits and complete surrender of the policy. If the policy is surrendered
within three policy years from the date of commencement, the surrender
charge shall be 0.05% of the Policy Account Value subject to maximum of
` 500,000/-. No surrender charge will be levied if a policy is surrendered
after completion of third policy anniversary. The Corporation reserves the
right to revise the Fund Management Charges and Policy Administration
Charges. In case the POLICYHOLDER does not agree with the revision of
charges, the policyholder shall have the option to withdraw the Policy
Account Value. However, such withdrawal shall not be treated as surrender.
No loan will be available under the policy.
Cooling-off period: The policyholder may review the terms and conditions
of the Master Policy and choose to return the Master Policy within 15 days
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to the Corporation in case of any objection with a written communication

stating the reasons of their objection. The period of 15 days shall be
reckoned from the date of receipt of Master Policy by the policyholder.
On receipt of such a communication, the Master Policy shall be cancelled

and the amounts received shall be refunded to policyholder after deduction
in respect of following:
• Stamp duty expenses

• Proportionate Mortality Charges for the period on cover .
Section 45 of Insurance Act, 1938
No policy of life insurance shall after the expiry of two years from the date
on which it was effected, be called in question by an insurer on the ground
that a statement made in the proposal for insurance or in any report of a
medical officer, or referee, or friend of the insured, or in any other
document leading to the issue of the policy, was inaccurate or false, unless
the insurer shows that such statement was on a material matter or
suppressed facts which it was material to disclose and that it was
fraudulently made by the policyholder and that the policyholder knew at
the time of making it that the statement was false or that it suppressed
facts which it was material to disclose.
adjusted on subsequent proof that the age of the life assured was
Prohibition of Rebates (Section 41 of Insurance Act, 1938)
1. No person shall allow or offer to allow, either directly or indirectly, as

an inducement to any person to take out or renew or continue an
insurance in respect of any kind of risk relating to lives or property in
India, any rebate of the whole or part of the commission payable or
any rebate of the premium shown on the policy, nor shall any person
taking out or renewing or continuing a policy accept any rebate,
except such rebate as may be allowed in accordance with the
published prospectuses or tables of the insurer: provided that
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acceptance by an insurance agent of commission in connection with a

policy of life insurance taken out by himself on his own life shall not
be deemed to be acceptance of a rebate of premium within the
meaning of this sub-section if at the time of such acceptance the
insurance agent satisfies the prescribed conditions establishing that
he is a bonafide insurance agent employed by the insurer.
2. Any person making default in complying with the provisions of this

section shall be punishable with fine which may extend to five
hundred rupees.
vi. Group Annuity Schemes
Bajaj Allianz Group Annuity Plan is a single premium assured annuity

income group plan. The product is intended to cover mainly the employer-
employee group and other non-employee groups such as associations, co-
operatives and other affinity groups like doctors, journalists, etc.
How does “Bajaj Allianz Group Annuity” work?
1. Pay a lump sum amount in respect of all the members as per the
annuity option and the mode chosen by the members.
2. The annuity payments will start after expiry of monthly/quarterly/

half-yearly/yearly interval corresponding to the payment mode
selected. Under all the options, annuity is payable for life. So, the
members do not have to worry about the income stopping at any
stage.
In addition under the Return of Purchase Price option, the amount used to
purchase the annuity is paid to the nominee on the death of the annuitant
or on death of the last survivor. On death of the annuitant, the nominated
spouse is also entitled to 50% annuity or 100% annuity as per the plan
chosen by the member.
Surrender is not allowed under the plan. The plan provides yearly, half-
yearly, quarterly or monthly annuity frequency modes. Each member can
nominate a person/persons to whom the death benefits will be payable.
The policy will be eligible for tax benefits as per applicable Tax Law.
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8.9 Summary
Planning for financial requirements provides direction and meaning to your

financial decisions. By spreading your investment across different asset
classes, you create a diversified portfolio where the loss that you may
make on a certain asset class can be compensated by the profits that you
make on another. Thus, you reduce the overall risk of your investments.
The insured should also make sure that they have enough life insurance to
take care of their family in the case of an early death. Here, a term
insurance plan can provide a lump sum amount to the family, or a pension
plan can provide regular income.
Your financial needs like educating children, providing for their wedding
expenses and keeping sufficient cushion for retirement need substantial
money. Life insurance innovative products like pensions, annuities, ULIPs
and the likes locks up your savings like in a bank vault and prevents you
from withdrawing for your short-term consumption needs. Perfect
investment plus insurance plan can help one to achieve each and every
dream!
Linked insurance products are different from the traditional insurance

products and are subject to the risk factors. Even then you can build your
savings systematically through investments in various funds.
As the individual moves into the next life cycle stage, their income will
increase which will result in higher savings and also higher investments.
Therefore, a suitable product which provides considerable flexibility to the
individual with respect to their savings needs should be chosen.
Pension plans are savings and investment plans tied to the provision of
pension benefits for individuals and their dependents. Once contributions
are paid into a pension scheme, they are locked in the scheme until
retirement or earlier death. Insurance companies provide retirement plans
in which an individual can invest a lump sum amount, or during their
working life, they can make regular contributions towards a retirement
plan. This amount is invested by the insurance company on behalf of the
policyholder. Initially, an individual can start providing for their retirement
needs with a small amount as they have other high priority needs to take
care of. Later, as the individual’s income increases, they can step up
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investments for their retirement fund. These accumulated funds

(retirement funds) are then used to buy an annuity plan. In an annuity
plan, the insurance company makes regular periodic payments to the
annuitant after retirement as per the terms of the plan.
Health insurance is a type of insurance coverage that covers the cost of an

insured individual’s medical and surgical expenses. Depending on the type
of health insurance coverage, either the insured pays costs out-of-pocket
and is then reimbursed, or the insurer makes payments directly to the
provider. Health insurance policies are available from a sum insured of `
5,000 in micro-insurance policies to even a sum insured of ` 50 lakhs or
more in certain critical illness plans.
Life insurance products are eligible for income tax benefits under the
Income Tax Act, 1961. Insurance products qualify for income tax benefits
at the time of investing as well as at the time of maturity.
Unit linked insurance plans (ULIPs) are a category of goal-based financial

solutions that combine the safety of life insurance protection along with
long-term wealth creation opportunities. In ULIPs, a part of the premium
goes towards providing you life cover and the remaining portion is invested
in fund(s) which in turn is invested in stocks or bonds. The value of
investments alters with the performance of the underlying fund opted by
you.
A group insurance policy provides insurance protection to a group of people

who are brought together for a common objective. In a group insurance
policy, the insurance company issues one master policy covering all the
members of the group.
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1. Based on you and your family needs, list down your own protection
needs as well as the insurance needs of your family members. After
that, prioritise them into critical, high, medium and low priority
categories and plan to protect using special offers.
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2. Visit an IRDA certified life insurance agent of any company of your

choice. Conduct a personal interview with them to understand how they
identify the financial needs of their clients, and discuss how the financial
planning process works.
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! !336
9. Life Insurance Underwriting by K.C.Mishra and R. Venugopal.
18.http://www.moneycontrol.com
19.http://www.lifeinsurancequote.net/
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20.http://www.reliancelife.com/
21.www.sbilife.co.in
22.www.iciciprulife.com
23.www.apollomunichinsurance.com
24.www.bajajallianz.com
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1. With financial sector reforms and privatisation of banking and insurance

arms, a wide range of financial services are available for the modern
consumer. Which among the following would you recommend in order to
seek protection against unforeseen events?
a. Bank FDs
b. Insurance
c. Shares
d. Mutual Funds
2. Many people undertake financial planning in a rather disorganised way

by saving for a particular need or goal and not going through a
comprehensive financial planning process where they identify all their
financial needs. When is the best time to start financial planning?
a. Childhood
b. After marriage
c. As soon as one gets his/her first salary
d. Post-retirement
3. Health insurance requirements may be assessed in terms of the
hospitalisation expenses that are likely to be incurred in any family
medical emergency. State whether the above statement is true or false.
a. True
b. False
4. Retirement planning is the process of determining the amount of money

that an individual needs to meet his needs post-retirement. In which of
the following phases of investment, planning efforts made to ensure
that one’s investments are put to hard work?
a. Accumulation
b. Conservation
c. Distribution
d. All of the above
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5. Tax planning is done to determine how to gain maximum tax benefit

from existing tax laws and for planning of income, expenses and
investments taking full advantage of the tax breaks. Which among the
following is not an objective of tax planning?
a. Maximum tax benefit

b. Reduced tax burden
c. Tax evasion
d. Directing income towards tax savings scheme
6. Unit linked plans, also known as ULIPs emerged as one of the most
popular and significant products, displacing traditional plans in many
markets. Which of the below statement regarding ULIPs is incorrect?
a. Unit linked policies offer the facility of choosing between different

kinds of funds
b. Unit linked policies offer the facility to switch from one kind of fund to
another if performance of one or more funds is not perceived to be
up to the mark.
c. In case of Unit linked policies, the mortality risk is borne by the Life
Insurance Company
d. In case of Unit linked policies, the investment risk is borne by the Life
Insurance Company
7. Annuities can be either immediate or deferred annuities. Annuities can

be classified on the basis of which of the following factors?
a. On the basis of how annuity is are paid

b. On the basis of when the annuity payment is due to begin
c. On the basis of the length of the payout period
d. All of the above
! !340
Answers:
1. (b)
2. (c)
3. (a)
4. (b)
5. (c)
6. (d)
7. (d).
! !341
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !342
POLICY SERVICING AND CLAIMS SETTLEMENT
Chapter 9
Policy Servicing and Claims Settlement
Objectives
This chapter will help you to understand the importance of settlement of

genuine claims, prevention of insurance frauds and other malpractices and
to put in place effective grievance redressal machinery.
! !343
Structure:
9.1 Introduction
9.2 How to Make a Claim? – Life
9.3 How to Make a Claim? – Health
9.4 How to Make a Claim? – Property
9.5 How to Make a Claim? – Motor
9.6 How to Make a Claim? – Travel
9.7 Rejection of Claims
9.8 Claim Settlement Ratio
9.9 Policy Servicing in Lapsed Policies
9.10 Policy Servicing in Case the Life Assured has Disappeared
9.11 Policy Servicing in Case the Premature Death Claim
9.12 Policy Servicing in Case of Disputed Claims
9.13 Entities Entitled to Claim Insurance Benefits
9.14 Setting Up of the Institution to Reduce Litigation and Protect
Consumers’ Interest
9.15 Summary
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9.1 Introduction
Contract of Insurance creates obligations on the insurance company to

make payment of money under the insurance policy, as soon as the liability
of payment under the policy has arisen. Life insurance is a contingent
contract and the policy amount is payable either on maturity of the policy
or on the death of the insured. In case of general insurance which is a
contract of indemnity, insurance company has to indemnify the loss on
happening of events against which the insurance is made.
A claim arises in insurance when insured has a valid insurance policy which
has not expired and that the loss under the insurance policy has occurred
during the policy period due to the loss of life or property insured under the
policy and that the cause or peril of the loss is covered under the policy. A
Life Insurance claim can be classified as follows:
CLAIMS
MATURITY CLAIMS RIDER CLAIMS DEATH CLAIMS

!
In all types of claims, life and non-life insurance, blank forms are issued by
insurance company to insured/dependents for submission along with
necessary documents within the time limit. In case of life insurance and
personal accident insurance policy, the death claims are paid to the
nominees if nomination is made. If nomination has not been made, the
claim amount is paid to legal heirs.
In case of general insurance, if a loss has happened, the insured is

required to give an immediate intimation to the insurance company by
phone and subsequently send a letter mentioning the entire details like
policy number, date of loss, nature of loss, etc. If the loss has occurred at a
place other than the place where the policy issuing office is located, then
the claim intimation should be given to the nearest office of insurance
company. The insured is required to take all measures at his level to
minimise and prevent further loss of property. After receipt of intimation,
! !345
insurer in general insurance claims deputes the surveyor for inspection and
assessment of loss. In major cases, the insured should not remove
damaged property from the place until the photographs of loss are taken
and survey is done by a surveyor.
The claims made by the insurance company is generally paid through

National Electronic Fund Transfer into the bank accounts of the claimants to
ensure immediate and effective payment and to avoid the delay and
corrupt practices in the claim settlement.
Insured grievances regarding delay in settlement of claims, repudiation of

claims, disputes regarding paid/payable claim amount, etc. is addressed by
the Grievance Department of Insurance Companies, Grievance Cell of
IRDA, Insurance Ombudsman, Consumer Disputes Redressal Agencies, etc.
http://www.policyholder.gov.in/ makes a beautiful mention of how to make
a claim and reasons for rejection of claims as follows. Some additional
points are also included on how to make a claim and for mentioning
reasons for rejection of claims and precautions to be taken for avoiding
rejection of claims.
9.2 How To Make a Claim? – Life
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A. Claim on Maturity of the Policy
Policy amount under a Life insurance becomes payable after a certain

period. Such claims are paid to the insured who is alive on the maturity of
the insurance policy.
Where a life insurance policy is maturing, the insurance company usually

sends intimation to the policyholder along with a discharge voucher at least
two to three months in advance of the date of maturity giving details like
the maturity amount payable.
The policyholder has to sign the discharge voucher, which is like an

acknowledgement of receipt of money and have his signature witnessed
before sending it back to the insurance company along with the original
insurance policy to enable it to make the payment.
If the policy has been assigned in favour of any other person or entity –
like a housing loan company – the claim amount will be paid only to the
assignee who will give the discharge.
B. Claims on Survival
Survival benefit is not payable under all types of plans. It is payable in

endowment or moneyback plans after a lapse of a fixed period. The letter
of intimation of survival benefit carries with it a discharge voucher
mentioning the amount payable.
In case of Endowment type of policies, amount is payable at the end of the

policy period. The Insurance Office which services the policy sends out a
letter informing the date on which the policy monies are payable to the
policyholder at least two months before the due date of payment. The
policyholder is requested to return the Discharge Form duly completed
along with the Policy Document. On receipt of these two documents, post-
dated cheque is sent by post so as to reach the policyholder before the due
date.
Some plans like Moneyback Policies provide for periodical payments to the
policyholders provided premium due under the policies are paid up to the
anniversary due for Survival Benefit. In these cases, where amount
payable is less than up to a prescribed amount, cheques are released
! !347
without calling for the Discharge Receipt or Policy Document. However, in

case of higher amounts, Discharge Form duly completed along with the
Policy Document are insisted upon.
C. Claim on Death of the Insured
When a person with a life insurance policy (called a life assured) dies
before the maturity of the insurance policy, a claim intimation should be
sent to the insurance company as early as possible by the assignee or
nominee under the policy or any close relative or the agent who handles
the policy. The policy should not have been lapsed or stopped for non-
payment. The policy money becomes payable just after the death of the
insured irrespective of the period of the policy. If the insured expires within
the grace period, the policy will be still regarded as a living policy.
The claim intimation should contain information like the date, place and
cause of death. The insurance agent has the duty to help the life assured’s
family/assignee to deal with the insurance company to fulfill the formalities
for a claim.
The insurance company will respond to this intimation and will ask for the
following documents:
• Filled-up claim form (provided by the insurance company)
• Claimant’s Statement giving details of the deceased and the claimant
• Certificate of death and Certified extract from Death Register
• Policy document
• Documentary proof of age, if age is not admitted
• Deeds of assignments/re-assignments, if any
• Legal evidence of title, if the policy is not assigned or nominated
• Form of discharge executed and witnessed.
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Other documents such as medical attendant’s certificate, hospital

certificate, employer’s certificate, police inquest report, post-mortem
report, etc. could also be called for, if required. like:
• Medical Attendant’s Certificate to be completed by the Medical Attendant

of the deceased during his/her last illness.
• Medical Attendant Certificate who treated the deceased life assured prior
to his last illness.
• Certificate of Identity and burial or cremation to be completed and signed

by a person of known character and responsibility.
• Certificate by employer if the assured was employed person.
• Certified copies of the First Information Report, the Post-mortem Report

and Police Investigation Report if death was due to accident or unnatural
cause.
Additional information is required by the insurer to satisfy themselves on

the genuineness of the claim, i.e., no material information that would have
affected our acceptance of proposal has been withheld by the deceased at
the time of proposal.
For claiming the benefits under the Accident Benefit, the claimant has to
produce the proof to the satisfaction of the insurer that the accident is
defined as per the policy conditions. Normally, for claiming this benefit,
documents like FIR, Post-mortem Report, etc. are insisted upon.
Disability benefit claims consist of waiver of future premiums under the

policy and extended disability benefit consisting in addition of a monthly
benefit payment as per policy conditions. The essential condition for
claiming this benefit is that the disability is total and permanent so as to
preclude him from earning any wage/compensation or profit as a result of
the accident.
Rider Claims
The life insurance policy can be attached with different riders like
Accidental Rider, Critical Illness Rider, Hospital Cash Rider, Waiver of
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Premium Rider, etc. For different Riders, different proceedings can be opted
for claim settlement. In some cases, the claim may proceed as well as with
the death claim (like waiver of premium rider, accidental death rider, etc.).
But in some other cases, different documents can be required for along
with the duly filled Claim Form and Policy Copy.
9.3 How To Make a Claim? – Health
A claim under a Health Insurance Policy can be made in two ways:
1. On a cashless basis: For a claim on cashless basis, your treatment

must be only at a network hospital of the Third Party Administrator
(TPA) who is servicing your policy. You have to seek authorisation for
availing the treatment on a cashless basis as per procedures laid down
and in the prescribed form. Please read the policy document as soon as
you receive it to familiarise yourself with the process rather than wait
for a claim to arise.
2. Claims on reimbursement basis: Read the clause relating to claims in

your policy document as soon as you receive it to ensure that you
understand the procedure and the documents required for making a
claim on reimbursement basis. When a claim arises you should inform
t h e i n s u ra n c e c o m p a ny a s p e r p r o c e d u r e s r e q u i r e d . A f t e r
hospitalisation, you have to ensure that you obtain and keep ready
documents such as claim form, discharge summary, prescriptions and
bills that you should submit for a claim.
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9.4 How To Make a Claim? – Property
There could be several types of policies that cover property and the
property itself could be stationery – like a building, or moving around – like
your household goods being transported.
Whether or not a claim arises, one must follow the various dos and don’ts
in respect of your property for the duration of the policy. These dos and
don’ts are termed warranties and conditions in the policy document.
In general, losses and damages, including those due to theft, fire and
flood, need be intimated to the relevant authorities such as the police, the
fire brigade and so on. It is important to ensure that you intimate your
insurance company to enable it to send a surveyor for surveying and
assessing the loss.
9.5 How To Make a Claim? – Motor
A claim under a motor insurance policy could be:
a. For personal injury or property damage related to someone else. This

person is called a third party (in this context) or
b. For damage to your own, insured, vehicle. This is called an own damage
claim and you are eligible for this if you are holding what is known as a
package or a comprehensive policy.
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Third Party Claim
In a third party claim, where your vehicle is involved, it is important to

ensure that the accident is reported immediately to the police as well as to
the insurance company.
On the other hand, if you are a victim, that is, if somebody else’s vehicle
was involved, you must obtain the insurance details of that vehicle and
make an intimation to the insurer of that vehicle.
Own Damage Claim
In the event of an own damage claim, that is, where your own vehicle is
damaged due to an accident, you must immediately inform insurance
! !352
company and police, wherever required, to enable them to depute a

surveyor to assess the loss.
Do not attempt to move the vehicle from the accident spot without the
permission of police and the insurance company.
Once you receive permission for removal of the vehicle and for repairs, you
can do so.
If your policy provides for cashless service, which means you do not have
to pay out of your pocket for covered damages, the insurance company will
pay the workshop directly.
In either of these situations, you must intimate the insurance company

immediately.
Theft Claim
If your vehicle is stolen, you must inform the police and the insurance
company immediately. In addition, you must keep the transport
department also informed.
As soon as you receive the policy document, read about the procedures
and documentation requirements for claims rather than wait for a claim to
arise.
If you have to make a claim, ensure that you collect all the required
documents and submit them along with the requisite claim form duly filled
in, to the insurance company.
There may be certain specific documentation requirements for specific

types of claims. For instance, in respect of a theft claim, there is a special
requirement that you should surrender the vehicle keys to the insurance
company.
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9.6 How To Make a Claim? – Travel
A travel insurance policy is generally a package policy that includes

different types of covers like hospitalisation, personal accident, loss/
damage to baggage, loss of passport and so on. The procedure and
documents required for a claim would vary from cover to cover. All of them
would be mentioned in your policy document.
For ease of procedure and your convenience, insurers normally attach the
claim form with the policy document. This will contain the list of documents
required in case of a claim and also the contact details including phone
numbers of the claims administrator either in the destination country to
which you are travelling or in another country that is designated to receive
and process your claim intimation.
9.7 Rejection of Claims
Individuals covered under group policies have had their claims rejected on
technical grounds like slight delays in intimation of claims.
! !354
IRDA has advised insurance companies that contractual conditions should

not prevent them from considering genuine claims. This is especially if
unavoidable circumstances prevented the consumer from following some of
the policy conditions like time-frame for intimation.
IRDA has informed all insurers to honour the spirit of insurance contract,
and reject claims only on ‘valid grounds’. It furthers says as follows:
“The current contractual obligation imposing the condition that the claims
shall be intimated to the insurer with prescribed documents within a
stipulated number of days is necessary for insurers for effecting various
post-claim activities like investigation, loss assessment, provisioning, claim
settlement, etc. However, this condition should not prevent settlement of
genuine claims, particularly when there is delay in intimation or submission
of documents due to unavoidable circumstances. The insurer’s decision to
reject the claim should be on sound logic and valid grounds. It may be
noted that such intimation clause does not work in isolation and is not
absolute. One needs to see the merits and good spirits of the clause,
without compromising on bad claims. Rejection of claims on purely
technical grounds in a mechanical fashion will result in policyholders losing
confidence in insurance industry, giving rise to excessive litigation.
Therefore, it is advised that all insurers need to develop a sound
mechanism of their own to handle such claims with utmost care and
caution. It is also advised that the insurers must not repudiate such claims
unless and until the reasons of delay are specifically ascertained, recorded
and the insurers should satisfy themselves that the delayed claims would
otherwise been rejected even if reported in time. The insurers are advised
to incorporate additional wordings in the policy documents suitably
enunciating insurer’s stand to condone delay on merit for delayed claims
where the delay is proved to be for reasons beyond the control of the
insured.”
Fraudulent Claims
Insurance fraud is a deliberate attempt to use insurance for unjustified

financial gain. Insurance fraud includes bogus claims and the
misrepresentation of facts.
! !355
If fraud is not detected and a fraudulent claim is paid, there are direct
consequences for the insurer, their insureds and on the fraudulent
claimant.
Individual insurer will see fall in profits, rise in claims costs which have
impact on premiums and make them less competitive in the market.
Insured people who do not act fraudulently will also suffer as a result of
fraudulent claims being paid.
The claimant of a fraudulent claim will have a greater temptation to

continue his fraudulent practices.
Section 45 of the Insurance Act, 1938: Policy not to be called in

question on ground of misstatement after two years
No policy of life insurance shall after the expiry of two years from the date
on which it was effected, be called in question by an insurer on the ground
that a statement made in the proposal for insurance or in any report of a
medical officer, or referee, or friend of the insured, or in any other
document leading to the issue of the policy, was inaccurate or false, unless
the insurer shows that such statement was on a material matter or
suppressed facts which it was material to disclose and that it was
fraudulently made by the policyholder and that the policyholder knew at
the time of making it that the statement was false or that it suppressed
facts which it was material to disclose:
Section 45 of the Insurance Act, 1938 in the new Insurance Law

(Amendment) Bill, says no claim can be repudiated after three
years of the policy being in force, even if a fraud is detected.
Revised insurance laws allow the insurer to challenge a
policyholder for misrepresentation of facts or a fraud, only in the
first three years of the policy. In such cases, the insurer must write
to the policyholder or his nominee. Policyholders can now be
! !356
assured that an insurance company will not reject claims once they
complete three years on a policy.
9.8 Claim Settlement Ratio
Claim settlement is one of the most important services that an insurance

company can provide to its customers. Insurance companies have an
obligation to settle claims promptly.
Claim Settlement Ratio helps you find out the chance that your claim will
be settled and how soon it will be settled. The calculation is done by
dividing the total number of death claims received by the total number of
them settled. For instance, if a life insurance company receives 1000 death
claims and settles 950, the claim settlement ratio of that company would
be 95%. The higher the claim settlement ratio of the company, the more
favourable it would be for individuals.
Most companies cite incomplete documentation or concealment of facts as

a reason for rejecting claims. Hence, while buying a life insurance, it is of
utmost importance that you furnish accurate information and ensure that
all paperwork is into place.
The latest data of claim settlement ratio, based on IRDA Annual Report
2013-14 is as follows:
Sl. Company Total Claims Claims Paid Claims Claims

No. (Start of the Year Repudia Pending
+ Claims -ted
Intimated)
No. of Benefits Nos. % % %

Policies Amount
in
Crores
1 LIC 760344 8905.04 746212 98.14% 1.10% 0.52%
2 ICICI Pru 13398 353.47 12608 94.01% 4.98% 0.92%

Life
3 HDFC Life 7259 254.32 6824 94.01% 4.70% 1.29%
4 SBI Life 14233 288.54 12960 91.06% 5.23% 3.71%
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5 Max Life 9478 250.01 8896 93.86% 6.10% 0.04%
6 Kotak Life 2963 88.81 2687 90.69% 7.66% 1.65%
7 Star Union 1022 25.01 949 92.86% 6.26% 0.88%
8 Bharati Axa 1078 33.79 950 88.13% 9.74% 2.13%
9 Bajaj Allianz 23724 440.98 21658 91.29% 6.30% 2.41%
10 Canara 627 31.17 544 86.76% 10.69% 2.55%

HSBC
11 Aviva 2033 119.83 1708 84.00% 15.84% 0.15%
12 Reliance 21033 298.44 17241 81.97% 10.87% 7.16%

Life
13 Sahara Life 836 7.79 754 90.19% 7.89% 1.91%
14 Tata AIA 4711 114.12 4225 89.68% 7.22% 3.10%
15 Met Life 2510 108.17 2265 90.24% 9.40% 0.32%
16 Birla Sunlife 9197 344.82 8071 87.76% 9.57% 2.67%
17 IDBI 932 39.56 842 90.34% 5.47% 4.18%

Federal
18 India First 1258 37.73 920 73.13% 22.97% 3.90%
19 Future 2229 43.09 1669 74.88% 14.76% 10.36%

Generali
20 Shriram Life 1427 38.77 966 67.69% 18.99% 13.31%
21 Aegon 400 32.27 324 81.00% 19.00% -

Religare
22 Edelweiss 80 10.3 48 60.00% 22.50% 17.50%

Tokio
23 DLF 858 27.85 190 22.14% 23.78% 53.96%

Pramerica
24 Exide Life 3741 64.04 3111 83.16% 10.13% 5.53%
Data from IRDA Annual Report 2013-14. www.basunivesh.com
As per the above table, LIC has topped the list and can be considered
as the best Life Insurance Company based on claims settlement
ratio. LIC of India, ICICI Prudential Life and HDFC Life are the top Life
! !358
Insurance companies in terms of best Claim Settlement Ratio (2013-14).

DLF Pramerica, Edelweiss Tokio and Shriram Life Insurance companies
have higher number of repudiated or pending claims.
As per IRDAI’s annual report, the industry’s settlement ratio had slightly
increased to 96.75% in 2013-14 from 96.41% in 2012-13 and the
repudiation ratio had remained almost at the same level of 2.08% in
2013-14 as in 2012-13 (2.10%).
Claim settlement ratio for LIC is better than private insurers. Private
insurers claim settlement ratio has gone down from 88.65% (2012-13) to
88.13% (2013-14). Repudiation of private insurers has increased from
7.85% (2012-13) to 8.03% (2013-14).
The insurance industry of India consists of 52 insurance companies of

which 24 are in life insurance business and 28 are non-life insurers. Among
the life insurers, Life Insurance Corporation (LIC) is the sole public sector
company. Apart from that, among the non-life insurers there are six public
sector insurers. In addition to these, there is sole national reinsurer,
namely, General Insurance Corporation of India. Out of the 24 Life
Insurers,18 reported profit for 2013-14.
Claim Settlement Ratio Details about LIC
During the period 2013-14, the total number of claims (number of policies)
received by LIC of India are 7,60,344. This is inclusive last period’s pending
claims and this periods (2013-14) claims that are booked or intimated.
7,46,212 number of policies out of total 7,60,344 policies were settled

during the period 2013-14. This translates into a claim settlement ratio of
98.14% for LIC.
The total claimed amount (Benefit Amount) on LIC policies during 2013-14
was ` 8,905 crore. Out of which, ` 8,475 crore worth claims are settled.
1.86% claims fall under the category of claims repudiated or pending or

written back. (Repudiated means claim rejected. Pending are yet to be
settled and written back claims are ‘sent back for more information’). The
number of Death Claims repudiated is very small in case of LIC as only in
case of fraudulent suppression of material information is the liability
! !359
repudiated. This is to ensure that claims are not paid to fraudulent persons
at the cost of honest policyholders. Even in these cases, an opportunity is
given to the claimant to make a representation for consideration to review
committees.
One should give importance to claim settlements record and do not

get swayed away by higher returns/tax benefits alone. A high
probability is not a guarantee but indicates a far greater chance of
claim settlement, which means that some people do fall through
the cracks. No matter how efficient the insurer is in claim
settlement, some claims will be rejected. Though Claim Settlement
record is one of the important factors while choosing the life
insurance plan, the other deciding factors can be cost of premium,
features, optional riders, quality of service and your comfort level
with the brand.
The Claimant should look about the following points before

intimate a claim:
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• Whether the policy is in force?
• Whether the policyholder has performed his part? The policy status with
regard to payment of premium, age admission, outstanding loan and
interest, if any; legal restrictions, if any.
• Whether insured event has taken place?
• What are the obligations assumed under the contract?
• Is there any assignment done under the policy?
• Whether all the premiums are paid?
How to ensure settlement of claims and avoid rejection?
• The policy buyer should make full disclosure about material information.
• The policy buyer should fill out the Form on her own and not just sign a
blank form, which may allow the agent to fill incorrect information.
• Do make sure that the insurer conducts a medical test before issuing the
cover. This makes the insurer more responsible for assessing your health
and they will find it harder to repudiate a claim.
• The policy buyer should use the freelook period in order to return the
policy if he finds some errors and omissions during the freelook period of
15 days.
• Nominees should follow the required claim filing process by submitting all
the required documents within the prescribed time.
• Insured should render all cooperation to insurer/surveyor/investigator in

settlement of claim and should make them available all necessary
documents.
A life insurance company shall upon receiving a claim shall process the
claim without delay. Any queries or requirement of additional documents
should be raised all at once and not in a piecemeal manner, within 15 days
from the date of receipt of the claim.
! !361
A claim under life insurance policy should be paid within 30 days from the
date of receipt of all relevant papers and clarifications required from the
insured/representatives of the insured. If the insured initiates an
investigation, then such investigation needs to be completed within 6
months from the time of lodging the claim.
9.9 Policy servicing in lapsed policies
Excessive delay in payments and servicing of the policy leads to the policy
being dead or lapsed.
There is no provision to pay any amount in a lapsed policy unless

specifically mentioned in the policy contract.
However, a lapsed policy may be revived by fulfilling the terms and

conditions as per the policy statement. To avoid losses to all parties,
generally the revival and reinstatement is encouraged and facilitated.
9.10 Policy servicing in case the life assured has

disappeared
Under Indian Evidence Act, 1872, Section 108, a person who has
disappeared is presumed to be dead only if he has not been heard of for 7
years by those who would naturally have heard of him, if he had been
alive.
The claimant has to produce the decree of the court to the effect that the
assured should be presumed to be dead. The legal heirs are required to
keep on paying the premium payment till such court order is received
failing which the policy will be treated as a paid-up policy.
9.11 Policy servicing in case the premature death claim
In case of a premature death claim, i.e., a death within two years of the
commencement of the policy, the insurer asks from claimant documents in
order to eliminate the possibility of any suppression of a material fact at
the time of submitting the proposal.
! !362
i. Hospital treatment details where the assured was hospitalised and a

certificate from the doctor who had last attended on the assured
ii. Certified copies of post-mortem report
iii. The police investigation report if death is due to an accident or

unnatural cause
iv. Certificate from the employer stating that the assured was the employee
v. Certificate of identity from a respectable person.
The policy clearly states that the insurer’s promise to pay the sum assured
is not absolute. Hence, the insurer on receipt of notice of death will have to
first decide whether the sum assured is payable before deciding the
question as to whom it is to be paid. The insurer, therefore, has to satisfy
himself that the assured satisfied all the conditions in the policy and
therefore, closely review the history of the policy. Where the policy is in
force by the date of death by regular payment of the premiums, there will
generally be no difficulty, but where default in payment is made, the sum
assured may not be payable.
In case of endowment policy, some insurance companies have the following

conditions printed on the back of the policy, namely:
a. Nothing is payable if regular payment of premium has not been made

for at least two years.
b. If at least premiums for two years have been paid before the default
occurs, the policy becomes paid up for a proportionately reduced
amount which will be payable provided that if premium for at least
three full years have been paid and death occurs within six months
thereafter from the due date of the first unpaid premium. The sum
assured is paid as if the policy has remained in full force, subject to
deduction of unpaid premiums, etc.
! !363
9.12 Policy servicing in case of disputed claims
In case of conflicting claims, the insurance company may apply to the court
before the expiry of nine months from the date of maturity or date of
notice to the company. Section 47 of the Insurance Act, 1938 provides for
payment into the court and states as follows:
Section 47 in The Insurance Act, 1938: Payment of money into

court.—
1. Where in respect of any policy of life insurance maturing for payment an

insurer is of opinion that by reason of conflicting claims to or
insufficiency of proof of title to the amount secured thereby or for any
other adequate reason it is impossible otherwise for the insurer to
obtain a satisfactory discharge for the payment of such amount, the
insurer may apply to pay the amount into the court within the
jurisdiction of which is situated the place at which such amount is
payable under the terms of the policy or otherwise.
2. A receipt granted by the court for any such payment shall be a

satisfactory discharge to the insurer for the payment of such amount.
3. An application for permission to make a payment into court under this

section shall be made by a petition verified by an affidavit signed by a
principal officer of the insurer setting forth the following particulars,
namely:
a. the name of the insured person and his address;
b. if the insured person is deceased, the date and place of his death;
c. the nature of the policy and the amount secured by it;
d. the name and address of each claimant so far as is known to the

insurer with details of every notice of claim received;
e. the reasons why in the opinion of the insurer a satisfactory

discharged cannot be obtained for the payment of the amount;
and
! !364
f. the address at which the insurer may be served with notice of any
proceeding relating to disposal of the amount paid into court.
4. An application under this section shall not be entertained by the court if

the application is made before the expiry of six months from the
maturing of the policy by survival, or from the date of receipt of notice
by the insurer of the death of the insured, as the case may be.
5. If it appears to the court that a satisfactory discharge for the payment

of the amount cannot otherwise be obtained by the insurer, it shall allow
the amount to be paid into court and shall invest the amount in
Government securities pending its disposal.
6. The insurer shall transmit to the court every notice of claim received
after the making of the application under sub-section (3), and any
payment required by the court as costs of the proceedings or otherwise
in connection with the disposal of the amount paid into court shall as to
the cost of the application under sub-section (3) be borne by the insurer
and as to any other costs be in the discretion of the court.
7. The court shall cause notice to be given to every ascertained claimant of

the fact that the amount has been paid into court, and shall cause
notice at the cost of any claimant applying to withdraw the amount to
be given to every other ascertained claimant.
8. The court shall decide all questions relating to the disposal of claims to
the amount paid into court.
The provisions of Section 47 of The Insurance Act, 1938 are applicable only
to claims under life insurance but not under other insurance like fire,
marine, etc. This provision does not apply to small insurance as they are
covered by Section 47A of the The Insurance Act, 1938.
Section 47A in The Insurance Act, 1938: Claims on small life

insurance policies.—
1. In the event of any dispute relating to the settlement of a claim on a

policy of life insurance assuring a sum not exceeding two thousand
rupees (exclusive of any profit or bonus not being a guaranteed profit or
bonus) issued by an insurer in respect of insurance business transacted
! !365
in India, arising between a claimant under the policy and the insurer
who issued the policy or has otherwise assumed liability in respect
thereof, the dispute may at the option of the claimant be referred to the
Authority for decision, and the Authority may after giving an opportunity
to the parties to be heard and after making such further inquiries as it
may think fit, decide the matter.
2. The decision of the Authority under this sub-section shall be final and
shall not be called in question in any court, and may be executed by the
court which would have been competent to decide the dispute if it had
not been referred to the Authority as if it were a decree passed by that
court.
3. There shall be charged and collected in respect of the duties of the

Authority under this section such fees whether by way of percentage or
otherwise as may be prescribed.
9.13 Entities entitled to claim Insurance Benefits
Life insurance benefits are not paid automatically. If you are the beneficiary
of a life insurance policy, you must file a claim in order to receive any
money. The following entities are entitled to claim insurance benefits:
1. The Assured Himself: The insured himself is eligible to get the

insurance benefits if he survives at the date of maturity. In case of
insurance on the life of third parties also, the insured will be entitled to
get the insured amount. If the insured is a member of Joint Hindu
Family, the policy money is treated as a separate money of the assured.
2. Nominee: Nominee becomes entitled to payment only where the

assured has died.
3. Assignee: If the policy has been assigned/transferred, the assignee is

entitled to the payment, subject to the term and conditions of
assignment.
4. Receiver: If the insured is adjudged insolvent, the receiver is entitled

to receive the sum assured.
! !366
5. Income Tax Officer: If any amount is due by an assessee in respect of

arrears of income tax, the Income Tax Officer may according to Section
226(3) of the Income Tax Act, 1961 may by notice in writing require any
person from whom money is due or may become due to the assessee to
pay to the Income Tax Officer so much as is sufficient to pay the arrears
and every person to whom such notice is issued shall be bound to
comply with such notice.
6. Executors and Administrators: It is generally provided in the policy

that the sum assured is payable to the assured or his executors,
administrators, assignees or other legal representatives. If the life
assured has died without making an assignment or nomination under
the policy, the insurer requires evidence of legal title of the person to
receive the payment under the policy. A probate of a will or a letter of
administration will be required by the insurer in such cases. In cases
where it is not compulsory to have them, a succession certificate is
sufficient. Neither of the above documents may be required if the claim
amount is not large and the deceased died leaving class heirs under the
Hindu Succession Act like wife, sons, daughters, parents, etc. The estate
of the deceased vests in the executors whether or not he has obtained
probate as he derives title from the will itself and not from the probate.
7. Heirs and Successors: Heirs and Successors are entitled to payment

of insured sum under a policy to the exclusion of all except assignees.
Even nominee holds the money under the policy as a trustee of the
heirs of the insured. The legal representatives of the assured cannot
make a claim on the life policy of the assured on the death caused by
the willful misconduct of the assured as well as in case of suicide. On
the basis of cardinal rules on legal theory based on public policy, no one
shall be allowed to take advantage of his own wrong. This rule is
expressed in the maxim ex turpi causa non oritur octio, i.e., no cause of
action arises out of wrong. The only exceptions of suicide rule may be in
case of a clause inserted in the policy that if a third party has acquired a
bonafide interest for valuable consideration, he will be entitled to
recover the amount not exceeding the sum assured and the right of a
bonafide assignee may also be protected.
Death which does not occur in the usual course or natural course of events
or events which could not be reasonably anticipated is considered to be
! !367
accidental one. Injury or death caused by lightening, sunstroke or earth

quake has been held to be accidental for the purpose of insurance cover.
The foremost duty of the insurer is to pay the policy amount on its
maturity to the lawful claimant. On payment, the insurer’s liability
gets discharged.
9.14 Setting up of the institution to reduce litigation and

protect consumers’ interest
IRDA’s regulations stipulate the Turnaround Times (TAT) for various

services that an insurance company has to render to you, the consumer.
These are part of the IRDA Protection of Policyholders’ Interests
(PPHI) Regulations 2002.
Insurance companies are also required to have an effective Grievance

Redressal Mechanism and IRDA has created the guidelines for that too.
The IRDA Protection of Policyholders’ Interests (PPHI) Regulations 2002

and Grievance Redressal Mechanism have been given below.
Insurance Regulatory and Development Authority (Ref: 3/CA/GRV/

YPB/10-11 27th July, 2010) All Life and General Insurance
Companies Re: Guidelines for Grievance Redressal by Insurance
Companies
Further to Regulation 5 of IRDA Regulations for Protection of Policyholders

Interests, 2002 which provides for insurers to have in place speedy and
effective grievance redressal systems,and in terms of the Authority’s
powers and functions as enunciated in Section 14 of IRDA Act, 1999, the
IRDA hereby issues the following guidelines pertaining to minimum time-
frames and uniform definitions and classifications with respect to grievance
redressal by insurance companies.
These guidelines are applicable for disposal of “grievances/complaints” as

defined herein. All insurers shall ensure that the guidelines of the Authority
are followed strictly.
! !368
1. Definition of “Grievance/Complaint”
There shall be a uniform definition of “Grievance or Complaint”. Grievances

shall be clearly distinguished from Inquiries and Requests, which do not fall
within the scope of these guidelines.
The following definition of grievance shall be adopted:
Grievance/Complaint: A “Grievance/Complaint” is defined as any

communication that expresses dissatisfaction about an action or lack of
action, about the standard of service/deficiency of service of an insurance
company and/or any intermediary or asks for remedial action.
On the other hand, an Inquiry and Request would mean the following:
Inquiry: An “Inquiry” is defined as any communication from a customer

for the primary purpose of requesting information about a company and/or
its services.
Request: A “Request” is defined as any communication from a customer

soliciting a service such as a change or modification in the policy.
2. Grievance Redressal Policy
Every insurer shall have a Board approved Grievance Redressal Policy

which shall be filed with IRDA.
3. Grievance Officer/s
Every insurer shall have a designated Grievance Officer of a senior

management level. Senior Management would mean either the CEO or the
Compliance Officer of the company. Every office other than the Head/
Corporate/Principal Officer of an insurer shall also have an officer
nominated as the Grievance Officer for that office.
4. Grievance Redressal System/Procedure
Every insurer shall have a system and a procedure for receiving,

registering and disposing of grievances in each of its offices. This and all
other relevant details along with details of Turnaround Times (TATs) shall
! !369
be clearly laid down in the policy. While insurers may lay down their own
TATs, they shall ensure that the following minimum time-frames are
adopted:
(a)An insurer shall send a written acknowledgement to a complainant

within 3 working days of the receipt of the grievance.
(b)The acknowledgement shall contain the name and designation of the

officer who will deal with the grievance.
(c)It shall also contain the details of the insurer’s grievance redressal
procedure and the time taken for resolution of disputes.
(d)Where the insurer resolves the complaint within 3 days, it may

communicate the resolution along with the acknowledgement.
(e)Where the grievance is not resolved within 3 working days, an insurer

shall resolve the grievance within 2 weeks of its receipt and send a
final letter of resolution.
(f) Where, within 2 weeks, the company sends the complainant a written
response which offers redress or rejects the complaint and gives
reasons for doing so,
i. the insurer shall inform the complainant about how he/she may
pursue the complaint, if dissatisfied.
ii. the insurer shall inform that it will regard the complaint as closed
if it does not receive a reply within 8 weeks from the date of
receipt of response by the insured/policyholder.
Any failure on the part of insurers to follow the above-mentioned

procedures and time-frames would attract penalties by the Insurance
Regulatory and Development Authority.
It may be noted that it is necessary for each and every office of the insurer
to adopt a system of grievance registration and disposal.
! !370
5. Turnaround Times
There are two types of turnaround times involved.
i. The service level turnaround times, which are mapped to each

classification of complaint (which is itself based on the service aspect
involved).
ii. The turnaround time involved for the grievance redressal.
As to (i), the TATs are as mapped to the classification and prescribed by

the Authority to insurers.
These TATs reflect the time-frames as already laid down in the IRDA
Regulations for Protection of Policyholders’ Interests and more, as,
wherever considered necessary (for certain service aspects not getting
specifically reflected in the Regulations), specific TATs are indicated in the
classification and mapping provided by the Authority.
As regards (ii) above, the minimum TATs required to be followed shall be as

prescribed in guideline 4(a) to (g) as prescribed above.
6. Closure of Grievance
A complaint shall be considered as disposed of and closed when:
a. the company has acceded to the request of the complainant fully.
b. where the complainant has indicated in writing, acceptance of the

response of the insurer.
c. where the complainant has not responded to the insurer within 8

weeks of the company’s written response.
d. where the Grievance Redressal Officer has certified that the company
has discharged its contractual, statutory and regulatory obligations
and therefore closes the complaint.
! !371
7. Categorisation of Complaints
a. Categorisation of complaints as prescribed by the Authority from time

to time shall be adopted by insurers and incorporated in their
systems.
b. The present classification prescribed by the Authority is placed at

Annexure A. All insurers shall provide for these classification
categories in their respective systems.
8. Minimum Software Requirements
It is necessary for insurers to have automated systems that will enable

online registration, tracking of status of grievances by complainants and
periodical reports as prescribed by IRDA.
The system should also be one which can integrate seamlessly with the
Authority’s system in the manner prescribed by the Authority. The
Authority shall define these requirements from time to time and insurers
shall ensure that they provide for such software/system modifications as
may be required. The objective is to create the required industry level
database and systems that would enable speedy and effective redressal of
complaints.
9. Calls Relating to Grievances
Insurers shall also have in place a system to receive and deal with all kinds
of calls including voice/e-mail, relating to grievances, from prospects and
policyholders. The system should enable and facilitate the required
interfacing with IRDA’s system of handling calls/e-mails.
10.Publicising Grievance Redressal Procedure
Every insurer shall publicise its grievance redressal procedure and ensure
that it is specifically made available on its website.
11.Policyholder Protection Committee
Every insurer that ensure that the Policyholder Protection Committee, as

stipulated in the guidelines for Corporate Governance issued by the
! !372
Authority, is in place and is receiving and analysing the required reports

from the management and is carrying out all other requisite monitoring
activities.
TATs for an Insurance Company to Deal with Various Types of

Complaints (Source: http://www.policyholder.gov.in)
Insurance Regulatory and Development Authority (Protection of

Policyholders’ Interests) Regulations, 2002 (Insurance Regulatory
and Development Authority Notification, the 16th October 2002)
In exercise of the powers conferred by clause (zc) of sub-section (2) of

Section 114A of the Insurance Act, 1938 (4 of 1938) read with Sections 14
and 26 of the Insurance Regulatory and Development Authority Act, 1999
(41 of 1999), the Authority, in consultation with the Insurance Advisory
Committee, hereby makes the following regulations, namely:
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1. Short Title and Commencement
(i) These regulations may be called the Insurance Regulatory and

Development Authority (Protection of Policyholders’ Interests)
Regulations, 2002
(ii) They shall come into force on the date of their publication in the
Official Gazette and shall apply to all contracts of insurance effected
thereafter, except Regulation 4(1) which shall come into force on 1st
October, 2002.
(iii) These Regulations are in addition to any other regulations made by

the Authority, which may, inter alia, provide for protection of the
interest of policyholders.
(iv) These Regulations apply to all insurers, insurance agents, insurance

intermediaries and policyholders.
2. Definitions
I. In these regulations, unless the context otherwise requires:
(a) “Act” means the Insurance Act, 1938 (4 of 1938);
(b) “Authority” means the Insurance Regulatory and Development

Authority established under the provisions of Section 3 of the
Insurance Regulatory and Development Authority Act, 1999 (41
of 1999);
(c) “Cover” means an insurance contract whether in the form of a

policy or a cover note or a Certificate of Insurance or any other
form prevalent in the industry to evidence the existence of an
insurance contract;
(d) “Proposal form” means a form to be filled in by the proposer for

insurance, for furnishing all material information required by the
insurer in respect of a risk, in order to enable the insurer to
decide whether to accept or decline, to undertake the risk, and in
the event of acceptance of the risk, to determine the rates, terms
and conditions of a cover to be granted.
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Explanation: “Material” for the purpose of these regulations

shall mean and include all important, essential and relevant
information in the context of underwriting the risk to be covered
by the insurer.
(e) “Prospectus” means a document issued by the insurer or in its

behalf to the prospective buyers of insurance, and should contain
such particulars as are mentioned in Rule 11 of Insurance Rules,
1939 and includes a brochure or leaflet serving the purpose.
Such a document should also specify the type and character of
riders on the main product indicating the nature of benefits
flowing thereupon;
(f) Words and expressions used and not defined in these regulations,
but defined in the Act, or the Life Insurance Corporation Act,
1956, (31 of 1956) or the General Insurance Business
(Nationalisation) Act 1972 (57 of 1972), or the Insurance
Regulatory and Development Authority Act, 1999 (41 of 1999) or
the Insurance Rules, 1939 shall have the meanings respectively
assigned to them in those Acts or the Rules.
3. Point of Sale
I. Notwithstanding anything mentioned in Regulation 2(e) above, a

prospectus of any insurance product shall clearly state the scope of
benefits, the extent of insurance cover and in an explicit manner
explain the warranties, exceptions and conditions of the insurance
cover and, in case of life insurance, whether the product is
participating (with-profits) or non-participating (without-profits). The
allowable rider or riders on the product shall be clearly spelt out with
regard to their scope of benefits, and in no case, the premium
relatable to all the riders put together shall exceed 30% of the
premium of the main product.
Explanation: The rider or riders attached to a life policy shall bear

the nature and character of the main policy, viz., participating or non-
participating and accordingly, the life insurer shall make provisions,
etc. in its books.
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II. An insurer or its agent or other intermediary shall provide all material
information in respect of a proposed cover to the prospect to enable
the prospect to decide on the best cover that would be in his or her
interest.
III.Where the prospect depends upon the advice of the insurer or his
agent or an insurance intermediary, such a person must advise the
prospect dispassionately.
IV. Where, for any reason, the proposal and other connected papers are
not filled by the prospect, a certificate may be incorporated at the
end of proposal form from the prospect that the contents of the form
and documents have been fully explained to him and that he has fully
understood the significance of the proposed contract.
V. In the process of sale, the insurer or its agent or any intermediary

shall act according to the code of conduct prescribed by:
(i) the Authority;
(ii)the Councils that have been established under Section 64C of the
Act; and
(iii)the recognised professional body or association of which the agent

or intermediary or insurance intermediary is a member.
4. Proposal for Insurance
I. Except in cases of a marine insurance cover, where current market

practices do not insist on a written proposal form, in all cases, a
proposal for grant of a cover, either for life business or for general
business, must be evidenced by a written document. It is the duty of
an insurer to furnish to the insured free of charge, within 30 days of
the acceptance of a proposal, a copy of the proposal form.
II. Forms and documents used in the grant of cover may, depending
upon the circumstances of each case, be made available in languages
recognised under the Constitution of India.
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III.In filling the form of proposal, the prospect is to be guided by the

provisions of Section 45 of the Act. Any proposal form seeking
information for grant of life cover may prominently state therein the
requirements of Section 45 of the Act.
IV. Where a proposal form is not used, the insurer shall record the
information obtained orally or in writing, and confirm it within a
period of 15 days thereof with the proposer and incorporate the
information in its cover note or policy. The onus of proof shall rest
with the insurer in respect of any information not so recorded, where
the insurer claims that the proposer suppressed any material
information or provided misleading or false information on any matter
material to the grant of a cover.
V. Wherever the benefit of nomination is available to the proposer, in

terms of the Act or the conditions of policy, the insurer shall draw the
attention of the proposer to it and encourage the prospect to avail
the facility.
VI.Proposals shall be processed by the insurer with speed and efficiency

and all decisions thereof shall be communicated by it in writing within
a reasonable period not exceeding 15 days from receipt of proposals
by the insurer.
5. Grievance Redressal Procedure
Every insurer shall have in place proper procedures and effective

mechanism to address complaints and grievances of policyholders
efficiently and with speed and the same along with the information in
respect of Insurance Ombudsman shall be communicated to the
policyholder along with the policy document and as maybe found
necessary.
6. Matters to be Stated in Life Insurance Policy
I. A life insurance policy shall clearly state:
(a) the name of the plan governing the policy, its terms and
conditions;
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(b) whether it is participating in profits or not;
(c) the basis of participation in profits such as cash bonus, deferred

bonus, simple or compound reversionary bonus;
(d) the benefits payable and the contingencies upon which these are
payable and the other terms and conditions of the insurance
contract;
(e) the details of the riders attaching to the main policy;
(f) the date of commencement of risk and the date of maturity or

date(s) on which the benefits are payable;
(g) the premiums payable, periodicity of payment, grace period

allowed for payment of the premium, the date the last
installment of premium, the implication of discontinuing the
payment of an installment(s) of premium and also the provisions
of a guaranteed surrender value.
(h) the age at entry and whether the same has been admitted;
(i) the policy requirements for: (a) conversion of the policy into
paid-up policy,(b) surrender, (c) non-forfeiture and (d) revival of
lapsed policies;
(j) contingencies excluded from the scope of the cover, both in

respect of the main policy and the riders;
(k) the provisions for nomination, assignment, and loans on security

of the policy and a statement that the rate of interest payable on
such loan amount shall be as prescribed by the insurer at the
time of taking the loan;
(l) any special clauses or conditions, such as, first pregnancy clause,
suicide clause, etc.;
(m) the address of the insurer to which all communications in respect

of the policy shall be sent; and
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(n) the documents that are normally required to be submitted by a

claimant in support of a claim under the policy.
II. While acting under regulation 6(1) in forwarding the policy to the
insured, the insurer shall inform by the letter forwarding the policy
that he has a period of 15 days from the date of receipt of the policy
document to review the terms and conditions of the policy and where
the insured disagrees to any of those terms or conditions, he has the
option to return the policy stating the reasons for his objection, when
he shall be entitled to a refund of the premium paid, subject only to a
deduction of a proportionate risk premium for the period on cover
and the expenses incurred by the insurer on medical examination of
the proposer and stamp duty charges
III.In respect of a unit linked policy, in addition to the deductions under

sub-regulation (2) of this regulation, the insurer shall also be entitled
to repurchase the unit at the price of the units on the date of
cancellation.
IV. In respect of a cover, where premium charged is dependent on age,

the insurer shall ensure that the age is admitted as far as possible
before issuance of the policy document. In case where age has not
been admitted by the time the policy is issued, the insurer shall make
efforts to obtain proof of age and admit the same as soon as
possible.
7. Matters to be Stated in General Insurance Policy
I. A general insurance policy shall clearly state:
(a)the name(s) and address(es) of the insured and of any bank(s) or

any other person having financial interest in the subject matter of
insurance;
(b)full description of the property or interest insured;
(c)the location or locations of the property or interest insured under

the policy and, where appropriate, with respective insured values;
(d)period of Insurance;
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(e)sums insured;
(f) perils covered and not covered;
(g)any franchise or deductible applicable;
(h)premium payable and where the premium is provisional subject to

adjustment, the basis of adjustment of premium be stated;
(i) policy terms, conditions and warranties;
(j) action to be taken by the insured upon occurrence of a

contingency likely to give rise to a claim under the policy;
(k)the obligations of the insured in relation to the subject matter of

insurance upon occurrence of an event giving rise to a claim and
the rights of the insurer in the circumstances;
(l) any special conditions attaching to the policy;
(m)provision for cancellation of the policy on grounds of mis-

representation, fraud, non-disclosure of material facts or non-
cooperation of the insured;
(n)the address of the insurer to which all communications in respect

of the insurance contract should be sent;
(o)the details of the riders attaching to the main policy;
(p)proforma of any communication the insurer may seek from the

policyholders to service the policy.
II. Every insurer shall inform and keep informed periodically the insured
on the requirements to be fulfilled by the insured regarding lodging of
a claim arising in terms of the policy and the procedures to be
followed by him to enable the insurer to settle a claim early.
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8. Claims Procedure in Respect of a Life Insurance Policy
I. A life insurance policy shall state the primary documents which are
normally required to be submitted by a claimant in support of a
claim.
II. A life insurance company, upon receiving a claim, shall process the
claim without delay. Any queries or requirement of additional
documents, to the extent possible, shall be raised all at once and not
in a piecemeal manner, within a period of 15 days of the receipt of
the claim.
III.A claim under a life policy shall be paid or be disputed giving all the
relevant reasons, within 30 days from the date of receipt of all
relevant papers and clarifications required. However, where the
circumstances of a claim warrant an investigation in the opinion of
the insurance company, it shall initiate and complete such
investigation at the earliest. Where in the opinion of the insurance
company the circumstances of a claim warrant an investigation, it
shall initiate and complete such investigation at the earliest, in any
case not later than 6 months from the time of lodging the claim.
IV. Subject to the provisions of Section 47 of the Act, where a claim is

ready for payment but the payment cannot be made due to any
reasons of a proper identification of the payee, the life insurer shall
hold the amount for the benefit of the payee and such an amount
shall earn interest at the rate applicable to a savings bank account
with a scheduled bank (effective from 30 days following the
submission of all papers and information).
V. Where there is a delay on the part of the insurer in processing a

claim for a reason other than the one covered by sub-regulation (4),
the life insurance company shall pay interest on the claim amount at
a rate which is 2% above the bank rate prevalent at the beginning of
the financial year in which the claim is reviewed by it.
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9. Claim Procedure in Respect of a General Insurance Policy
I. An insured or the claimant shall give notice to the insurer of any loss
arising under contract of insurance at the earliest or within such
extended time as may be allowed by the insurer. On receipt of such a
communication, a general insurer shall respond immediately and give
clear indication to the insured on the procedures that he should
follow. In cases where a surveyor has to be appointed for assessing a
loss/claim, it shall be so done within 72 hours of the receipt of
intimation from the insured.
II. Where the insured is unable to furnish all the particulars required by
the surveyor or where the surveyor does not receive the full
cooperation of the insured, the insurer or the surveyor as the case
may be, shall inform in writing the insured about the delay that may
result in the assessment of the claim. The surveyor shall be subjected
to the code of conduct laid down by the Authority while assessing the
loss, and shall communicate his findings to the insurer within 30 days
of his appointment with a copy of the report being furnished to the
insured, if he so desires. Where, in special circumstances of the case,
either due to its special and complicated nature, the surveyor shall
under intimation to the insured, seek an extension from the insurer
for submission of his report. In no case shall a surveyor take more
than six months from the date of his appointment to furnish his
report.
III.If an insurer, on the receipt of a survey report, finds that it is

incomplete in any respect, he shall require the surveyor under
intimation to the insured, to furnish an additional report on certain
specific issues as may be required by the insurer. Such a request may
be made by the insurer within 15 days of the receipt of the original
survey report:
Provided that the facility of calling for an additional report by the

insurer shall not be resorted to more than once in the case of a
claim.
IV. The surveyor on receipt of this communication shall furnish an

additional report within three weeks of the date of receipt of
communication from the insurer.
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V. On receipt of the survey report or the additional survey report, as the

case may be, an insurer shall within a period of 30 days offer a
settlement of the claim to the insured. If the insurer, for any reasons
to be recorded in writing and communicated to the insured, decides
to reject a claim under the policy, it shall do so within a period of 30
days from the receipt of the survey report or the additional survey
report, as the case may be.
VI.Upon acceptance of an offer of settlement as stated in sub-regulation

(5) by the insured, the payment of the amount due shall be made
within 7 days from the date of acceptance of the offer by the insured.
In the cases of delay in the payment, the insurer shall be liable to
pay interest at a rate which is 2% above the bank rate prevalent at
the beginning of the financial year in which the claim is reviewed by
it.
10.Policyholders’ Servicing
I. An insurer carrying on life or general business, as the case may be,

shall at all times, respond within 10 days of the receipt of any
communication from its policyholders in all matters, such as:
(a)recording change of address;
(b)noting a new nomination or change of nomination under a policy;
(c)noting an assignment on the policy;
(d)providing information on the current status of a policy indicating

matters, such as, accrued bonus, surrender value and entitlement
to a loan;
(e)processing papers and disbursal of a loan on security of policy;
(f) issuance of duplicate policy;
(g)issuance of an endorsement under the policy; noting a change of

interest or sum assured or perils insured, financial interest of a
bank and other interests; and
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(h)guidance on the procedure for registering a claim and early

settlement thereof.
11.General
I. The requirements of disclosure of “material information” regarding a

proposal or policy apply, under these regulations, both to the insurer
and the insured.
II. The policyholder shall assist the insurer, if the latter so requires, in
the prosecution of a proceeding or in the matter of recovery of claims
which the insurer has against third parties.
III.The policyholder shall furnish all information that is sought from him
by the insurer and also any other information which the insurer
considers as having a bearing on the risk to enable the latter to
assess properly the risk sought to be covered by a policy.
IV. Any breaches of the obligations cast on an insurer or insurance agent

or insurance intermediary in terms of these regulations may enable
the Authority to initiate action against each or all of them, jointly or
severally, under the Act and/or the Insurance Regulatory and
Development Authority Act, 1999.
The Malhotra Committee had recommended setting up of the institution of

Ombudsman with a view to reduce litigation and to protect consumers’
interest in the backdrop of privatisation of the insurance sector. In India,
we find the institution of Ombudsman as Lok Pal in the centre and Lok
Ayukta in the states. The Central Government in exercise of the powers
conferred on it by the Insurance Act, 1938 by notification framed the
Redressal of Public Grievances Rules 1998 which provides for setting up a
governing body of the Insurance Council which shall consist of one
representative from each of the insurance companies and appointment of
one or more persons as Ombudsman.
If You Have a Grievance?
The Consumer Affairs Department of the Insurance Regulatory and

Development Authority (IRDA) has introduced the Integrated Grievance
Management System (IGMS) which is an online system for registration and
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tracking of grievances. One must register his grievance first with the
insurance company and in case he is not satisfied with its disposal by the
company, he may escalate it to IRDA through IGMS by accessing
www.igms.irda.gov.in. Apart from registering your grievance through IGMS
(i.e., web), you have several channels for grievance registration—through
e-mail (complaints@irda.gov.in), through letter (address your letter to
Consumer Affairs Department, Insurance Regulatory and Development
Authority, 3rd Floor, Parishram Bhavan, Basheerbagh, Hyderabad-4) or
simply call IRDA Call Centre at Toll Free 155255 through which IRDA shall,
free of cost, register one’s complaints against insurance companies as well
as help track its status. The Call Centre assists by filling up the complaints
form on the basis of the call. Wherever required, it will facilitate in filing of
complaints directly with the insurance companies as the first port of call by
giving information relating to the address, telephone number, website
details, contact number, e-mail ID, etc. of the insurance company. IRDA
Call Centre offers a true alternative channel for prospects and
policyholders, with comprehensive tele-functionalities, serving as a 12
hours × 6 days service platform from 8 a.m. to 8 p.m., Monday to
Saturday in Hindi, English and various Indian languages.
When a complaint is registered with IRDA, it facilitates resolution by taking

it up with the insurance company. The company is given 15 days’ time to
resolve the complaint. If required, IRDA carries out investigations and
enquiries. Further, wherever applicable, IRDA advises the complainant to
approach the Insurance Ombudsman in terms of the Redressal of Public
Grievances Rules, 1998.
Insurance Ombudsman
In case a grievance of a policyholder is not redressed by the insurer,

alternate grievance redressal mechanism is provided for in the insurance
sector through the institution of Insurance Ombudsman set up under the
Redressal of Public Grievance Rules, 1998.
Subject matter of complaints that can be taken up before Insurance

Ombudsmen are partial or complete repudiation of claims and delay in
settlement, non-issuance of policy, dispute relating to premium and
interpretation of clauses in relation to claim. There is no provision for
appeal against the order of Ombudsman under the Redressal of Public
Grievances Rules.
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If not satisfied, the policyholder or claimant may ignore the award and go
to the court, consumer forum, etc. and if the customer consents, the
insurer is has to implement the award unless it chooses to approach Court.
Redress of Public Grievances Rules, 1998, Rule 6
The governing body shall appoint one or more persons as ombudsman for
the purpose of these rules. The Ombudsman selected may be drawn from a
wider circle including those who have experience or have been exposed to
the industry, civil service, administrative service, etc. in addition to those
drawn from judicial service. An Ombudsman shall be appointed by the
Governing Body from a panel prepared by the Committee consisting of:
a. Chairman of Insurance Regulatory Authority – Chairman
b. Two representatives of Insurance Council including one each from the

Life Insurance Business and from General Insurance Business
respectively – Member
c. One representative of the Central Government – Member.
An Ombudsman shall be appointed for a term of three years and shall be

eligible for reappointment. Provided that no person shall hold office as such
Ombudsman after he has attained the age of 65 years.
Power of Ombudsman
1. The Ombudsman may receive and consider:
(a) Complaints under Rule 13;
(b) Any partial or total repudiation of claims by an insurer;
(c) Any dispute in regard to premium paid or payable in terms of the

policy;
(d) Any dispute on the legal construction of the policies insofar as such
disputes relate to claims;
(e) Delay in settlement of claims;
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(f) Non-issue of any insurance document to customers after receipt of

premium.
2. The Ombudsman shall act as counsellor and mediator in matters, which

are within his terms of reference and, if requested to do so in writing by
mutual agreement by the insured person and insurance company.
3. The Ombudsman’s decision whether the complaint is fit and proper for
being considered by it or not shall be final.
Manner in Which Complaint is to be Made
1. Any person who has a grievance against an insurer, may himself or

through his legal heirs make a complaint in writing to the Ombudsman
within whose jurisdiction the branch or office of the insurer complaint
against is located.
2. The complaint shall be in writing duly signed by the complainant or

through his legal heirs and shall state clearly the name and address of
the complainant, the name of the branch or office of the insurer against
which the complaint is made, the fact giving rise to complaint supported
by documents, if any, relied on by the complainant, the nature and
extent of the loss caused to the complainant and the relief sought from
the Ombudsman.
3. No complaint to the Ombudsman shall lie unless:
(a) the complainants had before making a complaint to the

Ombudsman made a written representation to the insurer named in
the complaint and either insurer had rejected the complaint or the
complainant had not received any reply within a period of one
month after the insurer concerned received his representation or
the complainant is not satisfied with the reply given to him by the
insurer.
(b) the complaint is made not later than one year after the insurer had
rejected the representation or sent his final reply on the
representation of the complainant; and
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(c) the complaint is not on the same subject matter, for which any
proceedings before any court, or Consumer Forum, or arbitrator is
pending or were so earlier.
Ombudsman to Act Fairly and Equitably:
1. The Ombudsman may, if he deems fit, adopt a procedure other than

mentioned in sub-rule (1) and (2) of Rule 13 for dealing with a claim:
Provided that the Ombudsman may ask the parties for necessary papers
in support of their respective claims and where he considers necessary,
he may collect factual information available with the insurance company.
2. The Ombudsman shall dispose of a complaint fairly and equitably.
Recommendations made by the Ombudsman:
1. When a complaint is settled, through mediation of the Ombudsman,

undertaken by him in pursuance of request made in writing by
complainant and insurer through mutual agreement, the Ombudsman
shall make a recommendation which he thinks fair in the circumstances
of the case. The copies of the recommendation shall be sent to the
c o m p l a i n a n t a n d t h e i n s u ra n c e c o m p a ny c o n c e r n e d . S u c h
recommendation shall be made not later than one month from the date
of the receipt of the complaint.
2. If a complainant accepts the recommendation of the Ombudsman, he

will send a communication in writing within 15 days of the date of
receipt of the recommendation. He will confirm his acceptance to
Ombudsman and state clearly that the settlement reached is acceptable
to him, in totally, in terms of recommendations made by the
Ombudsman in full and final settlement of complaint.
3. The Ombudsman shall send to the insurance company a copy of the

recommendation along with the acceptance letter received from the
complainant. The insurer shall thereupon comply with the terms of the
recommendations immediately not later than 15 days of the receipt
of such recommendation and the insurer shall inform the Ombudsman
of its compliance.
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Award
1. Where the complaint is not settled by agreement under Rule 15, the
Ombudsman shall pass an award, which he thinks fair in the facts and
circumstances of a claim.
2. An award shall be in writing and shall state the amount awarded to the
complainant: Provided that Ombudsman shall not award any
compensation in excess of which is necessary to cover the loss suffered
by the complainant as a direct consequence of the insured peril, or for
an amount not exceeding rupees twenty lakhs (including ex-gratia and
other expenses), whichever is lower.
3. The Ombudsman shall pass an award within a period of three months

from the receipt of the complaint.
4. A copy of the award shall be sent to the complainant and the insurer
named in the complaint.
5. The complainant shall furnish to the insurer within a period of one

month from the date of receipt of the award, a letter of acceptance that
the award is in full and final settlement of his claim.
6. The insurer shall comply with the award within 15 days of the receipt of
the acceptance letter under sub-rule (5) and it shall intimate the
compliance to the Ombudsman.
Consequences of non-acceptance of award: If the complainant does

not intimate the acceptance under sub-rule (5) of Rule 16, the award may
not be implemented by the insurance company.
Power to make ex-gratia payment: If the Ombudsman deems fit, he

may award an ex-gratia payment.
Miscellaneous Provisions
Advisory Committee: An Advisory Committee consisting of not exceeding

five eminent persons shall be notified by the Government to assist the
Insurance Regulatory Authority to review the performance of the
Ombudsman from time to time. The Insurance Regulatory Authority shall
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decide the time, venue and quorum of such meeting. The authority, after
discussing the matter with the Governing Body, may recommend to
Government appropriate proposals for effecting improvements in the
functioning of Ombudsman. In the light of recommendations made by the
Insurance Regulatory Authority, the Government may carry out such
amendments to these rules as they may deem fit.
The Ombudsman shall furnish a report every year containing a general

review of the activities of the office of the Ombudsman during preceding
financial year to the Central Government and such other information as
may be considered necessary by it. In the Annual Report, the Ombudsman
will make an annual review of the quality of services rendered by the
insurer and make recommendations to improve these services.
Recommendation of the Insurance Council: The Insurance Council

may suggest to the Ombudsman such recommendation as it deems fit and
which in its opinion will enhance the utility of the annual report and also so
that the objectives of the rules are clearly analysed in terms of the
activities in the year under review. Suggestions for long-term improvement
of insurance sector will be incorporated by the Ombudsman in his report.
The Grievance Redressal Machinery has been further expanded

with the appointment of Insurance Ombudsman at different
centers by the Government of India. At present, there are 12
centres operating all over the country (Mumbai, Bhubaneshwar,
Chandigarh, Chennai, New Delhi, Gauhati, Hyderabad, Ernakulam,
Kolkata, Lucknow, Ahmedabad and Bhopal).
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9.15 Summary
A claim arises in insurance when insured has a valid insurance policy which
has not expired and that the loss under the insurance policy has occurred
during the policy period due to the loss of life or property insured under the
policy and that the cause or peril of the loss is covered under the policy.
In all types of claims, life and non-life insurance, blank forms are issued by
insurance company to insured/dependents for submission along with
necessary documents within the time limit.
The claims made by the insurance company is generally paid through

National Electronic Fund Transfer into the bank accounts of the claimants to
ensure immediate and effective payment and to avoid the delay and
corrupt practices in the claim settlement.
One should know how to make a claim and reasons for rejection of claims.
Policy amount under a life insurance becomes payable after a certain
period. Such claims are paid to the insured who is alive on the maturity of
the insurance policy.
Survival benefit is not payable under all types of plans. It is payable in

endowment or money back plans after a lapse of a fixed period.
When a person with a life insurance policy (called a life assured) dies
before the maturity of the insurance policy, a claim intimation should be
sent to the insurance company as early as possible by the assignee or
nominee under the policy or any close relative or the agent who handles
the policy.
In case of general insurance, if a loss has happened, the insured is

required to give an immediate intimation to the insurance company by
phone and subsequently send a letter mentioning the entire details like
policy number, date of loss, nature of loss, etc.
IRDA has advised insurance companies that contractual conditions should

not prevent them from considering genuine claims. This is especially if
unavoidable circumstances prevented the consumer from following some of
the policy conditions like time-frame for intimation. IRDA has informed all
insurers to honour the spirit of insurance contract.
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One should give importance to claim settlements record and do not get
swayed away by higher returns/tax benefits alone. A high probability is not
a guarantee but indicates a far greater chance of claim settlement.
There is no provision to pay any amount in a lapsed policy unless

specifically mentioned in the policy contract.
Under Indian Evidence Act, 1872, Section 108, a person who has
disappeared is presumed to be dead only if he has not been heard of for 7
years by those who would naturally have heard of him, if he had been
alive. The claimant has to produce the decree of the court to the effect that
the assured should be presumed to be dead.
In case of a premature death claim, i.e., a death within two years of the
commencement of the policy, the insurer asks from claimant documents in
order to eliminate the possibility of any suppression of a material fact at
the time of submitting the proposal.
In case of conflicting claims, the insurance company may apply to the court
before the expiry of nine months from the date of maturity or date of
notice to the company.
Life insurance benefits are not paid automatically. If you are the beneficiary
of a life insurance policy, you must file a claim in order to receive any
money. Various entities are entitled to lodge a insurance claim.
IRDA’s regulations stipulate the Turnaround Times (TAT) for various

services that an insurance company has to render to you, the consumer.
These are part of the IRDA Protection of Policyholders’ Interests (PPHI)
Regulations 2002.
Insurance companies are also required to have an effective Grievance

Redressal Mechanism and IRDA has created the guidelines for that too.
! !392
1. Visit IRDA website and make a table of Individual Death Claims of Life
Insurers for 2013-14 on the basis of number of claims settled, number
of claims repudiated, amount of claims repudiated, number of claims
pending, etc.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………….
2. Find out from your family or friends if any of them has ever made a
claim on a life insurance company. Ask them about the claims procedure
and the documents they were required to submit to the insurance
company.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………….
! !393
16.http://www.moneycontrol.com/glossary/insurance/
18.http://www.lifeinsurancequote.net/
19.http://www.reliancelife.com/
! !394
21.www.iciciprulife.com
22.www.apollomunichinsurance.com
! !395
1. Once an insurance company receives notification of a claim, it will want

to be sure that the claim is valid before it makes a payment. It will do
this by checking which of the following?
a. Has the insured event taken place
b. Was the insurance policy in force when the event happened
c. Have the claim form been submitted along with the original policy
document
d. All of the above
2. The insurance company will investigate whether the policyholder

declared their correct age and supported it with valid age proof
documents. If it is an early claim, the insurance company will
investigate which of the following?
a. Was the insurance policy in force when the event happened

b. Has the insured event taken place
c. Whether the insured suppressed any material facts
d. Whether the claim can be rejected
3. Once an insurance company has completed its investigations, it may

conclude that it does not need to make a claim payment because the
claim is invalid. Which of the following is not correct regarding the
circumstances in which this may arise?
a. The policy is not in force

b. Excluded conditions apply
c. The claim is fraudulent
d. The insured event taken place
! !396
4. The IRDA has laid down guidelines for the settlement of claims. These
are included in the IRDA (Protection of Policyholders’ Interests)
Regulations 2002. As per these rules, claim under a life policy shall be
paid or be disputed giving all the relevant reasons, within how many
days from the date of receipt of all relevant papers and clarifications
required?
a. 15
b. 30
c. 45
d. 60
5. Some maturity claims (for example, in case of ULIPs) may be payable,

not on the date of maturity as chosen by the policyholder, but later and
in installments, not as a lump sum. This is known as the:
a. Settlement Option
b. Commutation
c. Assignment
d. Revival of Pension
6. Proof of death is essential for a claim to be settled. However,

sometimes, a person is reported missing without any information about
their whereabouts. The Indian Evidence Act 1872 deal with presumption
of death; under this Act if an individual has not been heard of for how
many years, they are presumed to be dead?
a. 1
b. 5
c. 7
d. 14
7. Section 45 of Insurance Act 1938 in the new Insurance Law

(Amendment) Bill, says no claim can be repudiated after how many
years of the policy being in force, even if a fraud is detected?
a. 1
b. 2
c. 3
d. 4
! !397
Answers:
1. (d)
2. (c)
3. (d)
4. (b)
5. (a)
6. (c)
7. (c).
! !398
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !399
VARIOUS TYPES OF GENERAL INSURANCE PRODUCTS
Chapter 10
Various Types of General Insurance
Products
Objectives
This chapter will help you to understand general insurance products that
cover various risks and how they compensate the owner should the asset
be damaged.
! !400
Structure:
10.1 Introduction
10.2 Marine Insurance
10.3 Subject Matter of Marine Insurance
10.4 Risks Covered in Marine Insurance
10.5 Insurable Interest in Marine Insurance
10.6 Basic Concepts of Ocean Marine Insurance
10.7 Inland Marine Insurance
10.8 Marine Insurance Policy
10.9 Different Types of Marine Insurance Policies
10.10 Summary
! !401
10.1 Introduction
General Insurance or Non-life Insurance companies generally cover risks

other than those relating to human lives. The history of general insurance
dates back to the Industrial Revolution in the West and the consequent
growth of sea faring trade and commerce in the 17th century General
Insurance forms the lifeline of several commerce and trade activities. The
British insurers introduced general insurance in India, in its modern form
by opening branches around the year 1700. It came to India as a legacy of
British occupation.
All assets are exposed to various risks and they can be damaged or
destroyed by fire, earthquake, riot, theft, flooding, cyclones, etc. Any asset
either gives a monetary return (e.g., a house given on rent), or offers
convenience (e.g., a car which can be used to travel from one place to
another) can be insured. If the asset is damaged by any of these risks, the
owner will be at a disadvantage and they will lose the income or the
convenience the asset provided.
General or non-life insurance companies offer products that cover these

risks and compensate the owner should the asset be damaged by one of
them.
As per Insurance Act, 1938, “General insurance business” means

fire, marine or miscellaneous insurance business, whether carried
on singly or in combination with one or more of them.
General insurance products are classified differently in different markets.

Some classify them as property, casualty and liability while others group
them as fire, marine, motor and miscellaneous.
Common products such as personal accident, health, travel, home and

shopkeepers are grouped as retail insurance.
Property/Fire Insurance, Business Interruption Insurance, Burglary

Insurance, Money Insurance, Fidelity Guarantee Insurance, Bankers’
Indemnity Insurance, Jewellers’ Block Policy, Engineering Insurance,
Industrial All Risks Insurance, Marine Insurance, Liability Policies, etc. are
grouped into commercial insurance. Conventionally, the concept of general
! !402
insurance covered Fire Insurance, Marine Insurance and Miscellaneous

Insurance.
The General Insurance market can be classified into various sub-categories

as follows:
General Insurance
Fire Insurance Marine Miscellaneous

!
Miscellaneous General Insurances
Motor Property Liability Health Travel
Gross direct premium (GDP) of the industry, excluding the specialised

insurers, has grown from ` 16,037 crore in FY 2003-04 to ` 70,604 crore
in FY 2013-14 with a 10-year CAGR of around 16%.
However, penetration of general insurance as a percentage of GDP remains

small in relation to other emerging markets as well as developed markets.
The low penetration indicates long-term potential for the industry as it
seeks to make general insurance available to larger segments of the
population.
The challenge before insurers is to find ways of reaching out to the

uninsured and underinsured in a profitable manner. General Insurers of the
21st century are busy in evolving sophisticated form of business and
personal risk mitigation products to fulfill the needs of the knowledgeable
and expanding consumer base. Today, there are 28 general insurance
companies including the ECGC and the Agriculture Insurance Corporation
Corporation of India.
! !403
Break-up of Non-life Insurance Market in India
Motor insurance forms the largest non-life segment at 47.1% share in

FY13. Motor insurance is followed by Marine Insurance (22%), Fire
Insurance (11%) and Health Insurance (5%).
In General insurance sector, newer avenues have opened up in areas of

liability and directors’ and officers’ liability space with changes in the
Companies Act. Unviable pricing and heavy discounts to corporates were a
matter of concern, especially in the group health and property space.
However, Insurance Regulatory and Development Authority (IRDA) has
come out with detailed guidelines on pricing of risk and cautioning insurers
against offering unviable and cheap rates below the burning cost.
The fundamental essentials of a general insurance contract are

same like Life insurance except few concepts which are specifically
applied in generally insurance. For example, a Life Insurance contract is
a contract of assurance while the General Insurance contract is a contract
of indemnity. The consideration for an insurer in a general insurance
contract is the premium paid by the insured; and the consideration for the
insured is the indemnity promise made by the insurer. The fundamental
principles of law of insurance like Utmost Good Faith, Insurable Interest,
Subject Matter of Insurance, Risks Covered/Insured, Indemnity,
Subrogation, Proximate Cause and Assignment are also applicable to
General Insurance.
! !404
Section 19 of the Marine Insurance Act, 1963 states that Insurance

is uberrimae fidei:
A contract of marine insurance is a contract based upon the utmost good

faith, and if the utmost good faith be not observed by either party, the
contract may be avoided by the other party.
Section 7(1) of the Insurance Regulatory and Development

Authority (Protection of Public Holders’ Interests) Regulations,
2002 provides that a general insurance policy should clearly state
the following:
a. the name(s) and address(es) of the insured and of any bank(s) or

any other person having financial interest in the subject matter of
insurance;
b. full description of the property or interest insured;
c. the location or locations of the property or interest insured under the

policy and, where appropriate, with respective insured values;
d. period of Insurance;
e. sums insured;
f. perils covered and not covered;
g. any franchise or deductible applicable;
h. premium payable and where the premium is provisional subject to

adjustment, the basis of adjustment of premium be stated;
i. policy terms, conditions and warranties;
j. action to be taken by the insured upon occurrence of a contingency

likely to give rise to a claim under the policy;
k. the obligations of the insured in relation to the subject matter of

insurance upon occurrence of an event giving rise to a claim and the
rights of the insurer in the circumstances;
! !405
l. any special conditions attaching to the policy;
m. p r o v i s i o n f o r c a n c e l l a t i o n o f t h e p o l i c y o n g r o u n d s o f
misrepresentation, fraud, non-disclosure of material facts or non-
cooperation of the insured;
n. the address of the insurer to which all communications in respect of

the insurance contract should be sent;
o. the details of the endorsements attaching to the main policy;
p. proforma of any communication the insurer may seek from the

policyholders to service the policy;
q. the renewal terms and conditions, cancellation conditions and co-

insurance terms in case of more than one policy of the insurer; and
r. portability conditions as applicable in case of health insurance.
The entire general insurance business in India was nationalised by

the Government of India (GOI) through the General Insurance
Business (Nationalisation) Act (GIBNA) of 1972. 55 Indian insurance
companies and 52 other general insurance operations of other companies
were nationalised through the Act. The main objectives of nationalisation
were to ensure the development of the general insurance business for
servicing with the best of interest and advantage to the community. These
insurers were also required to promote competition in the economy and to
prevent the concentration of wealth and growth of monopoly.
The General Insurance Corporation of India (GIC) was formed in

pursuance of Section 9(1) of GIBNA on 22 November 1972. GIC was
later reorganised with four fully owned subsidiary companies: National
Insurance Company Limited, New India Assurance Company Limited,
Oriental Insurance Company Limited and United India Insurance Company
Limited.
GIC and its subsidiaries had a monopoly on the general insurance business
in India until the landmark Insurance Regulatory and Development
Authority Act (IRDA Act) of 1999 came into effect on 19 April, 2000. This
Act also amended the GIBNA Act and Insurance Act of 1938. The Act
! !406
along with the amendments ended the monopoly of GIC and its
subsidiaries and liberalised the insurance business in India.
Various new players ventured into the general insurance business like TATA
AIG General Insurance Co. Ltd., Bajaj Alliance General Insurance Co. Ltd.,
Reliance General Insurance Co. Ltd., ICICI Lombard General Insurance Co.
Ltd., SBI General Insurance Co. Ltd., HDFC ERGO General Insurance Co.
Ltd., etc.
In November 2000, GIC was renotified as India’s Reinsurer and is

now called GIC Re. Reinsurance has been defined in Section 11 of the
Marine Insurance Act, 1963 as follows:
1. The insurer under a contract of marine insurance has an insurable

interest in his risk, and may reinsure in respect of it.
2. Unless the policy otherwise provides, the original assured has no right
or interest in respect of such reinsurance.
The ownership of the four erstwhile subsidiary companies and also of the
General Insurance Corporation of India was vested with Government of
India. GIC Re is a wholly owned company of Government of India. Indian
insurance companies are required by law to cede 5% of every policy value
to GIC Re w.e.f. 1 April 2013, subject to some limitations and exceptions.
As a sole reinsurer in the domestic reinsurance market, GIC Re provides
reinsurance to the direct general insurance companies in the Indian
market.
GIC Re has spreads its wings to emerge as an effective reinsurance

solutions partner for the Afro-Asian region and has started leading the
reinsurance programmes of several insurance companies in SAARC
countries, South East Asia, Middle East and Africa.
10.2 Marine Insurance
Marine insurance is one of the oldest forms of insurance. It has developed

with the expansion of trade. Marine insurance dates back to the Middle
Ages in Europe and is considered to be the oldest form of insurance.
Generally, it is applicable to the risk associated with the movement of
! !407
goods between ports. Marine insurance can be traced back to the bottomry
bonds and respondentia works used in Ancient Greece and Rome.
Encyclopaedia Britannica Online observes its origination in Rhodes, having

been “adopted by the commercial cities of Italy and by the towns of the
Hanseatic League between the 12th and 14th centuries”, and reaching
England by the 16th century. Lloyd’s Coffee House in London was the main
location for conducting this type of business. Much of marine insurance law
and its governing custom were developed thereby seafaring men and
merchants engaged in foreign trade, who gathered to arrange “their
mutual contracts of insurance against the sea”.
The Aryan period in India also provides evidence of the existence of marine
insurance. The marine insurance in its modern form originated in India
between 1797 and 1810 in Calcutta (now Kolkata). The rules of England
were applied in India. Subsequently, the Marine Insurance Act, 1963
regulated the marine insurance in India.
! !408
Section 3 of the Marine Insurance Act, 1963 defines a contract of

marine insurance as follows:
“A contract of marine insurance” is an agreement whereby the insurer

undertakes to indemnify the assured, in the manner and to the extent
thereby agreed, against marine losses, that is to say, the losses incidental
to marine adventure.
Section 2(d) of the Marine Insurance Act, 1963 defines marine

adventures as follows:
“Marine adventure” includes any adventure where—
(i) any insurable property is exposed to maritime perils;
(ii)the earnings or acquisition of any freight, passage money,

commission, profit or other pecuniary benefit, or the security for any
advances, loans, or disbursements is endangered by the exposure of
insurable property to maritime perils;
(iii)any liability to a third party may be incurred by the owner of or other

person interested in or responsible for, insurable property by reason
of maritime perils.
Section 5 of the Marine Insurance Act, 1963 defines lawful marine

adventure as follows:
Every lawful marine adventure may be the subject of a contract of marine

insurance.
Section 2(e) of the Marine Insurance Act, 1963 defines maritime

perils as follows:
“maritime perils” means the perils consequent on, or incidental to, the
navigation of the sea, that is to say, perils of the sea, fire, war perils,
pirates, rovers, thieves, captures, seizures, restraints and detainments of
princes and peoples, jettisons, barratry and any other perils which are
either of the like kind or may be designated by the policy.
! !409
Section 4 of the Marine Insurance Act, 1963 defines mixed sea and
land risks as follows:
1. A contract of marine insurance may, by its express terms, or by usage

of trade, be extended so as to protect the assured against losses on
inland waters or on any land risk which may be incidental to any sea
voyage.
2. Where a ship in course of building, or the launch of a ship, or any

adventure analogous to a marine adventure, is covered by a policy in
the form of a marine policy, the provisions of this Act, insofar as
applicable, shall apply thereto, but, except as by this section provided,
nothing in this Act shall alter or affect any rule of law applicable to any
contract of insurance other than a contract of marine insurance as by
this Act defined.
Explanation: ‘An adventure analogous to a marine adventure’ includes an

adventure where any ship, goods or other movables are exposed to perils
incidental to local or inland transit.
Section 6 of the Marine Insurance Act, 1963 provides for avoidance

of wagering contracts as follows:
1. Every contract of marine insurance by way of wagering is void.
2. A contract of marine insurance is deemed to be a wagering contract—
a. where the assured has not an insurable interest as defined by this

Act, and the contract is entered into with no expectation of acquiring
such an interest; or
b. where the policy is made “interest or no interest”, or “without further

proof of interest than the policy itself”, or “without benefit of salvage
to the insurer”, or subject to any other like term:
Provided that, where there is no possibility of salvage, a policy may be

effected without benefit of salvage to the insurer.
! !410
According to Blackburn J: “A policy of marine insurance is a contract of

indemnity against all loses occurring to the subject matter of the policy
from certain perils during the adventure.”
According to Arnold: “A policy of marine insurance is a contract whereby

one party for an agreed consideration, undertakes to indemnify the other
against the loss arising from certain perils and sea risks to which a
shipment merchandised and other interests in a marine adventure may be
exposed during a certain voyage or certain period of time.”
Section 2(13)A of the Insurance Act, 1938 defines marine

insurance as follows:
“Marine insurance business” means the business of effecting contracts of

insurance upon vessels of any description, including cargoes, freights and
other interests which may be legally insured, in or in relation to such
vessels, cargoes and freights, goods, wares, merchandise and property of
whatever description insured for any transit, by land or water, or both, and
whether or not including warehouse risks or similar risks in addition or as
incidental to such transit, and includes any other risks customarily included
among the risks insured against in marine insurance policies; “fire
insurance business” means the business of effecting, otherwise than
incidentally to some other class of insurance business, contracts of
insurance against loss by or incidental to fire or other occurrence
customarily included among the risks insured against in fire insurance
policies.
Ocean marine insurance covers the perils of the sea whereas inland marine
insurance is related to the inland risks on the land. Hence, Marine
insurance is concerned with both sea and land risks.
10.3 Subject Matter of Marine Insurance
A contract of marine insurance is an agreement whereby the insurer

undertakes to indemnify the insured in a manner and to the extent thereby
agreed against marine losses, that is the losses incidental to marine
adventure.
Marine insurance contracts are amongst the least charging and most
familiar of all types of risk business.
! !411
The subject matter of marine insurance is the insurable property against

which the risks can be covered. In marine insurance, the assured must
have insurable interest at the time of loss though he may not have been
interested when the insurance was actually affected.
Section 7 of the Marine Insurance Act, 1963 defines Insurable

interest as follows:
1. Subject to the provisions of this Act, every person has an insurable

interest who is interested in a marine adventure.
2. In particular, a person is interested in a marine adventure where he

stands in any legal or equitable relation to the adventure or to any
insurable property at risk therein, in consequence of which he may
benefit by the safety or due arrival of insurable property, or may be
prejudiced by its loss, or by damage thereto, or by the detention
thereof, or may incur liability in respect thereof.
Section 8 of the Marine Insurance Act, 1963 states about when

interest must attach as follows:
1. The assured must be interested in the subject matter insured at the

time of the loss, though he need not be interested when the insurance is
effected:
Provided that, where the subject matter is insured “lost or not lost”, the
assured may recover although he may not have acquired his interest
until after the loss, unless at the time of effecting the contract of
insurance the assured was aware of the loss, and the insurer was not.
2. Where the assured has no interest at the time of the loss, he cannot
acquire interest by any act or election after he is aware of the loss.
Section 9 of the Marine Insurance Act, 1963 defines defensible or

contingent interest as follows:
1. A defensible interest is insurable, as also is a contingent interest.
2. In particular, where the buyer of goods has insured them, he has an

insurable interest, notwithstanding that he might, at his election, have
! !412
rejected the goods, or have treated them as at the seller’s risk, by

reason of the latter’s delay in making delivery or otherwise.
Section 10 of the Marine Insurance Act, 1963 states that a partial interest
of any nature is insurable.
Ocean marine insurance can be divided into four basic classes to reflect the
various insurable interests as follows:
(i)Cargo Insurance
The cargo is the most important subject matter of marine insurance. The
person who is importing the goods and the person who is sending them are
interested in the safety of goods during the sea journey. The goods to be
insured are called ‘cargo’. Any loss of goods during journey is indemnified
by the insurance company.
The goods are generally insured according to their value but some
percentage of profit can also be included in the value. The cargo policies
may be special, reporting and floating. The special policy is only for one
shipment. Reporting or open cargo policy, on the other hand, covers all
shipments made by an exporter over a long period of time.
The floating policy is just similar to open cargo policy but differs from it
only in respect of the method of paying the premium. In floating policies,
the value of the future shipments is estimated and premium is deposited
with the company. Later on, actual shipments are compared with the
estimates and the premium is adjusted.
Cargo insurance has coverage of loss or damage caused by fire, lightening,

explosion, impact by any rail/road vehicle, storm, cyclone, flood,
inundation, earthquake, war, revolution, rebellion insurrection or any
hostile act, capture, seizure, arrest, restraint detainment, strikes riots, etc.
(ii)Hull Insurance
The subject matter of hull insurance is the vessel or ship. When the ship is
insured against any type of danger or damage, it is called Hull Insurance.
The ship may be insured for a particular trip or for a particular period.
Shipping companies generally get one policy issued to cover the risk of the
! !413
complete fleet, which is known as fleer insurance. A recent development in

Hull Insurance has been the growth of insurance of offshore oil/gas
exploration and production units as well as connected construction risks. It
is covered with specialised class of business particularly for Fishing Vessels,
Trawlers, Dredgers, etc.
The Hull Insurance can be further subdivided as follows:
a. General cargo vessels

b. Dry bulk carriers
c. Liquid bulk carriers
d. Passenger vessels
e. Other vessels
(iii)Freight Insurance
The shipping company has an interest in freight. The freight may be paid in
advance or on the arrival of goods. The shipping company will not get
freight if the goods are lost during transit. The shipping company may
insure the freight to be received which is known as freight insurance.
Freight insurance indemnifies the ship owner for the loss of earnings, if the
goods are damaged or lost and are not delivered. Time charter hire is
payable to the ship owner for the use of his ship for carriage of goods for a
specific period of time. If any events occur, such as breakdown of
machinery damage to the vessel which prevents the operation of the vessel
for more than 24 consecutive hours, the payment hire shall cease until the
ship becomes operational. The standard clauses in use are Institute Time
Clauses – Freight and Institute Voyage Clauses Freight.
(iv)Liability Insurance
The liability of the owner of the ship to a third party by reason of marine
perils is a subject matter of liability insurance. Liability insurance protects
the ship owner for damage caused by the ship to piers, docks and harbor
installations, damage to ships cargo, illness or injury to the passengers or
crew and fines and penalties. Cross liability is involved when both vessels
are to blame, whereas single liability is only a liability on the parts of the
vessel. The right to limit liability is based on the international convention
relating to limitation of liability of owners of Sea-going Ship,1957.
! !414
10.4 Risks covered in marine insurance
Common Inclusions: An ocean marine policy provides broad coverage for

certain specified perils of the sea such as damage or loss from bad
weather, high waves, collision, sinking and stranding. Other covered perils
include loss from fire, enemies, pirates, thieves, jettison (throwing goods
overboard to save the ship), barratry (fraud by the master of the crew at
the expense of the ship or cargo owners), and similar perils.
Common exclusions: Losses due to delay, war, inherent vice (tendency of

certain types of property to decompose), strikes, riots and civil commotion.
10.5 Insurable interest in Marine Insurance
Section 7 of Marine Insurance Act, 1963 mentions the different

types of persons who can have insurable interest in marine
adventure as follows:
• Every person has an insurable interest who is interested in a marine

adventure.
• In particular, a person is interested in a marine adventure where he

stands in any legal or equitable relation to the adventure or to any
insurable property at risk therein, in consequence of which he may
benefit by the safety or due arrival of insurable property, or may be
prejudiced by its loss, or by damage thereto, or by the detention thereof,
or may incur liability in respect thereof.
Thus, the owners, shippers, agents, captain and crew of ship (in their
wages), a mortgagee of vessel to the extent of his mortgage, a bailee in
respect of property left in custody and care, charters of vessels, an
underwriter in respect of risk undertaken, lender of money on bottomry or
respondentia in respect of the loan have insurable interests in marine
adventure.
Section 12 of Marine Insurance Act, 1963 states that the lender of money
on bottomry or respondentia has an insurable interest in respect of the
loan.
! !415
Section 13 of Marine Insurance Act, 1963 states that the master or any
member of the crew of a ship has an insurable interest in respect of his
wages.
Section 14 of Marine Insurance Act, 1963 states that in the case of

advance freight, the person advancing the freight has an insurable interest,
insofar as such freight is not repayable in case of loss.
Section 15 of Marine Insurance Act, 1963 states that the assured has an
insurable interest in the charges of any insurance which he may effect.
Section 16 of Marine Insurance Act, 1963 states about the quantum

of insurable interest as follows:
1. Where the subject matter insured is mortgaged, the mortgagor has an

insurable interest in the full value thereof, and the mortgagee has an
insurable interest in respect of any sum due or to become due under the
mortgage.
2. A mortgagee, consignee, or other person having an interest in the

subject matter insured may insure on behalf and for the benefit of other
persons interested as well as for his own benefit.
3. The owner of insurable property has an insurable interest in respect of

the full value thereof, notwithstanding that some third person may have
agreed, or be liable to indemnify him in case of loss.
Section 18 of the Marine Insurance Act, 1963 states about the

measure of insurable value as follows:
Subject to any express provision or valuation in the policy, the insurable

value of the subject matter insured must be ascertained as follows:
1. In insurance on ship, the insurable value is the value, at the

commencement of the risk, of the ship, including her outfit, provisions,
and stores for the officers and crew, money advanced for seamen’s
wages, and other disbursements (if any) incurred to make the ship fit
for the voyage or adventure contemplated by the policy, plus the
charges of insurance upon the whole:
! !416
The insurable value, in the case of a steamship, includes also the

machinery, boilers, and coals and engine stores if owned by the
assured; in the case of a ship driven by power other than steam
includes also the machinery and fuels and engine stores, if owned by
the assured; and in the case of a ship engaged in a special trade,
includes also the ordinary fittings requisite for that trade;
2. In insurance on freight, whether paid in advance or otherwise, the

insurable value is the gross amount of the freight at the risk of the
assured, plus the charges of insurance;
3. In insurance on goods or merchandise, the insurable value is the prime

cost of the property insured, plus the expenses of and incidental to
shipping and the charges of insurance upon the whole;
4. In insurance on any other subject matter, the insurable value is the

amount at the risk of the assured when the policy attaches, plus the
charges of insurance.
Section 20 of the Marine Insurance Act, 1963 states about

Disclosure by assured as follows:
1. Subject to the provisions of this section, the assured must disclose to

the insurer, before the contract is concluded, every material
circumstance which, is known to the assured, and the assured is
deemed to know every circumstance which, in the ordinary course of
business, ought to be known to him. If the assured fails to make such
disclosure, the insurer may avoid the contract.
2. Every circumstance is material which would influence the judgment of a

prudent insurer in fixing the premium, or determining whether he will
take the risk.
3. In the absence of inquiry the following circumstances need not be

disclosed, namely:
a. any circumstance which diminishes the risk;
b. any circumstance which is known or presumed to be known to the

insurer. The insurer is presumed to know matters of common
! !417
notoriety or knowledge, and matters which an insurer in the ordinary

course of his business as such, ought to know;
c. any circumstance as to which information is waived by the insurer;
d. any circumstance which it is superfluous to disclose by reason of any

express or implied warranty.
4. Whether any particular circumstance, which is not disclosed, be material

or not is, in each case, question of fact.
5. The term “circumstance” includes any communication made to, or

information received by, the assured.

disclosure by agent effecting insurance as follows:
Subject to the provisions of the preceding section as to circumstances

which need not be disclosed, where an insurance is effected for the assured
by an agent, the agent must disclose to the insurer—
a. every material circumstance which is known to himself, and an agent

to insure is deemed to know every circumstance which in the
ordinary course of business ought to be known by, or to have been
communicated to, him; and
b. every material circumstance which the assured is bound to disclose,

unless it comes to his knowledge too late to communicate it to the
agent.

representations pending negotiation of contract as follows:
1. Every material representation made by the assured or his agent to the

insurer during the negotiations for the contract, and before the contract
is concluded, must be true if it be untrue the insurer may avoid the
contract.
! !418
2. A representation is material which would influence the judgment of a

prudent insurer in fixing the premium, or determining whether he will
take the risk.
3. A representation may be either as to a matter of fact, or as to a matter

of expectation or belief.
4. A representation as to a matter of fact is true, if it be substantially

correct, that is to say, if the difference between what is represented and
what is actually correct would not be considered material by a prudent
insurer.
5. A representation as to a matter of expectation or belief is true if it be

made in good faith.
6. A representation may be withdrawn or corrected before the contract is

concluded.
7. Whether a particular representation be material or not, is, in each case,

a question of fact.
10.6 Basic concepts of Ocean marine insurance
Particular average: In marine insurance, the word average refers to a

partial loss. A particular average is a loss that falls entirely on a particular
interest, as contrasted with a general average, a loss that falls on all
parties to the voyage.
! !419
Under the Free of Particular Average clause (FPA), partial losses are not
covered unless the loss is caused by certain perils, such as stranding,
sinking, burning or collision of the vessel.
Sue and Labour: Insured is required to do everything possible to save

and preserve the goods in case of loss, else he loses the rights of recovery.
Abandonment: When the ship or other subject matter of the ship is not
totally destroyed, it may cost more to restore it than its worth. In such
cases, the ship may be abandoned to the insurer and the insured collects
the full amount of the policy. The salvage then belongs to the insurer.
Notice of Abandonment (Section 62 of the Marine Insurance Act,

1963)
1. Subject to the provisions of this section, where the assured elects to

abandon the subject matter insured to the insurer, he must give notice
of abandonment. If he fails to do so, the loss can only be treated as a
partial loss.
2. Notice of abandonment may be given in writing, or by word-of-mouth,

or partly in writing and partly by word-of-mouth, and may be given in
any terms which indicate the intention of the assured to abandon his
insured interest in the subject matter insured unconditionally to the
insurer.
3. Notice of abandonment must be given with reasonable diligence after

the receipt of reliable information of the loss, but where the information
is of a doubtful character, the assured is entitled to a reasonable time to
make enquiry.
4. Where notice of abandonment is properly given, the rights of the

assured are not prejudiced by the fact that the insurer refuses to accept
the abandonment.
5. The acceptance of an abandonment may be either express or implied

from the conduct of the insurer. The mere silence of the insurer after
notice is not an acceptance.
! !420
6. Where notice of abandonment is accepted, the abandonment is

irrevocable. The acceptance of the notice conclusively admits liability for
the loss and the sufficiency of the notice.
7. Notice of abandonment is unnecessary where at the time when the

assured receives information of the loss, there would be no possibility of
benefit to the insurer if notice were given to him.
8. Notice of abandonment may be waived by the insurer.
9. Where an insurer has reinsured his risk, no notice or abandonment need

be given by him.
Effect of Abandonment (Section 62 of the Marine Insurance Act,

1963)
1. Where there is a valid abandonment, the insurer is entitled to take over

the interest of the assured in whatever may remain of the subject
matter insured, and all proprietary rights incidental thereto.
2. Upon the abandonment of a ship, the insurer thereof is entitled to any

freight in course of being earned, and which is earned by her
subsequent to the casualty causing the loss, less the expenses of
earning it incurred after the casualty; and, where the ship is carrying
the owner’s goods, the insurer is entitled to a reasonable remuneration
for the carriage of them subsequent to the casualty causing the loss.
Warehouse to Warehouse
Protection is afforded under the insuring agreement which extends from

the time the goods leave the warehouse of the shipper, until they reach the
warehouse of the consignee.
Warranties
According to Section 35 of the Marine Insurance Act, 1963, a warranty

means a promissory warranty, that is to say a warranty by which the
assured undertakes that some particular thing shall or shall not be done, or
that some condition shall be fulfilled, or whereby he affirms or negatives
! !421
the existence of a particular state of facts. A warranty may be express or

implied.
A warranty, as above defined, is a condition which must be exactly

complied with, whether it be material to the risk or not. If it be not so
complied with, then, subject to any express provision in the policy, the
insurer is discharged from liability as from the date of the breach of
warranty, but without prejudice to any liability incurred by him before that
data.
Implied Warranties
Implied warranties are in the nature of preliminary essential conditions

which must be complied with in order to render a contract of marine
insurance valid, e.g., seaworthiness, legality of voyage, non-deviation, etc.
Express Warranties
1. An express warranty may be in any form of words from which the

intention to warrant is to be inferred.
2. An express warranty must be included in, or written upon the policy, or

must be contained in some document incorporated by reference into the
policy.
3. An express warranty does not exclude implied warranty, unless it be

inconsistent therewith.
Warranty of Neutrality
1. Where insurable property, whether ship or goods, is expressly warranted

neutral, there is an implied condition that the property shall have a
neutral character at the commencement of the risk, and that, so far as
the assured can control the matter, its neutral character shall be
preserved during the risk.
2. Where a ship is expressly warranted “neutral”, there is also an implied

condition that, so far as the assured can control the matter she shall be
properly documented, that is to say, that she shall carry the necessary
papers to establish her neutrality, and that she shall not falsify or
! !422
suppress her papers, or use simulated papers. If any loss occurs

through breach of this condition, the insurer may avoid the contract.
No Implied Warranty of Nationality
There is no implied warranty as to the nationality of a ship or that her

nationality shall not be changed during the risk.
Warranty of Good Safety
Where the subject matter insured is warranted “well” or “in good safety” on
a particular day, it is sufficient if it be safe at any time during that day.
Warranty of Seaworthiness of Ship
1. In a voyage policy. there is an implied warranty that at the

commencement of the voyage the ship shall be seaworthy for the
purpose of the particular adventure insured.
2. Where the policy attaches while the ship is in port, there is also an
implied warranty that she shall, at the commencement of the risk, be
reasonably fit to encounter the ordinary perils of the port.
3. Where the policy relates to a voyage which is performed in different

stages, during which the ship requires different kinds of or further
preparation or equipment, there is an implied warranty that at the
commencement of each stage, the ship is seaworthy in respect of such
preparation or equipment for the purposes of that stage.
4. A ship is deemed to be seaworthy when she is reasonably fit in all

respects to encounter the ordinary perils of the seas of the adventure
insured.
5. In a time policy, there is no implied warranty that the ship shall be

seaworthy at any stage of the adventure, but where, with the privity of
the assured, the ship is sent to sea in an unseaworthy state, the insurer
is not liable for any loss attributable to unseaworthiness.
! !423
No Implied Warranty that Goods are Seaworthy
1. In a policy on goods or other movables, there is no implied warranty

that the goods or movables are seaworthy.
2. In a voyage policy on goods or other movables, there is an implied

warranty that at the commencement of the voyage, the ship is not only
seaworthy as a ship, but also that she is reasonably fit to carry the
goods or other movables to the destination contemplated by the policy.
Warranty of Legality
There is an implied warranty that the adventure insured is a lawful one,

and that, so far as the assured can control the matter, the adventure shall
be carried out in a lawful manner.
Implied Condition as to Commencement of Risk
1. Where the subject matter is insured by a voyage policy “at and from” or
“from” a particular place, it is not necessary that the ship should be at
that place when the contract is concluded, but there is an implied
condition that the adventure shall be commenced within a reasonable
time, and that if the adventure be not so commenced, the insurer may
avoid the contract.
2. The implied condition may be negative by showing that the delay was
caused by the circumstances known to the insurer before the contract
was concluded, or by showing that he waived the condition.
Assignment of Interest (Section 17 of the Marine Insurance Act,

1963)
Where the assured assigns or otherwise parts with his interest in the
subject matter insured, he does not thereby transfer to the assignee his
rights under the contract of insurance, unless there be an express or
implied agreement with the assignee to that effect.
But the provisions of this section do not affect transmission of interest by

operation of law.
! !424
When and How Policy is Assignable? (Section 52 of the Marine

Insurance Act, 1963)
1. A marine policy may be transferred by assignment unless it contains

terms expressly prohibiting assignment. It may be assigned either
before or after loss.
2. Where a marine policy has been assigned so as to pass the beneficial

interest in such policy, the assignee of the policy is entitled to sue
thereon in his own name; and the defendant is entitled to make any
defense arising out of the contract which he would have been entitled to
make if the suit had been brought in the name of the person by or on
behalf of whom the policy was effected.
3. A marine policy may be assigned by endorsement thereon or in other

customary manner.
Double Insurance (Section 34 of the Marine Insurance Act, 1963)
1. Where two or more policies are effected by or on behalf of the assured

on the same adventure and interest or any part thereof, and the sums
insured exceed the indemnity allowed by this Act, the assured is said to
be overinsured by double insurance.
2. Where the assured is overinsured by double insurance—
a. the assured, unless the policy otherwise provides, may claim

payment from the insurers in such order as he may think fit, provided
that he is not entitled to receive any sum in excess of the indemnity
allowed by this Act;
b. where the policy under which the assured claims is a valued policy,
the assured must give credit as against the valuation, for any sum
received by him under any other policy, without regard to the actual
value of the subject matter insured;
c. where the policy under which the assured claims is an unvalued

policy, he must give credit, as against the full insurable value, for any
sum received by him under any other policy;
! !425
d. where the assured received any sum in excess of the indemnity

allowed by this Act, he is deemed to hold such sum in trust for the
insurers, according to their right of contribution among themselves.
Indemnity
The principle of indemnity is applicable to non-life insurance policies. It

means that the policyholder, who suffers a loss, is compensated so as to
put him or her in the same financial position as he or she was before the
occurrence of the loss event. The insurance contract (evidenced through
insurance policy) guarantees that the insured would be indemnified or
compensated up to the amount of loss and no more.
Marine Losses
In marine insurance, loss means losses incidental to marine adventure and

includes damages or detriment as well as the actual loss of the property. If
the loss takes place on account of any of the perils insured against with the
insurer, the insurer is liable for it. The peril may be accidental or incidental
during the course of voyage. The doctrine of ‘causa proxima’ is to be
applied while calculating the amount of loss.
! !426
Procedure and Documentation for Filing Claim of Marine Insurance
• Intimating insurance company about the loss or damage of goods is the

first step to be taken by the insured under claim of Marine Insurance.
• The insured and his agents should act as if the goods are uninsured and
should take all such measures and actions as may be reasonable and
necessary to minimise the loss or damage.
• Survey and claim is the next step. If at the time of taking delivery, if any
package shows signs of outward damage, insured or his agents must call
for a detailed survey by the ship surveyors and lodge the monetary claim
with the shipping company for the loss or damage to the packages.
• After reaching warehouse, and opening the packages, if it is found that

there are damages to goods, then in such an event, the insured and/or
agent should immediately inform the insurance company and call for the
ship surveyor for detailed survey.
• In case any package is found missing, the insured must lodge the
monetary claim with the insurance company and its bailees (shipping
company).
• In a Marine Insurance, the time limit for filing suit against the shipping
companies is one year from the date of discharge of goods, which may
change as per the rules and regulations of insurer.
• Documents Required: The following documents are to be submitted by

the insured to enable the insurance company to settle the claims
expeditiously:
1. Original Insurance Policy or Certificate.
2. Copy of Billing Lading.

3. Survey Report/Missing Certificate.
4. Original Invoice and Packing List together with shipping specification
or weight notes.
5. Copies of Correspondence exchanged with the carriers or bailees.
6. Claim Bill.
! !427
Section 55 of the Marine Insurance Act states about included and

excluded losses as follows:
1. Subject to the provisions of this Act, and unless the policy otherwise
provides, the insurer is liable for any loss proximately caused by a peril
insured against, but, subject as aforesaid, he is not liable for any loss
which is not proximately caused by a peril insured against.
2. In particular—
a. the insurer is not liable for any loss attributable to the willful
misconduct of the assured, but, unless the policy otherwise provides,
he is liable for any loss proximately caused by a peril insured against,
even though the loss would not have happened but for the
misconduct or negligence of the master or crew;
b. unless the policy otherwise provides, the insurer on ship or goods is

not liable for any loss proximately caused by although the delay be
caused by a peril insured against;
c. unless the policy otherwise provides, the insurer is not liable for
ordinary wear and tear, ordinary leakage and breakage, inherent vice
or nature of the subject matter insured, or for any loss proximately
caused by rats or vermin, or for any injury to machinery not
proximately caused by maritime perils.
Kinds of Losses
Section 55 of the Marine Insurance Act states about partial and

total loss as follows:
1. A loss may be either total or partial. Any loss other than a total loss, as
hereinafter defined, is a partial loss.
2. A total loss may be either an actual total loss, or a constructive total

loss.
3. Unless a different intention appears from the terms of the policy, an

insurance against total loss includes a constructive, as well as an actual,
total loss.
! !428
4. Where the assured brings a suit for a total loss and the evidence proves
only a partial loss, he may, unless the policy otherwise provides, recover
for a partial loss.
5. Where goods reach their destination in specie, but by reason of

obliteration of marks, or otherwise, they are incapable of identification,
the loss, if any, is partial and not total.
Section 57 of the Marine Insurance Act states about actual total

loss as follows:
1. Where the subject matter insured is destroyed, or so damaged as to

cease to be a thing of the kind insured, or where the assured is
irretrievably deprived thereof, there is an actual total loss.
2. In the case of an actual total loss, no notice of abandonment need be

given.
Where the ship concerned in the adventure is missing, and after the lapse
of a reasonable time no news of her has been received, an actual total loss
may be presumed (Section 57 of the Marine Insurance Act).
Effect of Transshipment, etc.
Where, by a peril insured against, the voyage is interrupted at intermediate

port or place, under such circumstances as, apart from any special
stipulation in the contract of affreightment, to justify the master in landing
and reshipping the goods or other movables, or in transshipping them, and
sending them on to their destination, the liability of the insurer continues,
notwithstanding the landing or transshipment (Section 58 of the Marine
Insurance Act).
Constructive Total Loss Defined (Section 59 of the Marine

Insurance Act)
1. Subject to any express provision in the policy, there is a constructive

total loss where the subject matter insured is reasonably abandoned on
account of its actual total loss appearing to be unavoidable, or because
it could not be preserved from actual total loss without an expenditure
which would exceed its value when the expenditure had been incurred.
! !429
2. In particular, there is a constructive total loss—
i. where the assured is deprived of the possession of his ship or goods

by a peril insured against, and (a) it is unlikely that he can recover
the ship or goods, as the case may be, or (b) the cost of recovering
the ship or goods, as the case may be, would exceed their value
when recovered; or
ii. in the case of damage to a ship, where she is so damaged by a peril

insured against that the cost of repairing the damage would exceed
the value of the ship when repaired. In estimating the cost of repairs,
no deduction is to be made in respect of general average
contributions to those repairs payable by other interests, but account
is to be taken of the expense of future salvage operations and of any
future general average contributions to which the ship would be liable
if repaired; or
iii. in the case of damage to goods, where the cost of repairing the
damage and forwarding the goods to their destination would exceed
their value on arrival.
Effect of Constructive Total Loss
Where there is a constructive total loss, the assured may either treat the
loss as a partial loss, or abandon the subject matter insured to the insurer
and treat the loss as if it were an actual total loss (Section 60 of the Marine
Insurance Act).
Extent of Liability of Insurer for Loss (Section 59 of the Marine

Insurance Act)
1. The sum which the assured can recover in respect of a loss on a policy
by which he is insured, in the case of an unvalued policy to the full
extent of the insurable value, or, in the case of a valued policy to the full
extent of the value fixed by the policy, is called the measure of
indemnity.
2. Where there is a loss recoverable under the policy, the insurer, or each
insurer if there be more than one, is liable for such proportion of the
measure of indemnity as the amount of his subscription bears to the
! !430
value fixed by the policy in the case of a valued policy, or to the

insurable value in the case of an unvalued policy.
Rights of Insurer on Payments
Rights of Subrogation (Section 79 of the Marine Insurance Act)
1. Where the insurer pays for a total loss, either of the whole, or in the
case of goods of any apportionable part, of the subject matter insured,
he thereupon becomes entitled to take over the interest of the assured
in whatever may remain of the subject matter so paid for, and he is
thereby subrogated to all the rights and remedies of the assured in and
in respect of that subject matter as from the time of the casualty
causing the loss.
2. Subject to the foregoing provisions, where the insurer pays for a partial
loss, he acquires no title to the subject matter insured, or such part of it
as may remain, but he is thereupon subrogated to all rights and
remedies of the assured in and in respect of the subject matter insured
as from the time of the casualty causing the loss, insofar as the assured
has been indemnified, according to this Act, by such payment for the
loss.
Right of Contribution (Section 80 of the Marine Insurance Act)
1. Where the assured is overinsured by double insurance each insurer is

bound, as between himself and the other insurers, to contribute
rateably to the loss in proportion to the amount for which he is liable
under his contract.
2. If any insurer pays more than his proportion of the loss, he is entitled to
maintain a suit for contribution against the other insurers, and is
entitled to the like remedies as a surety who has paid more than his
proportion of the debt.
Effect of Underinsurance (Section 81 of the Marine Insurance Act)
Where the assured is insured for an amount less than the insurable value,
or, in the case of a valued policy, for an amount less than the policy
! !431
valuation, he is deemed to be his own insurer in respect of the uninsured

balance.
10.7 Inland Marine Insurance
Inland marine insurance grew out of ocean marine insurance. Inland

marine insurance developed in the 1920s to cover property being
transported over land, means of transportation such as bridges, tunnels,
etc.
This category of insurance includes property coverage for construction

equipment, medical diagnostic equipment, fine arts, solar panels and wind
turbines, cameras and movie equipment, musical instruments, and a wide
variety of other types of property.
The inland marine insurance definition has evolved over time to cover a
wide range of property and materials, namely:
• Property in transit
• Property in the custody of a bailee
• Property deemed to be an instrumentality of transportation or

communication, such as bridges and radio towers
! !432
• Mobile medical equipment
• Contactors equipment.
Inland marine policies became known as “floaters” since the property to

which coverage was originally extended was essentially “floating”. The
coverage has grown to include property that just involves an element of
transportation.
10.8 Marine Insurance Policy
Section 24 of the Marine Insurance Act, 1963 provides that: A

contract of marine insurance shall not be admitted in evidence unless it is
embodied in a marine policy in accordance with this Act. The policy may be
executed and issued either at the time when the contract is concluded, or
afterwards.
Thus, a marine insurance policy is issued only when the contract

has been finalised and it would be legal document of evidence of
the insurance contract.
The marine insurance policy should be made in the form given in the
schedule attached to the Marine Insurance Act, 1963.
Section 25 of the Marine Insurance Act, 1963 states that a marine

insurance policy must specify:
1. the name of the assured, or of some person who effects the insurance
on his behalf;
2. the subject matter insured and the risk insured against;
3. the voyage, or period of time, or both, as the case may be, covered by
the insurance;
4. the sum or sums insured;
5. the name or names of the insurer or insurers.
! !433

signature of insurer as follows:
1. A marine policy must be signed by or on behalf of the insurer.
2. Where a policy is subscribed by or on behalf of two or more insurers,

each subscription, unless the contrary be expressed, constitutes a
distinct contract with the assured.

designation of the insured and the subject matter of the marine
insurance policy as follows:
1. The subject matter insured must be designated in a marine policy with

reasonable certainty.
2. The nature and extent of the interest of the assured in the subject
matter insured need not be specified in the policy.
3. Where the policy designates the subject matter insured in general

terms, it shall be construed to apply to the interest intended by the
assured to be covered.
4. In the application of this section, regard shall be had to any usage

regulating the designation of the subject matter insured.

construction of terms in policy as follows:
1. A policy may be in the form in the Schedule.
2. Subject to the provisions of this Act, and unless the context of the policy
otherwise requires, the terms and expressions mentioned in the
Schedule shall be construed as having the scope and meaning assigned
to them in the Schedule.

alteration of port of departure as follows:
! !434
Where the place of departure is specified by the policy, and the ship
instead of sailing from that place sails from any other place, the risk does
not attach.
Section 45 of the Marine Insurance Act, 1963 states about sailing

for different destination:
Where the destination is specified in the policy, and the ship, instead of
sailing for that destination, sails for any other destination, the risk does not
attach.
10.9 Different types of Marine Insurance Policies
Marine Insurance policies may broadly be classified into the following types
namely:
A. Voyage Policy
The policy is issued to cover a particular voyage from one port to another
and from one place to another. The policy mentions the port of departure
and the port of destination, between which the risks are generally
underwritten. The policy is used mostly in case of cargo insurance. The
goods remain covered even when the ship halts at intermediate ports.
The risks at the port of departure and at the port of destination may be
covered by incorporating suitable clauses in the policy. The liability of the
insurer continues during landing and reshipping of the goods.
Voyage and Time Policies (Section 27 of the Marine Insurance Act,

1963)
1. Where the contract is to insure the subject matter at and from, or from
one place to another or others, the policy is called a “voyage policy”,
and where the contract is to insure the subject matter for a definite
period of time, the policy is called a “time policy” contract for both
voyage and time may be included in the same policy.
2. A time policy which is made for any time exceeding twelve months is
invalid.
! !435
Change of Voyage (Section 47 of the Marine Insurance Act, 1963)
1. Where, after the commencement of the risk, the destination of the ship
is voluntarily changed from the destination contemplated by the policy,
there is said to be a change of voyage.
2. Unless the policy otherwise provides, where there is a change of

voyage, the insurer is discharged from liability as from the time of
change, that is to say, as from the time when the determination to
change it is manifested; and it is immaterial that the ship may not in
fact have left the course of voyage contemplated by the policy when the
loss occurs.
Deviation (Section 48 of the Marine Insurance Act, 1963)
1. Where a ship, without lawful excuse, deviates from the voyage

contemplated by the policy, the insured is discharged from liability as
from the time of deviation, and it is immaterial that the ship may have
regained her route before any loss occurs.
2. There is a deviation from the voyage contemplated by the policy—
a. where the course of the voyage is specifically designated by the

policy, and that course is departed from; or
b. where the course of the voyage is not specifically designed by the

policy, but the usual and customary course is departed from.
3. The intention to deviate is immaterial; there must be a deviation in fact

to discharge the insurer from his liability under the contract.
Several Ports of Discharge (Section 49 of the Marine Insurance Act,

1963)
1. Where several ports of discharge are specified by the policy, the ship
may proceed to all or any of them, but, in the absence of any usage or
sufficient cause to the contrary, she must proceed to them, or such of
them as she goes to, in the order designated by the policy. If she does
not, there is a deviation.
! !436
2. Where the policy is to “ports of discharge” within a given area, which

are not named, the ship must, in the absence of any usage or sufficient
cause to the contrary, proceed to them, or such of them as she goes to,
in their geographical order. If she does not, there is a deviation.
Delay in Voyage (Section 50 of the Marine Insurance Act, 1963)
In the case of a voyage policy, the adventure insured must be prosecuted

throughout its course with reasonable dispatch, and; if without lawful
excuse it is not so prosecuted, the insurer is discharged from liability as
from the time when the delay became unreasonable.
Excuse for Deviation or Delay (Section 50 of the Marine Insurance

Act, 1963)
1. Deviation or delay in prosecuting the voyage contemplated by the policy

is excused—
a. where authorised by any special term in the policy; or
b. where caused by circumstances beyond the control of the master and

his employer; or
c. where reasonably necessary in order to comply with an express or

implied warranty; or
d. where reasonably necessary for the safety of the ship or subject

matter insured; or
e. for the purpose of saving human life or aiding a ship in distress

where human life may be in danger; or
f. where reasonably necessary for the purpose of obtaining medical or

surgical aid for any person on board the ship; or
g. where caused by the barratrous conduct of the master or crew, if

barratry be one of the perils insured against.
! !437
2. When the cause excusing the deviation or delay ceases to operate, the
ship must resume her course, and prosecute her voyage, with
reasonable dispatch.
B. Annual Policy
If the business involves regular dispatch of goods throughout the year, and
the quantity can be reasonably estimated in advance, an annual policy can
be obtained on the basis of estimated annual dispatches. Premiums
collected in advance will be adjusted at the end of the year.
C. Valued Policies
Under this policy, the value of loss to be compensated is fixed and remains
constant throughout the risk except where there is fraud and excessive
overvaluation. The value of the subject matter is agreed between the
insurer and the assured at the time of taking the insurance.
D. Floating Policies
This policy describes the general terms and leaves the amount of each
shipment and other particulars to be declared later on. The declaration is
made in order of dispatch of shipment.
The policy is taken for a round large sum which is specified at each
declaration and is attached to each shipment. With each declaration, the
amount will be reduced till it is exhausted when the insured sum is said to
be ‘closed’ and the policy is ‘fully declared’ or ‘run off’.
The most popular form of contract is ‘Open Cover’. It is an agreement

between the insured and the insurer by which the assured on his part
agrees to declare, and the insurer on his part agrees to accept all the
shipments falling within the scope of the ‘open cover’ which is merely an
‘original ship’.
E. Blanket Policies
The policy is taken to cover losses within the particular time and place. The
policy is taken for a certain amount and premium is paid on the whole of it
! !438
in the beginning of the policy and is readjusted at the end of the policy
according to the actual amount at risk.
If the actual coverage of risk is less than the total amount of insurance, the
premium related to the excess amount is returned to the insured.
On the other hand, if the amounts of shipments are greater than the
insured sum, additional premium is charged over the excess protection.
F. Named Policies
Under this policy, the name of the ship and the amount of insured cargo
are mentioned. These policies are specific policies.
G. Special Declaration Policy
A special declaration policy (SDP) is a form of floating policy issued to

clients who have a large turnover with many and frequent dispatches of
goods.
H. Indian Coast Ports Policy
This policy covers cargo on coastal voyage, covered by self-propelled

vessels of iron or steel construction which are not over 15 years of age and
not under 450 tons GRT/Rates depend upon voyage between different
categories of ports.
For timber stored on deck, insurance shall be limited to Free of All Average
(FAA) and Institute Cargo Clauses (ICC) covers both including jettison and
washing over board.
I. Inland Vessel Policy
Inland vessel policy covers all cargoes carried on rivers, canals or other
smooth waters including F.O.B. shipment. General average sacrifice and
jettison are not included in the risk covered. The rate of premium is based
on age, propelled angina, steel, wooden boats, etc.
! !439
J. Free on Board Policy
The policy is arranged by the buyer overseas for his own account and
benefit. Risks under the buyer’s policy commence on loading of the cargo
on the overseas vessel, because it is at that juncture of transit that the risk
passes from the seller to the buyer.
The covers start from the time the cargo leaves the warehouse till such
goods are loaded on the ship. The policy also cover loss/damage
reasonably attributable to craft, raft or lighter being stranded, grounded,
sunk or capsized.
K. Sailing Vessels Policy
Sailing vessels include country craft total and/or constructive total loss of
the subject matter insured attributable to fire or shrinking or stranding.
Loss/damage are also covered of subject matter insured caused by jettison
due to stress of weather stranding, sinking or burning or collision at sea.
L. Marine-cum-Erection
In case of Marine-cum-Erection Insurance policy, marine risks are followed

by storage risks, erection and testing. In the standard marine (cargo)
policy, the cover ceases after the goods are delivered at the site of
erection. If any damage were found at the time of erection attributable to
transit risks, the marine policy and erection policy bears 50% each of the
cost of damage.
M. Unvalued Policy
An unvalued policy is a policy which does not specify the value of the
subject matter insured, but subject to the limit of the sum insured, leaves
the insurable value to be subsequently ascertained, in the manner
hereinbefore explained.
N. Block Policies
Block policy insures incidental inland risks too, along with the marine
perils.
! !440
O. Currencies Policies
Policy issued in foreign currency are called currency policies. This policy
avoids the fluctuation in foreign currency, as the sum assured is stated in
foreign currency.
P. Policy Proof of Insurance (PPI) Policies
These are also called wager policies which were in vogue before 1909. A
wager policy is one where either the insured has strictly no insurable
interest at stake or else that the insurer is willing to dispense with any
proof of interest. Section 6(1) of the Marine Insurance Act, 1963 states
that every contract of marine insurance by way of gaming or wagering is
void.
Procedure for Effecting Marine Insurance
The procedure of marine insurance is effected as per conditions prescribed

by the General Insurance Corporation of India. These conditions and
procedures are controlled by the international standards.
1. Selecting an Insurance Company
After the nationalisation of general insurance business in India, the

marine insurance policies are issued by the four subsidiary companies of
the General Insurance Corporation of India. One has to select any of
these companies keeping in view the premium rate, facilities and
securities provided by each.
2. Filling Up a Proposal Form
The perspective person then should fill up a proposal form that is

available from the insurance company or its agent. The proposal form is
a printed sheet in a standard format that requires certain information
filled regarding the name, address and occupation of the intended
policyholder, nature and value of property or cargo, the type of policy
sought and the sum of premium to be paid.
! !441
3. Depositing the Proposal with the Insurance Company
The proposal form duly filled is deposited directly with the insurance
company.
4. Gathering Evidence
After receiving the proposal form, the insurance company gathers

evidence of respectability of the prospective policyholder. The evidence
of respectability includes the information about honesty, credibility and
the financial position of the intended policyholder.
5. Determination Premium
Once the insurance company gathers the evidence of respectability of

the proposer, it starts surveying and evaluating the subject matters
being insured. Based on the survey and evaluation, the level of risk
involved in the subject matters is ascertained and the sum of premium
to be paid by the proposer is determined.
Section 33 of the Marine Insurance Act, 1963 makes a mention of

premium to be arranged as follows:
1. Where an insurance is effected at a premium to be arranged, and no

arrangement is made, a reasonable premium is payable.
2. Where an insurance is effected on the terms that an additional
premium is to be arranged in a given event, and that event happens
out no arrangement is made, then a reasonable additional premium
is payable.
Section 54 of the Marine Insurance Act, 1963 makes a mention of

when premium payable as follows:
Unless otherwise agreed, the duty of the assured or his agent to pay the
premium, and the duty of the insurer to issue the policy to the assured or
his agent, are concurrent conditions, and the insurer is not bound to issue
the policy until payment or tender of the premium.
! !442
Enforcement of Return of Premium (Section 82 of the Marine

Insurance Act, 1963)
Where the premium, or a proportionate part thereof, is, by this Act,

declared to be returnable—
a. if already paid, it may be recovered by the assured from the insurer,

and,
b. if unpaid, it may be retained by the assured or his agent.
Where the policy contains a stipulation for the return of the premium, or a
proportionate part thereof, on the happening of a certain event, and that
event happens, the premium, or, as the case may be, the proportionate
part thereof, is thereupon returnable to the assured (Section 83 of the
Marine Insurance Act, 1963).
Where the consideration for the payment of the premium totally fails, and
there has been no fraud or illegality on the part of the assured or his
agents, the premium is thereupon returnable to the assured. Where the
consideration for the payment of the premium is apportionable and there is
a total failure of any apportionable part of the consideration, a
proportionate part of the premium is, under the like conditions, thereupon
returnable to the assured (Section 84 of the Marine Insurance Act, 1963).
6. Acceptance of Proposals
On fixing the insurance premium, the insurance company conveys the

acceptance of the proposal and the proposer is asked to deposit the
premium within the prescribed time limit. In case of rejection, a regret
letter is issued to the proposer.
7. Issuing a Cover Note
Upon receipt of the premium from the proposer, the insurance company
issues a receipt of payment which is called cover note. This cover note
confirms the protection of the subject matters from any loss occurred
before the issue of the final marine insurance policy.
! !443
8. Issuing marine insurance policy
Marine insurance policy is prepared and issued to the policyholder after

it is duly stamped and signed by the official of the insurance company
and policyholder. Such policy, is fully operational and covers the loss
that may occur in sea voyage. In case of marine insurance policy, the
assignment of the policy can be made without the prior permission of
the marine insurance company. An intimation to the marine insurance
company is sufficient.
Section 23 of the Marine Insurance Act, 1963 states about when

contract is deemed to be concluded as follows:
A contract of marine insurance is deemed to be concluded when the

proposal of the assured is accepted by the insurer, whether the policy be
then issued or not; and for the purpose of showing when the proposal was
accepted, reference may be made to the slip, covering note or other
customary memorandum of the contract, although it be unstamped.
Section 24 of the Marine Insurance Act, 1963 makes a specific

mention that a contract must be embodied in policy as follows:
A contract of marine insurance shall not be admitted in evidence unless it

is embodied in a marine policy in accordance with this Act. The policy may
be executed and issued either at the time when the contract is concluded,
or afterwards.
Reserve Bank of India Guidelines on Marine Insurance
Introduction: Persons, firms, companies, etc. resident in India are not

permitted to take general insurance of any kind with insurance companies
in foreign countries without prior approval of Reserve Bank. Besides,
permission of Government of India under General Insurance Business
(Nationalisation) Act, 1972, is also required in such cases. Proposals for
direct insurance outside India should be submitted to Reserve Bank
explaining reasons for seeking such insurance cover and producing a
certificate issued by GIC or any of its subsidiaries to the effect that the
proposed insurance cover cannot be obtained from them.
! !444
Marine Insurance on Exports: GIC has been permitted to accept

premiums in rupees from exporters against export of goods from India on
production of certificate from them to the effect that:
a. the insurance charges on the shipment in question have to be borne

by exporter in terms of the contract with overseas buyer and that he
is not making the payment on behalf of any non-resident;
or
b. the exporter is defraying the insurance charges on the shipment in

question on account of overseas buyer of the goods and that he
undertakes to add the amount on the invoice and recover the
payment so made from the buyer in an approved manner.
While handling shipping documents against exports contracted on F.O.B.,

C.& F. or any other terms under which liability on account of marine
insurance on the shipment rests with overseas buyers but exporters have
taken the insurance cover on non-resident party’s account, authorised
dealers should verify that the actual premium has been added on the
invoice for being recovered from buyers.
NOTE: Certain countries operate restrictions requiring importers in their

countries to obtain marine insurance cover from local insurers, settlement
under which in favour of exporters in India may not be permissible in the
event of cargo getting lost before reaching the port of destination due to
Exchange Control regulations governing remittances against imports into
those countries. Exporters may in such cases avail of contingency marine
insurance policies from GIC and its subsidiaries in order to protect their
interests till the goods are paid for. Claims on such policies will be payable
only to exporter in India and such policies will not be assignable to
overseas buyer or any other party. In such cases, the insurance premium
paid to GIC will not be recoverable from overseas buyers.
Protection against Transit Risks under F.O.B., C.& F., etc.
Contracts for Exports
Sometimes in case of exports contracted on F.O.B., C.& F., etc. terms,

exporters ship cargo without verifying that the goods have been
! !445
adequately insured against transit risks by overseas buyers. Unless the

cargo is insured for the entire duration of transit and insurance is available
for protection of exporter until ownership in the goods passes to buyer, the
exporter will be liable to suffer financial losses apart from loss of foreign
exchange caused by damage/loss to the goods, except where the export is
covered by an irrevocable letter of credit opened by buyer. It is, therefore,
necessary for the exporter to verify even before goods are shipped out of
India that they are insured against all risks of loss or damage during the
entire course of transit and that such insurance is available to him by virtue
of incorporation of sellers’ interest clause in the policy. In cases where
exporter is not assured that his interests are protected fully through
insurance, he may also avail of contingency insurance cover from Indian
insurers on the analogy of the provisions in the Note under Paragraph 15A.
2.
Marine Insurance on Imports
GIC has been permitted to accept premiums in rupees from importers

against import of goods into India on production of a certificate from them
to the effect that–
a. the insurance charges on the shipment in question have to be borne

by importer in terms of the contract with the overseas seller, and
b. where the import is covered under an Import Licence, he undertakes

to ensure that the amount of insurance premium paid will be
endorsed on the import licence in due course.
Claims against Marine Insurance Policies Covering Exports
i) GIC and its subsidiaries have been permitted to settle claims against
marine insurance policies covering exports from India out of foreign
currency balances held by them, provided they are satisfied that
ownership of the goods lost, damaged, etc. vests in such claimant and
that the latter is not making the claim merely as agent of the real owner
of the goods in India. In cases where the funds held by the insurers
abroad are inadequate, claims will have to be settled by remittance from
India. Authorised dealers may permit such remittances without
reference to Reserve Bank, on application from insurers on Form A2
together with documents listed in Paragraph A.7 of Memorandum GIM
! !446
after verifying that the statement of claim has been duly completed and
signed by an authorised official of the insurer and that the remittance is
prima facie in order. Where any document is not produced in original, an
explanation for the insurer’s inability to do so should be obtained. In all
cases, the statement of claim (Form GIM1) should be enclosed to Form
A2 and submitted to Reserve Bank with appropriate R Return. The other
documents may be returned to the applicant insurer after marking
them.
ii) GIC and its subsidiaries may sometimes make arrangements with
overseas claims-settling agents for facilitating speedy settlement of
claims relating to exports from India. In such cases, authorised dealers
may on receipt of requests from GIC/its subsidiaries, open revolving
letters of credit in favour of established claims-settling agents abroad
providing payment against production of documentary evidence, viz.,
statement of claim, survey report or other documentary evidence of
loss/damage, original policy or certificate of insurance, etc.
Reimbursement of claims under the credit may be made by authorised
dealers on verification of the required documents.
iii) Where GIC and its subsidiaries have settled claims against marine
insurance policies covering exports from India in favour of Indian
exporters, authorised dealers may allow remittance of claims by Indian
exporters to overseas buyers on production of documentary evidence in
support of the claim, provided export proceeds have been realised in full
by the exporter. A declaration from the Indian exporter that the
overseas buyer has not been compensated in any other manner for the
loss of/damage to goods exported from India in respect of which claim
has been settled by GIC or its subsidiary, should also be obtained
Claims against Marine Insurance Policies Covering Imports into

India and Merchanting Trade
Remittances against claims under marine insurance policies covering

imports into India may be allowed by authorised dealers on verification of
the certificates regarding ownership of the goods etc. as laid down in
Paragraphs A.8 and A.9 of Memorandum GIM. Authorised dealers should
specifically confirm on Form A2 that the necessary documentary evidence
has been verified and conditions laid down in Paragraphs A.8 and A.9 of
Memorandum GIM are fulfilled.
! !447
Premium for Extension of Insurance Cover on Imports
Sometimes, importers may not retire documents received under letters of

credit promptly and goods may meanwhile arrive at the Indian port and
remain unprotected in the docks. In cases where marine insurance has
been taken abroad and normal period has expired, authorised dealers have
been granted permission to have the insurance cover extended and to
remit the insurance premium (See Paragraph 7A.14), war etc.
Risk Insurance on Marine Hulls
GIC is operating a scheme of comprehensive insurance on Indian marine

hulls covering all risks against war and other allied risks arising out of civil
commotion, political or labour disturbances, etc. Shipowners should,
therefore, normally obtain such insurance cover only in India.
! !448
10.10 Summary
General insurance or Non-life insurance companies generally cover risks

other than those relating to human lives. As per Insurance Act, 1938,
“General insurance business” means fire, marine or miscellaneous
insurance business, whether carried on singly or in combination with one or
more of them.
In General insurance sector, newer avenues have opened up in areas of

liability and directors’ and officers’ liability space with changes in the
Companies Act. Unviable pricing and heavy discounts to corporates were a
matter of concern, especially in the group health and property space.
Marine insurance is one of the oldest forms of insurance. It has developed

with the expansion of trade. A “contract of marine insurance” is an
agreement whereby the insurer undertakes to indemnify the assured, in
the manner and to the extent thereby agreed, against marine losses, that
is to say, the losses incidental to marine adventure.
Every lawful marine adventure may be the subject of a contract of marine

insurance.
“Marine insurance business” means the business of effecting contracts of

insurance upon vessels of any description, including cargoes, freights and
other interests which may be legally insured, in or in relation to such
vessels, cargoes and freights, goods, wares, merchandise and property of
whatever description insured for any transit, by land or water, or both, and
whether or not including warehouse risks or similar risks in addition or as
incidental to such transit, and includes any other risks customarily included
among the risks insured against in marine insurance policies; “fire
insurance business” means the business of effecting, otherwise than
policies.
The subject matter of marine insurance is the insurable property against

which the risks can be covered. Ocean marine insurance can be divided
into four basic classes to reflect the various insurable interests.
! !449
In insurance on ship, the insurable value is the value, at the

commencement of the risk, of the ship, including her outfit, provisions, and
stores for the officers and crew, money advanced for seamen’s wages, and
other disbursements (if any) incurred to make the ship fit for the voyage or
adventure contemplated by the policy, plus the charges of insurance upon
the whole.
The assured must disclose to the insurer, before the contract is concluded,
every material circumstance which, is known to the assured, and the
assured is deemed to know every circumstance which, in the ordinary
course of business, ought to be known to him.
When the ship or other subject matter of the ship is not totally destroyed,
it may cost more to restore it than its worth. In such cases, the ship may
be abandoned to the insurer and the insured collects the full amount of the
policy. The salvage then belongs to the insurer.
A warranty means a promissory warranty, that is to say a warranty by

which the assured undertakes that some particular thing shall or shall not
be done, or that some condition shall be fulfilled, or whereby he affirms or
negatives the existence of a particular state of facts. A warranty may be
express or implied.
A marine policy may be transferred by assignment unless it contains terms

expressly prohibiting assignment. It may be assigned either before or after
loss.
In marine insurance, loss means losses incidental to marine adventure and

includes damages or detriment as well as the actual loss of the property. If
the loss takes place on account of any of the perils insured against with the
insurer, the insurer is liable for it. A loss may be either total or partial. Any
loss other than a total loss is a partial loss.
A contract of marine insurance shall not be admitted in evidence unless it

is embodied in a marine policy in accordance with this Act. Section 25 of
the Marine Insurance Act, 1963 specifies the provisions of a marine
insurance policy.
! !450
Marine Insurance policies can be broadly be classified into various types,

e.g., voyage policy, valued policy, named policy, special declaration policy,
etc.
The procedure of marine insurance is effected as per conditions prescribed

by the General insurance Corporation of India.
Persons, firms, companies, etc. resident in India are not permitted to take
general insurance of any kind with insurance companies in foreign
countries without prior approval of Reserve Bank.
1. Take a printout of a Marine Insurance cargo policy from a private and a

public sector general insurance companies website and compare their
policies with reference to the specific provisions of the Marine Insurance
Act, 1963.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………….
2. Assume you are exporter of goods through a ship. Contact a general

insurance advisor and discuss with him which type of insurance policy
will be suitable for exporting processed gems and jewellery to Europe.
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………….
! !451
17.howtoexportimport.com
18.http://www.ibef.org/
! !452
1. Marine insurance is one of the oldest forms of insurance. Lloyd’s Coffee

House is regarded as the place where marine insurance started the way
it is practiced today. Lloyd’s is located in:
a. London
b. Paris
c. Tokyo
d. Singapore
2. One class of ocean marine insurance provides ship owners

comprehensive liability insurance for property damage and liability to
third parties. This type of coverage is called:
a. Hull insurance
b. Cargo insurance
c. Liability insurance
d. Freight insurance
3. Every person has an insurable interest who is interested in a marine

adventure. Which one of the following does not represent an insurable
risk?
a. Fire
b. Stolen goods
c. Burglary
d. Loss of goods due to ship capsizing
4. Which of the following rights of the insurer means transfer of all rights
and remedies, with respect to the subject matter of insurance, from
insured to insurer?
a. Contribution
b. Subrogation
c. Novation
d. Respondia
! !453
5. Section 25 of the Marine Insurance Act, 1963 states that a marine

insurance policy must specify certain provisions. which of the following
provisions are required to be mentioned under Section 25 of the Marine
Insurance Act, 1963 ?
a. The name of the assured, or of some person who effects the

insurance on his behalf
b. The subject matter insured and the risk insured against
c. The voyage, or period of time, or both, as the case may be, covered
by the insurance
d. All of the above
6. Under which of the following marine insurance policy the value of loss to
be compensated is fixed and remains constant throughout the risk
except where there is fraud and excessive overvaluation?
a. Voyage
b. Sailing Vessels Policy
c. Valued
d. Block
7. In a voyage policy on goods or other movables, there is an implied

warranty that at the commencement of the voyage the ship is not only
seaworthy as a ship, but also that she is reasonably fit to carry the
goods or other movables to the destination contemplated by the policy.
a. True
b. False
! !454
Answers:
1. (a)
2. (c)
3. (b)
4. (b)
5. (d)
6. (c)
7. (a).
! !455
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !456
FIRE INSURANCE
Chapter 11
Fire Insurance
Objectives
This chapter will help you to understand the importance of fire insurance
designed to provide financial protection for property against loss or
damage by fire and other specified perils.
! !457
FIRE INSURANCE
Structure:
11.1 Introduction
11.2 Elements and Principles of Fire Insurance
11.3 Perils insured in Fire Insurance
11.4 Standard Fire Policy
11.5 Term of Fire Policy
11.6 Who Can Take a Fire Insurance Policy?
11.7 Properties that are Covered Under Fire Insurance
11.8 Doctrine of Approximation
11.9 Fixing Proper Sum Insured
11.10 Fire Claim Procedure
11.11 Summary
! !458
FIRE INSURANCE
11.1 Introduction
The fire insurance policy offers protection against any unforeseen loss or
damage to/ destruction of property due to fire or other perils covered
under the policy. In fire insurance, insurance is not against fire but against
the loss caused by fire. There is no statutory enactment governing fire
insurance. In the absence of any legislative regulation on fire insurance,
the courts have relied on the general laws of contract and the decisions
given by Indian and English courts.
According to Halsbury Law of England, “a fire insurance contract is a

contract of insurance by which the insurer agrees for consideration to
indemnify the assured upto certain extent and subject to certain terms and
conditions against loss or damage by fire, which may happen to the
property of the assured during a specific period.”
In Castellian v. Perton, Brett L.J., “Every contract of marine or fire

insurance is a contract of indemnity and of indemnity only, the meaning of
which is the assured in case of loss is to receive full indemnity, but never to
receive more.”
The different types of property that could be covered under a fire insurance
policy are dwellings, offices, shops, hospitals, places of worship, etc. and
their contents; industrial/ manufacturing risks and contents such as
machinery, plants, equipment and accessories; goods including raw
material, material in process, semi-finished goods, finished goods, packing
materials etc. in factories, godowns and in the open; utilities located
outside industrial/manufacturing risks; storage risks outside the compound
of industrial risks; tank farms/gas holders located outside the compound of
industrial risks, etc.
Section 2(6A) of the Insurance Act, 1938 defines Fire Insurance

Business as: “Fire Insurance business means the business of effecting,
otherwise than incidentally to some other class of insurance business,
contracts of insurance against loss by or incidental to fire or other
occurrence customarily included among the risks insured against in fire
insurance policies.”
According to Black Dictionary, “the word fire as used in insurance

policies, does not have the technical meaning developed from the analysis
! !459
FIRE INSURANCE
of its nature, but more nearly the popular meaning, being an effect rather
than an elementary principle, and is the effect of combustion being
equivalent to ignition or burning.”
The fire can be caused by physical hazard as well as moral hazard. Physical
hazard refers to inherent risk of fire in the property which may occur due
to heating, lack of preventing measures to control fire, etc. Moral hazard
depends upon the carelessness of the human being in charge of the assets.
In an fire insurance contract, one has to prove the existence of fire and the
fortuitous impact of fire, in order to lodge a insurance claim from the
insurer.
The fire insurance does not save the society from the economic loss to the
extent of the property lost by fire, but the compensation saves from a
ruinous loss. Thus, fire insurance is meant for indemnification of loss
and not for prevention of loss.
11.2 Elements and Principles of Fire Insurance
Fire insurance being a contingent contract under Indian law, make use of
certain elements and principles common to all insurance contracts. A
contract of fire insurance must possess all the essential elements of a valid
contract as per Section 10 of the Indian Contract Act, 1872, i.e., offer and
acceptance, free consent, competence of parties, lawful object and
consideration, not declared to be void or Illegal, possibility of performance,
etc. The object of fire insurance is not the physical property but to
compensate the assured for the loss arising out of accidents, i.e., fire.
Principle of uberrimae fidei is a very basic and first primary principle of

insurance. According to this principle, the person getting insured must
willingly disclose and surrender to the insurer his complete true information
regarding the subject matter of insurance. The insurer’s liability gets void
(i.e., legally revoked or cancelled) if any facts, about the subject matter of
insurance are either omitted, hidden, falsified or presented in a wrong
manner by the insured.
! !460
FIRE INSURANCE
!
The Principle of Insurable Interest states that the person getting
insured must have insurable interest in the object of insurance.
According to the Principle of Indemnity, an insurance contract is signed

only for getting protection against unpredicted financial losses arising due
to future uncertainties and not for making profit.
Principle of Contribution states that the insured can claim the

compensation only to the extent of actual loss either from all insurers or
from any one insurer.
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.
Principle of Causa Proxima states that to find out whether the insurer is
liable for the loss or not, the proximate (closest) and not the remote
(farest) must be looked into.
! !461
FIRE INSURANCE
According to the Principle of Loss Minimisation, insured must always try

his level best to minimise the loss of his insured property, in case of
uncertain events like a fire outbreak.
Like other insurance, the assured must have insurable interest in the
property which is the subject matter of insurance. In fire insurance, such
insurable interest must exist at the time of inception of the policy as well
as at the time of the loss.
In Macaura v. Nothern Assurance Co., Macaura insured a timber in his

estate against fire. He sold the timber to a company of which he was a sole
shareholder. Thereafter rest of the timber was destroyed by fire and he
demanded compensation from the insurer. The insurer succeeded in
refusing the claim as the insured had no statutory interest, because as a
shareholder he had no insurable interest in the assets of the company, nor
had any contractual interest under the insurance policy.
A contract of fire insurance though appears to be a property insurance is

not so and it is a personal contract between the insurer and the assured for
the payment of money after the loss to the property insured by fire
insurance.
The cause of fire is immaterial. The fire claim will have to be paid inspite of
the careful or careless behaviour of the insured. The only exception will be
in case of willfully and voluntary allowance of fire by the assured, in which
case it would amount to fraud and a claim made by fraud will not be
compensated.
Average Clause
In the case of a Fire Insurance contract, the sum insured should be

adequate, because the policy provides for an Average Clause whereby the
assessed claim is reduced in proportion to the under-insurance. The
average clause is reproduced below:
If the property hereby insured shall at the breaking out of any insured peril
be collectively of greater than the sum insured thereon, then the insured
shall be considered as being his own insurer for the difference, and shall
bear a rateable proportion of the loss accordingly. Every item, if more than
one, of the policy shall be separately subject to the condition.
! !462
FIRE INSURANCE
Since the purpose of the insurance is to place the insured in the same
financial position in which he was at the time of loss, it is necessary that
there should be no under-insurance and the sum insured be adequate.
11.3 Perils insured in Fire Insurance
Fire insurance policy is suitable for commercial establishments as well as

for the owner of property, one who holds property in trust or in commission
and for, individuals/financial institutions who have financial interest in the
property. The perils covered by the fire policy are as follows:
• Fire
• Lightning
• Explosion/implosion
• Riot, strike, malicious and terrorist damage
• Impact damage by rail/road/vehicle/animal
• Aircraft and other aerial and/or space devices damage
• Storm, tempest, cyclone, typhoon, hurricane, tornado, flood and
inundation
• Earthquake and shock
• Subsidence and landslide including rock slide
• Bursting and overflowing of water tanks, apparatus and pipes
• Missile testing operations
• Leakages from automatic sprinkler installation
• Bush fire
11.4 Standard Fire Policy
The standard fire policy are issued in various forms in order to enable a
large number of insured’s to buy insurance at a reasonable premium for
availing a basic minimum cover.
Fire Insurance is governed by All India Fire Tariff issued by Tariff Advisory
Committee, a Statutory Body.
The Tariff Advisory Committee has prescribed three types of coverages,

viz., Policy A, Policy B and Policy C.
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Policy A
Fire Policy A covers the following perils: (i) fire, (ii) lightning, (iii)
explosion/implosion, (iv) impact damage, (v) aircraft damage, (vi) riot,
strike and malicious and terrorist damage,(vii) storm, cyclone, tempest,
hurricane, tornado, flood and inundation, (viii) earthquake, and
(ix) subsidence and landslide.
Policy A can be issued to cover artisans workshops, biogas plants, village

and cottage industries, tiny sector or small-scale industries.
Policy B
Fire Policy A covers the following perils: (i) fire, (ii) lightning, (iii)
explosion/implosion, iv) impact damage, (v) aircraft damage, and (vi) riot,
strike and malicious and terrorist damage.
Policy C
Fire Policy C is issued to cover industrial/manufacturing risks and storage

risks and covers: (i) fire, (ii) lightning, (iii) explosion/implosion, (iv) impact
damage, (v) aircraft damage, and (vi) riot, strike and malicious and
terrorist damage.
The Fire Policy C may be extended to cover special perils like earthquake,
storm, cyclone, tempest, hurricane, tornado, flood and inundation, etc. on
payment of extra premium.
The insurers can issue the standard fire policy as per the New Fire Tariff
along with added benefits at the option of the policyholders by charging
additional premiums. The added benefits can include architect’s, surveyor’s
and consulting engineer’s fee, debris removal, spontaneous combustion,
forest fire, etc.
Apart from standard coverages, fire policy may also be issued to meet the
specific requirements of policyholders as follows:
a. Reinstatement Value Policies: Under normal Fire Policy, losses are

settled on the basis of market value of the property on the date of
fire. This value takes into account depreciation, wear and tear, etc.
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Under the new reinstatement value, the insurers pay the cost of
replacement of the damaged property and not the market value as
under the normal fire policy.
b. Policies for Stock: Stocks at various locations can be covered under

one sum insured by floater policies. Declaration policies are useful to
businesses, which face frequent fluctuations in stock quantity. Floater
declaration policies combine the features of the floater and the
declaration policies.
c. Consequential Loss Policies: Fire consequential loss policy

provides cover for expenses and increased cost of working as a result
of business interruption following a loss covered by the fire policy.
Contents of Fire Policy
The standard fire insurance policy contains various details, which are
arranged in groups and schedules.
A specimen of STANDARD FIRE and SPECIAL PERILS POLICY WORDING by

MAGMA HDI GENERAL INSURANCE COMPANY is given below to understand
how a Fire Policy really looks like.
Standard Fire and Special Perils Policy Wording by Magma HDI

General Insurance Company (For Specimen Purpose)
Standard Fire and Special Perils Policy
In consideration of the Insured named in the Schedule hereto having paid

to the Magma HDI General Insurance Company Limited (hereinafter called
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the Company) the full premium mentioned in the said schedule, the
Company agrees (subject to the conditions and exclusions contained herein
or endorsed or otherwise expressed hereon) that if after payment of the
premium the property insured described in the said Schedule or any part of
such property be destroyed or damaged by any of the perils specified
hereunder during the period of insurance named in the said schedule or of
any subsequent period in respect of which the insured shall have paid and
the Company shall have accepted the premium required for the renewal of
the policy, the Company shall pay to the Insured the value of the property
at the time of the happening of its destruction or the amount of such
damage or at its option reinstate or replace such property or any part
thereof.
I. Fire
Excluding destruction or damage caused to the property insured by:
a. (i) Its own fermentation, natural heating or spontaneous

combustion.
(ii) Its undergoing any heating or drying process.
b. burning of property insured by order of any Public Authority.
II.Lighting
III.Explosion/Implosion
Excluding loss, destruction of or damage:
a. to boilers (other than domestic boilers), economisers or other

vessels, machinery or apparatus (in which steam is generated) or
their contents resulting from their own explosion/implosion.
b. caused by centrifugal forces.
IV. Aircraft Damage
Loss, destruction or damage caused by aircraft, other aerial or space

devices and articles dropped there from excluding those caused by
pressure waves.
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V. Riot, Strike and Malicious Damage
Loss of or visible physical damage or destruction by external violent

means directly caused to the property insured but excluding those
caused by:
(a)total or partial cessation of work or the retardation or interruption or

cessation of any process or operations or omissions of any kind.
(b)Permanent or temporary dispossession resulting from confiscation,

commandeering, requisition or destruction by order of the
Government or any lawfully constituted Authority.
(c)Permanent or temporary dispossession of any building or plant or unit

or machinery resulting from the unlawful occupation by any person of
such building or plant or unit or machinery or prevention of access to
the same.
(d)Burglary, housebreaking, theft, larceny or any such attempt or any

omission of any kind of any person (whether or not such act is
committed in the course of a disturbance of public peace) in any
malicious act.
VI.Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood

and Inundation Loss.
Destruction or damage directly caused by storm, cyclone, typhoon,

tempest, hurricane, tornado, flood or inundation excluding those
resulting from earthquake, volcanic eruption or other convulsions of
nature. (Wherever earthquake cover is given as an “add on cover” the
words “excluding those resulting from earthquake volcanic eruption or
other convulsions of nature” shall stand deleted.)
VII.Impact Damage
Loss of or visible physical damage or destruction caused to the property

insured due to impact by any rail/road vehicle or animal by direct
contact not belonging to or owned by:
(a)the insured or any occupier of the premises or
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(b)their employees while acting in the course of their employment.
VIII.Subsidence and Landslide including Rock Slide
Loss, destruction or damage directly caused by subsidence of part of the

site on which the property stands or land slide/rock slide excluding:
(a)the normal cracking, settlement or bedding down of new structures
(b)the settlement or movement of made up ground
(c)coastal or river erosion
(d)defective design or workmanship or use of defective materials
(e)demolition, construction, structural alterations or repair of any

property or ground works or excavations.
IX.Bursting and/or Overflowing of Water Tanks, Apparatus and

Pipes
X. Missile Testing operations
XI.Leakage from Automatic Sprinkler Installations
Excluding loss, destruction or damage caused by:
(a)Repairs or alterations to the buildings or premises
(b)Repairs, removal or extension of the sprinkler installation
(c)Defects in construction known to the Insured.
XII.Bush Fire
Excluding loss, destruction or damage caused by Forest Fire.
PROVIDED that the liability of the Company shall in no case exceed in

respect of each item the sum expressed in the said Schedule to be
insured thereon or in the whole the total Sum Insured hereby or such
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other sum or sums as may be substituted therefore by memorandum

hereon or attached hereto signed by or on behalf of the Company.
A. General Exclusions
1. This Policy does not cover (not applicable to policies covering

dwellings):
(a)The first 5% of each and every claim subject to a minimum of

`10,000 in respect of each and every loss arising out of “Act of
God Perils” such as lightning, STFI, subsidence, landslide and rock
slide covered under the policy.
(b)The first `10,000 for each and every loss arising out of other perils
in respect of which the Insured is indemnified by this policy.
The excess shall apply per event per insured.
2. Loss, destruction or damage caused by war, invasion, act of foreign

enemy hostilities or war like operations (whether war be declared or
not), civil war, mutiny, civil commotion assuming the proportions of
or amounting to a popular rising, military rising, rebellion, revolution,
insurrection or military or usurped power.
3. Loss, destruction or damage directly or indirectly caused to the

property insured by:
(a)ionising radiations or contamination by radioactivity from any

nuclear fuel or from any nuclear waste from the combustion of
nuclear fuel
(b)the radioactive toxic, explosives or other hazardous properties of

any explosive nuclear assembly or nuclear component thereof.
4. Loss, destruction or damage caused to the insured property by

pollution or contamination excluding:
(a)pollution or contamination which itself results from a peril hereby

insured against
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(b)any peril hereby insured against which itself results from pollution
or contamination.
5. Loss, destruction or damage to bullion or unset precious stones, any

curios or works of art for an amount exceeding ` 10000/-, goods held
in trust or on commission, manuscripts, plans, drawings, securities,
obligations or documents of any kind, stamps, coins or paper money,
cheques, books of accounts or other business books, computer
systems records and explosives unless otherwise expressly stated in
the policy.
6. Loss, destruction or damage to the stocks in cold storage premises

caused by change of temperature.
7. Loss, destruction or damage to any electrical machine, apparatus,

fixture, or fitting arising from or occasioned by overrunning,
excessive pressure, short circuiting, arcing, self-heating or leakage of
electricity from whatever cause (lightning included) provided that this
exclusion shall apply only to the particular electrical machine,
apparatus, fixture or fitting so affected and not to other machines,
apparatus, fixtures or fittings which may be destroyed or damaged by
fire so set up.
8. Expenses necessarily incurred on: (i) Architect’s, Surveyor’s and

Consulting Engineer’s Fees and (ii) Debris removal by the Insured
following a loss, destruction or damage to the Property insured by an
insured peril in excess of 3% and 1% of the claim amount
respectively.
9. Loss of earnings, loss by delay, loss of market or other consequential

or indirect loss or damage of any kind or description whatsoever.
10.Loss or damage by spoilage resulting from the retardation or

interruption or cessation of any process or operation caused by
operation of any of the perils covered.
11.Loss by theft during or after the occurrence of any insured peril

except as provided under Riot, Strike and Malicious Damage cover.
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12.Any loss or damage occasioned by or through or in consequence

directly or indirectly due to earthquake, volcanic eruption or other
convulsions of nature.
13.Loss or damage to property insured if removed to any building or

place other than in which it is herein stated to be insured, except
machinery and equipment temporarily removed for repairs, cleaning,
renovation or other similar purposes for a period not exceeding 60
days.
B. General Conditions
1. This Policy shall be voidable in the event of misrepresentation,

misdescription or non-disclosure of any material particular.
2. All insurances under this policy shall cease on expiry of seven days
from the date of fall or displacement of any building or part thereof
or of the whole or any part of any range of buildings or of any
structure of which such building forms part.
Provided such a fall or displacement is not caused by insured perils,

loss or damage which is covered by this policy or would be covered if
such building, range of buildings or structure were insured under this
policy.
Notwithstanding the above, the Company subject to an express

notice being given as soon as possible but not later than seven days
of any such fall or displacement may agree to continue the insurance
subject to revised rates, terms and conditions as may be decided by
it and confirmed in writing to this effect.
3. Under any of the following circumstances, the insurance ceases to

attach as regards the property affected unless the Insured, before
the occurrence of any loss or damage, obtains the sanction of the
Company signified by endorsement upon the policy by or on behalf of
the Company:
(a)If the trade or manufacture carried on be altered, or if the nature

of the occupation of or other circumstances affecting the building
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insured or containing the insured property be changed in such a

way as to increase the risk of loss or damage by Insured Perils.
(b)If the building insured or containing the insured property becomes

unoccupied and so remains for a period of more than 30 days.
(c)If the interest in the property passes from the insured otherwise
than by will or operation of law.
4. This insurance does not cover any loss or damage to property which,
at the time of the happening of such loss or damage, is insured by or
would, but for the existence of this policy, be insured by any marine
policy or policies except in respect of any excess beyond the amount
which would have been payable under the marine policy or policies
had this insurance not been effected.
5. This insurance may be terminated at any time at the request of the

Insured, in which case the Company will retain the premium at
customary short period rate for the time the policy has been in force.
This insurance may also at any time be terminated at the option of
the Company, on 15 days’ notice to that effect being given to the
Insured, in which case the Company shall be liable to repay on
demand a ratable proportion of the premium for the unexpired term
from the date of the cancellation.
6. (i) On the happening of any loss or damage, the Insured shall

forthwith give notice thereof to the Company and shall within 15 days
after the loss or damage, or such further time as the Company may
in writing allow in that behalf, deliver to the Company:
(a)A claim in writing for the loss or damage containing as particular

an account as may be reasonably practicable of all the several
articles or items or property damaged or destroyed, and of the
amount of the loss or damage thereto respectively, having regard
to their value at the time of the loss or damage not including profit
of any kind.
(b)Particulars of all other insurances, if any, the Insured shall also at

all times at his own expense produce, procure and give to the
Company all such further particulars, plans, specification books,
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vouchers, invoices, duplicates or copies thereof, documents,

investigation reports (internal/external), proofs and information
with respect to the claim and the origin and cause of the loss and
the circumstances under which the loss or damage occurred, and
any matter touching the liability or the amount of the liability of
the Company as may be reasonably required by or on behalf of the
Company together with a declaration on oath or in other legal form
of the truth of the claim and of any matters connected therewith.
No claim under this policy shall be payable unless the terms of this
condition have been complied with
ii. In no case whatsoever shall the Company be liable for any loss or
damage after the expiry of 12 months from the happening of the loss
or damage unless the claim is the subject of pending action or
arbitration; it being expressly agreed and declared that if the
Company shall disclaim liability for any claim hereunder and such
claim shall not within 12 calendar months from the date of the
disclaimer have been made the subject matter of a suit in a court of
law, then the claim shall for all purposes be deemed to have been
abandoned and shall not thereafter be recoverable hereunder.
7. On the happening of loss or damage to any of the property insured

by this policy, the Company may:
(a)enter and take and keep possession of the building or premises

where the loss or damage has happened.
(b)take possession of or require to be delivered to it any property

of the Insured in the building or on the premises at the time of
the loss or damage.
(c)keep possession of any such property and examine, sort,

arrange, remove or otherwise deal with the same.
(d)sell any such property or dispose of the same for account of

whom it may concern.
The powers conferred by this condition shall be exercisable by the

Company at any time until notice in writing is given by the Insured
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that he makes no claim under the policy, or if any claim is made,

until such claim is finally determined or withdrawn, and the
Company shall not by any act done in the exercise or purported
exercise of its powers hereunder, incur any liability to the Insured or
diminish its rights to rely upon any of the conditions of this policy in
answer to any claim. If the insured or any person on his behalf shall
not comply with the requirements of the Company or shall hinder or
obstruct the Company, in the exercise of its powers hereunder, all
benefits under this policy shall be forfeited.
The Insured shall not in any case be entitled to abandon any

property to the Company whether taken possession of by the
Company or not.
8. If the claim be in any respect fraudulent, or if any false declaration be

made or used in support thereof or if any fraudulent means or
devices are used by the Insured or any one acting on his behalf to
obtain any benefit under the policy or if the loss or damage be
occasioned by the willful act, or with the connivance of the Insured,
all benefits under this policy shall be forfeited.
9. If the Company at its option, reinstate or replace the property

damaged or destroyed, or any part thereof, instead of paying the
amount of the loss or damage, or join with any other Company or
Insurer(s) in so doing, the Company shall not be bound to reinstate
exactly or completely but only as circumstances permit and in
reasonably sufficient manner, and in no case shall the Company be
bound to expend more in reinstatement than it would have cost to
reinstate such property as it was at the time of the occurrence of
such loss or damage nor more than the sum insured by the Company
thereon. If the Company so elect to reinstate or replace any property,
the insured shall at his own expense furnish the Company with such
plans, specifications, measurements, quantities and such other
particulars as the Company may require, and no acts done, or caused
to be done, by the Company with a view to reinstatement or
replacement shall be deemed an election by the Company to
reinstate or replace.
If in any case the Company shall be unable to reinstate or repair the

property hereby insured, because of any municipal or other
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regulations in force affecting the alignment of streets or the

construction of buildings or otherwise, the Company shall, in every
such case, only be liable to pay such sum as would be requisite to
reinstate or repair such property if the same could lawfully be
reinstated to its former condition.
10.If the property hereby insured shall at the breaking out of any fire or
at the commencement of any destruction of or damage to the
property by any other peril hereby insured against be collectively of
greater value than the sum insured thereon, then the Insured shall
be considered as being his own insurer for the difference and shall
bear a ratable proportion of the loss accordingly. Every item, if more
than one, of the policy shall be separately subject to this condition.
11.If at the time of any loss or damage happening to any property

hereby insured there be any other subsisting insurance or insurances,
whether effected by the Insured or by any other person or persons
covering the same property, this Company shall not be liable to pay
or contribute more than its ratable proportion of such loss or
damage.
12.The Insured shall at the expense of the Company do and concur in

doing, and permit to be done, all such acts and things as may be
necessary or reasonably required by the Company for the purpose of
enforcing any rights and remedies or of obtaining relief or indemnity
from other parties to which the Company shall be or would become
entitled or subrogated, upon its paying for or making good any loss
or damage under this policy, whether such acts and things shall be or
become necessary or required before or after his indemnification by
the Company.
13.If any dispute or difference shall arise as to the quantum to be paid

under this policy (liability being otherwise admitted), such difference
shall independently of all other questions be referred to the decision
of a sole arbitrator to be appointed in writing by the parties to or if
they cannot agree upon a single arbitrator within 30 days of any
party invoking arbitration, the same shall be referred to a panel of
three arbitrators, comprising of two arbitrators, one to be appointed
by each of the parties to the dispute/difference and the third
arbitrator to be appointed by such two arbitrators and arbitration
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shall be conducted under and in accordance with the provisions of the

Arbitration and Conciliation Act, 1996.
It is clearly agreed and understood that no difference or dispute shall

be referable to arbitration as herein before provided, if the Company
has disputed or not accepted liability under or in respect of this
policy.
It is hereby expressly stipulated and declared that it shall be a

condition precedent to any right of action or suit upon this policy that
the award by such arbitrator/arbitrators of the amount of the loss or
damage shall be first obtained.
14.Every notice and other communication to the Company required by

these conditions must be written or printed.
15.At all times during the period of insurance of this policy the insurance
cover will be maintained to the full extent of the respective sum
insured in consideration of which upon the settlement of any loss
under this policy, pro-rata premium for the unexpired period from the
date of such loss to the expiry of period of insurance for the amount
of such loss shall be payable by the insured to the Company.
The additional premium referred above shall be deducted from the net
claim amount payable under the policy. This continuous cover to the full
extent will be available notwithstanding any previous loss for which the
company may have paid hereunder and irrespective of the fact whether the
additional premium as mentioned above has been actually paid or not
following such loss. The intention of this condition is to ensure continuity of
the cover to the Insured subject only to the right of the company for
deduction from the claim amount, when settled, of pro-rata premium to be
calculated from the date of loss till expiry of the policy.
Notwithstanding what is stated above, the Sum Insured shall stand

reduced by the amount of loss in case the insured immediately on
occurrence of the loss exercises his option not to reinstate the sum insured
as above.
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Terrorism Damage Exclusion Warranty
Notwithstanding any provision to the contrary within this insurance, it is

agreed that this insurance excludes loss, damage cost or expense of
whatsoever nature directly or indirectly caused by, resulting from or in
connection with any act of terrorism regardless of any other cause or event
contributing concurrently or in any other sequence to the loss.
For the purpose of this endorsement, an act of terrorism means an act,

including but not limited to the use of force or violence and/or the threat
thereof, of any person or group(s) of persons whether acting alone or on
behalf of or in connection with any organisation(s) or government(s),
committed for political, religious, ideological or similar purpose including
the intention to influence any government and/or to put the public, or any
section of the public in fear.
The warranty also excludes loss, damage, cost or expenses of whatsoever

nature directly or indirectly caused by, resulting from or in connection with
any action taken in controlling, preventing, suppressing or in any way
relating to action taken in respect of any act of terrorism.
If the Company alleges that by reason of this exclusion, any loss, damage,
cost or expenses is not covered by this insurance the burden of proving the
contrary shall be upon the insured. In the event any portion of this
endorsement is found to be invalid or unenforceable, the remainder shall
remain in full force and effect.
11.5 Term of fire policy
Fire policies are generally issued for a period of 12 months. Insurance

companies also offer long-term policies, i.e., for a period over 12 months
for dwellings and short period policies in some cases.
Policy can be cancelled at any time during the currency with suitable refund
of premium for the unexpired period.
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11.6 Who can take a Fire Insurance Policy?
Any person/firm/organisation/institution who may suffer financial loss in

the event of operation of insurable perils may insure such property under
the fire policy. They may be broadly categorised as under:
1. Owners of building and contents such as household articles, furniture,

etc.
2. Shopkeepers.
3. Educational/research institutions.
4. Hotels, boarding and lodgings, hospitals, clinics or such service

providers.
5. Industrial and manufacturing firms.
6. Godown keepers.
7. Bailees, lessor, lessee, banks, financial institutions, mortgagors and

mortgagees.
8. Traders in stocks.
9. Trustees and charitable institutions.
10.Transporters and C&F Agents.
11.7 Properties that are covered under Fire Insurance
1. Building (including plinth and foundations)
2. Plant and machinery, equipments and accessories.
3. Stocks including raw material, in-process, finished goods, in trade

belonging to wholesaler, manufacturer and retailer.
4. Other contents such as furniture, fixtures and fittings, cables, pipings,

spares, tools and stores, household goods, etc.
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5. Specific Items such as bullion, unset precious stones, curios, work of

arts, manuscripts, plans, drawings, securities, obligations or documents,
stamps, coins or paper money, cheques, books of accounts, computer
system records and explosives.
11.8 Doctrine of Approximation
The premium chargeable depends on the type of industry/business, the

anticipated gross profit, indemnity period chosen and additional covers
required. For claiming benefits under fire policy, the loss should first be
admitted under the fire policy.
The rate fixation in fire insurance is not scientific. Premiums in fire

insurance are decided based on the theory that the aggregate fire hazard
of any risk is capable of ultimate analysis into its component factors to
each of which could be assigned on approximate charge.
A standard or average premium is determined as a base for calculating the

premium. The average premium rate for a class of risk is determined
taking into account the total loss and the sums assured during a period of
year.
Discount in premium is given based on past claims history and fire

protection facilities provided at the premises.
11.9 Fixing proper sum insured
In the case of a Fire Insurance contract, the sum insured should be

adequate, because the policy provides for an Average Clause whereby the
assessed claim is reduced in proportion to the under-insurance.
Fixing of adequate sum insured is also important from the point of view of
the banks or financial institutions who may have advanced money on the
security of the insured property.
Fire Material Damage Policies – Sum Insured
The sum insured is always fixed by the proposer.

It is the limit of Insurer’s liability under a policy.
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It is the amount on which the rate is applied to determine the premium

payable for the insurance.
The sum insured should represent the actual value of the property to be
insured. Insuring for higher value than the actual value gives no advantage
to the insured as payment of claim, if any, is subject to the principle of
indemnity.
Insuring for value lesser than the actual value makes the insured self-
insurer for the difference and claim, if any, is subjected to ‘average’ clause
whereby he is penalised for under-insurance.
In case of joint ownership of any property, the insured can get the claim
only in respect of his share. He could, however, insure full value of the
property on behalf of other co-owners as well which case the claim, if any,
is paid to each co-owner to the extent of their insurable interest.
For insurance of building, one has to take into account various factors and
ensure that the value of the land is excluded since the land cannot be
damaged by fire or allied perils. The value of the building should be
computed taking into account the cost of floors, walls, roofs/false roofs/
ceilings and value of such items which may be embedded underground or
in the walls/roofs which such become integral part of the building.
Where more than one building (and contents) are insured under a single
policy, block-wise values should be furnished in respect of building, plant
and machinery, stocks and other contents.
In case the value of a property increases due to factors like increase in

prime cost, exchange rate, etc. during the currency of the policy, the
corresponding sum insured may be increased on payment of proportionate
premium. Similarly, any reduction in sum insured during currency may be
effected for which refund of premium will be allowed on short period basis.
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11.10 Fire Claim procedure
The fire claim and documentation has been beautifully explained on the
http://newindia.co.in as follows:
As soon as the fire breaks out, the insured should intimate such loss/
damage immediately to the insurer so that a Competent Surveyor may be
deputed to minimise the loss.
The Insured should give an account of all properties damaged or destroyed

with estimated amounts having regard to their values as on the date and
place of loss.
The insured should cooperate with surveyors by providing all the necessary
documents for assessment of loss and establishing liability.
The insured should cooperate with the insurer in all their activities of
entering the premises, taking possession of properties, their examining,
sorting, removing or selling to your account, without prejudice.
The insured should inform particulars of all other insurances existing on the
property at the time of loss.
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Documents Required by Insurer for Processing the Claim
Common documents for all claims under a Standard Fire and Special Perils
Policy:
1. Certified true copy of the policy along with schedule and endorsements/
clauses.
2. Claim Form.
3. Newspaper reports on the incident, if any.
4. Photographs.
5. Past claims experience.
Fire Claims (Additional Documents)
Report of the Internal Committee constituted for the purpose of

investigating the cause of fire.
1. Fire Brigade Report.
2. First Information Report/Letter of Intimation to the Police Station duly

endorsed/Police Panchnama.
3. Forensic Laboratory Report on samples collected at affected site.
4. Drug Inspector’s Report on destruction of Drugs/Pharmaceutical items

(for claim on pharma products only).
5. Final Investigation Report.
6. Action taken on the suggestion of TAC/ LPA on loss minimisation of

prevention.
Flood Claims (Additional Documents)
Meteorological Report
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Explosion Claims (Additional Documents)
Factory Inspector’s Report or Report of Director of Industrial Safety and

Welfare.
Expenses Covered
The policy automatically covers the following expenses incurred following

loss/damage/ destruction of a covered property as a result of the operation
of an insured peril.
Architects, Surveyors and Consulting Engineers’ Fees upto 3 % of the claim

amount.
Expenses incurred for removal of debris to clear the site upto 1% of the
claim amount.
Exclusions Applicable
Losses/Expenses Not Covered:
1. 5% of each and every claim subject to minimum of ` 10,000 resulting

from lightning, STFI and subsidence and landslide including rock slide
and ` 10,000 in respect of all other perils.
2. Expenses incurred on Architect’s, Surveyor’s and Consultant Engineer’s

fees and Debris removal in excess of 3% and 1% of claim amount
respectively.
3. Loss of earnings, loss by delay, loss of market or other consequential or

indirect loss or damage of any kind.
Perils Not Covered:
1. War and allied perils
2. Ionising radiations and contamination by radioactivity
3. Pollution or contamination
! !483
FIRE INSURANCE
4. Properties not covered:
5. Items like manuscripts, etc. unless specifically declared.
6. Cold storage stocks due to change of temperature.
7. Loss/damage/destruction of any electrical and/or electronic

machine,apparatus, fixture or fitting arising from overrunning, excessive
pressure, short circuiting, arcing, self-heating or leakage of electricity,
from whatever cause including lightning.
8. Loss/damage/destruction of boilers, economisers or other vessels in

which steam is generated machinery or apparatus subject to Centrifugal
force, by its own explosion/implosion.
Location of Risk
The proposer shall describe all locations where the properties are built or
installed or stored or kept at the inception.
Any change of location of risk shall be covered on intimation of such

change.
Change of ownership in the insured property shall be intimated so that the

new owner may be covered be means of suitable endorsement.
Any material change in the location of risk, trade or manufacturing

activities shall be intimated to the Insurer so that the changes are
endorsed to offer continuous cover.
! !484
FIRE INSURANCE
11.11 Summary
The fire insurance policy offers protection against any unforeseen loss or
damage to/ destruction of property due to fire or other perils covered
under the policy. In fire insurance, insurance is not against fire but against
the loss caused by fire. There is no statutory enactment governing fire
insurance. In the absence of any legislative regulation on fire insurance,
the courts have relied on the general laws of contract and the decisions
given by Indian and English courts.
Fire insurance being a contingent contract under Indian law, make use of
certain elements and principles common to all insurance contracts. A
contract of fire insurance must possess all the essential elements of a valid
contract as per Section 10 of the Indian Contract Act, 1872.
Fire insurance policy is suitable for commercial establishments as well as

for the owner of property, one who holds property in trust or in commission
and for, individuals/financial institutions who have financial interest in the
property.
The standard fire policy are issued in various forms in order to enable a
large number of Insureds to buy insurance at a reasonable premium for
availing a basic minimum cover.
Fire policies are generally issued for a period of 12 months. In the case of a
Fire Insurance contract, the sum insured should be adequate, because the
policy provides for an Average Clause whereby the assessed claim is
reduced in proportion to the under-insurance.
As soon as the fire breaks out, the insured should intimate such loss/
damage immediately to the Insurer and follow the prescribed claim
procedure.
! !485
FIRE INSURANCE
1. Historically, fire has been a major cause of losses to property. Oriental’s

fire insurance seeks to provide protection against such losses. Visit the
website of Oriental Insurance Company Limited and list out the various
perils covered under a Standard Fire and Special Perils Policy.
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2. The IRDA Annual Report 2013-14 provides segment-wise report on

premiums underwritten by no- life insurance. Compare the premium
figures of Fire insurance for the year 2012-13 and 2013-14 and prepare
an analysis note on it.
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! !486
FIRE INSURANCE
16.http://www.newindia.co.in
17.http://www.orientalinsurance.org.in
! !487
FIRE INSURANCE
1. Fire insurance business means the business of effecting, otherwise than

policies. State whether the above statement is true or false.
a. True
b. False
2. Fire insurance being a contingent contract under Indian law, make use
of certain elements and principles common to all insurance contracts.
Which of the following principles of insurance states that that the
insured can claim the compensation only to the extent of actual loss
either from all insurers or from any one insurer?
a. Approximation
b. Indemnity
c. Contribution
d. Subrogation
3. Like other insurance, the assured must have insurable interest in the
property which is the subject matter of insurance. In fire insurance,
such insurable interest must exist at the time of:
a. Inception of the policy

b. At the time of the loss
c. Insurable interest is not necessary in fire insurance
d. Both inception of the policy and at the time of the loss
! !488
FIRE INSURANCE
4. The standard fire policy are issued in various forms in order to enable a
large number of insureds to buy insurance at a reasonable premium for
availing a basic minimum cover. Type B policy does not cover which of
the following perils
a. Fire
b. Earthquake
c. Lightening
d. Riot, strike and malicious and terrorist damage
5. In the case of a fire insurance contract, the sum insured should be

adequate, because the policy provides for an average clause whereby
the assessed claim is increased in proportion to the under-insurance. Is
the above statement correct?
a. Yes
b. No
6. For insurance of building, one has to take into account various factors
and ensure that the value of the building should be computed taking
into account which of the following?
a. Cost of floors
b. Cost of walls
c. Cost of roofs/false roofs/ceilings
d. All of the above
7. As soon as the fire breaks out, the insured should intimate such loss/
damage immediately to the insurer so that a competent surveyor may
be deputed to minimise the loss. Which of the following additional
documents should be submitted in case of a flood claim?
a. Meteorological Report
b. Fire Brigade Report
c. Factory Inspector’s Report
d. Forensic Laboratory Report on samples collected at affected site
! !489
FIRE INSURANCE
Answers:
1. (a)
2. (c)
3. (d)
4. (b)
5. (b)
6. (d)
7. (a).
! !490
FIRE INSURANCE
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
Video Lecture
! !491
MOTOR VEHICLE INSURANCE
Chapter 12
Motor Vehicle Insurance
Objectives
In this chapter, you will understand the need for buying an automobile
insurance and the procedure for claiming losses due to a motor accident.
! !492
Structure:
12.1 Introduction
12.2 Certificate of Insurance
12.3 Mandatory Third Party Insurance
12.4 Motor Insurance Coverage
12.5 Basis of Sum Insured
12.6 Insured’s Declared Value (IDV)
12.7 Types of Motor Insurance
12.8 Period of Motor Insurance Policy (GR11 India Motor Tariff)
12.9 Cover Notes
12.10 Determining the Rate of Premium
12.11 Documents to be Kept in the Vehicle while Plying in Public Places
12.12 Double Insurance (GR24 India Motor Tariff)
12.13 No Claim Bonus (GR27 India Motor Tariff)
12.14 Claims and Wrong Claims
12.15 Deductibles
12.16 Dos and Don’ts for Buying Motor Insurance
12.17 Summary
! !493
12.1 Introduction
Motor Vehicle insurance (also known as, car insurance, or motor insurance)
is insurance purchased for cars, trucks, motorcycles, and other road
vehicles. In India, nearly 4 lakh people meet with accidents every month.
Fatalities in road accidents in India are moving up at a compounded annual
rate of 4%. Considering the high number and the poor state of roads,
motor insurance is a necessary requirement The owner of the vehicle is
legally liable for any injury or damage to third party life or property caused
by or arising out of the use of the vehicle in a public place. A motor
insurance policy is generally a combined insurance which insures the
damage to the motor vehicle and its accessories, liability for damage to
property, death of, or injury to the assured himself or spouse and it also
insures the motor vehicle against the risk of liability for injury to, or the
death of third parties caused by the driver’s negligence. In some
jurisdictions, coverage for injuries to persons riding in the insured vehicle is
available without regard to fault in the auto accident (No Fault Auto
Insurance).
Encyclopedia Britannica define motor vehicle insurance as “Motor vehicle

insurance, also called automotive insurance, a contract by which the
insurer assumes the risk of any loss the owner or operator of a car may
incur through damage to property or persons as the result of an accident.
There are many specific forms of motor vehicle insurance, varying not only
in the kinds of risk that they cover but also in the legal principles
underlying them. Liability insurance pays for damage to someone else’s
property or for injury to other persons resulting from an accident for which
the insured is judged legally liable; collision insurance pays for damage
to the insured car if it collides with another vehicle or object;
comprehensive insurance pays for damage to the insured car resulting
from fire or theft or many other causes; medical payment insurance
covers medical treatment for the policyholder and his passengers.”
Auto Insurance in India deals with the insurance covers for the loss or
damage caused to the automobile or its parts due to natural and man-
made calamities. It provides accident cover for individual owners of the
vehicle while driving and also for passengers and third party legal liability.
! !494
Auto Insurance in India is a compulsory requirement for all new vehicles

used whether for commercial or personal use. Driving a motor vehicle
without insurance in a public place is a punishable offence in terms of the
Motor Vehicles Act, 1988. Both individual owners as well as corporate
entities should buy Motor Insurance. All vehicles, be it for personal or
commercial use, should be insured. Motor insurance must be taken by a
vehicle owner whose vehicle is registered in her/his name with the
Regional Transport Authority in India. The Tariff Advisory Committee
(hereinafter called TAC) have laid down rules, regulations, rates,
advantages, terms and conditions as contained herein, for transaction of
motor insurance in India in accordance with the provisions of Part II(b) of
the Insurance Act, 1938.
Auto premium is determined by a number of factors and the amount of

premium increases with the rise in the price of the vehicle. There are
different types of Auto Insurance in India, e.g., private car insurance, two-
wheeler insurance, commercial vehicle insurance, etc. The claims of the
Auto Insurance in India can be accidental, theft claims or third party
claims. The auto insurance does not include consequential loss,
depreciation, mechanical and electrical breakdown, failure or breakage,
! !495
When vehicle is used outside the geographical area, war or nuclear perils
and drunken driving.
Motor insurance is a financial safety net that can help you offset the cost of
bodily injuries to yourself or others, lost wages due to injury, benefits to
survivors when an accident results in death, lawsuits brought against you
as the result of an accident and repairs made to your car due to damage
caused in an accident.
The Motor Insurance should be always:
i. In the name of the vehicle owner whose name is registered with

Regional Transport Authority.
ii. If the person who will be driving the vehicle is different from the owner,
then in the name of the person who will be driving the vehicle, subject
to approval from Regional Transport Authority.
iii. In the name of any family member of the vehicle owner, including the
vehicle owner, subject to approval from the Regional Transport
Authority.
iv. If the person who will be driving the vehicle is different from the owner,
then primary policy should be in the name of the vehicle owner and
add-on cover in the name of the person who will be driving the vehicle.
Policies and Certificates of Insurance are to be issued in the name of Hirer

only and issuance in the joint names of the Hirer and Owner is prohibited.
Similarly, Policies and Certificates of Insurance are to be issued in the
name of Lessee only and issuance in the joint names of the Lessee and
Lessor is prohibited. If the owner’s interest/lessor’s interest is to be
protected/pledgee’s interest is to be protected, it should be done by
suitable endorsements. If vehicles are subject to hypothecation agreement,
Policies and Certificates of Insurance are to be issued in the name of
Registered Owner only and issuance in the joint names of the Registered
Owner and Pledgee is prohibited. For the purpose of the Personal Accident
cover for the Owner-driver granted under the policy, the insured named in
the policy will continue to be deemed as the Owner-driver subject to
conditions of the policy relating to this cover.
! !496
12.2 Certificate of Insurance
The Motor Vehicles Act, 1988 provides that the motor insurance policy shall
be of no effect unless and until a certificate of insurance in the form
prescribed under the Rules of the Act, is issued.
A Certificate of Insurance for a Motor Vehicle is to be issued only in Form

51 in terms of Rule 141 of Central Motor Vehicle Rules, 1989. This
document should always be carried in the vehicle. The policy should be
preserved separately at home/office. It contains the essential features of
the cover and the terms and conditions.
The Certificate of Insurance is considered as the only evidence of a valid

insurance as required by the Motor Vehicles Act, 1988 and acceptable to
the Road Transport Authority (RTA).
As per Section 10(a) and 15(b) of the Motor Vehicles Act, 1988, even
though the policy is not issued but a certificate of insurance has been
issued by the insurer, the insurer will still be liable.
If a CNG/LPG kit is fitted in the vehicle, RTA office where the vehicle was
registered should be informed so that they make a note of the change in
the registration certificate (RC) of the vehicle. The insurance company
should also be informed so that the kit is covered on payment of extra
premium on the value of the kit under “Own Damage” section and also
under “Liability Only” section.
Cancellation and Issuance of Fresh Certificate of Insurance
A vehicle may require various changes during its running period. All such
changes should be brought to the notice of the insurer for cancellation of
old certificate of insurance and issue of a fresh Certificate incorporating the
changes. Change of number of engine and/or chassis of the vehicle, etc.
are also required to be duly endorsed on the Registration Certificate.
Remittance of ` 50/- is required to be made to the insurer for each

issuance of fresh Certificate of Insurance.
! !497
Certificate or Cover Note is Destroyed, Torn, Soiled, Defaced or

Mutilated
GR26 of India Motor Tariff specifies the procedure to be followed in case

the certificate or cover note is destroyed, torn, soiled, defaced or mutilated
as follows:
1. Where the insured
(a)lodges with an insurer a declaration in which he declares that a

Certificate of Insurance or Cover Note issued to him by such insurer
has been lost, destroyed, torn, soiled, defaced or mutilated and sets
out full particulars of the circumstances connected with the loss or
destruction of the certificate or cover note and the efforts made to
find it;
OR
(b)returns to the authorised insurer the Certificate or Cover Note issued

to him by such insurer in a torn, soiled, defaced or mutilated
condition;
AND
(c)pays to the insurer a fee of ` 50/- (fifty) in respect of each such new
certificate or Cover Note, the insurer shall, if satisfied that such
certificate or cover note has been lost, destroyed and that all
reasonable efforts have been made to find it, or that it has been
destroyed or is soiled, defaced or mutilated as the case may be, issue
in lieu thereof a duplicate certificate or insurance or cover note with
the word “Duplicate” prominently endorsed to that effect.
2. When a duplicate certificate of insurance or cover note has been issued

in accordance with the provisions of sub-rule (1) on representation that
a certificate or cover note has been lost and the original certificate or
cover note is afterwards found by the holder, the original certificate or
cover note, as the case may be, shall be surrendered to the insurer.
! !498
Transfer of Certificate of Insurance
Section 157 of the Motor Vehicles Act, 1988 lays down that where a person
in whose favour a Certificate of Insurance has been issued, transfers to
another person the ownership of the motor vehicle then on transfer of
ownership, the Liability Only cover, either under a Liability Only policy or
under a Package policy, is deemed to have been transferred in favour of
the person to whom the motor vehicle is transferred with effect from the
date of transfer.
The transferee should apply within fourteen days from the date of transfer
in writing in the prescribed form to the insurer who has insured the vehicle,
with the details of the registration of the vehicle, the date of transfer of the
vehicle, the previous owner of the vehicle and the number and date of the
insurance policy so that the insurer may make the necessary changes in his
record and issue fresh Certificate of Insurance.
In case of Package Policies, transfer of the “Own Damage” section of the

policy in favour of the transferee, shall be made by the insurer only on
receipt of a specific request from the transferee along with consent of the
transferor.
A fresh Proposal Form duly completed is to be obtained from the transferee

in respect of both Liability Only and Package Policies.
The old Certificate of Insurance for the vehicle, is required to be

surrendered and a fee of ` 50/- is to be collected for issue of fresh
Certificate in the name of the transferee.
Change of Vehicle
A vehicle insured under a policy can be substituted by another vehicle of

the same class for the balance period of the policy subject to adjustment of
premium, if any, on pro-rata basis from the date of substitution.
Cancellation of Insurance (GR24 India Motor Tariff)
a. A policy may be cancelled by the insurer by sending to the insured

seven days’ notice of cancellation by recorded delivery to the insured’s
! !499
last known address and the insurer will refund to the insured the pro-
rata premium for the balance period of the policy.
b. A policy may be cancelled at the option of the insured with seven days’
notice of cancellation and the insurer will be entitled to retain premium
on short period scale of rates for the period for which the cover has
been in existence prior to the cancellation of the policy. The balance
premium, if any, will be refundable to the insured. Refund of premium
will be subject to:
(i) there being no claim under the policy, and
(ii)the retention of minimum premium as specified in the Tariff.
c. A policy can be cancelled only after ensuring that the vehicle is insured
elsewhere, at least for Liability Only cover and after surrender of the
original Certificate of Insurance for cancellation.
d. Insurer should inform the Regional Transport Authority (RTA) concerned

by recorded delivery about such cancellation of insurance.
12.3 Mandatory Third Party Insurance
An insurance policy purchased for protection against the legal actions of

another party is called Third Party Insurance. Third party insurance is
purchased by the insured (first party) from an insurance company (second
party) for protection against another party’s claims (third party) for liability
arising out of the action of the insured. Third party insurance is called
Liability Insurance.
As per the Motor Vehicles Act, 1988, it is mandatory for every owner of a
vehicle plying on public roads, to take an insurance policy, to cover the
amount, which the owner becomes legally liable to pay as damages to third
parties as a result of accidental death, bodily injury or damage to property.
A Certificate of Insurance must be carried in the vehicle as a proof of such
insurance
! !500
12.4 Motor insurance coverage
India vehicle population is increasing with the entry of large of new

vehicles and old vehicles continue to be on the road as well. The space for
driving is shrinking every day but the number of people walking on the
road is ever increasing along with the number of road accidents. The
amount of compensations awarded to accident victims by Courts of Law are
also increasing. Even vehicle repair costs are going up. All these show the
importance of motor insurance in the country.
Motor Insurance covers all types of vehicles plying on public roads such as:
• Scooters and motorcycles
• Private cars
• All types of commercial vehicles — goods carrying and passenger

carrying
• Miscellaneous type of vehicles, e.g., cranes,
• Motor trade (vehicles in showrooms and garages)
12.5 Basis of Sum Insured
The Insured’s Declared Value (IDV) of the vehicle will be deemed to be the
Sum Insured for the purpose of this policy which is fixed at the
commencement of each policy period for the insured vehicle.
Compulsory Personal accident cover for owner-driver is also included.

Policy can also be extended to cover various other risks like personal
accident to occupants of vehicle, workmen’s compensation to driver, etc.
over and above the cover available to him under statute.
! !501
12.6 Insured’s Declared Value (IDV)
SUM INSURED for the purpose of this tariff and it will be fixed at the
commencement of each policy period for each insured vehicle.
The IDV of the vehicle is generally fixed on the basis of manufacturer’s

listed selling price of the brand and model at the commencement of
insurance/renewal and is also adjusted for depreciation as prescribed in the
IRDA regulations. Manufacturer’s listed selling price will include local
duties/taxes excluding registration and insurance. The IDV of the
accessories fitted to the vehicle but not included in the manufacturer’s
listed selling price of the vehicle is also likewise to be fixed.
The schedule of age-wise depreciation is applicable for the purpose of Total

Loss/Constructive Total Loss (TL/CTL) claims only. A vehicle will be
considered to be a CTL, where the aggregate cost of retrieval and/or repair
of the vehicle subject to terms and conditions of the policy exceeds 75% of
the IDV.
IDV = (Manufacturer’s listed selling price – Depreciation) +

(Accessories that are not included in listed selling price –
Depreciation) and excludes registration and insurance costs.
The IDV of vehicles that are obsolete or aged over 5 years is calculated by
mutual agreement between insurer and the insured. Instead of
depreciation, IDV of old cars is arrived at by assessment of vehicle’
condition done by surveyors, car dealers, etc.
IDV is the amount of compensation given in case a vehicle is stolen or

suffers total loss. It is highly recommended to get IDV which is near the
market value of the car.
Rating/premium calculation depends on factors like the Insured’s Declared

Value, cubic capacity, geographical zone, age of the vehicle, etc. Rates
provided under the India Motor Tariff are minimum rates. Loading on tariff
premium rates by 100% may be applied for adverse claims experience of
the vehicle insured and individual risk perception as per the insurer’s
assessment.
! !502
12.7 Types of Motor Insurance
Motor Insurance includes Private Cars, Motorised Two-wheelers and

Commercial Vehicles excluding vehicles running on rails. Motor insurance
gives protection to the vehicle owner against: (i) damages to his/her
vehicle and (ii) pays for any Third Party Liability determined as per law
against the owner of the vehicle. One should understand and analyse one’s
driving scenarios before deciding on which motor insurance will benefit him
and avoid having a non-required coverage added to your policy.
Motor Insurance in India cannot be transacted outside the purview of the

India Motor Tariff. Proposal Form as specified in Section 5 of the India
Motor Tariff is required to be submitted by the insured to the insurer before
the commencement of cover and at renewal in case of material alteration.
Policies insuring Motor Vehicles are to be issued only as per the Standard
Form(s) given in Section 6 of the India Motor Tariff.
Motor insurance can be broadly classified into two main types as follows:
a. Liability Only Policy: Liability insurance covers you in the event you
are in a covered car accident and it is determined by the accident which
is a result of your actions. Liability insurance will cover the cost of
repairing any property damaged by an accident as well as the medical
bills from resulting injuries. As per Motor Vehicles Act, it is mandatory
for any vehicle plying in public place to insure liabilities towards third
parties. Third party would include all people other than the primary
insured. They would include people travelling in the vehicle or
pedestrians or people involved in the accident.
The policy only covers the vehicle owner’s legal liability to pay
compensation for:
• Third party bodily injury or death
• Third party property damage.
Liability is covered for an unlimited amount in respect of death or

injury and damage.
! !503
The claims for compensation to third party victims in case of death or

injury caused by a motor accident are to be filed by the complainant in
Motor Accident Claim Tribunal (MACT).
b. Package Policy/Comprehensive Policy (Own Damage + Third

Party Liability): Comprehensive Policy cover situations that is
unrelated to a covered accident, i.e., weather damage, you hit a tiger,
your car is stolen, etc. Liability insurance and collision coverage cover
accidents, but not these situations. These situations are covered by
comprehensive coverage. anti-theft and tracking devices on cars can
make this coverage slightly more affordable, but carrying this type of
insurance can be costly, and may not be necessary, especially if your car
is easily replaceable.
The loss or damage to the vehicle insured by specified perils (known as

own damage to motor vehicles) is also covered subject to the value
declared (called IDV) and other terms and conditions in the policy.
The damages to the vehicle due to the following perils are usually covered
under Own Damage section of the Motor Insurance Policy:
• Fire, explosion, self-ignition and lightning
• Burglary/housebreaking/theft
• Riot and strike
• Earthquake
• Flood, storm, cyclone, hurricane, tempest, inundation, hailstorm and

frost
• Accidental external means
• Malicious act
• Terrorism acts
• While in Transit by rail/road, inland waterways, lift, elevator or air
• Land slide/rock slide
! !504
If your car is totalled (where the cost to repair it exceeds the value of the
vehicle) in an accident, collision coverage will pay the value of your car. If
your car is older, it may not be worth carrying collision coverage on it,
depending on the value. On the other hand, if you have a more expensive
car or one that is relatively new, collision insurance can help get you back
to where you were before any damage to your car.
Some insurers may also pay for towing charges from the place of accident
to the workshop. A restricted cover is also available covering the risk of fire
and/or theft only, in addition to the compulsory cover granted under
Liability Only Policy.
The policy can also cover loss or damage to accessories fitted in the
vehicle, personal accident cover under private car policies for passengers;
paid driver; legal liability to employees and non-fare paying passengers in
commercial vehicles. Insurers also provide free emergency services or use
of alternative car in case of breakdown.
With Personal Injury Protection (PIP), your medical bills along with those of
your passengers will be paid, no matter who is at fault for an accident.
If someone is legally responsible for damages related to an accident, you

won’t receive any payment if they do not have coverage or you will receive
less than you need to cover the cost of damages if your damages exceed
their coverage amount. Uninsured and Underinsured Motorist Protection
would help with expenses in such situations.
Exclusions
Some of the important exclusions under the policies are wear and tear,
breakdowns, consequential loss, and loss due to driving with invalid driving
license or under the influence of alcohol. Use of vehicle not in accordance
with ‘limitations as to use’ (e.g., private car being used as a taxi) is not
covered.
The following contingencies are usually excluded under the Motor

Insurance Policy:
• Not having a valid Driving License

• Under Influence of intoxicating liquor/drugs
! !505
• Accident taking place beyond geographical limits

• While Vehicle is used for unlawful purposes
• Electrical/mechanical breakdowns.
• Sum Insured and Premium.
The sum insured of a vehicle in a Motor Policy is referred to as Insured’s

Declared Value (IDV).
In case of theft of vehicle or total damage beyond repairs in an accident,

the claim amount will be determined on the basis of the IDV. The IDV of
the vehicle is fixed on the basis of the manufacturer’s/dealer’s listed selling
price of the brand and model of the vehicle proposed for insurance at the
commencement of insurance/renewal and adjusted for depreciation as per
schedule.
12.8 Period of Motor Insurance Policy (GR11 India Motor

Tariff)
A motor policy is usually valid for a period of one year and has to be
renewed before the due date. Unless specifically stated otherwise,
premiums quoted in the Schedules under various Sections of the India
Motor Tariff are the premiums payable on policies issued or renewed for a
period of twelve months.
No policy is permitted to be issued or renewed for any period longer than

twelve months. It shall, however, be permissible to extend the period of
insurance under the policy for any period less than twelve months, for the
purpose of arriving at a particular renewal date or for any other reasons
convenient to the insured, by payment of extra premium calculated on pro-
rata basis, provided such policies are renewed with the same insurer
immediately after the expiry of such an extension.
All such extensions will require attachment of the following Warranty to the
policy. “In consideration of the premium for this extension being calculated
at a pro-rata proportion of the annual premium, it is hereby declared and
agreed by the insured that upon expiry of this extension, this policy shall
be renewed for a period of twelve months, failing which the difference
between the extension premium now paid on pro-rata basis and the
premium at short period rate shall become payable by the insured.” No
Insurer offers a grace period for paying the premium. In case of lapse of
! !506
policy by even one day, the vehicle has to be inspected. Moreover, if a

comprehensive policy is allowed to lapse for more than 90 days, the
accrued benefit of NCB (No Claim Bonus) is also lost.
12.9 Cover Notes
Cover Notes insuring Motor Vehicles are to be issued only in Form 52 in

terms of Rule 142 Sub-rule (1) of the Central Motor Vehicles Rules 1989. In
terms of Rule 142, Sub-rule (2) of Central Motor Vehicles Rules 1989, a
Cover Note shall be valid for a period of sixty days from the date of its
issue and the insurer shall issue a policy of insurance before the date of
expiry of the Cover Note.
The Motor Cover Note generally contains the following particulars:
(a)Registration mark and number, or description of the vehicles insured/

cubic capacity/ carrying capacity/make/year of manufacture, engine
number, chassis number
(b)Name and address of the insured
(c)Effective date and time of commencement of insurance for the

purpose of the Act.
(d)Date of expiry of insurance
(e)Persons or classes of persons entitled to drive
(f) Limitations as to use
(g)Additional risks, if any.
The Motor Cover Note incorporates a certificate to the effect that it is

issued in accordance with the provisions of Chapters X and XI of the Motor
Vehicles Act, 1988.
! !507
12.10 Determining the rate of premium
Short Period Cover/Renewal may be granted for periods less than twelve
months. Insurance companies work with different statistics and use
different methods to calculate premiums. Some companies are specialised
in certain areas or types and so are prepared to give discounts in those
areas. This adds to the complexity as various companies yield varied
prices.
Factors that determine the premium amount:
• Make and model of the vehicle

• Year of manufacture
• Place of registration
• Current showroom price of the vehicle
• Whether client is individual or corporate
• Cubic capacity
• Geographical zone
• IDV
• Add-on covers
The principal insurance amount and its subsequent premium also vary
according to the price of the vehicle.
For the purpose of applying premium rate, the place where the vehicle is
registered is reckoned (not the place where the vehicle is used).
For the purpose of rating, the whole of India has been divided into the
following zones depending upon the location of the office of registration of
the vehicle concerned.
(I)Private Cars/Motorised Two-wheelers/Commercial Vehicles

rateable under
Section 4.C.1 and C.4. of India Motor Tariff
Zone A: Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata,

Mumbai, New Delhi and Pune.
Zone B: Rest of India
! !508
(II)Commercial Vehicles excluding Vehicles Rateable under

Section 4.C.1 and C.4. of India Motor Tariff
Zone A: Chennai, Delhi/New Delhi, Kolkata, Mumbai
Zone B: All other State Capitals
Zone C: Rest of India
If your vehicle is registered in Chennai, the rate applicable for Zone A is

charged. Even when you shift to a different city/town, the same rate will
continue to be applied. Similarly, if a vehicle is registered in a town, it
attracts Zone B premium rate. Subsequently, if the owner shifts to a metro,
he will continue to be charged the Zone B rate.
The pure rate of premium is arrived at on the basis of past loss experience.
Therefore, statistical data regarding past losses is most essential for
purposes of calculating rates.
To fix the rates, it is necessary to give a “mathematical value” to the risks

namely:
M = (L/V) × 100
L refers to the sum total of the losses and V to the total values of all the
motor cycles.
Let us suppose that:
• Value of a motor cycle: ` 100,000/-
• Loss experience: Out of 1000 motor cycles in 10 years, 100 cycles are
stolen.
• On an average, ten motor cycles become total losses due to theft every
year.
Applying the formula, the result will be:
Losses (` 100,000 × 10) = ` 10,00,000
! !509
Values (` 100,000 × 1000) = ` 10,00,00,000
This means that (L/V) × 100 = [10,00,000/10,00,00,000] × 100 = 1%
Therefore, the rate of premium that a motor cycle owner pays is one per
cent of ` 100,000/-, i.e., ` 1000/- per year. This is called the “Pure”
premium.
At the rate of ` 1000 per motor cycle, ` 10 lakhs is collected which is paid
out in claims on total losses of 10 vehicles.
If the pure premium, which is arrived above, is collected, it would

constitute a fund which will be sufficient only to pay for losses.
Insurance operations also involve costs of administration and costs of

procurement of business and hence, the insurer will also have to load such
expenses in the premium in order to provide for a margin of profit and
reserves.
The final rate of premium will consist of the following components:
• Loss payments
• Loss expenses (e.g., survey fees)
• Agency commission
• Expenses of management
• Margin for reserves for unexpected heavy losses
• Margin for profits and reserves.
By taking all the relevant rating factors into consideration, one can ensure
the rates are not inadequate, excessive or unfairly discriminatory as
between risks of similar type and quality.
The policy can be extended to cover the following risks on payment of

additional premium:
• Loss or damage to accessories fitted in the vehicle such as stereos, fans,

air-conditioners, etc.
• Personal accident cover under private car policies for: passengers, paid
driver.
! !510
• Legal liability to employees.
• Legal liability to non-fare paying passengers in commercial vehicles.
Display of Premium (GR13 Indian Motor Tariff)
a. In case of a Package Policy, the Own Damage and the Liability

components of premium are required to be displayed separately in the
Policy Schedule.
b. Similarly, all permissible loadings on/discounts from tariff rates are

required to be displayed separately in the Policy Schedule.
c. The Own Damage as well as the Liability components of premium are

required to be rounded off to the nearest rupee, separately.
Payment of Premium (GR15 Indian Motor Tariff)
The full premium is required to be collected before commencement of

cover. It is not permissible to collect premium in installments.
Minimum Premium (GR15 Indian Motor Tariff)
The minimum premium applicable for vehicles specially designed or

modified for use of the blind, handicapped and mentally challenged persons
will be ` 25/- per vehicle. For all other vehicles, the applicable minimum
premium per vehicle will be ` 100/-.
12.11 Documents to be Kept in the Vehicle while Plying in

Public Places
The following documents are to be kept in the vehicle while plying in public
places:
• Certificate of Insurance
• Xerox Copy of Registration Certificate
• Pollution under Control Certificate
• Photocopy of Driving Licence of person who is driving the vehicle
! !511
12.12 Double Insurance (GR24 India Motor Tariff)
When two policies are in existence on the same vehicle with identical cover,
one of the policies may be cancelled. Where one of the policies commences
at a date later than the other policy, the policy commencing later is to be
cancelled by the insurer concerned.
If a vehicle is insured at any time with two different offices of the same
insurer, 100% refund of premium of one policy may be allowed by
cancelling the later of the two policies. However, if the two policies are
issued by two different insurers, the policy commencing later is to be
cancelled by the insurer concerned and pro-rata refund of premium
thereon is to be allowed.
If however, due to requirements of banks/financial institutions, intimated to

the insurer in writing, the earlier dated policy is required to be cancelled,
then refund of premium is to be allowed after retaining premium at short
period scale for the period the policy was in force prior to cancellation.
In all such eventualities, the minimum premium as specified in the tariff is

to be retained. In either case, no refund of premium can be allowed for
such cancellation if any claim has arisen on either of the policies during the
period when both the policies were in operation, but prior to cancellation of
one of the policies.
12.13 No claim bonus (GR27 India Motor Tariff)
No Claim Bonus (NCB) is the benefit accrued to an insured for not

making any claims during the previous policy period. No claim bonus
recognises the factor of moral hazard in the insured. It rewards the insured
for not lodging claims either by adopting better driving skills as in motor
insurance. An insured becomes entitled to NCB only at the renewal of a
policy after the expiry of the full duration of 12 months.
As per current norms in India, it ranges from 20% on the Own Damage
premium (and not on Liability premium) and progressively increases to a
maximum of 50%. NCB is given to the insured and not to the insured
vehicle. For policies covering Liability with Fire and/or Theft Risks, the NCB
will be applicable only on the Fire and/or Theft components of the
premium. Hence, on transfer of the vehicle, the insurance policy can be
! !512
transferred to new owner but not the NCB. The new owner has to pay the
difference on account of NCB for the balance policy period. The original
owner can, however, use the NCB on a new vehicle purchased by him. In
the event of the insured, transferring his insurance from one insurer to
another insurer, the transferee insurer may allow the same rate of NCB
which the insured would have received from the previous insurer. Evidence
of the insured’s NCB entitlement either in the form of a renewal notice or a
letter confirming the NCB entitlement from the previous insurer will be
required for this purpose.
In addition to NCB, there are additional discounts available under Own

Damage Premium for membership of Automobile Association of India,
concessions for specially designed/modified vehicles for the blind,
handicapped and mentally challenged persons, which are suitably endorsed
in the RC by the RTA concerned; opting for voluntary additional deductible/
excess. For valid membership of recognised Automobile Associations such
as Automobile Association of Eastern India, the Uttar Pradesh Automobile
Association, the Western India Automobile Association, Automobile
Association of Southern India, the Automobile Association of Upper India, a
discount @ 5% of the Own Damage premium, subject to a maximum of `
200/- for a Private Car and maximum of ` 50/- for a Motorised Two-
wheeler may be allowed.
The discount applies to both new business and renewals. If the insured
becomes a member of any of the above Automobile Associations, during
the currency of the policy, the discount may be allowed pro-rata calculated
from the date of his membership of the Association concerned. The
discount is applicable only to individual owners or joint owners or
companies who are members of the above-mentioned Automobile
Associations.
Private Cars certified by the Vintage and Classic Car Club of India as
Vintage Cars will be eligible for 25% discount on Own Damage Premium.
Vehicles fitted with anti-theft devices approved by Automobile Research

Association of India (ARAI), Pune and whose installation is duly certified by
any of the Automobile Associations mentioned in GR28 of India Motor Tariff
are eligible for a discount of 2.5% on the Own Damage component of
premium subject to a maximum of ` 500/-.
! !513
12.14 Claims and wrong claims
A claim under a motor insurance policy could be for personal injury or

property damage related to someone else (i.e., a third party in this
context) or for damage to your own, insured vehicle (i.e., an own damage
claim) under a package or a comprehensive policy. As soon as you receive
the policy document, read about the procedures and documentation
requirements for claims rather than wait for a claim to arise. In the event
of an incident giving rise to a claim under the policy, the following steps
should be taken.
In case of accidental damage to the vehicle:
• Ensure that the accident is reported immediately to the police as well as

to the insurance company to enable them to depute a surveyor to assess
the loss. Do not attempt to move the vehicle from the accident spot
without the permission of police and the insurance company. Note down
the names and contact details of witnesses, if any.
• Claim Form duly filled in to be submitted along with copy of Registration

Certificate and driving license of the driver of the vehicle at the time of
accident as also estimate of repairs within the prescribed timeline.
! !514
• Surveyor, appointed by the insurance company, is required to submit his

report to the company within the prescribed timeline
• Final bills/cash memos of the repairs are to be submitted duly signed by

the insured.
• Salvage of the damaged parts may be required to be deposited with the

insurance company after approval of the claim.
• If your policy provides for cashless service, which means you do not have
to pay out of your pocket for covered damages, the insurance company
will pay the workshop directly.
In case of theft of the vehicle:
• Lodge an FIR with the police immediately and the insurance company
(along with a copy of FIR) immediately. In addition, you must keep the
transport department also informed. Note down the names and contact
details of witnesses, if any.
• Extend full cooperation to the surveyor and/or investigator appointed by

the company.
• After approval of the claim by the company, get the Registration

Certificate transferred in the name of the company, hand over the keys of
the vehicle, submit a letter of Subrogation and Indemnity on stamp
paper duly notarised.
! !515
In case of liability claim:
• Inform insurance company immediately of any incident likely to give rise

to liability claim.
• On receipt of summons from Court, the same should be sent to the

company immediately.
• Claim Form duly filled in along with copies of Registration Certificate,

Diving License, FIR are to be submitted.
• After approval of the claim by the company, the insurance company will
pay the claim amount directly to the claimant.
Wrong Claims
This kind of moral hazard arises when claims occur. An insured may not
deliberately bring about a loss but once a loss occurs, he would attempt to
demand unreasonably high amount of compensation, in total disregard of
the principle of indemnity.
In motor claims, such a hazard would arise when the insured unreasonably
insists on replacement of new parts whereas the damage could be
satisfactorily repaired or attempts to carry out certain repairs or
replacements which are not related to accidental damage.
! !516
12.15 Deductibles
A deductible is the amount of money that you are required to pay out of
pocket before your expenses are paid on a claim. For example, if the
deductible is 10% and you file a claim of 9,000 rupees, you have to pay
900 rupees. Hence, one has to choose the policy carefully depending on
the deductible amount.
12.16 Dos and Don’ts for Buying Motor Insurance
Dos
• Buy motor insurance policy after proper comparison through a genuine

licensed agent or broker and not through anyone. Ask for an identity card
or licence of the agent/broker.
• Check if the company selling the policy is registered with IRDA.
• Fill the proposal form yourself even if the vehicle dealer is arranging for
the insurance in order to avoid misrepresentation of information.
• Fill the proposal form carefully, factually and thoroughly.
• Keep a copy of the completed proposal for your records.
• Read the policy brochure/prospectus carefully to know what is covered

and what is not.
• Ask for information about add-on covers that may be available and
choose what suits you.
• Give documents such as RC Book, Permit and Driving Licence to the

insurance company for verification.
• Ensure that you keep these documents updated from the authorities
concerned.
• You can also buy policies from the company directly.
! !517
Don’ts
• Don’t let anyone else fill your proposal form.
• Don’t leave any column blank.
• Don’t forget to renew your policy without any break.
• Don’t forget to ask for the correct procedure when you buy a used car
that already has insurance.
• Don’t make false declarations about the actual use of the vehicle you are
insuring.
! !518
12.17 Summary
Motor Vehicle insurance (also known as, car insurance, or motor insurance)
is insurance purchased for cars, trucks, motorcycles, and other road
vehicles.
A motor insurance policy is generally a combined insurance which insures

the damage to the motor vehicle and its accessories, liability for damage to
property, death of, or injury to the assured himself or spouse and it also
insures the motor vehicle against the risk of liability for injury to, or the
death of third parties caused by the driver’s negligence. In some
jurisdictions, coverage for injuries to persons riding in the insured vehicle is
available without regard to fault in the auto accident (No Fault Auto
Insurance).
Auto Insurance in India deals with the insurance covers for the loss or
damage caused to the automobile or its parts due to natural and man-
made calamities. It provides accident cover for individual owners of the
vehicle while driving and also for passengers and third party legal liability.
Auto Insurance in India is a compulsory requirement for all new vehicles
used whether for commercial or personal use. Driving a motor vehicle
without insurance in a public place is a punishable offence in terms of the
Motor Vehicles Act, 1988.
The Motor Vehicles Act, 1988 provides that the motor insurance policy shall
be of no effect unless and until a certificate of insurance in the form
prescribed under the Rules of the Act, is issued.
An insurance policy purchased for protection against the legal actions of

another party is called Third Party Insurance. Third party insurance is
purchased by the insured (first party) from an insurance company (second
party) for protection against another party’s claims (third party) for liability
arising out of the action of the insured. Third party insurance is called
Liability Insurance.
Sum Insured for the purpose of this policy which is fixed at the
commencement of each policy period for the insured vehicle.
! !519
Motor insurance can be broadly classified into two main types: liability only
policy and packaged policy.
A motor policy is usually valid for a period of one year and has to be
renewed before the due date.
Cover Note shall be valid for a period of sixty days from the date of its
issue and the insurer shall issue a policy of insurance before the date of
expiry of the Cover Note.
Insurance companies work with different statistics and use different

methods to calculate premiums. Some companies are specialised in certain
areas or types and so are prepared to give discounts in those areas.
When two policies are in existence on the same vehicle with identical cover,
one of the policies may be cancelled. Where one of the policies commences
at a date later than the other policy, the policy commencing later is to be
cancelled by the insurer concerned.
No Claim Bonus (NCB) is the benefit accrued to an insured for not making
any claims during the previous policy period.
A claim under a motor insurance policy could be for personal injury or

context) or for damage to your own, insured vehicle (i.e., an own damage
claim) under a package or a comprehensive policy.
A deductible is the amount of money that you are required to pay out of
pocket before your expenses are paid on a claim.
One has to follow simple dos and don’ts while buying a motor insurance.
! !520
1. Take a printout of a Liability only and Packaged Motor Insurance policy

of a public sector general insurance company and a private sector
general insurance company and compare their premiums and risk
coverage.
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2. Claims under Own Damage section of policies covering all classes of

vehicles are subject to a compulsory deductible. With the help of India
Motor Tariff, prepare a table of compulsory deductibles for all types of
vehicles.
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! !521
20.www.bimadirect.com
21.www.iib.gov.in
! !522
1. Your car warranty options will depend on whether you’re buying a new
car, a used car or whether you simply want cover for your current
vehicle. In motor insurance, one of the warranties is:
a. The vehicle should be washed daily

b. The vehicle should not be used for speed testing
c. The vehicle should not be used for carrying luggage for personal use
d. The vehicle should not be run more than 200 km per day
2. The insured’s declared value (IDV) of the vehicle will be deemed to be

the sum insured for the purpose of this policy which is fixed at the
commencement of each policy period for the insured vehicle. Insured’s
declared value in motor insurance includes:
a. Manufacturer’s selling price

b. Manufacturer’s cost price
c. Price decided by the insured
d. Arbitrary price component
3. The Motor Vehicles Act, 1988 provides that the motor insurance policy
shall be of no effect unless and until a certificate of insurance in the
form prescribed under the rules of the Act, is issued. State whether the
above statement is true or false.
a. True
b. False
4. Insurance companies work with different statistics and use different

methods to calculate premiums. Some companies are specialised in
certain areas or types and so are prepared to give discounts in those
areas. Which of the following factor determines the premium?
a. Make and Model of the Vehicle

b. Year of Manufacture
c. Place of Registration
d. All of the above
! !523
5. Unless specifically stated otherwise, premiums quoted in the schedules

under various sections of the India Motor Tariff are the premiums
payable on policies issued or renewed for a period of:
a. 1 month
b. 3 months
c. 6 months
d. 12 months
6. No Claim Bonus (NCB) is the benefit accrued to an insured for not

making any claims during the previous policy period. In addition to NCB,
there are additional discounts available under which of the following?
a. Membership of Automobile Association of India
b. Specially designed/modified vehicles for the blind, handicapped and

mentally challenged persons
c. Vehicles fitted with anti-theft devices approved by Automobile

Research Association of India (ARAI), Pune
d. All of the above
7. A claim under a motor insurance policy could be for personal injury or

context) or for damage to your own, insured, vehicle (i.e., an own
damage claim) under a package or a comprehensive policy. In which of
the following types of claim a summons is received from the court?
a. Theft of the vehicle

b. Accidental damage to the vehicle
c. Liability claim
d. All of the above
! !524
Answers:
1. (b)
2. (a)
3. (a)
4. (d)
5. (d)
6. (d)
7. (c).
! !525
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !526
MISCELLANEOUS GENERAL INSURANCE
Chapter 13
Miscellaneous General Insurance
Objectives
This chapter will help you understand the various options of insurance
other than life, fire and marine insurance.
! !527
Structure:
13.1 Introduction
13.2 Personal Accident Insurance
13.3 Mediclaim Policies
13.4 Burglary Insurance
13.5 Money Insurance
13.6 Fidelity Guarantees
13.7 Jewellers’ Block Policy
13.8 Bankers’ Blanket Indemnity Insurance
13.9 Travel Insurance
13.10 Rural Insurance and Social Security and Liability
13.11 Summary
! !528
13.1 Introduction
‘Miscellaneous Insurance’ refers to contracts of insurance other than those

of Life, Fire and Marine insurance. This branch of insurance is of recent
origin and it covers a variety of risks. Sub-section (13B) of Section 2
defines miscellaneous insurance as the business of effecting contracts of
insurance which is not principally or wholly of any kind or kinds included in
clause (6A, i.e., fire insurance), (11, i.e., Life Insurance) and (13A, i.e.,
Marine insurance). The miscellaneous insurance is called “accident
insurance” in England and “casualty insurance” in USA. Miscellaneous
insurance has great potential for enormous growth in India due to the rapid
development and progress of civilisation. The risk covered under
miscellaneous insurance can be broadly classified into three main
categories, namely risks concerning: (a) person, (b) property and (c)
liability. Personal accident insurance, Mediclaim insurance, Burglary
insurance, Money insurance, Fidelity guarantees, Bankers blanket and
Jewellers’ Block policies, rural insurance can be considered as
miscellaneous insurance. Miscellaneous insurance is issued by insurer who
is always a General Insurance Corporation.
13.2 Personal Accident Insurance
Accident usually denotes a sudden, unforeseen and an unexpected event

caused by external, violent and visible means which results in physical
bodily injury but does not include mental, nervous or emotional disorders,
depression or anxiety.
! !529
The risk insured in personal accident insurance is the bodily insurance

resulting solely and directly from accident caused by violent, external and
visible means. Hence, death due to illness or disease is not within the
scope of Personal Accident Insurance. Life insurance, on the other hand,
deals with death due to illness or disease. Personal accident insurance
covers not only major accident resulting in death or permanent
disablement but also minor injury happening in daily life such as getting
burnt while cooking or kids getting injured at school or slipping down from
stairs. Personal Accident policies offer worldwide cover available on 24 hour
basis. Almost all risks pertaining to accidents like Broken Bones, Burns,
Permanent Disability or Accidental Deaths are covered under the policy.
Coverage on Ambulance expenses as well as daily cash reimbursements for
hospitalisation due to accidents and sickness are also included in the policy
plan.
An individual residing in India can take a personal accident policy in his

name or in the name of his dependent family members. The entry age of
! !530
insured may vary from 5 to 80 years or more as per company norms, with
or without loading of premium for higher age brackets. Insurance with no
boundary limits and coverage for accidents in India and worldwide can also
be issued. The policy may be renewed every year by mutual consent. The
policy may be any time cancelled by the Insured by a notice in writing
under a certificate of posing or registered AD. The insurer in such cases will
have to return the pro-rata part of premium. Such notice shall be deemed
to be effective from the date of dispatch of the same by the insured.
Although assignment of policy is not permissible under the Insurance Act,
these policies can be assigned under the Transfer of Property Act.
Personal Accident Insurance generally covers death due to accident and

permanent, partial or temporary disability due to accident.
Permanent Total Disability (PTD): PTD means totally disabled for

lifetime, viz., paralysis of all four limbs, comatose condition, loss of both
eyes/both hands/both limbs or one hand and one eye and one leg or one
hand and one leg.
Permanent Partial Disability (PPD): PDD means partially disable for

lifetime, e.g., loss of fingers, toes, phalanges, etc.
Temporary Total Disability (TTD): TTD means totally disable for

temporary period of time. This section of cover is intended to cover the loss
of income during the disability period.
Common Exclusions
Disablement arising from:
i. Self-injury or suicide;
ii. Accident while under influence of alcohol or drugs;
iii. War and allied perils
iv. Whilst committing any breach of law with criminal intent
The liability of the insurer is to pay the capital sum insured. The sum
insured is selected by the insured but insurers exercise some control by
comparing the sum insured with the average monthly income of the
insured. The sum insured offered by a company can be a fixed amount or
the basis of insured’s income. Generally, insurers devise premiums
! !531
covering a certain set of contingencies. Add-on covers can offer additional

covers by paying extra premium. The premium calculation may depend on
various factors like age, number of family members and occupation of the
insured. In personal accident insurance, the main factor used for fixation of
premium is occupation as the risks associated with profession or
occupation vary according to the nature of work performed. Hence,
occupations are classified into three groups and each group reflects more
or less similar risk exposure.
Risk Group 1: Accountants, Doctors, Architects, Engineers, Teachers,

Bankers, etc.
Risk Group 2: Builders, Contractors, Veterinary Doctors, Paid drivers of

motor cars, etc.
Risk Group 3: Persons engaged in manual labour, Cash carrying

employees, Garage and Motor Mechanics, Drivers of truck and lorries,
Professional Sportsmen, etc.
Ambulance charges, education fund for kids, medical expenses, family

transportation, imported medicines and funeral expenses are considered as
add-on covers. As the value of a lost life or a lost limb cannot be estimated
or indemnified, the amounts payable for such disabilities are termed as
benefits or compensations and the amount of compensation varies. The
terms of Personal Accident policies and compensations can vary from
company to company and policy to policy.
Personal Accident Policies are issued as benefit policies which are distinct
from indemnity policies. Since Personal accident Insurance is a benefit plan
and hence do not attract contribution. Thus, if a person has more than one
policy with different insurer, in the event of accidental death, PTD, PPD,
claims would be paid under all the policies. However, the weekly
compensation payable as temporary total disablement benefit is limited to
a predetermined amount per week overall irrespective of the total sum
insured. Although the insured can have more than one policy, insurers
place restrictions on additional insurance to prevent overinsurance.
Subrogation like contribution does not apply to personal accident policy.
If an accident causes a Temporary Total Disablement (TTD) as well as a

Permanent Partial Disablement (PPD), the insurer will pay for the higher of
! !532
the two benefits and not for both. Even if payment of compensation is
possible under more than one claim involving different accidents under the
same policy, the company’s total liability is restricted to the sum insured.
Insurable interest arises for a husband in his wife’s life and vice versa and
hence, a husband can take a personal accident insurance policy on the life
of his wife. Family Coverage Plans which are extendable to the entire
family in a single policy including dependents – parents and children are
also offered by the insurer. Similarly, a creditor has an insurable interest in
his debtor’s life and and the employers are deemed to have an insurable
interest in the lives of their employees.
Group Personal Accident Policy are also issued to large groups that are
already in existence for a common purpose. Many insurers give group
discounts to group policies, depending on the size of the group.
In case of any event leading to a claim under the policy, the insurer
should be informed immediately with a written notice along with the Claim
Form relevant to the nature of loss needs to be submitted to the insurer. In
case of loss of sight or amputation of limbs, written notice thereof must be
given within one calendar month after such loss of sight or amputation.
For Accidental Death Claims, the following documents should be

submitted to the insurer:
• Claim Form
• Police FIR or Police Panchnama
• Post-mortem Report or Coroner’s Report
• Death Certificate
• For payment to beneficiary – succession certificate or notarised affidavit

certifying legal heir status
• Where payment to beneficiary is through notarised affidavit, a letter of

indemnity on ` 200 stamp paper
! !533
For Accidental Injury Claims, the following documents should be

submitted:
• Claim Form
• Police FIR, if accident is reported to Police
• Medical papers, pathology reports, X-ray reports, as applicable
• For permanent disability claims – Disability Certificate from reputed

surgeon or Municipal Hospital
• For temporary total disability claims – Sick Leave Certificate from

employer
• Attending Physician’s statement.
Documents, in addition to those mentioned above maybe called for,

depending on the nature of accident and claim lodged. No claims is payable
if the claim is fraudulent or supported by fraudulent statement.
Differences regarding the amount of loss are to be referred to arbitration.

The award of arbitration is a precedent to a suit in Court of Law. If the
insurer disclaim liability, the insured has to file a suit in a Court of Law
within 12 months from the date of such disclaimer.
Bharati AXA Personal Accident Covers
Medical expenses for treatment of everyday injury as an in-patient or out-

patient at recognised hospitals (on 20 lakh and 30 lakh plan).
• Hospital daily cash

• Accidental death
• Legal expenses
• Permanent total and partial disablement
• Temporary total disablement
• Transportation of mortal remains
• Funeral expenses
• Education grant
• Worldwide cover
! !534
• Terrorism cover included

• Double indemnity for death or permanent total disablement while
travelling in public transport
Bharati AXA provides personal accident covers for people between 18 to 65

years without documentation and medical tests.
HDFC ERGO’s Personal Accident Insurance Key Features and

Exclusions are as follows:
• Accidental Death: If the physical injuries due to an accident leads to

death of the insured, 100% of the Policy Sum Insured is reimbursed.
• Permanent Total Disablement: If the physical injuries due to an

accident results in permanent disablement, then up to 100% of the Policy
Sum Insured is payable to the insured.
• Broken Bones: If the physical injuries to the insured results in bone

fractures, then up to 10% of Policy Sum Insured is payable under the
policy.
• Hospital Cash (Illness and Accident): In the event of insured’s

accident or illness, a daily assistance for hospitalisation up to 45 days is
provided.
• Burns: If an accident results in hospitalisation of the insured and

treatment of burns, up to 5% of Policy Sum Insured is payable.
• Ambulance Expense: Ambulance costs incurred on the insured post-

accident are reimbursed as per the policy.
Exclusions
• Intentional acts
• Injuries from Civil or Foreign Wars
• Accidents resulting due to Alcohol/Drug influence
• Accidents while riding a two-wheeler of more than 150 cc
• AIDS/HIV
• Injuries during active involvement in violent public disorder/labour
disturbance
! !535
• Injured on duty with military/police force or a paramilitary organisation

• Injuries resulting from participation in unsafe sports.
Our Government has recently announced insurance schemes for reaching a

large number of population who cannot afford to but an insurance policy.
Pradhan Mantri Suraksha Bima Yojana (for Accidental Death and

Disability) (Source: http://financialservices.gov.in): The Scheme will
be a one year cover, renewable from year to year, Accident Insurance
Scheme offering accidental death and disability cover for death or disability
on account of an accident. The scheme would be offered/administered
through Public Sector General Insurance Companies (PSGICs) and other
General Insurance Companies willing to offer the product on similar terms
with necessary approvals and tie up with banks for this purpose. The
salient features of the Pradhan Mantri Suraksha Bima Yojana (for
Accidental Death and Disability) are as follows:
1. All savings bank account holders in the age 18 to 70 years in

participating banks will be entitled to join. In case of multiple saving
bank accounts held by an individual in one or different banks, the
person would be eligible to join the scheme through one savings bank
account only.
2. The cover shall be for the one year period stretching from 1st June to
31st May.
3. Benefits: As per the following table:
Table of Benefits Sum Insured
(a) Death ` 2 lakh
(b) Total and irrecoverable loss of both eyes or loss of use ` 2 lakh
of both hands or feet or loss of sight of one eye and
loss of use of hand or foot
(c) Total and irrecoverable loss of sight of one eye or loss ` 1 lakh
of use of one hand or foot
! !536
4. Premium: ` 12/- per annum per member.
5. Participating Bank will be the Master policyholder on behalf of the

participating subscribers
6. The accident cover for the member shall terminate on any of the
following events and no benefit will be payable thereunder:
(a)On attaining age 70 years (age nearest birthday).
(b)Closure of account with the Bank or insufficiency of balance to keep

the insurance in force.
(c)In case a member is covered through more than one account and
premium is received by the Insurance Company inadvertently,
insurance cover will be restricted to one only and the premium shall
be liable to be forfeited.
(d)If the insurance cover is ceased due to any technical reasons such as
insufficient balance on due date or due to any administrative issues,
the same can be reinstated on receipt of full annual premium, subject
to conditions that may be laid down. During this period, the risk
cover will be suspended and reinstatement of risk cover will be at the
sole discretion of Insurance Company.
(e)Participating banks will deduct the premium amount in the same

month when the auto debit option is given, preferably in May of every
year, and remit the amount due to the Insurance Company in that
month itself.
7. Appropriation of premium:
• Insurance Premium to PSGIC/other insurance company: ` 10/- per

annum per member.
• Reimbursement of Expenses to BC/Micro/Corporate/Agent: ` 1/- per

annum per member.
• Reimbursement of Administrative Expenses to Participating Bank: ` 1/-

per annum per member.
! !537
13.3 Mediclaim Policies
Health industry is advancing in a competent pace with the invention of new

equipments and technology. With the rise in lifestyle diseases, especially in
urban India, the need for an effective mediclaim plan is increasingly
becoming important as being sick or meeting with an accident can cause
considerable financial setback. Private hospitals provide a competent
treatment in terms of quality and technology, but these services are
considerably expensive. Mediclaim Policies provides absolute security for
family and aids at the time of emergency, reduces the monetary burden
and paves way for easy access to quality health to all. Mediclaim plan is
fast emerging as an alternate source for financing health care costs.
Under the Family Floater Plan, one single policy takes care of the
hospitalisation expenses of your entire family during sudden illness,
surgeries and accidents.
A health card is a card that comes along with the Mediclaim Policy entitle
the policyholder to avail cashless hospitalisation facility at any of the
insurer’s network hospitals.
Any number of claims is allowed during the policy period. However, the
sum insured is the maximum limit under the policy.
The payment of premium should be done in advance and the policy is

generally issued for 1 year. Premium paid under the Mediclaim Policy is
exempted from Income Tax under Section 80D of the Income Tax Act up to
` 25,000 for individual covering his family and dependent children and up
to ` 30,000 for Senior Citizens.
A medical checkup is necessary for a new mediclaim policy for customers

above the age of 50 years. Medical checkup is not required only for Senior
Citizen Policy offered to people between 60 years to 69 years.
The scope of coverage shall be restricted to treatment taken in hospitals in

India during the policy period. All claims will be paid in Indian rupees.
Renewal of mediclaim policy can be done with mutual consent but the
renewal of Mediclaim policy cannot be claimed as a matter of right by the
insured. The mediclaim policyholders are not entitled to automatic renewal,
! !538
but when a policy is cancelled, the conditions precedent therefor must be

fulfilled. The mediclaim policy can be cancelled by the insurer by 30 days
registered notice with pro-rata refund of premium. The insurer shall
however remain liable for any claim which arose prior to the date of
cancellation.
Mediclaim policies may offer Cumulative Bonus wherein for every claim free
year, the Sum Insured is increased by a certain percentage at the time of
renewal subject to a maximum percentage (generally 50%).
A family discount of 10% in the total premium is also allowed by some

insurers. A family for such purpose comprises a spouse, dependent children
and dependent parents.
A mediclaim policy generally covers the basic costs in case of

hospitalisation due to any accidents/diseases/illnesses which do not form a
part of the permanent exclusions of the policy.
Mediclaim Policies Pays for Expenses Incurred under the following

heads:
• Room/Boarding expenses
• Nursing expenses
• Fees of surgeon, anesthetist, physician, consultants and specialists
• Anesthesia, blood, oxygen, operation theatre charges, surgical

appliances, medicines, drugs, diagnostic materials, X-ray, dialysis,
chemotherapy, radio therapy, cost of pace maker, artificial limbs, cost or
organs and similar expenses.
Standard Mediclaim Exclusions
• Expenses whatsoever incurred by any Insured Person in connection with

or in respect diseases which have been in existence at the time of
proposing the insurance. There are certain waiting periods (usually 48
months) with regard to pre-existing diseases.
! !539
• Any expenses on any disease/injury incurred during first 30 days of

commencement of insurance cover except in case of injury arising out or
accident.
• During the first year of the operation of the policy, the expenses on
treatment of diseases such as Cataract, Benign Prostatic Hypertrophy,
Hysterectomy for Menorrhagia or Fibromyoma, Hernia, Hydrocele,
Congenital Internal Disease, Fistula in anus, Piles, Sinusitis and related
disorders are not payable.
• Injury on Disease directly or indirectly caused by or arising from or

attributable to War, Invasion, Act of Foreign Enemy and Warlike
operations.
• Circumcision, vaccination, change of life or cosmetic or aesthetic

treatment of any description, plastic surgery other than as may be
necessitated due to an accident or as a part of any illness.
• The cost of spectacles and contact lenses, hearing aids. Dental treatment
or surgery of any kind unless requiring hospitalisation.
• Convalescence, general debility, ‘rundown’ condition or rest cure,

congenital external disease or defects or anomalies, sterility, venereal
disease, intentional self-injury and use of intoxicating drugs/alcohol.
• All expenses arising out or any condition directly or indirectly caused to

or associated with Human T-Cell Lymphotrophic Virus Type III (HTLB-III)
or Lymphadenopathy Associated Virus (LAV) or the Mutants Derivative or
Variations Deficiency Syndrome or any syndrome or condition of a similar
kind commonly referred to as AIDS.
• Charges incurred at Hospital or Nursing Home primarily for diagnostic, X-

ray or laboratory examinations not consistent with or incidental to the
diagnosis and treatment of the positive existence or presence of any
ailment, sickness or injury, for which confinement is required at a
Hospital/Nursing Home or at Home under Domiciliary Hospitalisation as
defined.
• Expenses on vitamins and tonics unless forming part or treatment for

injury or disease as certified by the attending Physician.
! !540
• Treatment arising from or traceable to pregnancy, childbirth including

caesarian section.
• Voluntary medical termination during first 12 weeks from the date of

conception.
• Naturopathy treatment.
Insurance coverage may vary from insurer to insurer. Some insurers have
introduced covers for outpatient (OP) treatment covering expenses like OP
consultations, pharmacy bills, diagnostic tests, dental treatment, optical
services and annual health checkup costs along with in-patient treatment.
Some insurers allow add-ons like critical illness. Cover for diseases such as
cancer, stroke, kidney failure and heart attacks are also given subject to
certain conditions and additional premium.
Mediclaim policies may also contain a provision for reimbursement of cost

of health checkup.
In order to become eligible to make a claim under the policy, minimum

stay of 24 hours in the Hospital is necessary. This time limit may not apply
for treatment of accidental injuries and for certain specified treatments like
Dialysis, Chemotherapy, Radiotherapy, Eye Surgery, Lithotripsy,
Tonsilectomy, etc.
Expenses incurred during a certain number of days prior to hospitalisation

and post-hospitalisation expenses for a specified period from the date of
discharge may be considered as part of the claim provided the expenses
relate to the disease/sickness.
Cashless facility, i.e., a facility extended by the insurer to the insured

where the payments, of the costs of treatment undergone by the insured in
accordance with the policy terms and conditions, are directly made to the
network provider by the insurer to the extent pre-authorisation approved is
also provided by some insurers. In cashless hospitalisation, the hospitals
identify the insured based on the identity cards/smart cards issued to them
by the insurer.
! !541
If insured does not opt for cashless settlement, she/he has to pay directly
to the hospital. The bills have then to be submitted to the insurer/TPA and
the claims will be reimbursed.
Preliminary notice of claim with particulars relating to policy number,

name of the insured person in respect of whom the claim is made, nature
of illness and name and address of the attending medical practitioner/
hospital/nursing home should be given by the insured person to the insurer
within 7 days from the date of Hospitalisation, Domiciliary Hospitalisation.
Domiciliary hospitalisation benefits generally refers to medical

treatment for a period exceeding three days for such illness/injury which in
the normal course would require treatment at the hospital/nursing home,
but was actually taken whilst confined at home in India under any of the
following circumstances namely:
(i) The condition of the patient is such that she/he cannot be moved to
the hospital/nursing home or
(ii) The patient cannot be moved.
Final clam with original receipted bills, cash memos, claim form and list
of documents as listed in the claim form should be submitted to the
company within 30 days from the date of completion of treatment.
If there are other insurance policies covering the same loss, the insurer
shall be liable only for its rateable proportion.
Third Party Administrators or TPA licensed under the IRDA (Third Party
Administrators – Health Services) Regulations, 2001 is engaged, for a fee
or remuneration by an insurance company, for the purposes of processing
mediclaims under mediclaim policies. To avail the benefit of cashless
facility, insurers issue an identification card to the insured within 15 days
from the date of issue of a policy, either through a TPA or directly.
Group Mediclaim policies are available to any group/association/

institution/corporate body, etc. Each insured should cover all eligible
named members under one group policy. The group policy is issued in the
name of the group with a schedule of names of members including his/her
eligible family members forming part of the policy. A group discount is also
! !542
allowed depending on the total number of insured persons covered under

the group policy at the inception of the policy. Low Claim Ratio Discount
(Bonus) is allowed on the total premium at renewal only depending upon
the incurred claims ratio for the entire group insured under the Group
Mediclaim Insurance Policy. On the basis of incurred claims ratio, loading is
applied to the renewal premium for adverse claims experience.
Overseas medical policies provide payment of medical expenses in respect

of illness suffered or accident sustained by India residents during the
overseas trips for official or holiday purpose.
13.4 Burglary Insurance
Meaning of Burglary
Burglary means the unforeseen and unauthorised entry to or exit from the
insured premises by aggressive and detectable means with the intent to
steal contents therefrom.
A person is said to commit housebreaking if he commits house trespass

while effecting his entrance into the house or if being in the house for the
purpose of committing an offence.
Burglary and Housebreaking Insurance Policy keeps your property safe and
gives you the peace of mind that you deserve.
Burglary insurance is a major class in miscellaneous insurance and it

covers contents against loss or damage by burglary. Burglary insurance is
meant for business premises like factories, shops, offices, warehouses and
godowns which may contain stocks, goods, furniture, fixtures and cash in a
locked safe which can be stolen. The scope of cover is limited to burglary
and housebreaking only. Other related perils like theft, larceny, robbery
and dacoity, are all not covered by the burglary definition. The cover
available on a first loss basis by way of judicious management of probable
maximum loss assessment. Policy can be extended to cover riot, strike,
malicious damage, and theft. Several variations such as floater policy,
declaration policy, and floater declaration policy available are also offered
by some issuers.
! !543
Scope of Cover
The standard burglary and housebreaking insurance policy covers

theft of property after forcible and violent entry into the premises
or loss followed by actual, forcible and violent exit from the
premises or hold up as well as damage to insured property or
premises by burglars.
The burglary insurance policy can be affected for the full value of the
property to be insured or in the event of improbability of total loss,
proposer can opt for a percentage of total stocks to be insured. Policies can
be issued on declaration basis and on floater basis for stocks. There is also
a provision in the policy to cover bulk items on “first loss” basis. Where
large stocks frequently fluctuate in quantity during the year, the proposer
can also opt for a fixed sum insured at a maximum value of stocks which
the insured anticipates he will hold at any one time. The policy can be
further extended to cover cash, valuables, securities kept in a locked safe
or cash box in locked steel cupboard. If the sum insured is not adequate,
the policy pays only proportionate loss. The indemnity provided is to the
extent of the intrinsic value of the property so lost or damaged, subject to
the limit of the sum insured.
If the home burglary policy is not a part of householders’ package policy,

the applicant may have to file a separate list of property to be covered.
Householders’ Insurance is a packaged policy which provides a range of

covers that are required for a common householder. Insured has to get his
household contents as per their market value and electrical items on
replacement value.
The National Insurance Company Limited has ten sections under

Householders’ Package Policy, as follows:
Section I: Fire and Allied Perils
a. For House Building.

b. For Household Contents.
Section II: Burglary and Housebreaking including Larceny or Theft

(Contents only)
! !544
Section III: All Risk against Valuable Items

Section IV: Plate Glass Cover (fixed)
Section V: Breakdown of Domestic Appliance
Section VI: Television Sets (All Risk) Cover
Section VII: Pedal Cycle (All Risks) Cover
Section VIII: Baggage Insurance
Section IX: Personal Accident Insurance
Section X: Public Liability and Workman Compensation Risks
Exclusions
The policy does not cover loss/damage due to the following items unless
insured:
• Theft by employees, family members or other persons who are lawfully

on the premises
• Infidelity of inmate or member of the Insured’s household or his business
• Riot and strike, terrorist activities
• War, warlike perils
• Loss or damage attributable to willful/gross negligence
• For goods held in trust/commission, Cash, jewellery, curios, title deeds,

business books
• For items stolen from a safe using a key or duplicate key, unless it is
obtained by violence or threat.
Rates of premium for burglary policy depend upon the nature of

insured property, the moral hazard of the insured himself, construction and
location of premises, safety measures, previous claims experience, etc.
Extensions
The policy can be extended to cover riot, strikes and terrorism risks at
extra premium.
! !545
In case of an burglary or housebreaking attempt, the insured should send

a notice to the insurer immediately. The details of the event and the
circumstances of loss should be lodged in writing with the insurer within 7
days of the notice. The insured is also required to exercise reasonable care
to safeguard the property and minimise the loss.
The insurer may reinstate, replace or repair the property or premises

instead of paying the amount of loss or damage. If there are more than
one policies covering the burglary risk, the contribution principle will apply
and only a ratable proportion of the loss will be paid by the insurer.
In India, both public sector and private general insurance company cover
the burglary insurance with different coverage. The features of Reliance
Burglary and Housebreaking Insurance Policy Coverage and other
details are as follows:
Reliance Burglary and Housebreaking Insurance Policy Coverage:
• Property such as stocks and furniture owned by the insured in the

business premise is covered.
• Stocks held in trust/commission and for which the insured is responsible,

if specifically covered.
• Damage to premises resulting from burglary, and/or housebreaking or

any attempt at burglary is covered.
• Cash, jewellery, valuables, and securities kept in a locked safe or cash

box in a locked steel cupboard, if specifically covered.
Policy Options
The following variations with regard to sum insured can be opted for:
• Floater Policy: Issued for stocks at various locations under one sum
insured.
• Declaration Policy: Takes care of frequent fluctuations in stocks/stock

values.
! !546
• Floater Declaration Policy: Comprises features of both the floater and

declaration policies.
Reliance Burglary and Housebreaking Insurance Policy Exclusions
The policy will not pay for the following losses or damage:
• Loss of goods held in trust/commission, jewellery, curios, title deeds,

business books, unless specifically covered.
• Burglary without any forcible entry.
• Shoplifting, or acts where insured or his/her family members or

employees are involved.
• Losses recoverable under fire/plate glass insurance policy
• War threats and nuclear perils
• Riot, strike, and malicious damage unless specifically covered
• Consequential loss or legal liability of any kind
• Premises left uninhabited for seven or more consecutive days, unless

specifically agreed upon
• Uninformed material alteration in the premises.
Claim Process
One needs to contact the regional office when the claim occurs and furnish
the following details when intimating the claim:
• Contact numbers
• Policy number
• Date and time of accident
• Location of loss
! !547
• The police report: It should include copies of your written complaint to

the police and the First Investigation Report (FIR)
• Claim form: Duly filled and completed in all respects
• Claim bill: Detailed claim bill with necessary bills and vouchers
• Documentary evidence about the value of property stolen through

invoice, bill, books of account, etc.
• Final survey report: As made by the surveyor
• Copy of your burglary insurance policy certificate
• Letter of indemnity: You should provide a letter of authority in favour of

the insurance company, if there is any right of recovery
• Photographs, if any
Immediate Action after Loss:
• Inform the police authorities immediately. Get the FIR and the formal
written complaint.
• Inform the insurance company with a rough estimate of the loss as early
as possible.
• Intimation to the company must be done within 14 days from the day of
the loss or damage.
• Any claim below ` 2,500 will be settled directly.
• Claims above ` 2,500 will be investigated by a surveyor appointed by the

insurance company.
! !548
13.5 Money Insurance
Money Insurance is a modified version of burglary insurance, and mainly

covers money in transit between the insured’s premises and bank or post
office or other specified places. Money means and includes cash, bank
drafts, currency notes, treasury notes, cheques, postal orders and current
postage stamps.
Money insurance policy is designed to cover the losses that may occur in
transit under Section I and money in safe/on-premises under Section II.
The insurer will indemnify the Insured against loss under Section I and
Section II as follows:
Section I: It covers loss of cash in transit, carried by the Insured or the

Insured’s authorised employee(s), occasioned by burglary or hold-up,
robbery, theft or any other fortuitous cause. The transit section specifies
two amounts: (a) maximum amount that insurers may be required to pay
in respect of each loss and (b) estimated amount to which the rate of
premium is to be applied. Money insurance policies can be issued on
declaration basis in which the Insurer charges a provisional premium on
the estimated amount in transit and adjust this premium at the time of
expiry of the policy, based on actual amount in transit during the policy
period, as declared by the insured. The premium is charged at a rate per
mile on the estimated amount of transit during the policy period, subject to
adjustment on expiry of the policy.
Section II: Money kept/locked in safe or strong room occasioned by

burglary, housebreaking, robbery or hold-up whilst money is retained at
the Insured’s premises in safe(s) or a strong room. Foreign currency can
also be specifically declared and covered under the Policy. The premium is
charged at a rate per cent on the sum insured chosen.
Extensions
On payment of additional premium, the policy may be extended to cover:
a. Dishonesty of persons carrying cash,
b. Not, strike and terrorism risks
! !549
c. Disbursement risk, which is the loss suffered during payment of wages

to employees.
Exclusions
The insurer shall not be liable for losses arising out of the following:
a. Loss of money arising on account of shortage due to error or omission
b. Loss of money that has been entrusted to other than authorised person
c. Loss or damage directly or indirectly, proximately or remotely

occasioned by or which arises out of or in connection with riot strike and
terrorism
d. Sums representing wages or salaries kept in the premises 48 hours

after they have been withdrawn from a Bank or other place
e. Loss occurring on the premises, after business hours, unless the money
is kept in locked safe or strong room
f. Loss of money carried under contract of affreightment
g. Loss of money in transit by post or courier services
h. Theft of money from an unattended vehicle
i. Loss of money due to any misfeasance, malfeasance or nonfeasance or

breach of trust in relation to money by the Insured.
Claim Procedure
Upon the happening of any event giving rise or likely to give rise to a claim
under Money insurance policy, the Insured shall give immediate notice
thereof in writing to the nearest office of the insurer as well as lodge
forthwith a complaint with the Police within 24 hours of its discovery. The
Insured should within 7 days of the date on which the event shall have
come to his knowledge, lodge a detailed statement of the loss or damage
with an estimate of the loss of intrinsic value of the property lost along
with a copy of FIR obtained from the police. In case of death claim in
! !550
respect of any authorised money carrying employee on account of assault,

post-mortem examination of the body in respect of whom such claim is
made should also be submitted to the insurer.
If the insured have taken money insurance policy from more than one
insurer, then the insurer shall not be liable to pay or contribute more than
its ratable proportion of such loss or damage.
The Insured should do and concur in doing and permit to be done all such
acts and things as may be necessary or required by the insurer for the
purpose of enforcing any rights or remedies or of obtaining relief or
indemnity from parties to which the insurer shall be or would become
entitled or subrogated upon their paying for or making good any loss or
damage under the money insurance Policy.
SBI General’s Money Policy is targeted at all businesses – small or large

and across all segments and industries.
The key benefits, coverage details, product features and exclusions of the
SBI General’s Money Policy as mentioned on SBI General Insurance website
are as follows:
Key Benefits
• Variable sum insured limits available to cover different situations or

needs.
• Money cover available as follows:
➡ In transit
➡ On premises during business hours
➡ In a safe or strong room
➡ Optional cover for value of safe.
Coverage Details
SBI General Money Policy covers theft of money (as defined) or loss,
destruction or damage caused by an accident, not otherwise excluded.
! !551
Product Features
• A series of automatically provided additional benefits will be included

within standard policy coverage
• Bank Holiday increase – automatic increase in limits (with no additional

premium charge) on the next business day following bank holiday
• Automatic reinstatement of the sum insured to the originally selected

level, following a loss, upon payment of the appropriate pro-rata
additional premium once during any one period of insurance
• Lump sum benefit for death or injury resulting during theft or attempted
theft.
Exclusions
SBI General Money Policy shall not be liable in respect of any loss:
• Due to robbery, theft, fraud, dishonesty or collusion by any employee or

agent of the Insured;
• Arising out of shortages due to clerical or accounting errors, omissions,

depreciation or direct or indirect consequential loss of any kind;
• Occurring elsewhere than within the Geographical Area specified in the

Policy;
• Resulting from confiscation, detention, rationalisation, requisition or

willful destruction by any government, public, municipal, local or customs
authority;
• On the premises which at the time are closed unless the money is in a
locked safe or strong room and all openings (including all doors leading
to the safe or strong room) of the premises are fully secured;
• Loss from a safe or strong room following use of the safe or strong room
key(s) or any duplicate thereof belonging to the Insured unless this has
been obtained by threat or by violence to the person in custody of the
key(s);
! !552
• Money whilst unattended or from unattended vehicles;
• Due to the use of counterfeit money;
• Damage cost or expense of whatsoever nature directly or indirectly

caused by, resulting from or in connection with any act of terrorism
regardless of any other cause or event contributing concurrently or in
any other sequence to the loss.
13.6 Fidelity Guarantees
Fidelity guarantee insurance indemnifies employers against the financial

loss suffered by them due to fraud or dishonesty of their employees by
forgery, embezzlement, larceny, misappropriation and default. Fidelity
Guarantee Insurance ensures that organisations do not suffer because of a
few unscrupulous and dishonest people among them.
In a fidelity guarantee insurance business, there are three parties unlike

two parties in other types of insurance. The basis for fidelity guarantee
originates from the employer and employee relationship or a fiduciary
relationship where confidence or trust reposed plays a crucial part.
Coverage under Fidelity Guarantee Insurance is granted against a direct

pecuniary loss and does not include consequential losses.
The essential conditions for claiming a loss under a Fidelity Guarantee

Insurance are as follows:
a. The loss should be in respect of monies, securities or goods;
b. The act should be committed in the course of the duties specified;
c. The loss should be discovered within 12 months of expiry of the policy

or death resignation or dismissal of the employee, whichever is earlier;
d. No cover is provided in respect of a dishonest employee who has been

re-employed.
! !553
The rate of premium depends upon the type of business occupation, status
of the employee, the system of check and supervision.
Various types of fidelity guarantee policies can be issued, e.g., Individual

policy where only one individual is to be guaranteed, Collective policy
wherein a schedule containing a list of names of the employees is to be
guaranteed, Floating policy wherein instead of individual amounts of
guarantee, a specified amount of guarantee is “floated” over the whole
group, Positions policy wherein the schedule lists out “positions” that are to
be guaranteed for a specified amount, and Blanket policy covers the entire
staff without showing names or positions.
Unlike other classes of business, fidelity guarantee policy covers a loss

when the loss is reported to insurer within a period mentioned in the policy.
The customary time period allowed is that the act insured should be
discovered not later than 12 months after the resignation, dismissal,
termination or death of the employee or not later than 12 months after the
termination of the policy whichever is earlier.
The employer must give immediate notice to the insurer on the discovery
of any insured act committed by the employee. Within 3 months of the
initial notice, the claim has to be lodged with the insurer accompanied by
full details and proofs to the insurer. The policy pays the actual financial
loss sustained as a result of the dishonesty/fraudulent act of the employee
after adjusting any salary, commission, security deposit or any other
money standing to his/her credit. The loss is payable up to the limit
specified for the employee. When the loss is made good, the policy has to
be delivered to the insurer for cancellation and discharge.
The insurer reserves the right to insist on criminal prosecution of the

employee. By exercising its subrogation rights, after satisfaction of the
claim the insurer are entitled to take over the rights of the employer
against the employee as far as the loss is concerned. If the insured has
more than one insurance polices with different insurers, the insurer will pay
on pro-rata basis. The insurer can cancel the policy any time after due
intimation to the insured and return the premium corresponding to the
unexpired period. The disputes relating to the claims will be referred to the
arbitration.
! !554
Exclusions
Loss arising out of suppression of fact, affecting the risk at the time of
effecting the policy, change in the circumstances or conditions of the said
employment, without the consent of the company, loss due to non-
observance or relaxation of system of checks and precautions, loss arising
outside India, etc. are generally excluded.
HDFC ERGO’s Fidelity Guarantee Insurance covers financial loss due to any
act of fraud/ dishonesty committed by your employee on or after the date
of commencement of this policy. The cover is also valid during
uninterrupted service with the Insured and discovered during the
continuance of this policy or within twelve calendar months of the
expiration thereof and in the case of death, dismissal or retirement of the
employee within twelve calendar months of such death, dismissal or
retirement whichever of these events shall first happen. For a additional
premium, the policy can be extended to cover the risk of terrorism. The
sum insured will be the financial limit as specified by Insured. The policy
does not cover loss and/or damage from:
• Outside territorial limits
• Losses not falling within retrospective date
• Losses incurred before policy inception date
• Consequential losses
• Willful acts or gross negligence
! !555
13.7 Jewellers’ Block Policy
Jewellers’ Block Policy is a package policy specially designed for jewellers

and diamontaires, i.e., those establishments dealing solely in diamonds to
cover several types of losses. The insurers indemnify the insured against
the loss of or damage to the insured property like jewellery, gold, silver
ornaments or plate, pearls, precious stones, cash, currency note, and/or
merchandise and materials usual to the conduct of the insured’s business,
etc. The indemnity is also extended to cover damage by burglars/thieves to
the premises and landlord’s fixtures and fittings upto 1% of the sum
insured. The trade and office furniture and fixtures and all other movable
property belonging to the insured at his business premises is covered
under risks of fire, lightening, explosion, burglary, housebreaking and theft.
Jewellers’ premises are categorised into Class I, II or III depending upon

the type of security provided for the premises. Different premium rates are
applied for each section. Discount in premium is available in case the
! !556
premises have special protection devices like built-in vaults, strong rooms,
closed circuit TV or armed guards.
The policy can be taken by jewellers who are wholesalers or retailers. The
policy cannot be given to establishments whose work is predominantly
manufacturing like cutters and goldsmiths. The policy also cannot be given
to angadias, brokers, pawn brokers, etc.
The cover provided under Jewellers’ Block Policy is divided into four
sections:
Section I: Covers loss or damage to jewellery, gold and silver ornaments

or plates, pearls, precious stones, cash and currency notes whilst contained
in the premises insured, by fire, explosion, lightning, burglary, house
breaking, theft, holdup, robbery, riot, strike and malicious damage and
terrorism.
Section II: Covers loss or damage to jewellery, gold, etc. as described in

Section I whilst it is in the custody of the insured, his/her partners,
employees, directors, sorters of diamonds or whilst such property
(excluding cash and currency notes) is in the custody of brokers, agents,
cutters and goldsmiths.
Section III: Covers loss or damage to property described in Section I

whilst in transit by registered parcel post, air freight or through angadia.
Section IV: Covers loss or damage to trade and office furniture and
fixtures in insured premises due to fire, explosion, lightning, burglary,
house breaking, theft, hold-up, robbery, riot, strike and malicious damage
and terrorism.
The sum insured has to be fixed by the insurer in respect of property

covered under Section I. Under Section II, the insured has to specify limit
for any one loss separately for property in the custody of the insured and
entrusted to brokers. Under Section II, the insured has to specify limit for
any one loss for registered post parcel, air freight or angadia. Under
Section IV, the sum insured should represent the full value of the property.
The policy contains a warranty that all stocks covered under the scheme
should be kept in secured locked burglar proof safes. The post parcels
! !557
should be insured with postal authorities. The basis of valuation in respect

of property described in the schedule of the policy will be cost plus 10%
thereof. The loss should be discovered within 60 days of its happening.
Exclusions under the Jewellers’ Block Policy are as follows:
a. Dishonesty of employees, agents, cutters, goldsmiths, etc.

b. Property kept during public exhibition
c. Lost whilst being worn/carried for personal purpose
d. Property not kept in safe outside business hours
e. Property kept in display windows at night
f. Loss due to infidelity of employees or members of the insured family is
not covered.
In case of any incident giving rise to a claim under the policy, the following
steps should be taken:
• The insured should inform insurance company within 24 hours with a

notice of the happening of an event likely to give rise to a claim.
• The insured should also inform police immediately and obtain FIR within
24 hours.
• The insured should cooperate with the surveyor appointed by Insurance

Company to substantiate loss test.
• The insured should submit full details of the loss within 14 days of the
event coming to his knowledge along with claim form and relevant
documents.
IFFCO-Tokio’s Jewellers’ Block Policy is available to protect against

the following:
• Stocks (gold, diamonds, etc. in showcase, display windows, safe/strong

room, insured premises
• Property in custody of insured, partners, employees, directors,

constituted attorney
• Property in transit by airfreight, angadia, registered post/parcel
! !558
• Building and other contents
• Fixed glass and sanitary fitting
• Personal accident for insured, partners and employee
• Public Liability – accidental injury, death to other than insured/his family

and accidental damage to property
• WC-under Fatal Accident Act/WC Act for employee
• Money in transit/in premises as per limits
• Computer, fax machine and their parts/accessories and data carrying

material
• Neon/illuminated signs
• Hoardings installed on insured premises
• Trade equipments
Exclusions by IFFCO-Tokio’s Jewellers’ Block Policy are as follows:
• Inventory loss
• Damage to property at public exhibition

• Theft or disappearance of property
• Depreciation, gradual, deterioration, wear and tear, moth, vermin,
mildew
• Damage by theft or attempted theft committed by family members

employee, custodians
• Damage following the use of key to safe or any duplicate key
• Damage to property insured whilst in window display

• Damage to property whilst worn or used
• Damage to property while it is being worked upon.
! !559
13.8 Bankers’ Blanket indemnity insurance
Bankers’ Indemnity Policy is a comprehensive cover provided for the banks,

NBFCs and other institutions who deal with operations involving money, to
cover special risks faced by them regarding money and securities from
white-collar crimes, i.e., fraud, dishonesty, etc.
Bankers’ Blanket Indemnity Insurance provides protection against the

direct financial loss sustained as a result of:
• Employee infidelity
• The physical loss of property on premises and in transit
• The forgery and alteration of monetary instruments and other documents

of value and dishonesty of employees
• Computer and cyber fraud as well as fraudulent electronic funds

payments
• Loss suffered due to any cause whatsoever including negligence of the

employees, when the property is carried outside the premises in the
hands of authorised employees
• Dispatches by registered post parcels
• Dishonesty of appraisers
• Money lost while in the hands of agents of the bank.
The proposer has to select the sum insured but the premium is based on
the limit of indemnity, i.e., basic sum insured, the total number of
employees, the total number of branches and additional sum insured.
The cover is issued on discovery basis and the claim will be paid for crime
committed during the policy period.
! !560
Exclusions
• Losses not covered during the period of the policy
• Trading losses
• Loss of any property confined to the care of the insured but the nominal
value is not ascertained
• Losses caused by war and allied risk
• Losses caused by negligence, act or omission of the insured employees
• Losses due to any acts or omissions committed by the employees.
IFFCO-TOKIO’s Bankers’ Indemnity Policy is available to protect

bankers against loss:
• Of money or securities belonging or held in trust by you on your

premises by fire, riot and strike, burglary and housebreaking, theft,
robbery or hold-up
• In transit (your financial Instruments and money being misappropriated

by negligence or fraud of your employees)
• By forging or alteration (by way of bogus financial instruments being

used for collecting payments)
• By dishonesty (of your employees resulting in pecuniary loss)
• Of hypothecated goods under your control as a result of fraud and

dishonesty of your employees
• By registered postal sending (robbery theft while in direct transit)
• By appraisers and Janta Agents (by infidelity).
! !561
13.9 Travel Insurance
Travel insurance is intended to cover medical expenses, trip cancellation,

lost luggage, loss of passport, flight accident, interruption or delays in
flights or delayed arrival of baggage and other losses incurred while
travelling, either internationally or within one’s own country. Overseas
travel insurance is compulsory to obtain a visa for some countries.
The Scope of Cover and Benefits offered by different general insurance

companies would vary envisaging all kinds of exigencies one is likely to
face whilst travelling. Covers that are generally provided under Travel
Insurance are as follows:
• Medical Expenses with or without cashless facility (most travel insurance

products offer cashless facility)
• Personal Accident
• Loss of Baggage
• Delay in Baggage arrival
• Loss of Passport
• Travel Delay
• Repatriation
• Transportation of Dead Body, etc.
Accidental death/disability, emergency hospitalisation, hijack, emergency

dental relief, third party liability for property and personal damages can be
considered as some of the perils covered under Travel Insurance Policy.
Insurers offer customised travel insurance to individuals travelling alone or

with companions; holiday plans for senior citizens or business travelers
(business plans) or for students (study plans) going abroad for studies and
their parents. Corporate/employer takes frequent travellers’ plans on
annualised basis to cover maximum number of trips at a discounted
premium. Some insurers may require senior citizens to undergo medical
checkup prior to acceptance of the proposal.
! !562
The Sum Insured and the premium rates will also vary as they would
depend on the country in question, apart from other factors such as age,
period of travel, etc. The coverage would generally be on a worldwide
basis; however, most overseas travel policies exclude India. Pricing of the
policy is based on the number of days of travel, plan of travel, age, etc.
Insurers may cover trips involving any kind of sporting activities, subject to
prior declaration and specific approval with premium loading.
Exclusions
• Pre-existing diseases
• Travel against the advice of the doctor
• Injury due to abuse of drugs or alcoholic drink
• War risks
• Suicide and Insanity
• Hazardous sports
Cashless claims services on behalf of the insurer are offered in most of the
cases due to tie-ups with an international service provider with network in
major countries who services the policies issued. In case your travel
doesn’t take off or you cut short your travel time policies would normally
provide for premium refund subject to certain conditions like deductions
towards administrative costs.
Tata AIG Travel Guard features are as follows:
• Global Protection Policy valid 24 hours a day, 365 days a year.
• Flexible: Three plans are available under the Single Trip policies which
are Silver, Gold and Platinum. There are also two options under an
Annual Multi Trip Programme (similar to Airline Frequent Flier
Programmes) where a traveller can buy an Annual Multi Trip Gold and
Platinum Plans.
• No medical certification, whatever your age.
• Travel Guard Assist: Emergency Assistance, Medical Evacuation,

Repatriation across the globe.
• Renewable for life (for Annual Multi Trip only).
! !563
• 15 days’ Freelook period (for the new business and annual multi trip
only).
• 30 days’ Grace Period (for renewals annual multi trip only).
• Sum Insured Enhancement – Sum Insured can be enhanced only at

the time of renewal. However, the quantum of increase shall be as per
underwriting guidelines of the company, (for renewals under Annual Multi
Trip only).
Changes will be notified to the policyholders 3 months in advance in case

of revision/modification in approved product (for Annual Multi Trip only).
• Likelihood of withdrawal of the product will be notified to the

policyholders 3 months prior to the expiry of the policy and option would
be given to migrate to similar travel insurance policy.
13.10 Rural Insurance and Social Security and Liability
India’s heart beats in the rural segment where over 70% of our population
lives and toils to enrich our country.
Insurers play an important role in social security schemes sponsored by the

Government. Social insurance is any government-sponsored programme
which specifies the benefits, eligibility requirements and other aspects of
! !564
the programme based on the income and expenses of the economically

vulnerable or backward classes of people.
Insurance is used as a tool for social security by introducing insurance on a

voluntary basis or on a mandatory basis by the organisations based on
directives from the Government. In fact, provision of Social Security and
Social Insurance and Welfare of Labour has been included in the List III of
the Seventh Schedule of the Constitution of India. Article 41 of the
Directive Principles of State Policy has called upon the State to make
provision for public assistance in the case of sickness, disablement and
other underserved want.
Rural business initiative has played a very important role in reaching the
underserved segment through its rural insurance plans. Liability insurance
protects the insured in the event he or she is sued for claims that come
within the coverage of the insurance policy.
To fulfill the constitutional obligation, the Government has passed various

laws to make insurance a tool of social security. The Employees State
Insurance Act, 1948 provides for Employees’ State Insurance Corporation
to pay for the expenses of sickness, disablement, maternity and death for
the benefit of industrial employees and their families, who are insured
persons. The crop insurance scheme (RKBY) benefits not only the insured
farmers but also the community directly and indirectly.
Some of the rural insurance schemes operate on commercial basis but yet
they are designed ultimately to provide social security to the rural families.
! !565
Janata Personal Accident Scheme, Jan Arogya Scheme, etc. are well-known
examples of insurance covers aimed at social security but provided by
Insurance industry on commercial basis.
The Workman Compensation Insurance covers the legal liability of the

employers for payment of compensation towards its employees for death
or permanent total disability, personal injury due to accidents arising out
during the course of employment as per Workmen Compensation Act,
1923.
Compulsory Public Liability insurance covers the public liability of the

insured as per the Public Liability Insurance, 1991. Products’ Liability Policy
covers all sums (inclusive of defense costs) which the insured becomes
legally liable to pay as damages as a consequence of accidental death/
bodily injury or disease to any third party accidental damage to property
belonging to a third party arising out of any defect in the product
manufactured by the insured and specifically mentioned in the policy after
such product has left the insured’s premises.
In Product Liability Policy, the sum insured is referred to as Limit of

Indemnity. This limit is fixed per accident and per policy period which is
called Any One Accident (AOA) limit and Any One Year (AOY) limit
respectively. The ratio of AOA limit to AOY limit can be chosen from the
following: 1 : 1, 1 : 2, 1 : 3, 1 : 4.
Insurers play an important role by designing policies which can defend the
professionals as well as make good the loss of the public.
Professional Indemnity Policy is meant for professionals to cover

liability falling on them as a result of errors and omissions committed by
them whilst rendering professional service. Directors and Officers’ liability
insurance policy covers the financial loss caused due to legal liability of
directors and key officers of the company due to their wrongful act,
neglect, error. Misstatement, etc. to the consumers, shareholders, clients,
suppliers, creditors, etc.
Insurance in respect of loss or damage to the neon sign installation covers

loss or damage to the neon sign installation by accidental external means
or fire, lightning, external explosion and theft.
! !566
Shopkeeper’s Policy is a package policy specially designed for small

shopkeepers covers shop building and/or contents therein against loss or
damage caused by fire and allied perils, burglary and housebreaking,
money insurance, pedal – cycles, plate glass, baggage, fidelity guarantee,
public liability, loss of profit, personal accident, etc.
The rural sector contains a significant section of Indian population existing

in various informal economically vulnerable groups having low and
uncertain income and are often alienated from the formal sectors.
Government schemes for meeting insurance needs of this informal sector
include social security group insurance schemes and specific insurance
schemes to cover risks in agriculture, animals and rural transport. Such
schemes are often linked to microfinance programmes which can touch the
lives of the rural and socially backward persons through innovative
insurance products.
Agricultural Insurance
Agriculture Insurance Company of India Limited (AIC) offers yield-

based and weather-based crop insurance programmes in almost 500
districts of India. AIC aims to provide insurance coverage and financial
support to the farmers in the failure of any of the notified crop as a result
of natural calamities, pests and diseases to restore their creditworthiness
for the ensuing season; to encourage the fanners to adopt progressive
farming practices, high value inputs and higher technology; to help
stabilise farm incomes, particularly in disaster years. The plan provides
comprehensive risk insurance for yield losses due to natural fire and
lightning, storms, hailstorms, cyclone, typhoon, tempest, hurricane,
tornado flood, inundation, landslide, drought, dry spells, pests/diseases,
etc.
Agricultural Pumpsets’ Insurance Scheme provides cover for

Centrifugal Pumpsets (Electrical and Diesel/Oil) and submersible pumpsets
used for agricultural purposes only. It includes Pump, Driving Unit and
Starter.
Lift Irrigation Insurance provides indemnity against damages caused to

Lift Irrigation System which includes Intake Well, Delivery Chambers, Jack
Well, Pump House, Water Storage Tank, Pipelines, Cables, Switches, Gears,
! !567
Starters, Electric Motors of various capacities from 3 H.P. to 200 H.P.,

Return and Non-return Valves.
Horticulture/Plantation Insurance: Horticulture/Plantation Insurance

was devised for providing relief to the farmers growing plantations and
horticultural crops like grapes, citrus fruits, chickoo, pomegranate, banana
and plantation crops like rubber, eucalyptus, poplar, teakwood and sugar
cane, which is based on input cost only. The policy covers risks due to loss
or damage due to fire, terrorism, riot and strike, storm, hailstorm cyclone,
typhoon, tempest, hurricane, tornado, flood and inundation.
Sericulture Insurance: Sericulture (Silkworm) Insurance is applicable to

Univoltine/Bivoltine/Multivoltine/Pure or hybrid races of Mulberry Silkworm
Crops reared by the sericulturists. The policy covers risks due to perils like
fire, lightening, flood, inundation, storm, tempest, earthquake, landslide,
rockslide, impact by rail/road/air craft. The insurance will also cover
diseases like Grasserie, Flacherie, Mascardine, Pebrine and attack of uzifly
subject to the exclusions given in the policy.
Aquaculture (Shrimp/Prawn) Insurance: Aquaculture (Shrimp/Prawn)

Insurance Policy covers perils like summer kill, pollution (from external
source only), poisoning, riot and strike, malicious acts of third parties,
earthquake, explosion/implosion, storm, tempest, cyclone, typhoon,
hurricane, tornado, flood inundation, volcanic eruption and/or other
convulsions of nature, aircraft and other aerial devices or articles dropped
therefrom, impact with any road vehicles, horses and cattle, terrorism.
Honey Bee Insurance: Honey Bee Insurance Policy covers total loss
damage to beehives and/or bee colonies as a result of an accident caused
by fire, flood, inundation, storm, tempest, cyclone, hurricane and tornado.
Additional covers are theft, specified viral disease and transit loss during
migration.
Biogas Plant (Gobar Gas) Insurance: Biogas Plant (Gobar Gas)

Insurance is applicable for Khadi and Village Industries workers/artisans,
IRDP beneficiaries, SC/STs and such other identifiable groups and have
installed Biogas (Gobar gas) plant. Sum Insured is value of the plant
(Digester + Gas holder + Construction cost), depending on type and cubic
capacity. Master Policy Agreement is preferable in respect of this
Insurance. The policy covers loss or damage due to fire, lightning,
! !568
explosion/implosion, riot, strike, malicious damage, impact by rail/road

vehicle or animals, aircraft and other aerial and/or space devices, flood,
inundation, storm, cyclone, typhoon, tempest, hurricane, tornado,
earthquake, volcanic eruption or other convulsions of nature, subsidence
landslide (including rockslide) damage, etc.
Animal Insurance
Cattle Insurance: Cattle Insurance insurance covers indigenous cross-

bred and exotic cattle owned by private owners and financial institutions,
i.e., bank financed, military diary farms, co-operative dairies, corporate
dairies, etc. Cattle insurance policy is available for insurance of animals
such as cows, buffaloes, bullocks, bulls and covers the loss due to death of
animals due to disease or accidents.
Poultry Insurance: Poultry Insurance provides indemnity to poultry birds

which includes layers, broilers and hatchery birds (breeding stock) which
are exotic and cross-bred. Indigenous and non-descriptive birds will not be
insured. The policy provides indemnity against death of birds due to
accident (including fire, lightning, flood, cyclone, strike, riot and civil
commotion and terrorism) or diseases contracted or occurring during the
period of insurance.
Sheep and Goat Insurance: Sheep and Goat Insurance Policy provides
indemnity against death of sheep and goats due to accident Including fire,
lightning, flood, cyclone, famine, earthquake, landslide, strike, riot or
diseases contracted or occurring during the period of insurance. All
indigenous, crossbred and exotic Sheep and Goat are covered under this
policy.
Pet Dog Insurance: Pet Dog Insurance Policy covers Indigenous, Cross-
bred or Exotic Dogs which are Pets, Watch Dogs, Sheep Dogs and Hunting
Dogs and provides Insurance against death due to accident and/or
diseases during the period of insurance to the dogs. Insured dogs are
identified by any of the following methods: (1) Tattooing, (2) Nose Print
and (3) Coloured Photograph. Dogs between 8 weeks to 8 years old can be
insured.
! !569
Duck Insurance: Duck Insurance Scheme provide indemnity against

death of ducks due to accident including lightning, flood, cyclone, famine,
riot and strike, civil commotion or diseases contracted or occurring during
the period of insurance. All types of Migratory and Non-migratory birds in
India and Duck farms can be covered under this policy.
Rural Transport Insurance
Cycle Rickshaw insurance: Cycle Rickshaw Insurance Policy provide

financial relief to the owner/driver/passenger(s)/third party victims as a
result of accidents involving cycle rickshaws operating throughout the
length and breadth of the country. Damage to the cycle rickshaw by
accident, fire, lightning, burglary or housebreaking, riot strike and
malicious act, flood, cyclone, storm and similar convulsions of nature is
also covered under the policy.
Animal Driven Cart/Tanga Insurance: Animal Driven Cart/Tanga

Insurance covers all type of animal driven carts, driven by any animals like
bullock, male buffalo, castrated bullock, camel, horse/mule, donkey, yak,
etc. Loss or damage to the Cart/Tonga/Coach, indemnity against death or
Permanent Total Disablement of the animal, Third Party Liability arising out
of an accident caused by Cart/Tonga/Coach and indemnity to the driver
against death or disablement due to driving the cart or whilst mounting
into or dismounting from the cart is also covered under this policy.
The rapid industrialisation of our country has led to increasing use of

machines in industry, more specifically in the rural and semi-urban areas.
! !570
This has created a need of industrial Insurance for protecting the

entrepreneurs from the rural and semi-urban sector.
Industrial Insurance
Engineering Insurance: Various engineering policies offered by insurers

to protect the insured from accident and breakdowns, that can be potential
sources of financial loss and could even result in the closure of business.
Machinery Breakdown Insurance, Boiler and Pressure Plant Insurance,
Electronic Equipment Insurance, Civil Engineering Completed Risks
Insurance, Deterioration of Stocks Insurance and Refrigeration Plant
(Stock) Policy are classic examples of Engineering Insurance designed by
the insurers to cover the risk during project planning, financing,
procurement of land, land levelling and earthwork, excavation of land,
placing orders and procurement of machineries from various places, storing
these machineries and other equipments connected with the project in safe
conditions, and erecting the equipments as per a planned schedule.
Aviation Insurance: Aviation Insurance provides Hull All Risk Insurance

Policy which is suitable for small aircraft operators belonging to flying
clubs, companies engaged in agricultural spraying operations, aircrafts
especially designed for VVIPs, business executives and for those engaged
in industrial aids. Spares All Risk Insurance Policy covers loss or damage to
spares, tools, equipments and supplies owned by the insured or the
property for which the insured is responsible whilst on ground or in transit
by land, sea, air including in own aircraft or whilst on the premises of
others for storage only.
! !571
13.11 Summary
‘Miscellaneous Insurance’ refers to contracts of insurance other than these

of Life, Fire and Marine insurance. This branch of insurance is of recent
origin and it covers a variety of risks.
Personal accident insurance covers not only major accident resulting in

death or permanent disablement but also minor injury happening in daily
life such as getting burnt while cooking or kids getting injured at school or
slipping down from stairs.
Mediclaim Policies provides absolute security for family and aids at the time
of emergency, reduces the monetary burden and paves way for easy
access to quality health to all.
Burglary insurance is a major class in miscellaneous insurance and it

covers contents against loss or damage by burglary. Burglary insurance is
meant for business premises like factories, shops, offices, warehouses and
godowns which may contain stocks, goods, furniture fixtures and cash in a
locked safe which can be stolen.
Money Insurance is a modified version of burglary insurance, and mainly

covers money in transit between the insured’s premises and bank or post
office or other specified places.
Fidelity guarantee insurance indemnifies employers against the financial

loss suffered by them due to fraud or dishonesty of their employees by
forgery, embezzlement, larceny, misappropriation and default.
Jewellers’ Block Policy is a package policy specially designed for jewellers

and diamontaires, i.e., those establishments dealing solely in diamonds to
cover several types of losses.
Bankers’ Indemnity Policy is a comprehensive cover provided for the banks,

NBFCs and other institutions who deal with operations involving money, to
cover special risks faced by them regarding money and securities from
white-collar crimes, i.e., fraud, dishonesty, etc.
Travel insurance is intended to cover medical expenses, trip cancellation,

lost luggage, loss of passport, flight accident, interruption or delays in
! !572
flights or delayed arrival of baggage and other losses incurred while

travelling, either internationally or within one’s own country. Overseas
travel insurance is compulsory to obtain a visa for some countries.
Social insurance is any government-sponsored programme which specifies

the benefits, eligibility requirements and other aspects of the programme
based on the income and expenses of the economically vulnerable or
backward classes of people.
Rural business initiative has played a very important role in reaching the
underserved segment through its rural insurance plans. Liability insurance
protects the insured in the event he or she is sued for claims that come
within the coverage of the insurance policy. Government schemes for
meeting insurance needs of informal rural sector include social security
group insurance schemes and specific insurance schemes to cover risks in
agriculture, animals and rural transport.
The rapid industrialisation of our country has led to increasing use of

machines in industry, more specifically in the rural and semi-urban areas.
This has created a need of industrial Insurance for protecting the
entrepreneurs from the rural and semi-urban sector.
! !573
1. Make a detailed study of insurance schemes to cover risks in agriculture,

animals and rural transport and make a chart of the sum insured,
premiums, inclusions and exclusions by visiting websites of both public
sector and private insurers.
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2. Students generally have to travel overseas for enrolling in foreign

universities for doing higher studies. Find out the which travel insurance
should be bought by the student if he/she is visiting USA or Canada.
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! !574
18.www.bimadirect.com
19.www.iib.gov.in
! !575
1. Personal accident insurance generally covers death due to accident and

permanent, partial or temporary disability due to accident. State
whether the above statement is true or false.
a. True
b. False
2. In Pradhan Mantri Suraksha Bima Yojana (for accidental death and

disability), the maximum sum insured for total and irrecoverable loss of
both eyes or loss of use of both hands or feet or loss of sight of one eye
and loss of use of hand or foot is:
a. ` 1 lakh
b. ` 2 lakhs
c. ` 3 lakhs
d. ` 4 lakhs
3. Burglary insurance is a major class in miscellaneous insurance and it

covers contents against loss or damage by burglary. The premium for
burglary policy depends on:
a. Nature of insured policy

b. Moral hazard of the insured himself
c. Construction and location of the premises
d. All of the above
4. Money insurance policy is designed to cover the losses that may occur in
transit under Section I and money in safe/on premises under Section II.
Which of the below is covered under a money insurance policy?
a. Shortage due to error or omission

b. Loss of cash from one’s premises due to burglary
c. Loss of money that has been entrusted to other than authorised
person
d. Riot strike and terrorism
! !576
5. Fidelity Guarantee Insurance ensures that organisations do not suffer

because of a few unscrupulous and dishonest people among them.
Fidelity guarantee insurance indemnifies which of the following?
a. Employers against the financial loss suffered by them due to fraud or

dishonesty of their employees
b. Employees against the financial loss suffered by them due to fraud or

dishonesty of their employer
c. Employees and employers against the financial loss suffered by them

due to fraud or dishonesty of third party
d. Shareholders against the financial loss suffered by them due to fraud

or dishonesty of the company management.
6. Bankers’ Indemnity Policy is a comprehensive cover provided to cover

special risks faced regarding money and securities from white-collar
crimes, i.e., fraud, dishonesty, etc. Which of the below can be covered
under a bankers’ indemnity insurance policy?
a. Money securities lost or damaged whilst within the premises due to

fire
b. Forgery or alteration of cheques
c. Dishonesty of employees with reference to money
d. All of the above
7. Travel insurance is intended to cover medical expenses, trip

cancellation, lost luggage, loss of passport, flight accident, interruption
or delays in flights or delayed arrival of baggage and other losses
incurred while travelling, either internationally or within one’s own
country. Claims assessed outside the country in case of travel insurance
policies are assessed by:
a. Indian surveyors
b. Local surveyors in the country of loss
c. Insurer’s own employees
d. Claims settling agents named in the policy
! !577
Answers:
1. (a)
2. (b)
3. (d)
4. (b)
5. (a)
6. (d)
7. (d).
! !578
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !579

Intro To Insurance and Risk MGMT 481 v1 3

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Intro To Insurance and Risk MGMT 481 v1 3

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Introduction to Insurance and

Program Design and Advisory Team

Prof. B.N. Chatterjee Mr. Manish Pitke

Prof. Kanu Doshi Prof. B.N. Chatterjee

Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Prof. B.N. Chatterjee Prof. Vineel Bhurke

Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Prof. Sandeep Kelkar Mr. Anuj Pandey

Prof. Dr. Swapna Pradhan Course Editor

Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Mr. P.M. Bendre Course Coordinators

Mr. Ajay Prabhu Ms. Kirti Sampat

Mr. A.S. Pillai Mr. Kishor Tamhankar

COPYRIGHT © by Prin. L.N. Welingkar Institute of Management Development & Research.

NOT FOR SALE. FOR PRIVATE CIRCULATION ONLY.

1st Edition, June 2015

Chapter No. Chapter Name Page No.

1 Introduction to Insurance 04-66

1.2.1 Insurance in the Pre-Greek Period

Is insurance a matter of choice or something forced down the throat of an

Insurance makes a major contribution to economic growth and

An article on The History of Insurance posted by Andrew Beattie on http://

If risk is like a smoldering coal that may spark a fire at any

The Life Insurance Corporation of India gives a wonderful description of

1.2 Evolution of insurance from the ancient times till date

The concept of insurance has a deep-rooted history in India as well as in

1.2.1 Insurance in the Pre-Greek Period

The first methods of transferring or distributing risk in a monetary

Chinese merchants travelling treacherous river rapids would redistribute

A type of Property Insurance first became popular about 3000 BC in China.

Babylon was an ancient city-state in Mesopotamia, fifty-five miles south of

The Babylonians developed a system which was recorded in the famous

Bottomry and respondentia loans were maritime contracts on vessels or on

1. A loan on the vessel, cargo, or freight

“Adventures in Probability” by Michael Kaplan and Ellen Kaplan makes a

The Free Dictionary says Respondentia is a loan where a ship’s cargo is

Achaemenian monarchs in Ancient Persia were presented with annual gifts

Lex Rhodia: The Ancient Ancestor of Maritime Law – 800 BC makes a

In the 7th century, the early Islamic community developed an insurance

Bottomry agreements were common in Venice, Geneva, Florence, Naples

1.2.2 Ancient Greece Period

Bottomry was also practiced in Ancient Greece as early as the 4th

significant developments of early times brought to a high degree of

a. Well establishment of bottomry contract

Risk premiums were differently charged based on various factors mostly

1.2.3 Insurance in the Roman Empire

collegia. The collegia represented the distinctive contribution of the

http://Humanscience.wikia.com gives detailed information on the burial

1.2.4 Insurance in the Dark and Middle Ages

The decay and disintegration of Roman empire in the fifth century AD

In the twelfth century, after the establishment of Seljuk State in Anatolia,

Marine insurance made progress during the twelfth through fourteenth

By 1400, Europe’s trade pattern was well-developed, considering the

In the fourteenth century, separate insurance contracts were invented in

In the fifteenth century, maritime insurance developed widely and

1.2.5 Insurance Business in the 16th Century and Onwards

In 1575, during the reign of Queen Elizabeth I, the Chamber of Assurance

Insurance as a commercial business in the modern sense first emerged in

In 1666, the great fire of London destroyed around 14,000 buildings.

Although there was religious prejudice against the practice of insurance by

The Workmen’s Compensation Act of 1897 in Britain required employers to

their members. Today, many of these fraternal orders and labour