UNIT- 3

Introduction INSURANCE
Definition: It is a form of contract or agreement which one party agrees in return of a consideration to
pay an agreed amount of money to another party to make good for a loss, damage, injury to
something of value in which the insured has to pay as a result of some uncertain event. Thus,
insurance is a method of securing protection against future calamities and uncertainties.

Advantages of Insurance:

1. Provide certainty: Insurance helps the insured to convert his uncertainties into certainties
by entering into contract with insurer. The payment of premium by insured enables to
reduce the risk.
2. Distribution of losses: It helps to distribute the losses as it enables to transfer the risks
and spread the financial loss of insured members over the whole insurers.
3. Social security: It acts as an instrument to fight against evils of poverty, unemployment,
disease, old age, accidents, fire and other calamities.
4. Credit facility: The policies issued by insurance companies can be made use to raise
policy loans from insurance company, as well traders are in the position to raise loans and
get credit facilities from various financial institutions.
5. Increase efficiency: It reduces the risk and increases the efficiency in business. It
provides security for business community which in turn paves the way for growth and
diversification of the industry.
6. Earns foreign exchange: It provides security to the international traders, shippers and
banking institutions, thus paves the way for expansion of foreign trade. The increased
foreign trade activities lead to securing foreign exchange which makes the country to
become economically strong.

Principles of Insurance:

1. Insurable interest: the person getting an insurance policy must have insurable interest in
the property or life insured. A person said to have an insurable interest if he is financially
benefited by the existence property and is prejudiced by its loss.
2. Utmost good faith: faith refers to absence of fraud on the part of the parties to the
contract. The insured should disclose all the material facts to the insurer. If utmost good
faith is lacking the contracts made by the parties becomes invalid.
3. Indemnity: the principles are applied to all the insurance contracts where the loss suffered
by the insured can be measured in monetary value. Hence all the contract of
 insurance, expect life insurance are the contracts of indemnity bcoz loss of life cannot be
measured in terms of money.
4. Proximate cause: it is also called as causa proxima which means nearest or proximate or
immediate cause. This principle is useful in deciding the actual cause of loss when a
number of causes have contributed for the occurrence of loss.
5. Subrogation: it is also known as Doctrine of Rights Substitution. The insurer will step
into the shoes of the insured and become entitled to all rights of action against the third
party to cover the loss.
6. Contribution: this principle ensures equitable distribution of losses among the insurers.
The total loss suffered by the insured is contributed by all insures in the ratio of the value
of policies issued by them for same subject matter.
7. Mitigation of loss: it says that duty of the insured is to take all such steps to minimize the
loss as would have been taken by any person who is not insured.

Functions of Insurance:

Basic Functions of Insurance

It is important to understand that an insurance policy has both a financial and an emotional aspect
for the policyholder. There are certain functions that an insurance company must promise to take
care of while they are finalising the contract with the insured party. We will attempt to explain
those functions below:

 To provide safety and security to the insured – One of the prime reasons for entering into
an insurance contract is to seek financial security in the event of a loss from an unexpected
occurrence. Insurance offers support to the policyholder and helps to reduce the
uncertainties in the business or in human lives. With the help of a policy, the insured party
is protected against future hazards, vulnerabilities and accidents. Although no insurer in the
world can prevent the dangerous event from occurring, they can certainly help by providing
some sort of financial protection to compensate the insured party.
 Protection for your loved ones – Medical insurance can help you and your family get the
right sort of treatment and cover hospitalisation expenses. It helps to take care of their
health in case of an accident, illness or any other unfortunate event. The well being of your
family comes before anything, and insurance helps take care of that in the best possible
manner.
 Collective Risks – Another function of an insurance contract is that it helps a number of
individuals get an insurance policy to safeguard themselves from the losses that may occur
due to an unfortunate event. This strategy works on the principle that not all of the
policyholders for a particular risk will face it at the same time. For example, if a total of
fifty thousand people are insured against damage to their cars due to accidents, the most
likely scenario is that only a few of them would have accidents in a single year. So the
amount that they can claim from the insurance company for the financial losses due to the
accidents would be adequately covered by the insurance premiums from all fifty thousand
policyholders.
 Risk Assessment – Insurance organisations play an important role in determining the actual
amount of risk from the occurrence of a particular event by assessing the situation. They
 analyse all the aspects of a risk carefully to make an informed decision. It helps them to
arrive at the final insurance amount as well as fix the premium to be paid by the insured.
 Certainty – One of the main benefits of taking a policy for the insured is that they can feel
secure about meeting the future losses after taking coverage for a particular risk. It can be
very reassuring for the insured party and can also help them to proceed with their daily
activities in a much more assured manner without fear or hesitation.
 It helps to forestall losses – An insurance contract can help the insured to mitigate their
losses by providing some sort of security in case of an unforeseen event. It helps businesses
have a contingency plan in case things do not go as planned. Insurance is a very important
tool for organisations as it allows them to cover their bases while operating in a very risky
environment where the losses can be huge if they do not play their cards right. It also allows
them to be able to cover these huge risks in their businesses by paying a relatively small
amount as the premium.
 Fulfil the legal requirements – In some countries, any business is required to have certain
insurance covers in order to engage in any economic activity. So the insurance company
can help organisations fulfil these requirements.
 It allows the development of big businesses – Any large-sized organisation is exposed to
a greater amount of risk. If the chances of loss are relatively higher, it may prevent the
management in those organisations from taking calculated risks, which has the potential of
bringing more profits. Insurance helps to mitigate that risk in a way and encourage
businesses to take bold decisions. Insurance takes away some of the financial pressures and
allows businesses to flourish in the long run.
 It can help in boosting the economy – When the businesses have sufficient insurance
cover, they can increase their scope of economic activity that will bring commensurate
rewards. This can provide an impetus to the overall economy of a country in the long run.
Importance of Insurance
Insurance is one of the ways you can mitigate and hedge against the risk of unforeseen losses.
While risks lead to rewards, the downside is a possible loss. Losses can happen due to multiple
reasons both on professional and personal fronts.

When you start a new venture by investing your savings, you have a chance to either make a profit
or a loss by selling those goods. However, if you happen to lose the goods in a mishap you lose the
chance to sell them at all. While a business risk is expected and can lead to higher profits,
unexpected loss of goods can only lead to financial loss. Therefore, risks like serious damage to
movable and immovable property, hospitalization and theft and similar calamities must be insured
against.

Why is Insurance Important?

Insurance works like a cushion which helps you or your family bounce back financially after an
unfortunate event. Whether it's business or family both can benefit immensely from insurance.
1. Distributes Large Risks

Insurance is a financial instrument. The risk of significant loss due to an event is borne by a large
group of people exposed to the same possibility in a business. Thus, the losses are distributed over
a large group making it bearable for each individual.

2. Provides Financial Stability

Without insurance, it will be extremely costly for businesses to bounce back after a major loss of
inventory. Natural hazards, accidents, theft or burglary can affect the financial status of a business
or a family. With Insurance compensating a large part of the losses businesses and families can
bounce back rather easily.

3. Helps Economic Growth

Insurance companies pool a large amount of money. Part of this money can be invested to support
investment activities by the government. Due to the safety concerns insurers only invest in Gilts or
government securities. On the other hand, governments can raise funds easily from insurers for
large public projects, which aid in economic growth.

4. Generates Long-Term Wealth

Insurance is often a long-term contract, especially life insurance. Life insurance plans can continue
for more than three decades. Within this time they will collect a large amount of wealth, which
returns to the investor if they survive. If not, the wealth goes to their family.
Need for Insurance

Insurance is an essential financial tool that helps in managing the unforeseen expenses smoothly
without much hassle. However, this is not the only reason a person needs an insurance. Listed
below are a few more reasons you need to buy an insurance:

1. Tax Benefits

Any payments received from life insurance plans are completely tax-free if your investments have
met a few simple conditions. Most life insurance premium payments and investments are tax-
deductible. Thus, insurance reduces your tax liability in the present and future.
2. Achieve Retirement Goals

Insurance plans like guaranteed savings plans and ULIPs are some of the best retirement saving
options available. You can also use deferred annuity plans to safeguard your post-retirement
income when you are close to retirement.

3. Stress-Free Life

With the right insurance plan, you can remain stress-free from unforeseen risks causing major
financial damage. Insurance will help you and your families bounce back to your normal financial
life quickly after a mishap. Insurance also keeps your long-term investments safe from sudden
financial shocks caused by emergencies.

Types of Insurance

Insurance is a financial protection or mitigation tool against possible unforeseen hardships. The
insurer assesses the possible hardship and pays in line with the agreed policy. Such an amount is
termed “Sum Assured” or “Sum Insured” or “Insured Value” etc. It is imperative to know how
insurance can make a positive impact on our lives.

Insurance is now a “must-have" rather than a “good-to-have" part of our financial plan. There are
broadly 2 types of insurance and let us understand how either is relevant to you:

1. Life Insurance

Like any responsible person, you would have planned for a comfortable life basis your income and
career projection. You and your family will be dreaming of basic things such as a good house and
quality education for children. But what if you will not be around to fulfill those dreams and plans?
Life insurance plans can help you plan for the financial future of your family even in your absence.
a) Child Insurance Plan

Child insurance plans like ULIP and savings plans gain an investment value with time. They also
provide a life cover to the insured. These plans are perfect to invest in your child’s higher
education and marriage goals.
b) Term Insurance Plan

Term life insurance is the pure form of life insurance. Term life cover only offers a death benefit
for a limited period. The benefit of term insurance is that you can provide an adequate financial
safety umbrella to your family at a nominal premium cost. Although the emotional loss can never
be made up for, the loss of family income can be backed by life insurance. iSelect Smart360 Term
Plan is an example of a term life insurance policy offered by Canara HSBC Life Insurance
Company.
c) Health Insurance Plan

Health insurance offers financial support against sudden medical expenses and health emergencies.
You can buy Mediclaim and critical illness health insurance plans. Mediclaim insurance can take
 care of medical bills and surgery expenses, whereas critical illness insurance offers a lump sum
amount for life-threatening illnesses.

d) Unit Linked Insurance Plan (ULIP)

ULIPs are investment cum insurance plans that come with a dual benefit of life cover plus return
on investment. In case of unfortunate demise of the policyholder, the nominee would receive the
Sum Assured or else the policyholder would receive the fund value at the end of the policy term.

ULIPs allow partial withdrawals too. Amounts paid towards premium are deductible, from taxable
income, under section 80C whereas all pay outs are exempt from tax under section 10(10D).

e) Endowment Plans

An endowment plan is designed as a safe investment strategy that also gives your family a financial
cushion in case of your untimely demise. At the time of maturity, endowment plans give back the
guaranteed amount + bonuses + guaranteed annual additions, if any. Most endowment policies give
extended life cover even after the maturity value is paid out.

f) Pension Plans

The pension plans, including Pension4Life of Canara HSBC Bank of Commerce Life Insurance,
give you a pension in the form of annuities. You can choose one of the following options after
retirement for the income:

 Immediate Annuity

The pension starts as soon as you invest a lump sum amount.

 Deferred Annuity

Invest gradually and start a regular stream of income a few years later.
If you have recently retired and would like to invest a lumpsum amount to earn a pension,
the immediate annuity suits you best. If you have some time to retire, a deferred annuity gives you
time to invest over the years and build a corpus. You will get income streams called “annuities” till
the end of your life.

2. Non-Life Insurance

Non-life insurance is also referred to as general insurance and covers any insurance that is outside
the purview of life insurance. Motor insurance, property insurance, transit insurance, health
insurance etc. fall under non-life insurance.
a) Auto Insurance

Auto insurance offers protection from accidental damages to your automobile. Auto insurance also
includes cover for third-party damages, including bodily injury or property damage. Auto insurance
is also a mandatory policy if you drive a vehicle on public roads.

b) Home Insurance

Home insurance is a useful insurance cover for homeowners. Home insurance can include
insurance for the home structure (building) and the contents within it. The tenant’s home insurance
will only include the cover for home contents and not the structure. Home insurance will cover you
against property damage and loss of goods due to fire, theft, etc.

Importance of Life Insurance Policies

In case of the unfortunate early demise of the family’s sole breadwinner, the economic status of the
family is jeopardized and they face financial hardships. Let alone the dreams and plans ahead, in
some cases, even basic sustenance becomes a question mark.

Insurance is the best-known financial instrument that acts as a saviour for the family and as a tool
for continued economic progress. The insurance cover is designed such that the amount substitutes
the loss of income and ensures sufficient financial support for a reasonably long time.

Life insurance policies offer several benefits ranging from financial protection to wealth transfer.
Using the right policies and terms of investments you can create long-term wealth with life
insurance.
1. Peace of Mind

Adequate financial safety offered by life insurance plans can keep you free from stressing about
your family’s future. Along with term insurance, you can also safeguard important goals for your
child with child insurance plans.

2. Meet Long-Term Goals

Life insurance is a long-term investment which demands investment discipline and offers growth.
Thus, you can start investing directly for long-term goals with appropriate life insurance plans. You
can invest in safe plans or go for equity allocation with ULIPs as per your risk appetite.

3. Create Wealth

Life insurance plans like unit-linked insurance plans (ULIPs) help you invest in a mix of equity and
debt funds. While the funds stay safe from any tax deductions the plan adds more bonus units if
you invest for a longer period. Overall ULIPs can help you build a significant corpus over time.
4. Happy Retirement

The long-term nature and safe investment options make life insurance plans a good option
for building a retirement corpus. After retirement, you can continue to invest the corpus in pension
plans and draw a regular income from it.
5. Leave a Legacy

Whole life insurance plans help you build an asset that directly benefits your family after your
demise. Since the plan continues till your natural demise or 100 years of age, it helps you leave a
legacy for the next generations.

6. Tax Benefits

Life insurance plans are one of the best ways to save your annual income tax outflow. Also, the
returns from life insurance plans are exempt from tax. Thus, life insurance investments also reduce
your future tax spending.

Insurance is now an essential part of financial planning that gives both life protection and return on
investment. If you plan well in advance and invest judiciously, you will generate wealth, create a
corpus for retirement, earn a pension and also mitigate against financial losses thus giving you and
your family complete peace of mind.

Re-insurance: It refers to an insurance contract between two or more insurance companies.

Every insurer undertakes to bear the risk according to his capacity. In order to safe guard his
interest. he may insure the same risk undertaken by him along with another insurer. Hence it is a
contract between two insurance companies’ i.e. first insurer and reinsurer.

Objectives of Re-insurance:

1. To safeguard the interest of insurers by wider distribution of risks

2. To limit the liability of insurer and to keep him in permissible limits of financial capacity.
3. To stabilize the underwritings over a period of time.
4. To help in steady accumulation of reserves by the insurer.
5. To safeguard against serious effects of uncertainties.
Insurance Regulatory & Development Authority (IRDA) Act 1999.

The IRDA is a corporate body. With LPG many private companies are being permitted to
transact insurance business in India. It is advise by an insurance advisory committee consisting
of more than 25 members to represent the interests of commerce, industry, transport , agriculture
etc.

Objectives:

1. To establish an authority to protect the interest of the holders of the insurance policies.
2. To regulate, promote and ensure orderly growth of insurance industry.
3. To amend the related insurance acts to suit the requirements of the society
 Duties of authority

1. Orderly growth of insurance business: the important duty is to regulate, promote and
ensure growth of the insurance business and re-insurance business.
2. Maintaining proper accounts: the authority should maintain proper accounts and other
relevant records for the accounting period. It has to prepare annual statements of accounts
in the prescribed form in consultation with comptroller and auditor general of India.
3. Rectify defects: as per the directions of the central government and comptroller and
auditor general, the authority has to go for audit of the accounts and rectify the defects if
any.
4. Submission of annual reports: the authority has to submit the audited financial accounts
to the central govt to present the reports beefier the houses of the parliament.
5. Duration of the filing: the authority should submit the financial statements to the central
govt within 9 months from the completion of financial year.
6. Report on promotional programs: the authority should submit report on the promotional
programs undertaken for the development of insurance industry.
7. Protect the policy holders: they should protect the interest of policyholders with regard to
assignment of policy, nomination, claims settlement, surrender value etc.

What is Micro insurance in India?

Microinsurance is a category of insurance policies designed for the betterment of the economically
vulnerable population of the country. This category has been created by the Insurance Regulatory
and Development Authority of India (IRDAI). Microinsurance is governed as per the IRDAI
Microinsurance Regulations, 2005. Such a policy can belong to General Insurance as well as the
Life Insurance category. However, the defining quality of such policies is that the sum assured
offered by them is equal to or less than Rs. 50,000.

Microinsurance, can enable some sort of insurance cushioning for the economically vulnerable
population. Such plans can provide a sense of security to low-income people that are unable to
afford the popular form of insurance.

Types of Microinsurance Plans:

Microinsurance plans can be divided into the following two broad categories.

1) General Microinsurance
A General or regular Microinsurance product covers health insurance, personal accidents, and
assets such as livestock, hut, etc. This product can be availed at an individual or a group basis.

2) Life Microinsurance

A Life Microinsurance Plan can be Term or an Endowment Plan. It can be purchased at an

individual or a group level and with or without an accident benefit. Such plans can also be related
to health insurance.
 How Does a Microinsurance Policy Work?

Here are some points highlighting the working of a Microinsurance Policy in India.

 Microinsurance policies, are distributed via Non-governmental Organizations (NGOs), Self-help

Groups, and Micro-finance Institutions.
 The premium for such plans is nominal to widen the reach and ensure engagement at a large scale.
 Insurers have the freedom to offer composite covers or a packaged product belonging to either the
General Insurance or the Life Insurance category.
 Insurers also offer some Microinsurance Policies in case the sum assured of a policy is within the
range specified by the authorities.

Advantages of Choosing Microinsurance Policies:

The biggest advantage concerning Microinsurance is that it offers the opportunity for the
economically vulnerable section of the population to buy insurance at a low cost. Because of
buying Microinsurance Policies, they can receive financial assistance during challenging times.
This will result in the safeguarding of their savings, which are usually on the lower side. Here are
some top advantages of specific Microinsurance Covers.

1) Endowment/Pension Microinsurance

It offers survival as well as death benefits as per the terms and conditions Pension allowance can
also be built-in

2) Term Microinsurance

Covers life risk with accidental benefits Some insurers offer permanent disability benefits

3) Health Microinsurance

It covers pre-and post-hospitalisation expenses Covers medical bills for diagnosis, medical bills,
etc.

4) Property Microinsurance

It offers coverage due to damage/losses of properties due to natural calamities This policy offers
compensation due to the theft of assets.

Importance of Microinsurance Policies:

Here’s why such policies are important.

 They are an accessible risk-management tool to reduce financial vulnerability in times of adversity.
 The affordable premium of such plans is an incentive for better reach in an organized manner.
 Microinsurance covers the policyholder’s financial liability as per the chosen plan.
 Microinsurance helps the poor to save money.
 Can bring about a positive change in poor people’s perception of insurance.
What is an Insurance Intermediary?
Insurance is rarely an off-the-shelf product. Different people will pay different premiums based on
their individual risk profile. The insurer is concerned with risk, and the consumer is concerned with
getting the cover they need at a fair price. An insurance intermediary works as a bridge between
insurers and consumers to ensure that everyone’s happy.

Different Types of Insurance Intermediaries

There are a few different types of insurance intermediaries:

 Agents
 Brokers
 Surveyors
 Administrators

Some of these will work alongside the client, whereas others will work alongside the insurer.

Let’s take a look at what each of these roles might involve, in turn.

What is an Insurance Agent?

Insurance agents work to solicit and procure business for insurance companies. This might involve
selling new policies to new customers or renewing policies for existing customers. Their work
benefits both the consumer and the insurer. They’ll help ensure the consumer is not underinsured,
and that they don’t pay too much for cover they don’t need. But they’ll also help ensure the insurer
doesn’t take on any unnecessary risk.

What is an Insurance Broker?

Insurance brokers usually represent consumers. They’ll take the time to understand their clients’
needs, then liaise with multiple insurance companies to find them exactly the level of cover they
need, at a fair price.

If both brokers and insurers engage with clients to sell them cover, then what’s the
difference?

The key difference between agents and brokers is that agents are only permitted to represent one
insurance company within a sector. Brokers, though, can represent multiple insurers.

What is a Surveyor?
Some insurance claims involve covering the costs associated with damage, such as claims
concerning fire, flood, and theft. In these claims, the insurer will hire a surveyor to assess the extent
of the damage. After this, they’ll determine how much the insurer should pay out to the insured.

Surveyors are usually independent, impartial third parties. They’re not there to reduce the amount
the insurer has to pay, but nor are they there to ensure the consumer gets the biggest possible
settlement. They’re there to ensure the outcome is fair to both parties – that the consumer gets
exactly the settlement they’re entitled to, and that the insurer isn’t paying out more than is
necessary.
What is a Third-Party Administrator?
Insurance companies often hire third-party administrators to manage certain time-consuming tasks,
including:

 Claims processing
 Operational administration
 Marketing
 Underwriting
 Actuarial services

Some third-party administrators may take on more specialised roles. As part of a business health
insurance plan, for example, the third-party administrator might liaise directly with healthcare
providers to ensure the insured gets the treatment they need. And they might manage paperwork
and process hospital bills, to ensure there are no delays in treatment or settlements.
 UNIT-4 LIFE INSURANCE
Meaning/ Definition: Life insurance is a contract in which one party agrees to pay given sum on
the happening of a particular event contingent upon the duration of the human life in
consideration of the immediate payment of a smaller sum or certain equivalent periodical
payments by another.

Procedure for issuing life insurance policy:

1. Proposal for insurance policy: The person intending to take an insurance policy has to
make a written requisition in the prescribed form to the insurance company. The insured
has to provide information on various aspects such as name, occupation, address, mode of
payment, sum assured, etc. The insured should provide true and correct information to the
insurance company otherwise the contract cannot be enforceable.
2. Providing proof of age: The proposer has to give proof of his age along with proposal
form if the age is less than 25 yrs and more than 50 yrs. However if the age is ranging
between 25 to 50 he need not submit the proof of his age.
3. Undergoing medical examination: The proposal form is sent to the doctor for approval.
The insured has to appear for the medical examination. The doctor examines the
proposer’s health condition and prepares a report which is sent to the insurance company.
4. Confidential report of the agent: After the medical report is received, agent is required to
furnish a confidential report about the proposer in prescribed form. The report contains
true info about the proposer i.e health condition, financial position, reputation etc.
5. Acceptance of proposal: the insurance company determines type of risk, volume of risk,
premium rate etc and if the assessment is favorable, insurer accepts the proposal.
6. Payment of first premium: on receiving the acceptance letter the proposer has to pay the
first premium within the time stipulated. Once the first premium paid by the insured, the
insurer becomes liable from the day on which it is paid. Premium may be paid monthly,
quarterly, and half yearly.
 7. Preparing and issuing insurance policy: once the premium receipt issue by the insurance company, the
policy comes into operation and risk is covered from that date only.

Advantages of Life Insurance

Life Insurance provides the dual benefits of savings and security. The following benefits explain why this
investment tool should be an integral part of your financial plans.
Advantages of Life Insurance

 Risk Cover- Life today is full of uncertainties; in this scenario Life Insurance ensures that your
loved ones continue to enjoy a good quality of life against any unforeseen event.

 Planning for life stage needs- Life Insurance not only provides for financial support in the event of
untimely death but also acts as a long term investment. You can meet your goals, be it your
children's education, their marriage, building your dream home or planning a relaxed retired life,
according to your life stage and risk appetite. Traditional life insurance policies i.e. traditional
endowment plans, offer in-built guarantees and defined maturity benefits through variety of product
options such as Money Back, Guaranteed Cash Values, Guaranteed Maturity Values.
 Protection against rising health expenses- Life Insurers through riders or stand alone health
insurance plans offer the benefits of protection against critical diseases and hospitalization
expenses. This benefit has assumed critical importance given the increasing incidence of lifestyle
diseases and escalating medical costs.
 Builds the habit of thrift- Life Insurance is a long-term contract where as policyholder, you have
to pay a fixed amount at a defined periodicity. This builds the habit of long-term savings. Regular
savings over a long period ensures that a decent corpus is built to meet financial needs at various
life stages.
 Safe and profitable long-term investment- Life Insurance is a highly regulated sector. IRDAI, the
regulatory body, through various rules and regulations ensures that the safety of the policyholder's
money is the primary responsibility of all stakeholders. Life Insurance being a long-term savings
instrument, also ensures that the life insurers focus on returns over a long-term and do not take risky
investment decisions for short term gains.
 Assured income through annuities - Life Insurance is one of the best instruments for retirement
planning. The money saved during the earning life span is utilized to provide a steady source of
income during the retired phase of life.

 Protection plus savings over a long term- Since traditional policies are viewed both by
 the distributors as well as the customers as a long term commitment; these policies help
the policyholders meet the dual need of protection and long term wealth creation
efficiently.
 Growth through dividends- Traditional policies offer an opportunity to participate in the
economic growth without taking the investment risk. The investment income is distributed among
the policyholders through annual announcement of dividends/bonus.
 Facility of loans without affecting the policy benefits- Policyholders have the option of
taking loan against the policy. This helps you meet your unplanned life stage needs
without adversely affecting the benefits of the policy they have bought.

 Tax Benefits-Insurance plans provide attractive tax-benefits for both at the time of entry and exit
under most of the plans.
 Mortgage Redemption- Insurance acts as an effective tool to cover mortgages and loans taken by
the policyholders so that, in case of any unforeseen event, the burden of repayment does not fall on
the bereaved family.

Issue of duplicate policy: It is the duty of the insured to safeguard the original policy but it might misplace due to
certain reasons such as theft. Fire etc. if the policy is in force and not matured the policyholder may ask for duplicate
policy. The insurer has to verify the reasons under which the policy is lost. The insurer has to obtain an indemnity
bond duly signed by the policy holder and surety. The insurer should verify whether FIR is filed in PS in case of loss
of policy by theft.

After satisfying all the formalities a new document is issued. A rubber stamp indicating Duplicate may be affixed
on the new policy document. The insured has to bear the costs of issue of duplicate policy, stamp duty etc.

Nomination: The insured who takes the life insurance policy nominate the person or person to whom the
money secured by the policy shall be paid in the event of the death.

 The insured may nominate a person to whom the policy shall be paid in the event of the death.
 Any change in the name of nominee must be communicated by insured to the insurer with in a written
notice
 If the nominee dies before the policy matures the amount is paid to the policy holder and if he too expires
the amount is paid to the legal representatives of insured.

Surrender value: it is a voluntary termination of the contract by the policy holder. The policy holder can
surrender the policy at any time before it becomes a claim. The amount payable by insurer to the insured on the
surrender policy is called as surrender value. It is calculated on the basis of actual premium paid and the no.of yrs
of the policy are in force. The minimum period required for surrender value in LIC is 3 yrs.

Policy loan: Availability of loan on the security of the policy is an important privilege to the policy holder.
Loans are generally granted up to 90% of the surrender value for the policies in force and 85% of surrender
value for paid up policies. The rate of interest charged on policy loans is 9.5 % p.a. for getting the policy loan
the policy holder has to assign the policy to the insurer company. The policy holder has to make interest payment
on due date otherwise interest is added to the principal amount. If the loan amount is not paid and interest is not
paid and when policy becomes claim i.e either death or maturity the outstanding amount is deducted and balance
is only paid to the insured.

Assignment: the general meaning of assignment is transfer of property means an act by which a living person
conveys property, in present send in future to one or more living person. The term living person includes a
company or association or body of individuals whether incorporated or not.

Features of Assignment:

1. An assignment is actionable claim and empowers the policy holder to sell, mortgage, charge or gift the
policy to any person of his interest.
2. An assignment must be signed by the transferor or his duty authorized agent.
3. The assignor must be major and competent to contract.
4. The signature of the policy holder must be attested by witness.
5. An assignment must be sent to the insurer along with a notice. If assignment is not delivered to the
insurer, it does not come into force.

Claims settlement:

1. Maturity claim: A maturity claim is payable to the insured as per the terms of the contract at the end of the
policy period, if he lives up to that date. Insurer informs to the policy holder about the maturity policy and
insured should submit the policy documents, age of proof if it is not admitted and the stamped document
of assignment if it is assigned. After receiving the documents the insurer has to initiate action for making
payment and settlement of claims. Before making the payment the insurer has to verify the age proof,
all the premiums are paid or not, original policy is surrendered etc. and then the payment is made to the
policy holder.
2. Death claims: It is a claim that arises out of death which may be a natural, a suicide or an accidental on.
Insurer has to make enquiry about the genuineness of the claim. To claim the amount the insurer should
the claimant to submit the relevant documents such as name of policy holder, place, date, cause, time
of death, name of the doctor who treated for illness, etc.
 Death claim has following procedure:
a. Intimation of death: when the policy holder is dead the intimation must be given to the
insurer.
b. Filling up claim form: the claimant should fill up all the details in the form given by the
insurer.
c. Proof of death: the claimant has to provide the death certificate obtained from the
municipality, Panchayath or doctor.
d. Proof of claimant: the person claiming the policy must satisfy the insurer that he is the
legal representative or nominee of the insured.
e. Submission of original policy: the claimant ha to submit the original policy document to
the insurer and duplicate policy in case when original document is lost.
3. Accident and disablement claims: the death may occur due to accident or disablement. The
insurer must be very careful before making the payment. The insurer has to ensure that all the
conditions are satisfied or not. The conditions for making payment for self-accident benefits
are:
a. The accident should be unintentional one
b. The death must be result of injuries caused by the accident
c. The death must occur within 120 days or such other period is specified.
d. The claimant has to intimate about the death as a result of the accident and should
produce the evidence to the insurer.

The following documents are to be submitted:

a. FIR
b. Postmortem report
c. Hospital reports etc.
Disability claim: It refers to the loss of sight, amputation of hands, legs etc. The conditions for claiming
the disability benefits are:

a. The disability must be permanent

b. It must result before the assured attain the age of 65 yrs.

Once all the documents are submitted to the insurer and if he is satisfied the insured will get an
additional sum equal to the sum assured is paid in monthly installments over 10 yrs the premium is
allowed from the date followed by the accident which resulted in disability.

4. Survival benefit claims: Insurance companies offer some policies in which the policy holder
is entitled for the survival benefit before the expiry of the full term policy like money back
policy. The procedure for settlement of benefit claim are:
a. The insurer gives advance intimation about the survival benefit along with discharge
voucher.
 b. The insured has to return the discharge voucher filled, stamped and signed along with
the signatures of witness and their address.
c. The net amount is payable after making necessary deductions.

NON-LIFE INSURANCE

Definition: It defines as fire, marine or miscellaneous business, whether carried on singly or in

combinations with one or more of them. Miscellaneous insurances include motor insurance, burglary,
personal accident etc. thus the non-life insurance covers the business and other activities except the
life insurance.

Types of non-life insurance products:

1. Commercial line of insurance

2. Personal line of insurance.
1. Commercial line of insurance
a. Policies for cottage, tiny and small sector industries: the policies intended to meet the
requirements of the industries are burglary, cash policy, motor policy etc.
b. Policies for traders: the policies offered to the traders are fire policy, marine cargo policy,
plate glass and neon sign insurance, shopkeeper’s policy etc.
c. Policies for professional and specific professions insurance: The policies offered are Hull
insurance, stock exchange and brokers insurance, PLG dealers’ package insurance,
adhikari suraksha kavach etc.
d. Policies fir industries and commercial organizations: the policies can be taken on the
basis of project covers and operational covers.
2. Personal line of insurance.
a. Property insurance policies: the policies offered are phone insurance, gruha raksha
policy, householder policy, TV policy etc.
b. Accident insurance policies: policies offered are personal accident policy, suhana safar
policy, bhagya shri policy etc.
c. Health insurance policy: policies offered are mediclaim insurance, jan arogya insurance,
videshi yatra mitra policy, cancer insurance etc.
d. Liability insurance policies: the policies offered are professional indemnity policy,
doctors indemnity policy etc.
I FIRE INSURANCE: It is an agreement whereby one party in return for a consideration
undertake to indemnify the other party against the financial loss for the goods damaged or
destroyed by means of fire.

Characteristics of fire insurance:

1. Contract of indemnity: The insured can only to the value of the goods damaged by
fire or the amount of policy whichever is less.
2. Offer and acceptance: offer is made by the insured and acceptance by the insurer.
3. Lawful consideration: the consideration is paid by the insured which is called as
premium.
4. Period of insurance: the policy is normally given for 1 year only. It is renewable
every year on fulfillment of formalities.
5. Cause of accident: the loss must be the outcome of fire or ignition.
6. Claim for settlement: if the fire is result of fraud or misconduct on the part of insured the
loss is not indemnified. But if the loss occurred due to negligence of the insured is
admitted for indemnifying the loss.
Scope of fire insurance:
1. Ordinary scope: firstly there must be actual fir or ignition and secondly the fire must
be accidental and unintentional. Normally risks such as fire or ignition, blasting of
gas cylinders for household purpose, used for lighting and heating in any building are
covered under fire insurance. Goods and properties like precious stones, stamps,
cheques , books etc and loss caused by events like earthquakes , cyclones, floods
etc are not covered under fire insurance.
2. Broader scope: these special fire insurance policies my cover the risks excluded
from ordinary scope of fire insurance such as perils and risk.

II MARINE INURANCE:
Marine insurance is an agreement by which the insurance company or the underwriter agrees to
indemnify the owner of the ship or cargo against the risk involved in marine cargo and ship. It
covers a large no. of risks such as sinking of ship, burning of ship, sea dacoits, stormy winds etc.

Characteristics of Marine Insurance:

a. Consideration: insured us under obligation to pay certain amount

periodically to the insurer in consideration for accepting the risk.
b. Coverage of insurance: In marine insurance cargo, ship and freight can be insured.
c. Mode of insurance: the insurance may be for single journey or number of journeys or
for specific period of time.
d. Condition for compensation: insure dis compensated only when the loss is occurred to
the ship or cargo. It also includes third party insurance.
 Scope for marine insurance:
a. Hull insurance: insuring the ship against the risks of sea transportation is called as
hull insurance. It is exposed to various risks such as sinking, burning, collision,
explosion etc.
b. Cargo insurance: the term cargo refers to goods carried in a ship in the course of
shipment. The insurance which covers the risk such as fire, gales perils etc. is called
as cargo insurance, any loss incurred to cargo during transportation from one port to
another is indemnified by the insurance company.
c. Freight insurance: freight refers to payment received for the transportation of goods.
The policy is taken by freight receiver to protect freight purchases. If the ship fails to
reach the destination due to marine perils, the freight receiver losses the freight.
Hence freight insurance is remedy to avoid such risk.

Motor Insurance
As per law in India, no person can drive a motor vehicle without proper insurance.In motor
insurance, cover is provided for the vehicle against accidental damages as well as third-party death,
injury or property damages. The owner of the vehicle must have third-party insurance or a
comprehensive policy to drive a vehicle on the road. There are two types of motor policies:

1. Liability Only Policy: This covers Third Party Liability for bodily injury and/ or death and
Property Damage. Personal Accident Cover for Owner Driver is also included. This policy
is also known as ACT only policy.
2. Package Policy (Comprehensive): This covers loss or damage to the vehicle insured in
addition to the cover provided under 1 above

These days a number of add on covers are also provided by different companies.
Health Insurance
Health insurance also comes under general insurance. This type of insurance provides coverage for
hospitalization needs due to accidents or serious illnesses and include hospitalization expenses
including pre and post hospitalization up to the sum insured.
MISCELLANEOUS INSURANCE
Householder Insurance
Householder insurance provides protection to the house and its belongings. In case of loss/damage
to house in a natural calamity, fire or theft of house items, the risk is covered by insurance.
Most people do not get home insurance, but such policies are very cheap and provide cover to
domestic appliances and jewellery also.
For more information visit our members’ websites General Insurance Companies (gicouncil.in)
Travel Insurance
In this type of insurance as the name suggests, the policy provides coverage for baggage loss,
accidents and medical emergencies that occur during travel. It is available for inland travel as well
as overseas travel. The travel insurance ends when the trip covered ends.
For more information visit our members’ websites General Insurance Companies (gicouncil.in)
Portable equipmentInsurance
It is a type of insurance that insurance companies have devised to provide protection to the
technological gadgets and personal equipment. Coverage for electronic devices is generally
provided on all risk basis in such an insurance policy. Insurance policies can be taken for almost
every electronic product such as mobile phones, laptops, notebooks etc.
For more information visit our members’ websites General Insurance Companies (gicouncil.in)
Crop Insurance
Crop insurance has been designed for farmers, in which if the farmer’s crop is damaged due to
weather related causes or natural calamity, then the farmer gets a fixed scale of compensation from
the insurance company. Agriculture in India is highly susceptible to risks like droughts and floods.
It is necessary to protect the farmers from natural calamities. For this purpose, the Government of
India has introduced many agricultural insurance schemes throughout the country.
For more information Crop (gicouncil.in)
Liability Insurance
Business owners are exposed to a range of legal liabilities, any of which can subject their assets to
substantial claims.Liability insurance provides protection against claims resulting from injuries and
damage to people and/or property. Examples of liability insurance policies are Employers liability,
Product liability, Directors and Officers liability etc
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