University Of Delhi

Commerce

Finance For Everyone

Unit-4 / Lesson-1

Insurance Service
Contents:
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 CONCEPT OF INSURANCE
• In legal sense, an insurance may be defined as a contract (in a form of policy)
between two parties-
• the insurance company (called Insurer), and an individual (called Insured),
• wherein the insurer promises to indemnify for financial losses
• The ‘insurer’ and ‘insured’ are also known as ‘assurer’ and ‘assured’
• Insurance is a risk transfer mechanism in which an individual transfers his or
her risk to an insurance company in exchange for financial protection against
unforeseen events.
• the amount paid for this arrangement is known as the premium.
• Finally, it is critical to safeguard what is "important" to you.
• At a very basic level, it is some form of protection from any possible financial
losses.
• There are numerous kinds of insurance products available in the market such
as life insurance, health insurance, accident insurance, term insurance,
retirement plan, vehicle insurance, property insurance, etc

PRINCIPLES OF INSURANCE
• (1) Good faith-
• This principle states that both parties in an insurance contract must act in good
faith toward each other, which means they must provide clear and concise
information about the contract's terms and conditions.
• This principle signifies full disclosure or maximum truth to each party from
each other. The absence of this principle makes the insurance contract
voidable.
 (2) Principle of Proximate Cause:-
• The doctrine of proximate cause is based on the cause-and-effect principle
• Proximal Causation is a claim if the insured object experiences an accident.
The insurance company will find out the main cause of the accident.
• the insurance company will decide to determine the number of claims
received by the policyholder.
(3) Principle of Insurable Interest:-
• The insured person must have an insurable interest in the subject matter.
• The term "insurable interest" refers to a subject that, if a specific event
occurs, significantly alters the insured's position; but, if the specific event
does not occur, the insured stays in the same position
• An individual cannot buy a life insurance policy for a person on whom he/she
has no insurable interest
 (4) Principle of Subrogation (Assignment of Rights or Trust)
• Subrogation in insurance is a legal right of the insurance company to legally
pursue a third-party responsible for the damages/insurance loss caused to the
insured
• Example - If the goods kept in the factory of the insured gets destroyed by fire,
due to negligence of the electric company (third party). The insurance company
(insurer) will compensate to the insured for the losses caused by the fire and
may also sue the electric company to recover the amount of loss paid to the
insured.
 (5)Principle of Indemnity
• Indemnity is the value of the loss to be paid by the insurance company, where
the value must not exceed the value of the loss incurred.
• According to this principle, the insured will only be completely compensated
for their actual losses.
• the insured is not entitled to make a profit from the loss suffered.
• The indemnification principle's goal is to put the insured back in the same
financial situation he was in prior to the loss happening.
 (6) Principle of Contribution
• When an insured person purchases multiple insurance policies covering the
same risk, the contribution principle is in effect.
• One insurance company has the right to contact other insurance companies
to request a comparable amount if it has made the full payment.
• A property worth Rs. 5 lakhs are insured for Rs. 3 lakhs with Company A and
Rs. 1 lakh with Company B. In the event of property damage worth 3 lakhs,
the owner can claim the full amount from Company A but not from Company
B. Company A can now claim the proportional amount reimbursed from
Company B.
 LIFE INSURANCE
• Life Insurance can be defined as a contract between an insurance policy
holder and an insurance company, where the insurer promises to pay a sum
of money in exchange for a premium, upon the death of an insured person or
after a set period.
• Insurance policies provide protection against the various types of uncertainties
that can occur in the life of an individual.
• Depending on the contract, other events such as terminal illness or critical
illness can also trigger payment.
• The benefits may include other expenses, such as funeral expenses.
• Life insurance is a legally binding contract that pays a death benefit to the
policy owner when the insured person dies.
• When the insured person dies, the policy’s named beneficiaries will receive
the policy’s face value, or death benefit.
 Categories of Life Insurance plans –
▪ Pure Protection: - A Pure Protection plan is designed to secure one’s family’s
future by providing a lump sum amount . Example of pure protection
includes term insurance plan.
▪ Protection cum Savings: - A Protection and Saving plan is a financial tool that
helps individuals to plan his/her long-term goals like purchasing a home,
funding their children’s education, and more while offering the benefits of a
Life Cover.
 Key Characteristics of Life Insurance.
➢Life insurance is a legally binding contract that pays a death benefit to the
policy owner (nominee) when the insured dies.
➢When the insured dies, the policy’s named beneficiaries will receive the policy’s
life cover. It is a contract concerning human life
➢Permanent life insurance policies remain active until the insured dies, or stops
paying premiums, or surrenders the policy.
➢The one who buys the policy and pays the premium is the insured.
➢a nominee or a beneficiary to receive the amount in his/her absence.(Covers all
the essentials)
➢It adapts to what you need.
 Benefits of Life Insurance
❖Life Insurance Payouts Are Tax-Free - Life insurance payouts aren’t considered
income for tax purposes, and your beneficiaries don’t have to report the money
when they file their tax returns. Section 80C allows certain tax benefits of life
insurance.
❖Your Dependents Won’t Have to Worry About Living Expenses- For example,
your insurance policy could cover the cost of your children's college education,
and they won’t need to take out student loans.
❖Life Insurance Can Cover Final Expenses-
❖You Can Get Coverage for Chronic and Terminal Illnesses- for example, if you
are diagnosed with a terminal illness and are expected to live less than 12
months, you can use your death benefit while you’re still living to pay for your
care or other expenses.
❖Provide Financial Security and Investment Opportunities
 Disadvantages of Life Insurance
• Life insurance has a high cost for older persons
• Calculating returns is difficult.
• Life insurance returns are complex and hard to forecast .
• Life insurance returns are based solely on market performance.
• you may have to pay high premiums if you have a pre-existing medical condition.
• There are several life insurances firms in India. Your needs determine the
appropriate life insurance plan. Different insurance policies have different
characteristics, which can confuse customers. Some policies are easy, some
aren’t. Choosing life insurance might be difficult.
• Most insurance don’t cover suicide in the first year, and virtually all exclude drug
overdose or criminal activity.
 COMPARISON OF POLICIES OFFERED BY VARIOUS
LIFE INSURANCE COMPANIES
Term Life Insurance or Term Plan:
• A term plan is a specific type of life insurance policy that provides protection
for a definite period of time or 'term’.
• In the event of the unfortunate demise of the insured person during the
specified term, the insurance company pays the beneficiaries of the insured a
pre-determined sum of money.
• Term life insurance is the most popular type of life insurance and is widely
considered to be the simplest and purest form of life insurance.
• The most distinctive feature of a term insurance plan is the high amount of
coverage offered at extremely nominal premium rates.
• It is thus cheaper than other types of life insurance policies.
 Whole Life Insurance Plan:
• The Whole Life Plan is often known as a straight or regular life.
• Whole life insurance is a type of permanent life insurance
• The premiums are paid, it remains for the duration of the insured person's
lifespan.
• If the insured passes away, the nominee will get the mentioned sum.
• It's meant to provide you with a lifetime of coverage protection with premiums
that won't increase, won't expire after a specific number of years, and can't be
cancelled due to health or illness.
• For example, if a 25-year-old takes a whole life plan at the age of 25 years, he
will receive a lump sum payment at the age of 45, the age at which his 20 year
premium payment term will expire.
 Unit Linked Insurance Plan (ULIP )
• A ULIP is an insurance plan that offers the dual benefit of investment to
fulfil your long-term goals, and a life cover` to financially protect your family
in case of an unfortunate event.
• ULIPs provide the flexibility of premium payment.
• You have the option to move your money between equity and debt funds.
• ULIPs allow you to withdraw a part of your money whenever you need it.
• You can also choose where to invest, depending on your risk appetite.
 Endowment Policy:
• An endowment policy is a life insurance contract designed to pay a lump
sum after a specific term (on its 'maturity') or on death.
• Typical maturities are ten, fifteen or twenty years up to a certain age limit.
• Some policies also pay out in the case of critical illness.
• An endowment policy helps the policyholder to build a risk-free savings and
offers financial security to the family if there is any unfortunate event.
• They help the policyholder inculcate the habit of savings.
 Money Back Policy:
• Money back plans mean that money is returned to the life insured as a
survival benefit after a set period.
• Once the policy reaches maturity, the remaining amount of the Sum Assured
is handed over to the policyholder.
• When the policyholder survives the policy term, the money back is
guaranteed
• However, if the policyholder dies during the policy term, their dependents
are given the entire Sum Assured without any deductions.
 Retirement Plan:
• Retirement plans are financial policies that enable you to plan for the future,
even when you no longer have a steady income.
• Retirement plans can help you create a stable regular income stream.
• If you continue to invest until retirement, the plan will help you take care of
your expenses after retirement.
• It helps create a corpus amount and generate a regular income after retirement
in the form of a pension.
• Retirement plans also involve death benefits
• it is also known as a pension plan.

End……