INSURANCE LAW

History of Insurance in India dates back to the writings of Manu (Manusmriti), Kautilya
(Arthashastra), and Yagnavalkya (Dharmasastra). History of Insurance is deep-rooted to a couple
of centuries ago in the 1800s. Let us learn more about the history of the insurance industry
through this article for banking and awareness preparation for UPSC IAS and suchlike exams.

o The life insurance business in India was introduced in 1818 with the establishment of the
Oriental Life Insurance Company in Calcutta. However, the company failed in 1834.
o Then in 1829, the Madras Equitable set out with the business of transacting life insurance
in the Madras Presidency.
o In 1870, the enactment of the British Insurance Act came into picture and during the last
three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874), and
Empire of India (1897) were begun in the Bombay Residency.
o The era was evidently dominated by the foreign insurance offices like the Albert Life
Assurance, Liverpool and London Globe Insurance, and Royal Insurance. These entities
gave a hard competition to the ones being set up in India.

More such interesting information is elaborated in the following study notes on history of
insurance. Banking and finance aspirants are advised to bookmark this page in order to prepare
for the general awareness section.

What is Insurance?

Insurance implies the protection from financial loss. It is one of the forms of risk management,
mainly used to hedge against the risk of an unforeseen loss.

Insurance is represented in the form of policy. It is a contract in which an individual or a

business seeks financial protection from a firm as a reimbursement from the insurance company
for the loss (big or small) caused to their property.

For the insurance transaction to take place, the insurer and the insured enter into a legal contract,
called insurance policy. The policy provides financial security from future uncertainties.

History of Insurance – Overview

In India, the history of insurance finds its roots in the mentions of the writings of Manu
(Manusmrithi), Kautilya (Arthasastra), and Yagnavalkya (Dharmasastra).

The writings suggest pooling of resources that could be re-distributed in times of calamities like
epidemics, floods, fire, famine, etc.

Ancient Indian history has preserved the earliest traces of insurance as in the marine trade loans
and carriers’ contracts. In all, the insurance sector in India has taken its shape inspired by the
other countries, especially, from England.
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Establishment – Insurance Industry

The advent of the life insurance business in India was introduced in 1818 with the establishment
of the Oriental Life Insurance Company in Calcutta. However, the company failed in 1834. The
Madras Equitable had begun transacting life insurance business in the Madras Presidency in
1829.

The enactment of the British Insurance Act took place in 1870. Besides, in the last thirty years of
the nineteenth century, the Bombay Mutual (1871), Oriental (1874), and Empire of India (1897)
were set up in the Bombay Residency.

However, this period was particularly dominated by the foreign insurance companies like Albert
Life Assurance, Liverpool and London Globe Insurance, and Royal Insurance.

The Indian Life Assurance Companies Act of 1912 was the first statutory entity to regulate the
life insurance business in the country. The government of India began publishing the returns of
the Insurance Companies in India in 1914.

The Indian Insurance Companies Act was enacted in 1928 in order to enable the government to
collect statistical data about both life and non life businesses carried out in India by the Indian as
well as foreign insurers including the provident insurance societies.

In 1938, the earlier legislation was consolidated and amended by the Insurance Act of 1938 with
a view to protect the interest of the insurance public.

The Insurance Amendment Act of 1950 abolished Principal Agencies. Moreover, there were a
large number of insurance companies and the level of competition was high as well. Amid
allegations of unfair trade practices, the government of India therefore decided to nationalize the
insurance business.

Nationalization of Insurance Business

On 19th January, 1956, nationalizing the Life Insurance sector and Life Insurance
Corporation came into force in the same year.

Subsequently, the LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies
– 245 Indian and foreign insurers in all.

The LIC had a monopoly till the late 90s when the Insurance sector was reopened for the private
sector.

General Insurance in India

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 the British occupation.

General Insurance in India has its roots in the establishment of the Triton Insurance Company
Ltd. in 1850 in Calcutta by the British.

In 1907, the Indian Mercantile Insurance Ltd. was established. It was the first company to
transact all the classes of general insurance business.

In 1957, the General Insurance Council was formed. It is a wing of the Insurance Association of
India. The council framed a code of conduct for ensuring fair and sound business practices.

The amendment of the Insurance Act took place in 1968 to regulate investments and set
minimum solvency margins.

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Early Insurers

o The general insurance business was nationalized with effect from 01st January 1973 by
passing the General Insurance Business (Nationalization) Act in 1972.
o 107 insurers were amalgamated and grouped into four companies as National Insurance
Company Ltd., New India Assurance Company Ltd., Oriental Insurance Company Ltd.,
and United India Insurance Company Ltd.
o The General Insurance Corporation of India was incorporated as a company in 1971.

Malhotra Committee

In 1993, the government set up a committee under RN Malhotra (former governor of the RBI) to
propose recommendations to reform the insurance sector in India.

The objective of the committee was to complement the reforms initiated in the financial sector.

The committee subsequently submitted its report in 1994, in which it recommended that the
private sector be permitted to enter the insurance industry.

The report also stated that the private sector be permitted to enter the insurance industry. It said
that the foreign companies be allowed to enter by floating Indian companies, preferably a joint
venture with the Indian partners.

Establishment of IRDA

As per the recommendations of the Malhotra Committee report in 1999, the IRDA (Insurance
Regulatory and Development Authority) was set up. It is an autonomous body responsible for the
regulation and development of the insurance industry in India. In April 2000, the IRDA was
incorporated as a statutory body.

The prime objectives of the IRDA includes the promotion of competition in the insurance
industry so as to enhance customer satisfaction through an increase in consumer choices and
lower premiums. The IRDA also ensures financial security of the insurance market.

The IRDA has the power to frame regulations under Section 114A of the Insurance Act of 1938.
Since 2000, it has framed various regulations covering registration of companies for carrying on
insurance business, protection of policyholders’ interests, and so on.

In December 2000, the subsidiaries of the General Insurance Corporation of India were
restructured as independent companies. At the same time, the GIC was converted into a national
re-insurer.

Presently, there are 34 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 24 life insurance companies operating in India.

Insurance is a colossal sector and is growing at a faster rate of 15-20%. Along with the banking
services, insurance contributes around 7% to the country’s GDP.

The insurance sector provides long term funds for the infrastructural development as well as
strengthens the risk taking ability of the country. Hence, a well-evolved and much developed
insurance sector plays a significant role in economic development.

Definition
Insurance is a legal contract (insurance policy) made between two parties, i.e. the insurance
company (known as insurer) and the individual or group (known as insured). Both these parties
enter into a contract under which the insured pays a predetermined sum of money to the insurer
(known as a premium) with the promise that the company will compensate the insured in the
event of a financial loss (risk) due to the causes that the insurer has agreed to provide a cover for.
The basic principle behind any insurance contract is that the insured would prefer to spend small
amounts of money on a periodic basis against the possibility of incurring a huge unexpected loss.
This concept works because all the policyholders pool in their risks together, and in case there
are any losses arising due to the occurrence of the insured event, the person suffering the loss
will be compensated up to the extent agreed in the contract.
Also check: Types 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.
CHALLENGES- The deteriorating financial condition of public-sector insurance companies.

Inadequate penetration of insurance services.

Lack of investment in insurance products.

Lack of awareness about various policies among the public.

Problems in product pricing.

Overcrowding in some sectors.

Low penetration of private insurers in rural areas.

Types of insurance in India

Life insurance

Life insurance policies deal with coverage against unfortunate events like death or disability of
the policyholder.

Examples:-

Term Life Insurance

Whole Life Insurance

Endowment Plans

Unit –Linked Insurance Plans

Child Plans

Pension Plans

General insurance

General insurance plans comprise of other forms of insurances which offer coverage against
other unfortunate events and loss except for the death of the policyholder.
Examples:-

Motor Insurance

Home Insurance

Fire Insurance

Travel Insurance

Present status of the insurance sector in India

The overall market size of the insurance sector in India was expected to be US$ 280 billion in
2020. The various types of government policies to insure the uninsured have given a thrust to the
all-time expanding insurance sector in India. The size of contribution by private sector insurance
companies has been rapidly rising in India. The expansion of Foreign Direct Investment (FDI)
limit in the insurance sector has a major role to play in the expansion of the insurance sector in
India.

Role of the insurance sector in the Indian economy

Insurance companies help in mobilization of savings and investing them in productive activities
thus helping in the economic growth and development of the nation.

They help in increasing the capital stock of the country and facilitate efficient capital allocation.

Insurance encourages financial stability and thus helps in reducing anxiety.

The insurance sector reduces the burden on the government exchequer by covering the needs of
every segment of society.

The insurance sector in India employs a large number of people thus reducing the unemployment
burden in India.

The insurance sector helps in the smooth functioning of trade and commerce by offering
insurance against various assets thus helping the Indian economy thrive

The Indian Constitution and insurance in India

The Constitution of India in various ways envisages social security for its citizens and insurance
plays a major part in providing social security to Indian citizens. The Constitution of India
ensures the social security of its citizens through various provisions of Fundamental Rights, the
Directive Principles of State policy, and the Concurrent List. Thus, insurance as a social security
measure has gained momentum in recent decades. The government through its various initiatives
tries to provide social security to its citizens through insurance in India.

Government initiatives

The establishment of the Life Insurance Corporation of India (LIC) in 1956 can be seen as a
major step ahead in guaranteeing social security to the citizens of India. It is the largest Indian
insurance company in India.

Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana
(PMSBY), Pradhan Mantri Jan Dhan Yojana (PMJDY)

What is IRDAI?

IRDAI is the Insurance Regulatory and Development Authority of India. It was established on
19th April 2000 with an aim to regulate the insurance industry in India. The IRDAI is an
autonomous body and has its headquarters in Hyderabad, Telangana. IRDAI stands for the
Insurance Regulatory and Development Authority of India. The insurance business in India is
regulated by them, and they supervise the functioning of Life Insurance and General
Insurance companies that are operating in the country.
IRDAI has set various rules and regulations for the operation of the insurance industry. Its
sole objective is to defend the interest of the policyholders and ensure the growth and
evolution of the insurance industry holistically. IRDAI regularly issues notices to insurance
companies in case there are any changes in the rules and regulations. It leads the insurance
companies to foster efficiency in the conduct of the insurance business and control the rates
or any other charges related to insurance

Establishment of IRDAI

IRDAI was formed by the Insurance Regulatory and Development Authority Act, 1999 (IRDA
Act). It had been made a statutory body through this act that was passed by the Indian Parliament
to protect the interests of policyholders, ensure the rapid growth of the insurance industry and
make it more competitive. The IRDAI has its own rules and regulations to regulate the working
of insurers. It also has the power to investigate any malpractice by an insurance company.

The Objective of IRDAI

The primary objective of IRDAI is to protect the interests of policyholders and promote and
regulate the insurance industry in India. The regulator also aims to develop the insurance sector
in India and create a level playing field for all insurers. Some of the other objectives of IRDAI
include:
 – Promote and regulate the insurance industry

– Protect the interests of policyholders

– Encourage orderly growth of the insurance sector

– Facilitate the entry of new players

– Promote efficiency and financial strength in the insurance sector

– Manage risk

– Promote customer education and awareness

The IRDAI Act

The IRDAI Act was passed in 1999 and came into effect on April 19, 2000. The Act states the
formation and powers of IRDAI which are:

– To register and regulate insurance companies for insurance business in India

– To specify the code of conduct for intermediaries and surveyors

– Manage general insurance, life insurance

Powers of IRDAI

IRDAI is an autonomous body created by the IRDA Act of 1999. The Authority regulates and
monitors the insurance industry in India. The powers to IRDAI can be divided into two
categories:

– Quasi-judicial power: This power is vested in the Authority to adjudicate disputes between
insurers and insured, or between an insurer and a third party. The IRDAI has the power to pass
orders, give directions, and make awards.

– Supervisory power: This power is vested in the Authority to ensure that insurance companies
comply with the provisions of the IRDAI Act and the regulations made thereunder. It also
monitors the solvency of insurance companies.

Other powers and functions of IRDAI are:

 IRDAI registered insurance intermediaries, issues licenses to insurers and intermediaries, collects
data on premiums and claims, conducts investigations into the affairs of insurance companies,
and advises the government on policy matters relating to insurance.
 The IRDAI website ( irdai.gov.in ) is a one-stop resource for all information on insurance and the
Authority. It has a section on frequently asked questions (FAQs) which provides answers to
 common queries on insurance. The website also has a section on regulations which contains the
latest regulations made by IRDAI.
 The Authority has launched a mobile app called ‘Insurance Regulatory and Development
Authority of India’ (IRDAI) which provides information on all types of insurance. The app is
currently available for Android users.
 IRDAI also conducts examinations to issue licenses to insurance agents and brokers, and
surveyors or loss assessors. The examination is conducted twice a year, in May and November.
A total of around 50 questions are asked in the exam, which is for a duration of two hours.
 The Authority has also launched a certification course for insurance agents and brokers. The
course is conducted by the Insurance Institute of India (III), the educational wing of IRDAI. The
course is conducted online and candidates can attend classes at their convenience, on any device.

How does IRDAI work?

The IRDAI works in close coordination with the government and other regulators such as the
Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

The Authority also has a close working relationship with the Insurance Institute of India (III), the
educational wing of IRDAI. The III conducts training and educational programs for insurance
personnel.

Conclusion

The IRDAI is a great resource for all students who are curious about the workings of India’s
financial regulatory body. The IRDAI Act is a comprehensive piece of legislation that gives the
Authority sweeping powers to regulate the insurance industry in India. These powers are
exercised by the Authority through its various departments, which work together to ensure that
insurers comply with the provisions of the Act and regulations issued under it. In this article, we
have looked at how IRDAI works and some of the key functions of its various departments. We
hope you found it informative. If you have any questions, please do not hesitate to ask them in
the comments section below.If you want to learn more, check out everything you need to know
about this important institution!

What are the Rights and Duties of IRDAI?

The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous

regulatory body established by the Indian government to oversee and regulate the insurance
industry in the country. It was formed under the provisions of the Insurance Regulatory and
Development Authority Act 1999 and has been entrusted with the responsibility of
safeguarding the interests of policyholders and promoting the growth and development of the
insurance sector in India.

Regulation

 Fostering operational efficiency within the insurance industry;

 Overseeing and supervising professional associations affiliated with insurance and re-
insurance enterprises;
 Imposing fees and various assessments to facilitate the objectives of this legislation;
 Soliciting information, conducting inspections, inquiries, and audits of insurers,
intermediaries, insurance intermediaries, and related entities engaged in insurance
operations;
 Exercising control and regulation over the rates, benefits, terms, and conditions offered by
insurers in relation to general insurance activities not governed by the Tariff Advisory
Committee under Section 64U of the Insurance Act, 1938 (4 of 1938);
 Prescribing the specific format and method for maintaining accounting records and
submitting financial statements by insurers and other insurance intermediaries;
 Supervising investment practices of insurance companies;
 Ensuring the maintenance of adequate solvency margins.

Duties

 Resolving conflicts arising between insurers and intermediaries or insurance intermediaries;

 Overseeing the operations of the Tariff Advisory Committee;
 Determining the proportion of the insurer’s premium income allocated towards supporting
initiatives aimed at fostering and overseeing professional organizations mentioned in clause
(f);
 Establishing the percentage of the insurer’s engagement in life insurance and general
insurance activities within rural or social sectors, and
 Wielding additional authorities as designated by the appropriate regulations.

What is IRDAI and its Function?

The primary function of IRDAI is to protect the interests of policyholders while maintaining
the stability and efficiency of the insurance market. It achieves this by performing various
roles and responsibilities:

Regulation And Supervision

IRDAI formulates and enforces regulations and guidelines that govern the conduct of
insurance companies, intermediaries, and other entities operating in the insurance sector. It
grants licenses to insurance companies, sets capital requirements, and oversees their
functioning to ensure compliance with applicable laws.

Policyholder Protection

One of the key objectives of IRDAI is to safeguard the interests of policyholders. It sets
norms for the fair treatment of policyholders, including grievance redressal mechanisms.
IRDAI ensures that insurers uphold their commitments toward policyholders and operate
transparently and ethically.

Product Approval

IRDAI reviews and approves insurance products and policies before they are introduced in
the market. This process ensures that the products offered are fair and transparent and provide
adequate coverage to policyholders. The authority also regulates premium rates to prevent
unfair pricing practices.

Financial Stability

IRDAI monitors the financial health and solvency of insurance companies to ensure their
ability to meet policyholder claims and obligations. It establishes prudential norms and
conducts regular inspections and audits to assess the financial soundness of insurers.

Market Development

The IRDAI works towards promoting the development and expansion of the insurance sector
in India. It encourages innovation, diversification, and technological advancements in
insurance products and services. The authority also facilitates the entry of new players and
promotes healthy competition within the industry.

Consumer Awareness

IRDAI plays an active role in creating awareness among the public about insurance products,
their benefits, and the need for insurance. It conducts campaigns, publishes educational
materials, and implements initiatives to enhance financial literacy and empower consumers to
make informed decisions.

Intermediary Regulation

The IRDAI regulates insurance intermediaries such as agents, brokers, and third-party
administrators. It establishes qualification requirements, a code of conduct, and guidelines for
their operations, ensuring their adherence to ethical practices and professionalism.

International Cooperation

IRDAI collaborates with international insurance regulators and organizations to exchange

knowledge, best practices, and regulatory experiences. This cooperation helps in harmonizing
insurance regulations, addressing cross-border challenges, and promoting global standards
within the Indian insurance industry.

Principle of Utmost Good Faith

Principle of Uberrimae Fidei, a Latin Phrase meaning Principle of Utmost Good Faith is one of
the fundamental principles of Insurance which states that both parties to an Insurance Contract,
that is, the Insured and Insurance Company, should act in Good Faith towards one another.
Utmost good faith or the Principle of Utmost Good Faith is one of the most fundamental laws
that are applicable in insurance. It is also known as ubberimae fidei in Latin.
The principle of utmost good faith states that the insurer and insured both must be transparent
and disclose all the essential information required before signing up for an insurance policy.
It states that both the parties must disclose all the material facts before subscribing to the policy.
Material facts are those facts which increase the risk factor associated with the insurance policy.
The insurer needs to disclose all the investment strategies and the insured needs to disclose any
medical history, existing health conditions, or any kind of habits like drug abuse, alcoholism or
smoking.
It can happen that in situations of misrepresentation of facts by either the insurer or the insured,
the terms of contract will be violated and the policy becomes void.
The presence of a medical record will lead to higher premium or overall rejection of the policy.
Similarly, the insurer has to inform the insured about the exclusions present in the policy.

Duty of Utmost Good Faith for the Insured

Under the Principle of Utmost Good Faith, it is necessary for the Insured to disclose all Material
Facts to the Insurance Company. A Material Fact is one which affects the decision of the
underwriter to accept the risk or not, decide Insurance Premium Rates and the terms and
conditions of the Policy.

The duty of good faith in Insurance is valid at every stage of the Insurance Process and a breach
of the duty of Utmost Good Faith is a breach of Contractual Duty. This arises because the
Insured has more knowledge about the subject matter than the Insurance Company and thus the
Insurance Company is in a vulnerable position as regards to the subject matter to be Insured.

Thus, it is the Insured’s duty to inform the Insurance Company of all Material Facts so that the
company is fully aware of the risks and can offer a suitable cover by charging appropriate
premium.

What happens if the Principle of Utmost Good Faith is breached by the Insured?

If the Principle of Utmost Good Faith is breached, the Insurance Company can reject the
proposal.

The Principle of Utmost Good Faith can be breached in 2 ways:

Non-Disclosure of Material Facts

Not disclosing Material Facts means that the Insurance Company cannot make an informed
decision whether to accept the risk or not. This means that the risk accepted by the Insurance
Company is different from what it would have been had all the material facts been disclosed. If
the Insurance Company comes to know about the withheld information, it can cancel
the Insurance Policy.

Example of Non-Disclosure of Material Facts

Mr Ramesh had purchased a Term Life Insurance Policy. However, he did not disclose his
smoking and drinking habit while purchasing the Policy. Mr Ramesh withheld material
information which, if disclosed, would have resulted in a higher premium.

Upon finding out, the Insurance Company cancelled the policy.

Misrepresentation of Material Facts

Misrepresentation means Giving Wrong Information which also breaches the Principle of
Utmost Good Faith. This may also lead to Policy Cancellation.

Example of Misrepresentation of Material Facts

Mr Ajay had purchased a Fire Insurance Policy where he gave wrong information about the risk
occupancy in order to obtain a lower premium. Upon finding out, the Insurance Company
cancelled the policy.

Duty of Utmost Good Faith for the Insurance Company

Just as the Insured has a duty of disclosing all material facts to the Insurance Company, the
Insurance Company also has a duty of Utmost Good Faith to the Insured.

The Insurance Company has superior knowledge about the terms and conditions of the Insurance
Policy. It is the duty of the Insurance Company to inform the Insured of the same and a failure to
do so constitutes Breach of Duty of Utmost Good Faith by the Insurance Company.

Thus, Insurance Company must provide the Insured with a prospectus of the Insurance Policy
before purchase, which explains the coverages, terms and conditions of the Policy.

With regards to an Insurance Claim, the Insurance Company is duty bound to approach the
investigation and settlement of the claim in a fair and just manner. If the Insurance Company
does not act fairly in claim settlement, it also constitutes a breach of duty of good faith.

When is the Duty of Utmost Good Faith required in Insurance?

The Duty of Utmost Good Faith is required at all stages of an Insurance Policy. It is the duty of
the Insured to keep the Insurance Company appraised of any change in the risk profile of the
subject matter.
 Consider an example where Mr ABC has purchased a Factory and Warehouse Insurance Policy.
He stores non-hazardous stocks in the warehouse. Now, Mr ABC starts manufacturing a new
product which requires a hazardous raw material. If this hazardous raw material is stored in the
warehouse, the same should be promptly communicated to the Insurance Company and
additional premium for the change in risk occupancy should be paid.

At every renewal, the Insured should intimate the Insurance Company of any change in risk
profile and value of the subject matter to be insured.

Conclusion

The Principle of Utmost Good Faith is one of the fundamental principles of Insurance and it
ensures that, both the Insurance Company and the Insured have adequate information before
making a decision about the Insurance Policy

 Social insurance refers to financial protection offered by the government against various types of
economic risks through different programs funded by the nation’s citizens.
 A noteworthy advantage of such programs is that they offer coverage to the insured for any
externality they face owing to any economic activity conducted in the economy.
 Some popular types of this insurance are Worker’s compensation, public unemployment
insurance, and public health insurance.
 A key difference between social assistance and insurance is that mandator payments are not
necessary in the case of the former.

How Does Social Insurance Work?

Social insurance refers to a type of social welfare that offers insurance against
different economic risks. One may get this form of insurance through the subsidization of
private insurance. Alternatively, individuals may be publicly offered it. As noted above, citizens
using such programs fund them. One can observe an average paycheck to find the ductions for
Medicare, unemployment, and Social Security. Such deductions add to the multiple benefits that
offer a safety net in the case of illness, hardship, or retirement.

Some features of social insurance programs are as follows:

 Individuals make nominal contributions, which never exceed the amount they can afford.
 The premiums or taxes paid on behalf of or by participants fund such programs.
 In this case, a statute defines the program’s eligibility requirements, benefits, and other aspects.
 The government makes explicit provisions to factor in expenses and income, often via a trust
fund.
 Such programs serve a clearly-defined population. Moreover, the government makes
participation substantially subsidized or compulsory so that the majority of the eligible
individuals decide to participate.
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Types

Some popular types of social insurance programs are as follows:

 Social Security: This refers to a system under which a nation’s government makes regular
payments to specific groups of persons, such as unemployed persons or sick people.
 Public Auto Insurance: Public auto insurance refers to a government-backed-and operated
mandatory automobile insurance system. It enables vehicle owners to minimize the costs they
might incur because of an accident.
 Public Health Insurance: Essentially, a public health insurance plan is a scheme offered by a
government for older people, low-income families or individuals, and persons qualifying for
special subsidies. The main public health programs in the United States are Medicaid, CHIP, and
Medicare.
 Universal Parental Leave: This is an employee benefit that individuals get in almost every
country. One must note that ‘Parental leave’ may include paternity, adoption, and maternity
leave. Alternatively, one may use the term to describe a separate family leave that either parent
can get to take care of their small children.
 Public Unemployment Insurance: Public unemployment insurance refers to government-run
insurance programs offering out-of-work persons financial assistance if they fulfill specific
eligibility requirements.
 Worker’s Compensation: It replaces the wages an employee loses after suffering from an on-
the-job injury. Moreover, such a program funds vocational rehabilitation.

Examples

Let us look at these social insurance examples to understand the concept better.

Example #1

Suppose Sam is a person aged 67. He is suffering from cardiovascular disorder. Although he is
not in a strong financial position, he is not worried about the medical expenses that he may have
to incur owing to the benefits offered by Medicare.

The government-run social insurance initiative has four parts. Parts A and B provide coverage
for his hospital stays and specific outpatient services, respectively. Part C allows Sam to
customize his covers based on the medical requirements. Finally, D offers him coverage for
the costs incurred for purchasing prescription drugs.
 Example #2

In Japan, the ruling camp and the government are looking to increase social insurance premiums
with an aim to fund unprecedented measures to address the nation’s decreasing birth rate. The
reason behind raising the premiums is to ensure that they do not anger the citizens by increasing
the tax rates. Several trillion yen might be necessary to execute every item in a measures’ draft
package to tackle the low birthrate figures released in March 2023.

The government must win the business world’s support to increase social insurance premiums.
Moreover, they must get support from persons who do not have a child or have already raised
children.

Benefits

The advantages of social insurance are as follows:

 It bases its advantages on when a person chooses to retire, putting everyone in control of their
finances.
 This type of government-run program may provide benefits over private insurance when
a beneficiary or their family member suffers from a hereditary or chronic disease.
 Such insurance programs solve the issue concerning asymmetric information as they offer a
range of costs for each issue patients may report.
 It provides individuals with coverage for externalities faced owing to any activity carried out
within the economy.
 The majority of social insurance programs aim to reduce inequality and poverty.

Criticism

A serious issue of this type of insurance program is that persons insured against specific risks
usually become complacent. Moreover, the likelihood of them taking adverse actions increases
as they know that they will get compensation for such actions’ adverse outcomes. This is called
a moral hazard. Offering insurance to all individuals is a limitation because then the insurance
providers and the government cannot track the insured and must cover the costs of their immoral
actions.

Besides this issue, people also criticize some of these government-backed programs, for
example, social security, saying that they put further burden on a nation’s employed youth owing
to the total number of retired persons who are beneficiaries.

Some more noteworthy disadvantages of such programs are as follows:

 One cannot straightforwardly renounce insurance.

 These programs can be very expensive.
 They might involve a lot of paperwork.

NEED- Social insurance solves this asymmetry problem since it provides a range of costs for
every issue a patient may report. Social insurance is a form of income redistribution from the
high earners to the lower earners. Most of the programs in social insurance seek to reduce
poverty and inequality.

Social Insurance and Commercial Insurance

Social insurance is fundamentally different from Commercial Insurance. The inspiring motive
of social insurance is the maintenance of minimum standard of living whereas there exists no
such motive in case of Commercial Insurance. Moreover, while commercial insurance provides
against an individual’s risk only, Social Insurance is undertaken to meet a chain of contingencies
of diverse nature and intensity. Besides, in social insurance the benefits received by the
beneficiaries are usually much larger than the contribution they are required to pay towards the
fund for the purpose whereas in Commercial Insurance, the policy benefits are according to
premium paid. The social insurance is generally compulsory while commercial insurance is
necessarily voluntary.

hy 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.

The economy, whether it is doing poorly or well, affects the insurance business just like it does
any business. Small-business owners who need to buy insurance for their companies or
entrepreneurs who want to start an insurance business should familiarize themselves with these
changes. Knowing the specific vulnerabilities and opportunities that insurance companies face
can help you make better decisions for your business.

Fewer Claims

1. Because insurance companies make money by investing premium payments, the economy can
greatly impact an insurance business. Insurance companies invest premiums in dividend-
paying stocks, mortgage-backed securities, real estate and financial institutions, such as banks,
all of which can be vulnerable to economic changes. When the economy is doing well,
investment returns will increase and insurance companies may be more likely to accept a
claim. When investment returns diminish in a down economy, insurance companies need to
make the lost money back somehow, sometimes by taking out loans or by scrutinizing claims
more closely and denying claims. An insurance company might even litigate a claim in hopes
of delaying or decreasing the amount that it needs to pay, which might cause significant
hardship to a small business.

Less Demand

1. When the economy is down, fewer small businesses have extra money to spend on insurance.
This means the demand for insurance is down and providers have to compete more with one
 another. If your business has the extra capital to spend on insurance, this can be a good time to
take advantage of lower rates and expanded coverage opportunities. As a small-business
owner, you should maintain a close relationship with your broker so you'll be notified of
discounted packages. During good economic times, opportunities for lower rates will be fewer,
so you'll want to take advantage of the specials when they arise.

Increased Regulation

1. Even if insurance providers aren't directly at fault for an economic crisis, the fallout results in
increased regulations on all financial institutions. For example, more consumer protection laws
are enacted to protect consumers from past abuses by these institutions. Insurance companies
are dealing with more government oversight and more complex rules that lead to increased
attorney costs. For example, the Federal Insurance Office and Federal Reserve banks
aggressively scrutinize any insurance company that has a chartered bank as a subsidiary. In
addition, the federal government has stricter oversight of insurance companies' board of
directors and regulators closely scrutinize the actions of each insurance company's chief risk
officer.

New Business Models

1. As the financial landscape changes, insurance companies that hope to survive have to change
also. This means altering their business models. For example, insurance companies may
consolidate, just as many banks have, to better manage risk. Insurance companies will also
have to change their investment strategies. This includes re-evaluating acceptable equity risk
and changing credit evaluation procedures. Companies will also have to look into new
investment opportunities to make up for formerly stable investments that are no longer
trustworthy, such as bank notes.

2. What is the difference between nomination and assignment?

3. Let's talk about the differences between assignment and nomination.

Defining
Assignment Nomination
parameters
The endorsement is made on the contract
Source The nominees' names are mentioned.
policy.
It involves transferring rights/ownership from Policy ownership does not change
Policy
the assignor (policyholder) to the assignee under nomination, it continues with
Ownership
(person/entity). the policyholder.
The life assured will transfer all his/her It offers the nominee to avail claim
Purpose right/ownership of the policy to another benefits in case of death of the life
person/institution. assured.
The assignment might/might not support Nomination does not support
Consideration
consideration. consideration.
Without a witness, the assignment will be
Witness It is not required in the nomination.
considered invalid.
 Defining
Assignment Nomination
parameters
Assignee has the right to sue the assignor of The nominee cannot sue the
Right to sue
the policy. policyholder of the policy.
The nominee is entitled to avail the
Assignee is entitled to receive the policy
Policy Amount claim benefits in case of death of the
money.
life assured

Life Insurance
Life insurance is a scheme that allows man to schedule income continuity if death, injury, or old
age threatens his ability to earn a living. Life insurance in its general sense is used to cover all
forms of insurance designed to protect against income loss resulting from incapacity to work,
whether this is caused by suicide, accidental injury, disability or old age. Life insurance in its
specific meaning means compensation only in the event of death.

To move through life without deprivation, every person has to have a constant flow of income
from cradle to grave.

Life insurance deals with the ideals of human life. Far too many people tend to think only in
terms of measurable economic values: real estate, machinery, inventories. We don’t consider the
immense value of human life’s earning power. The life insurance premium is calculated
according to the monetary value of the life.

Man represents great value within himself that creates all usefulness in tangible property.
Everything we have in this world comes from man. But life-value is the fundamental value.
Human life has so much of a financial value. Ideas and resources in our lives make money and
both come from man himself. Man is endowed with highly intellectual capacity and makes
unceasing and untiring efforts to improve and advance his life, which guarantees him the highest
happiness, comfort and benefits.

Although life has a very definite meaning, it is important for a man’s long-term financial success
that either he survives long enough to earn more, or that life insurance will cover it. Earnings
reflect the power, behaviours and character of the past to predict the future.

However, the value of that future cannot be reduced, although it can be offset by using insurance
in the case of premature death or lifelong incapacity. Life insurance is the only way to maximize
the value of life first and then compensate for the replacement interest throughout one’s lifetime.

In most cases the family depends on the current earnings of the head of the family, who, in other
words, is the family’s bread-winner for their survival. The family members have the right to seek
appropriate maintenance from him and it is his responsibility to provide the best possible
maintenance for them. If that source of income ends with death, it would be important for the
family to make economic and social changes, which could lead to serious physical and
psychological harm.

Two main functions of Life insurance

1. To contribute towards human life conservation, and

2. To protect against financial losses resulting from the destruction of human life.
The basic idea of life insurance is simply to distribute the few losses of life values evenly over a
large number of people, so that some of the unlucky ones who actually suffer the loss may not
feel the burden of their loss. This sharing is achieved by an agreement whereby a number of
people agree to contribute a small amount to a common fund out of which the deceased’s
members are paid this sum as had been agreed in advance.

Modern man, whose joy lies in financial independence, is able to recover the otherwise
irrecoverable value of human life by the device of life insurance theory. The theory of insurance
protects the interests of all those who have a financial risk in the life of a particular individual or
entity.

How Insurance evolved in India

The insurance company Life, as it is known today, is an English legacy. The industrial revolution
has increased the pace and the nations of Europe, America and Canada have adopted the same
and have formed their own individual structures in the course of time. The first proposal was
formulated at the government level to create some kind of insurance organisation. The Court of
Directors of the East India Company instructed Sir John Child (Governor of Bombay between
1861-1890) to establish an insurance office on the Island of Bombay.

Early insurance companies in India provided sterling policies for the lives of Europeans who
served the East India Company and then the lives of those in India.

Around the year 1870, the collapse of two major English firms, the European and the Albert,
affected a large number of people in this country who had reposed their trust in them.
Consequently, an attempt was made to float companies in India to support Indian lives as well.

The “Bombay Mutual” was thus formed in 1871. It was closely followed by the “Oriental” in
1874. Similarly, in 1870, the Colonial Life Assurance Company established an extension of its
business to Indian life and it was from that year that the modern Indian insurance was formed.

Life Insurance Contract

Definition u/s Section 2(11) in the Insurance Act, 1938
“Life Insurance Business” means the business of effecting contracts of insurance on human life,
including any contract whereby the payment is assured on death (except death by accident only)
and the 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 or 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.

There is no formal definition of ‘ life insurance, ‘ but it may be defined as ‘ a contract in which
the insurer, taking into account a certain premium, offers in return, either in a lump sum or in
regular payments, to pay to the insured, or to the person for whose benefit the policy is made, a
given sum of money on the occurrence of a particular event dependent on the term of the policy.

Features of Life Insurance

Thus, we can see the features of life insurance as under:

 It is a contract concerning human life.

 There must be no clear assurance that the payment is due upon the person’s death.
 The contract provides for payment of lump sum money.
 The sum shall be paid at the expiry of a certain term or upon the person’s death.

How is Life insurance contract formed

Like any other contract, an insurance contract must meet the necessities laid down in the
Indian Contract Act, 1872 and in compliance with Section 10 of that Act, which states:

“All agreements are contracts if it is made by the free consent of the parties competent to
contract, for a lawful consideration and with a lawful object, and are not hereby expressly
declared to be void”.

Nevertheless, an insurance contract is a special arrangement, certain specific requirements apply

to ensuring the agreement’s validity. The additional provisions include the existence of an
insurable interest and the duty of utmost good faith.

In Inderpreet Singh v. Bajaj Allianz Life Insurance Company we see that this appeal was
preferred by the appellants under section 5 of the Consumer Protection Act, 1986 against the
order dated 04.01.2013 in C.C. No. 286 of 11.11.2011 passed by the District First Appeal
No.292 of 2013 2 Consumer Disputes Redressal Forum, Hoshiarpur vide which the complaint
filed by the complainants was dismissed.

DLA was the father of complainant No. 1 and husband of complainant No. 2. The complainants
were entitled to sum assured of Rs.1,20,000/-. The complainant filed the claim with OPs and
submitted all the documents as demanded by OPs.

The rejection of the claim was wrong as OPs had investigated all the facts with regard to the
health of the DLA before issuing the policy act of OPs amounted to deficiency in services on the
part of OPs.

The complainants were not the consumer as there was no deficiency in service on the part of
OPs. The complainants tendered into evidence their affidavits Ex. Aggrieved with the order
passed by the learned District Forum, the appellants/complainants have filed the present appeal.

Even the statement of Dr. A.S. Soin supports the case of the OPs that DLA was fully knowing
that he was suffering from various diseases which were quite serious in nature and without
disclosing these facts, he got revived his insurance policy.

He has violated the basic principle of utmost good faith Uberrima Fides.

In giving this decision the court cited the judgements from the Supreme Court in life insurance
Corporation of India & amp; Ors. v. Asha Goel (Smt.) & Anr, having held that insurance
contracts, including life insurance contracts, are Uberrimae fidei contracts which imply contracts
based on the utmost good faith, therefore all the latter material facts must be disclosed and the
camouflage of any material data or the disclosure of any false or erroneous data in the insurance
contract is an infringement. Disguise of any material certainty entitles the insurer to deny the
benefits of the agreement to the insured.

Essential elements of a Life Insurance Contract

We can see that like every contract Life Insurance contract must also contain the following
essential elements:

 An Agreement
Section 2(h) of the Indian Contract Act, 1872 defines a Contract as “an agreement enforceable by
law”. Therefore, all contracts are agreements but all agreements are not contracts.

Section 2(e) of the Indian Contract Act, 1872 defines “an agreement as “every promise and every
set of promises, forming the consideration for each other”.

Section 2(b) defines a promise as “a proposal when accepted becomes Promise”. Thus, the
proposal and acceptance are the two essentials of an agreement.
The proposal is generally made in the ‘Life Insurance Contract’ by the insured in the written
version of the proposal provided by the insurer. The proposal is found in four sections of the
‘Life Insurance contract,’ namely-

1. Proposal form;
2. Medical report consisting of family history and medical examination report;
3. Agent’s report;
4. Friend’s report.
The acceptance is to be made by the insurer These are scrutinized by the insurer upon receipt of
the papers containing the application and, when they are considered in order, by a letter he
signals his agreement to it and the letter is called as the letter of approval which is also in printed
form.

 Competency of Parties
All persons who are competent to enter a contract as per Section 11 of the Indian Contract Act,
1872, are also competent to enter into a Life Insurance contract.

In India, on completion of the age of 18, a person is said to have obtained a majority, and if a
guardian has been appointed or his estate is under the control of wards, at the end of 21 years.
Therefore, in the rates tables issued by Life Insurance Company, the rates start from 18 years in
some cases and 19 years in other cases with 20 years in most cases.

The proof of the proposer’s age is important in insurance contracts for two purposes i.e. for
determining the contract’s validity, and for determining the premium rate.

 Free consent
Section 13 of the Indian Contract Act, 1872 defines Consent as “two or more persons are said to
consent when they agree upon the same thing in the same sense” and

Section 14 of the same Act defines Free Consent as “a consent is said to be not free when it is
obtained by:

1. coercion;
2. undue influence;
3. fraud;
4. misrepresentation; or
5. mistake.

 Consideration

The payment of the first premium is the consideration for the insurer and the insurer’s promise to
indemnify the assured from the stipulated risk in the policy is the consideration to the assured.
The second and third premiums cannot be solely applied to as part of calculation since the
insurer cannot force the insured to pay them. If there is a default in the payment of subsequent
premiums, the insurer may be freed from the promise to pay the guaranteed amount but remains
bound in the policy by the various subsidiary guarantees such as the surrender value.

 Lawful object
The law gained significance in its applicability to Life Insurance contracts with respect to the
provision and policies on suicide without insurable benefit. Wager’ is one of the known artifacts
against public policy, and an insurance contract without insurable benefit is a wagering deal and
is void.

As life insurance is a specialized type of contract, apart from the above essentials of a valid
contract, insurance contracts are subject to two additional principles i.e. Principle of utmost good
faith & Principle of insurable interest.

 Principle of utmost good faith

Commercial contracts are typically subject to the caveat emptor principle i.e. let the buyer be
patient. Which party to the contract is believed to be able to examine the item or service which is
the subject of the contract. Nevertheless, this principle does not apply in the case of insurance
contracts. The majority of the information relating to fitness, behaviors, personal history, family
history, etc. that form the basis of the life insurance policy are known to the proposer.

The insurer cannot recognize them, unless they are reported by the insured. The underwriter is
allowed to request a medical report. But there may be other things that may not be brought out,
even though the best medical test.

Therefore, it is the proposer’s most important duty to reveal the true facts to the insurer and is
referred to as the’ Principle of Utmost Good Faith ‘ The assumption is that, in the event of failure
to disclose material facts, the contract may be considered invalid from the outset.

 Principle of insurable interest

The insurable interest means the interest which may or may be covered by an insurance contract.
Both liabilities are not insurable; otherwise, there would be no distinction between an insurance
contract and a wagering contract that is unlawful under Section 30 of the Indian Policy Act,
1872.

What distinguishes an insurance contract from a wagering contract is that the insured must have
an insurable interest in the subject matter of the insurance, i.e. the promoter must have an interest
in the continuation of the insured subject and could suffer a loss if the continuance is impeded. In
insurance contracts the financial or pecuniary interest in the topic of insurance is protected. The
insured must have a relationship with the insurance subject in which he profits from his health
and well-being and is prejudiced by his loss or damage.
The Insurance Act 1938 makes no definition of insurable interest. However, rulings of the Court
have determined the conditions in which insurable interest is allowed to exist. A person has been
held to have unlimited insurable interest in his/her own life.

Let us look at some more examples of insurable interest

A husband has an insurable interest in the life of his wife and vice versa.
 An employer has an insurable interest in his employee to the extent of value of his
service.
A creditor has an insurable interest in the life of the debtor, to the extent of the debt.
 Partners have an insurable interest in the lives of each other to the extent of the financial
stakes.
A company has an insurable interest in the life of an employee.
 Parents have an insurable interest in the life of a child so long as he is a child. Hence, the
policies on the lives of the children incorporate a clause, whereby the policy vests in
the child on the attainment of his majority.
Thus, from the above we can see that a contract will be considered as true and binding when
these essential elements are present and an insurance contract is no exception. When a legal
contract is signed, a written version of the contract is issued by the insurers and that document is
considered an “insurance policy”. The Life Insurance Corporation of India Act, 1956 empowers
the government to regulate the form and manner in which policies can be issued and contracts
binding on insurance companies can be executed.

Rights under life insurance policy contract

There are various rights available of the insured on his/her life insurance policy and they can
exercise these rights in the following manner:

Right of assignment
The term ‘assignment’ ordinarily means a transfer of property by writing as distinguished from
one by ‘delivery’. The’ Assignment of a Life Insurance policy’ implies the act of transferring
property rights from one person to another in the contract. The person who moved his or her
right is called the’ assignor’ and the person who transferred the right is called the ‘assignor’.

There are two types of assignments.

 Conditional assignment: This is done when the insured wishes to pass benefits of the
policy to a relative in case of early death or certain conditions. The rights of the
policyholder are restored once the conditions are fulfilled.
 Absolute assignment: This is done as a part of consideration for a loan in favour of the
lender/bank/lending institution. In such an assignment, the insured loses his rights in
the policy and the absolute assignee can deal with it independently.
Right of nomination
The proposer is the person with whom the contract of insurance is made and in most of the cases
the proposer is also the life assured. While proposing for insurance, the proposer would normally
designate himself as the person to whom the proceeds of the resulting policy shall be payable and
in accordance with the wishes of the proposer, the amount secured by the policy shall be payable
to the proposer or his estate.

The life assured, when he himself is the policy holder, is competent during his lifetime to transfer
the policy to any person in accordance with the procedure prescribed by law. But in the absence
of any law, he may not be competent to designate a person to receive the policy money on his
death. Section 39 of the Insurance Act, 1938 enables him either at the time of effecting the
insurance or any time subsequent thereto to nominate any person to receive the policy money in
the event of his death. A nomination may be changed or cancelled by an endorsement or by a
will.

Loss of policies
If the policy is lost or destroyed, a suit may be instituted to recover the money gained thereby if
secondary proof of its terms can be adduced. Ordinarily, the insurer must issue a replacement
policy where the original is irreparably lost, damaged or mutilated. A duplicate policy confers
the same rights and privileges upon its holders as the original policy.

Functioning of Life Insurance Corporation

Life Insurance Business in India was nationalized with effect from January 19, 1956. This was
done by a merger of 16 insurance companies and 75 provident societies on that day. Around 245
insurance companies and provident societies were merged to create the LIC. LIC is the largest
insurance company in India with an estimated asset value of Rs. 3111847 crores ($450 billion) as
of 2019.It is the largest Indian insurance and investment company in India.

The Life Insurance Corporation of India, Act was passed by Parliament on June 18, 1956 and
came into force as of July 1, 1956. Life Insurance Corporation of India began operating as a
corporate body as of 1 September 1956. The operations are regulated by the LIC Act. The LIC is
a corporation with perpetual succession and a common seal with the right to gain possession and
dispose of the land, and can sue and be sued by its name.

Investment is one of the core functions of LIC. Its main function is to collect the people’s money
and invest it in the various securities and financial markets in India and abroad.

As a rule, LIC is required to invest at least 75% of the funds in Central and State Government
securities. Thus, LIC is the largest investment institution in India as on date.

It collects people’s funds by selling insurance policies, and invests those funds in India’s
financial markets. It also provides term loans and bonds to raise investor funds.
Not only that, as regards a number of policies released, the LIC has become the world’s largest
insurance company. As of 2019, total policy coverage including citizen, party, and other social
schemes has gone beyond 13 crores.

Objectives of LIC
The main objectives of LIC are as follows:

1. Spread life insurance widely and in particular to the rural areas, to the socially and
economically backward classes with a view to reach all insurable persons in the
country and provide them adequate financial cover against death at a reasonable cost.
2. Maximisation of people’s savings for nation-building initiatives.
3. Provide complete security and facilitate efficient service at economic premium rates to
policy-holders.
4. Conduct business with the utmost competitiveness, and fully realize that the money
belongs to the policyholders.
5. Act as trustees in their individual and collective capacity to the insured public.
6. Involve all people working within the Company to the best of their ability to advance
the interests of the insured public by courtesy in delivering efficient service.
7. Promote a sense of engagement, pride and job satisfaction among all of the
Corporation’s agents and employees by discharging their duties with commitment to
achieving Corporate Objective.
8. Meet the various life insurance needs of the community that would arise in the
changing social and economic environment.

Functions of LIC
Some of the main functions of Life Insurance corporation can be seen as under:

1. The main function of LIC is to collect the savings of the people through a life
insurance policy and invest that money in various financial markets.
2. Investing fund in government securities to secure the wealth of individuals who have
given their money to LIC.
3. To issue an insurance policy at affordable rates to people.
4. To provide direct loans to industries at lower interest rates. The rate of interest is as
low as 12% for the entire tenure.
5. It provides refinancing activities through SFCs in different states and other industrial
loan giving institutions.
6. It has provided indirect support to industry through subscriptions to shares and bonds
of financial institutions such as IDBI, IFCI, ICICI, SFCs etc. at the time when they
required initial capital. It also directly subscribed to the shares of Agricultural
Refinance Corporation and SBI.
 7. It lends loans to projects that are important to national economic welfare. The LIC
prioritizes socially-oriented programs like electrification, sanitation, and water
channelling.
8. It nominates directors on the boards of companies in which it makes its investments.
9. It gives housing loans at reasonable rates of interest.
10. It acts as a bridge between the process of saving and of investing. Through several
schemes it generates the savings of the small savers, middle income community and
the wealth.

Conclusion
We can see that the Insurance Industry in India has changed rapidly in the world’s demanding
economic environment. Indian insurance companies have become innovative in nature in the
current scenario and are offering appropriate distribution channels to get the maximum benefit
and serve customers in many different ways.

Given the large population and untapped potential, the Indian Insurance industry has a
tremendous opportunity to expand. India’s insurance market has undergone competitive changes
including a variety of global insurers joining. Many private insurance undertakings are joint
ventures with recognised international entities worldwide. Market saturation in many developed
economies has made the Indian market even more appealing to global insurance majors.

Life Insurance Corporation, set out with clear objectives, grew steadily and spread the message
of insurance to the farthest corners of the nation. The vast premium income mobilized by Life
Insurance Corporation helped the nation in economic development, especially in building up
infrastructure. Life Insurance Corporation has made notable contributions to the development of
the equity market. It has participated in the establishment of institutions lie NSC, IDBI, UTI and
NIA. LIC has taken advantage of information and Technology and initiated measures for the
convenience of the policyholders.

With long term liability, they get a good asset-liability match by investing their funds in such
projects. IRDA regulations require insurance companies to invest not less than 15 percent of
their funds in infrastructure and social sectors.

International Insurance companies also invest their funds in such projects. The Life Insurance
Corporation of India has been a nation builder since its formation in 1956. True to the objectives
of nationalization, the LIC has mobilised the funds invested by the people in life insurance for
the benefit of the community at large. The LIC has, over the years, been investing a major part of
its funds primarily in the socially oriented sector.

Thus, we can see that Life Insurance Corporation has contributed immensely towards the
development of the country
Types of Alterations in LIC Policy
A life insurance policy not only secures the financial future of the insured's family but also helps
vastly in dire situations like debt. An insurance company lays down certain rules and regulations
that policy buyers are expected to follow when purchasing an insurance policy. However, once
the policy has been purchased, one may find certain discrepancies that one may want to change.
These discrepancies are called alterations.

Alterations in LIC policy can be requested by the relevant policyholder after the purchase of the
policy. However, insurance companies typically lay down certain guidelines that one needs to
abide by.

A policy might not be deemed suitable to the policyholder for multiple reasons, as a result of
which he/she might want to alter or modify the same. LIC encompasses different types of policy
alterations, however, any modification request made during the first year of the purchase of the
policy will not be accepted.

Types of Alterations in LIC Policy:

 Alteration in class
 Alteration in term
 Lowering the sum assured amount
 Alteration of the premium payment mode
 Subtracting additional premium
 Switching to a with-profit plan from a without-profit plan
 Alteration of the policyholder's name
 Correction in the holding policies
 Option for settlement of sum assured through installments
 Accident benefit grant
 Premium waiver benefit grant
 Currency alteration and place of payment

What are the Necessary Documents for LIC Policy Alteration?

The following supporting documents may be asked for in case of a policy alteration:
  A letter justifying your need to alter the existing policy
 Quotation fee and receipt
 LIC policy document - the original copy
 Declaration of Health (only if asked for)

What are Some of the Other Policy Alteration Conditions?

Apart from the types of alterations in LIC policy mentioned above, one can also glance through
the following to get a better understanding of its scope:

 In case of a lost policy: In the case of a policy that is lost due to natural causes like
flood, fire, etc., or one that is untraceable because of unknown reasons, the policyholder
will be required to contact the servicing branch of LIC and apply for a duplicate policy.
Typically, through a very simple process, one can easily obtain a duplicate policy in no
time.
 In case of change in residential address: If the policyholder moves to a different city or
a new house, LIC needs to be intimated about the new alteration. This is done so that the
policyholder never misses out any service that LIC might be offering at that point of time.
Critical information about premium notices, survival benefits, and so on might not reach
the policyholder on time. LIC typically provides services of changing existing addresses,
contact information, email ID, and so on.
 In case of change of age: The age factor plays a crucial role in determining one's
premium amount. Therefore, it is very important to double-check the age while
purchasing the policy. However, if there is any discrepancy found after the purchase, one
can simply send an attested copy of the original birth certificate to LIC officials.
 In case of inclusion or alteration of nominee: Nominations play an integral role in the
sector of life insurance. Therefore, including one in an LIC policy is of utmost
importance. One is free to update the nomination section anytime during the lifespan of
the policy. In case, the policyholder has not included any nominee at all, it is advisable
they do so at the earliest.

LIC usually charges a certain fee known as quotation fee for the process of alteration of policy.
Other than that, no additional fee is charged to carry out the procedure.

What is Marine Insurance?

Marine insurance refers to a contract of indemnity. It is an assurance that the goods dispatched
from the country of origin to the land of destination are insured. Marine insurance covers the
loss/damage of ships, cargo, terminals, and includes any other means of transport by which
goods are transferred, acquired, or held between the points of origin and the final destination.
The term originated when parties began to ship goods via sea. Despite what the name implies,
marine insurance applies to all modes of transportation of goods. For instance, when goods are
shipped by air, the insurance is known as the contract of marine cargo insurance.

Importance of Marine Insurance

Marine insurance is required in many import-export trade proceedings. Admitting the terms, both
parties are liable for the payment of goods under insurance. However, the subject matter of
marine insurance goes beyond contractual obligations, and there are several valid arguments
necessary for buying it before dispatching the export cargo.
Goods in transit need to be insured by one of the three parties:-
 The Forwarding Agent
 The Exporter
 The Importer
Also, it can be taken by anyone involved in the transit of goods.
Also Read: Role of a Freight Forwarder | Functions, Duties & more

Where to get Marine Insurance?

The process to purchase marine insurance in India is easy. The country’s geographical position
allows many banks and financial institutions to provide marine insurance.

Marine Insurance Act 1963

The Marine Insurance Act, in India, came into existence in 1963. As per section three of the act,
any time the term ‘marine insurance’ is used, expressed or even extended for the insuring of
goods against loss or damage, the insurer will be at risk to bear the charges. The insurer will
consider all the certainty of goods in case of misfortune sustained during marine ventures.

Principles of Marine Insurance

 Principle of Good faith - Parties demand absolute trust on the part of both; the insurer and
the guaranteed.
 Principle of Proximate Cause - The proximate cause is not adjacent in time; also, it is
inefficient. Nevertheless, it is the definitive and adequate cause of loss.
 Principle of Insurable Interest - Any object presented as a marine risk and the assured
covering the insurance of goods - both should have legal relevance. Also, a series is
devoted called 'Incoterms' to respectfully assign the insurance of goods to each party.
  Principle of Indemnity - The insurance extended to the parties will only be applicable up
to the loss. The parties can't buy insurance to gain profits. If they do, they won't get more
than the actual loss.
 Principle of Contribution - Sometimes, the risk coverage for goods has more than one
insurer. In such cases, the amount has to be fairly distributed amongst the insurers.

Features of Marine Insurance

How Marine Insurance works?

Marine insurance best transfers the liability of the goods from the parties and intermediaries
involved to the insurance company. The legal liability of the intermediaries handling the goods is
limited to begin with. The exporter, instead of bearing the sole responsibility of the goods, can
buy an insurance policy and get maritime insurance coverage for the exported goods against any
possible loss or damage.
The carrier of the goods, be it the airline or the shipping company, may bear the cost of damages
and losses to the goods while on board. However, the compensation agreed upon is mostly on a
‘per package’ or ‘per consignment’ basis. The coverage so provided may not be sufficient to
cover the cost of the goods shipped. Therefore, exporters prefer to ship their products after
getting it insured the same with an insurance company.
The Scope of Marine insurance is necessary to meet the contractual obligations of exports. To
align with agreements such as cost insurance and freight (CIF) or carriage and insurance paid
(CIP), the exporter needs to take marine insurance to protect the buyer’s or their bank’s interest
and honor the contractual obligation. Similarly, in the case of Delivered Duty Unpaid (DDU)
and Delivered Duty Paid (DDP) terms, the seller may not be obligated to insure the goods,
although in practice they generally do.
To get marine insurance and avoid insurance claims, ensure the following:
 Packing of goods should be done keeping in mind their safety during loading and
unloading
 Packing should be good enough to withstand natural hazards to the best extent possible
 Keep in mind the possibility of clumsy handling or theft when packing goods.
How to calculate Marine Insurance Premium?

Types of Marine Insurance

 Freight Insurance
 Liability Insurance
 Hull Insurance
 Marine Cargo Insurance

Freight Insurance

In freight insurance, for example, if the goods are damaged in transit, the operator would lose
freight receivables & so the insurance will be provided on compensation for loss of freight.

Liability Insurance

Marine Liability insurance is where compensation is bought to provide any liability occurring on
account of a ship crashing or colliding.

Hull Insurance

Hull Insurance covers the hull & torso of the transportation vehicle. It covers the transportation
against damages and accidents.

Marine Cargo Insurance

Marine cargo policy refers to the insurance of goods dispatched from the country of origin to the
country of destination.
Types of Marine Insurance policies

 Floating Policy
 Voyage Policy
 Time Policy
 Mixed Policy
 Named Policy
 Port Risk Policy
 Fleet Policy
 Single Vessel Policy
 Blanket Policy

Floating policy

Floating in Marine Insurance policy, large exporters may opt for an open policy, also known as a
blanket policy, instead of taking insurance separately for each shipment. An open policy is a one-
time insurance that provides insurance cover against all shipments made during the agreed
period, often a year. The exporter may need to declare periodically (say, once a month) the detail
of all shipments made during the period, type of goods, modes of transport, destinations, etc.

Voyage policy

A specific policy can be taken for a single lot or consignment only. The exporter needs to
purchase insurance cover every time a shipment is sent overseas. The drawback is that extra
effort and time is involved each time an exporter sends a consignment. With open policies, on
the other hand, shipments are insured automatically.

Time policy

Time policy in marine insurance is generally issued for a year’s period. One can issue for more
than a year or they may extend to complete a specific voyage. But it is normally for a fixed
period. Also under marine insurance in India, time policy can be issued only once a year.

Mixed policy

Mixed policy is a mixture of two policies i.e Voyage policy and Time policy.

Named policy

Named policy is one of the most popular policies in marine insurance policy. The name of the
ship is mentioned in the insurance document, stating the policy issued is in the name of the ship.

Port Risk policy

It is a policy taken to ensure the safety of the ship when it is stationed in a port.
Fleet policy

Several ships belonging to the company/owner are covered under one policy. Where it has the
advantage of covering even the old ships. Also the policy is a time based policy.

Single Vessel policy

In single vessel policy only one vessel is covered under marine insurance policy.

Blanket policy

In this policy, the owner has to pay the maximum protection amount at the time of buying the
policy.

Which clauses cover Marine Insurance?

The Maritime insurance coverage provided by marine insurance can be understood by

going through the risks handled by the insurance policies loaded with various marine
insurance clauses:

 Institute Cargo Clause C provides basic coverage and includes a restricted list of risk
covers. It covers the shipment against events such as fire, discharge of cargo in case of
distress, explosion, accidents like sinking, capsizing, derailment, collision, etc.
 Institute Cargo clause B offers an additional layer of protection. Not only does it include
all the risk covers provided under Clause C, but it also covers the shipment against events
such as earthquake, volcanic eruption, and damage due to rainwater, seawater, river
water, etc., and loss to package overboard or during loading and unloading.
 Institute Cargo Clause A provides maximum coverage as it covers all risk of loss or
damage to the goods. Apart from the risks covered under Clauses B and C, it also covers
losses due to breakage, chipping, denting, bruising, theft, non-delivery, all water damage,
etc.
 Risks such as wars, strikes, riots, and civil commotions are not covered under the institute
cargo clauses. However, the insurer may provide this cover on payment of additional
marine insurance premium.
 So in terms & conditions of marine insurance coverage, these three types of marine
insurance clauses: Institute Cargo Clauses A, B, and C. Clause A provides maximum
coverage, Clause C provides basic risk coverage.

What is not covered under Marine Insurance?

Difference between Fire Insurance & Marine Insurance

Fire insurance is an insurance that covers the risk of fire. The subject matter is any physical asset
or property. The moral responsibility is an important condition here. There is no expected profit
margin in terms of fire insurance. The insurable interest must be present before taking the policy
and also at the time of loss.
Whereas, the Functions of Marine insurance is one that encompasses risks associated with the
sea. The subject matter is the ship, freight or cargo. It does not consist of any clause related to the
moral responsibility of the cargo owner or the ship. 10 to 15% profit margin is expected in terms
of marine insurance. Also in marine insurance the insurable interest must be only at the time of
loss.

Conditions in Marine Insurance

In essence, marine insurance policies are contracts between the insurer and the insured that
contain various terms and conditions. Conditions are provisions that must be fulfilled by the
insured in order for the policy to remain in force. Failure to comply with a condition may result
in the insurer refusing to pay out on a claim. The conditions can be either express or implied.

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A. Implied Conditions
Implied conditions are those that are not explicitly stated in the policy but are automatically
included by law. These conditions are deemed to be present in every marine insurance policy,
and they include:

 Seaworthiness: The vessel insured must be seaworthy, meaning that it must be in a condition
to withstand the perils of the sea. If the vessel is not seaworthy, the insurer may refuse to pay
out in the event of a claim.
 Legality: The insured must not engage in any illegal activities while using the vessel. If the
insured breaches this condition, the insurer may refuse to pay out in the event of a claim.
 Good faith: The insured must act in good faith when taking out the policy and when making a
claim. If the insured acts fraudulently, the insurer may refuse to pay out.
B. Express Conditions

Express conditions are those that are specifically stated in the policy. These conditions can vary
depending on the policy, but they may include:

 Notification requirements: The insured must notify the insurer of any incidents that may lead
to a claim, such as damage to the vessel or loss of cargo.
 Maintenance requirements: The insured must maintain the vessel in a certain condition, such
as by carrying out regular inspections and repairs.
 Navigation limits: The insured must adhere to certain navigation limits, such as not venturing
into certain dangerous routes.
It is important for the insured to understand and comply with all of the conditions in their marine
insurance policy. Failure to do so may result in the insurer refusing to pay out in the event of a
claim.

What is Motor Insurance

Vehicle insurance or motor insurance is similar to any other insurance coverage, except that it is
mandatory. As the name implies, it is insurance for all types of motor vehicles - motorcycles,
cars, jeeps, commercial vehicles, and so on. The government has made motor insurance
necessary for your protection and the safety of others.
Here we will discuss the types of motor insurance in India.

Types of Vehicle Insurance in India

The different types of vehicle insurance are explained below:

Private Insurance Policy

The Government of India requires automobile insurance for any private car owned by a person.
Private car insurance, among other things, protects the vehicle from damage caused by accidents,
fire, natural disasters, and theft, as well as the owner from personal injury. It also safeguards the
third party against any losses or injuries.

Commercial Vehicle Insurance

All vehicles that are not utilised for personal reasons are covered by a commercial vehicle
insurance policy. This sort of Insurance covers any automobiles used for business purposes.
Trucks, buses, heavy commercial vehicles, light commercial vehicles, multi-utility vehicles,
agricultural vehicles, taxis/cabs, ambulances, auto-rickshaws, and other vehicles are covered by
this Insurance.

Types of Car Insurance

Here are the different types of car insurance in India:

Comprehensive

Motor vehicle owners in India have a number of insurance choices available to them. The main
purpose is to keep car owners safe from damage and accidents.

As the name implies, a comprehensive automobile insurance policy covers every imaginable
component of the vehicle insured as well as the policyholder's interests. Yet, it is preferable to be
informed of the numerous components that these Insurance plans cover. Comprehensive
Insurance covers a wide range of issues, including Third-party or animal-induced damage,
damage to the vehicle caused by civil disturbances such as riots or theft, and vandalism are all
causes of damage.

What are Add-ons under a comprehensive insurance policy:

There are certain add on covers which can be opted under comprehensive insurance as listed
below:
1) Zero Depreciation: This is a frequent add-on protection, sometimes known as bumper-to-
bumper Insurance. This optional cover is available for all vehicle types. A 0% depreciation cover
is critical in calculating claim settlements or reimbursements. When your auto insurance
company pays the claim settlement amount or reimburses your bill payments, they normally
deduct the car's depreciation value as of the day it was paid. As a result, no insurance will pay
the entire claim amount. If you have this coverage, however, the Depreciation factor will not be
taken into account when determining claim settlement. This extra cover is perfect for
automobiles under the age of five years.

2) Roadside Assistance: If your automobile breaks down while traveling, whether on city streets
or highways, you'll need help right away. If you reside in a distant place where finding a repair is
difficult, roadside assistance add-on coverage can come in handy. Simply contact the insurer and
notify them of the problem. If the engine fails, the insurer will arrange for towing or garage
service through its garage network. Few insurers cover this as part of the standard Insurance;
otherwise, it is available as an add-on.

3) Tyre Protect: Tyre Protect is an add-on that protects against damage such as in-tire bulges,
punctures or bursting of tyres, cuts on a tyre caused by accident, and so on.

4) Consumable Cover: This consumable add-on includes consumable materials not covered by
the basic Insurance, such as grease, air conditioner gas, lubricants clip, bearings, fuel filter,
engine oil, oil filter, brake oil, nut and bolt, screw, washers, and so on.

Third-Party Insurance

All vehicle owners in India are required by law to have third-party car insurance. These
insurance plans, in essence, safeguard the policyholder's interests from harm caused by the
policyholder to property or individuals.

Third-party coverage can be stated to help decrease the policyholder's risk and liability in a
variety of situations. This coverage is also advised for low-cost and older automobiles that are
easier to fix.

Own Damage Insurance Policy Cover

The own damage insurance policy, or the collision damage policy, covers the cost of repairs to
the car or reimburses for damage caused. In order to decide the cost of collision coverage, the
age and the value of the vehicle will be taken into consideration to arrive at the premium value.
IDV is based over the market value of the car. When there is a claim against this kind of policy,
the maximum sum payable under the policy is given by the insured declared value after
depreciation.
Types of Bike Insurance

There are mainly three types of bike insurance policies, and they are:

1) Third Party Bike Insurance Policy

The Motor Vehicles Act of India requires that a bike be insured for any liability that may emerge
as a result of any loss or damage suffered by third parties in an accident caused by the covered
bike.

This sort of bike insurance is commonly referred to as third-party bike insurance. If the covered
bike causes an accident, any damage to the third-party vehicle as well as injury or death to the
third party, will be reimbursed under this policy.

As you can see, third-party liability insurance does not cover loss or damage to the insured bike.
In any accident, the insured bike may experience some damage, and the rider may also sustain
some injuries. You should obtain either a standalone own-damage policy or a complete bike
insurance policy to cover the costs of the insured bike.

2) Comprehensive Bike Insurance Policy

As the name implies, this coverage provides comprehensive 360-degree protection not just for
your bike but also for you against any third-party liabilities.

Comprehensive Bike Insurance is a sort of two-wheeler insurance that provides the owner-driver
with own-damage coverage for the covered bike, coverage against any legal and financial third-
party obligations, and personal accident coverage. Furthermore, by supplying a list of unique
add-ons with your insurance, you can acquire customised coverage against certain
circumstances. Popular add-ons include Zero Depreciation Coverage, Roadside Assistance
Coverage, and others.

3) Standalone Own Damage Coverage Insurance Policy

An Independent Damage A two-wheeler insurance policy is a sort of bike insurance policy that
protects the insured two-wheeler from damage. It covers natural and man-made disasters, theft of
the bike, and total damage to the bike (damaged beyond repair).

This policy, however, does not cover any third-party liability. As a result, this policy can only be
purchased in conjunction with the legally required third-party liability coverage.
Agriculture insurance

Agriculture is the backbone of many developing economies, but it is exposed to various risks and
highly dependent on the weather. Agriculture insurance can help reduce this vulnerability of
agriculture-based households and enterprises.
In India, only 40 per cent of agricultural land in India is irrigated, while the remaining 60 per
cent is subject to unpredictable weather patterns. Similarly, in Kenya, rain-fed agriculture
accounts for about 80 percent of total agricultural production. There is also evidence that rural
women suffer more from climate-related events than men do, as 75 per cent of their income is
dependent on agriculture.

Agriculture insurance can help reduce the vulnerability of both women and men, households and
enterprises that work in agriculture, by providing protection against crop losses due to natural
disasters, such as drought, floods, hailstorms, pest attacks, disease outbreaks and other events
that can damage crops or livestock. Agriculture insurance is a relevant mechanism to manage
risks to help farmers to avoid financial losses and keep their businesses running.

It aims to reduce the financial risk and uncertainty faced by farmers and help them manage their
production and income more effectively. Insurance has become even more important as extreme
weather events and climate change have increased the risks and uncertainties of farmers and
agriculture-based enterprises. By reducing the financial risks associated with farming, agriculture
insurance can help to promote stability and growth in the industry.

In addition, agriculture insurance an improve access to credit for households and businesses, as
lenders may be more willing to lend money to farmers who have coverage. This can help farmers
to expand their operations and invest in new equipment or technology.

Increasing awareness and understanding of insurance among agriculture households and

business and improving capacities of insurance providers – including insurers, aggregators and
governments – needs continuous efforts. Working with local partners can increase knowledge
and capacity on sustainable use and development of climate and agriculture insurance.
Stimulating exchanges among relevant stakeholders can also help develop an inclusive insurance
market and accelerate the offer of risk-management solutions for agricultural enterprises,
households and individuals.

Bundling or coupling agriculture insurance with other (non-)financial services offered by

different stakeholders in the agriculture value chain, such as lenders, farm input providers and
output buyers, can also promote adoption of insurance by making it more tangible for farmers.

Government policy can play an important role in agriculture insurance, as it helps to promote the
availability and affordability of insurance products for farmers. By working effectively with the
private sector – through public-private partnerships , providing subsidies , developing risk-
sharing programmes and supportive regulatory frameworks – governments can support
agricultural productivity while reducing the financial risks faced by farmers and agriculture-
based enterprises.

The Indian agriculture and allied sectors contribute to around 20% to the Indian GDP while
engaging more than 45% of the working population. These factors as well as the socialist
economic nature of the country necessitate India to protect the interests of its farmers, particularly
small farm holders with less than two hectares of land holding which accounts for around 86% of
all farmers. The vulnerability of the sector to various risks such as natural disasters, adverse
weather conditions, and fluctuating crop yields necessitates proper implementation and widespread
penetration of protective measures such as agricultural insurance.

At a time when India is expected to encounter El Niño, providing agricultural insurance coverage
to farmers and addressing their unique challenges is indispensable to ensure that farmers don’t bear
the heat of the situation. El Niño can cause inadequate rain in the major cropping season of Kharif
and affect farmers badly as, we know, rains are the major source of irrigation contributing around
51% of country’s net sown area. Offering insurance cover is crucial not only to ensure that farmers
stay strong and motivated to go to fields but also to facilitate India accomplish the goals of the
ongoing “Amrit Kaal”.

Understanding El Niño and its impact

El Niño, a climate phenomenon characterised by abnormal warming of the Pacific Ocean, has
significant consequences for global weather patterns. It often disrupts rainfall patterns, leading to
droughts in some areas and excessive rainfall in others. Smallholder farmers, who have no means
except rain-fed irrigation, are particularly vulnerable to the adverse effects of El Niño.

During El Niño events, smallholder farmers may not only face reduced water availability for
irrigation but also encounter increased incidence of pests and diseases, and decreased crop
productivity. Furthermore, regions where rainfall patterns are unpredictable, the impact of El Niño
can be severe, leading to droughts. An exaggerated loss along with meagre income can lead to
farmers getting into traps of traditional money lenders with extreme interest rates. We are well
aware of the farmer suicides caused by financial distress; 5,318 farmers committed suicide in 2021.
This shows the criticality of having agri-insurance plans for every farmer in the country.

What’s agricultural insurance

Agricultural insurance is a specialised form of insurance that focuses on protecting farmers against
specific risks associated with their farming activities or natural calamities. Unlike general
insurance, which covers a wide range of risks, agricultural insurance is tailored to address the
specific needs of farmers. It provides coverage for risks such as crop loss due to natural disasters,
adverse weather conditions, pests, diseases, and fluctuating crop yields.

Importance of agricultural insurance

 Agricultural insurance plays a crucial role in managing risks and building resilience in the
agricultural sector. By providing financial protection against losses caused by unforeseen events,
such as droughts and crop failures, agricultural insurance helps smallholder farmers recover from
setbacks and continue their farming activities. Here’s how agricultural insurance can specifically
mitigate the impact of El Niño on smallholder farmers:

 Risk Transfer: Agricultural insurance transfers the risk of crop losses and damage from farmers
to insurance companies. In the event of El Niño-induced drought or crop failure, farmers can file
insurance claims to receive compensation for their losses. This financial support helps farmers
recover and reinvest in their agricultural activities, reducing the economic impact of El Niño.
 Financial Stability: El Niño events often lead to income fluctuations and economic instability for
smallholder farmers. Agricultural insurance provides a safety net by ensuring a stable income
stream for farmers, even in the face of climatic uncertainties. This stability enables farmers to
meet their financial obligations, such as repaying loans and investing in future farming seasons.
 Investment in Resilience: Agricultural insurance encourages farmers to adopt climate-smart
practices and invest in resilience-building measures. With the knowledge that their losses are
partially covered by insurance, farmers are more likely to adopt drought-resistant crop varieties,
implement water-saving irrigation techniques, and engage in soil conservation practices. These
actions enhance their ability to withstand the impact of El Niño and build long-term resilience.
 Creditworthiness: Agricultural insurance can enhance the creditworthiness of smallholder
farmers. When farmers have insurance coverage, lenders perceive them as less risky borrowers.
This increased creditworthiness enables farmers to access loans and other financial services,
which can be crucial during post-El Niño recovery periods. Farmers can use these funds to
purchase inputs, rehabilitate their farms, and invest in alternative income-generating activities.
 Capacity Building and Knowledge Transfer: Agricultural insurance programs often include
capacity-building components that provide training and technical support to farmers. This
support helps farmers understand climate risks, improve their risk management skills, and adopt
sustainable farming practices. By equipping farmers with knowledge and skills, agricultural
insurance programs contribute to long-term resilience and adaptation to El Niño and other
climate-related challenges.
Agricultural insurance in India

Considering the significance of agri-insurance and in order to safeguard farmers against yield
losses, the government has aggressively worked on this aspect through notable insurance schemes
such as Pradhan Mantri Fasal Bima Yojana (PMFBY) which provides protection for food crops,
oilseeds and annual horticultural/commercial crops notified by state governments. Apart from this,
Weather-Based Crop Insurance Scheme (WBCIS), Coconut Palm Insurance Scheme (CPIS) and
Unified Package Insurance Scheme (UPIS) are other schemes through which agri-insurance is
being promoted in India.
Undoubtedly, the adoption of agricultural insurance is growing in the country by the day, with
more small farmers recognizing its benefits. However, the overall adoption is not satisfactory.
Efforts to promote awareness and increase penetration among smallholder farmers are essential to
maximize the benefits of agricultural insurance in India.

What needs to be done

To maximize the benefits of agricultural insurance and effectively mitigate the impact of El Niño,
it is crucial to leverage technological advancements and available resources. The Weather-Based
Crop Insurance Scheme (WBCIS), which integrates remote sensing technology and advisories
from organisations like the Indian Meteorological Department (IMD), can provide localised
information and facilitate farmers make informed decisions. They can hence optimise the timing of
their agricultural operations based on weather forecasts, adjust cropping patterns, and take
appropriate measures to protect their crops.

Most importantly, governments and insurance providers must prioritise farmer education and
awareness programs to ensure smallholders understand the benefits and procedures associated with
agricultural insurance.

Conclusion

Agricultural insurance can play a vital role in safeguarding smallholder farmers against the impact
of El Niño and other climate-related risks. By providing financial protection, encouraging climate-
smart practices, and leveraging technology, agricultural insurance can help mitigate the adverse
effects of El Niño events on farmers’ livelihoods. Governments, insurance providers, and farmers
must collaborate to enhance awareness, accessibility, and utilisation of agricultural insurance
schemes, ensuring the resilience and sustainability of smallholder farming communities.

With uncertainty being an unavoidable aspect of life, individuals and organisations depend on
the protection insurance policies provide to tackle these unavoidable challenges. An insurer
guarantees to protect the insured against damages arising from emergencies in exchange for an
amount of money.

You must understand the meaning, importance, features, and characteristics of fire insurance to
manage its complexities successfully.

What Is Fire Insurance?

Fire insurance refers to a type of insurance that covers the policyholder against loss or damage
caused by fire. Under the claim, there is coverage for repair, reconstruction, or replacement costs
incurred on properties damaged by fire incidents.

Fire insurance policies cover a wide range of assets, such as inventory, buildings, equipment, and
personal property. Apart from direct fire damage, it also covers damages caused by smoke and
water that firefighters use to extinguish the fire.
A fire and burglary insurance plan is suitable for many categories of people, including home and
business owners. It also includes tenants who can use the policy to protect your expensive
gadgets, appliances, and other belongings.

Why is a Fire Insurance Policy Important?

In India, fire-related incidents are common due to several reasons, including manmade and
natural disasters, electrical malfunctions, etc. A fire can lead to significant financial losses due to
damage to property and assets. It can impact individuals and businesses.

A fire insurance policy plays a crucial role in mitigating the financial impact of these incidents
and providing monetary compensation against the damages. Moreover, it is mandatory for some
businesses, especially those engaged in the storage and handling of hazardous items, to have fire
insurance. This is a precautionary measure to stay protected from financial burdens and respond
to fire incidents more effectively.

Characteristics of Fire Insurance

Now that you are familiar with the fire insurance definition, you must understand its
characteristics. These fire insurance characteristics play a crucial role in ensuring that the
insurance policy suits your requirements.

Insurable Interest in Property

Fire insurance is issued when the insured has an insurable interest in the property. Insurable
interest means that the survival of the insured items and the losses suffered due to destruction
matter to the policyholder. The policyholder must have an insurable interest when buying the
policy and filing a claim.

Utmost Faith

A fire insurance contract rests on the principle of utmost good faith, which means that the
policyholder must share all vital information related to the subject of the insurance policy. There
should be no secrets. This clear communication should enable the insurer to analyse the
associated risks with more precision.

The insured should provide details about the property’s location, construction style and design,
probability of fire incidents, and other related information. The insurance provider has the
authority to terminate the policy if any information is hidden or inaccurately disclosed.

The insurance company, at its end, should spell out the inclusions and exclusions of the policy
with transparency. There should be no hidden charges or clauses.

Personal Insurance Contract

The nature of fire insurance is such that it protects property against loss and damage, making the
policyholder’s role inevitable. Thus, insurance companies must gather complete information
about the policyholder and monitor their behaviour.

Additionally, the policyholder cannot amend the terms of insurance without the consent of the
insurer. The insurer can terminate the policy with immediate effect if the property’s possession is
transferred to a third party without intimation.

Indemnity Contract

The claim amount is restricted to the sum insured limit. You cannot apply for a claim if there is
no loss.

Personal Right

The policyholder, or the person whose name is written in the fire insurance policy, is entitled to
receive compensation in case of losses or damages.

Direct Fire Damage

You can avail the benefits of fire insurance only if the direct and immediate cause of the damage
or loss is fire. If a tangible property and its contents are damaged directly by an accidental fire,
you can file a claim for the losses.

Moreover, direct fire damages extend to the losses suffered by the building’s contents when
firefighters spray water and smoke to put out the fire.

Description of Property

It is necessary to mention the property’s location and description in the fire insurance contract.
The insurer will provide compensation only if the fire incident occurred at the mentioned
location. The claim will be rejected if the location changes. Thus, inform the insurer about a
location change to avoid last-minute hassles.

Features of Fire Insurance

Here’s a look at the features of fire insurance.

 Fire insurance is bound by an indemnity clause. This means that the compensation you
receive for your loss is restricted to the limit of the maximum sum insured.

 The policyholder must hold an insurable interest in the property insured while buying the
policy and also while filing a claim.

 The terms of a fire insurance policy apply only when the cause of damage or loss is fire
and a reason associated with the fire incident.
  The tenure of fire insurance is one year. The policy lapses if you do not renew it on time.

Benefits of Fire Insurance

Fire insurance is an essential safeguard for home and business owners. It provides coverage
against fire damage. To make an informed decision, you must go through its advantages.

Financial Protection

One of the primary benefits of fire insurance is its ability to safeguard the owner financially. It
offers coverage for repair and reconstruction costs incurred after a fire. This protection is of
immense importance because it keeps you secured from financial burdens and crippling
expenses.

Coverage for Contents

The insurance plan covers contents as well. This means you can claim compensation for
damages or losses caused to electronics, furniture, and personal items. Comprehensive coverage
is a significant benefit of this type of insurance.

Peace of Mind

You can enjoy peace of mind when you know you will be covered for losses. You know you
would not have to overcome financial ruin in the event of a fire. This assurance is noteworthy.
You can focus on recovery instead of expenses.

Liability Protection

Some insurance plans offer liability coverage. In the event the fire spreads to neighbouring
properties, causing damage, a fire insurance policy offers coverage. This benefit is often
overlooked but critical.

Additional Living Expenses

Your home may become uninhabitable after a fire. Insurance can provide living expenses. In the
case of businesses, the policy allows you to continue business operations. This benefit is a boon
during repairs or rebuilding.

What Are The Inclusions and Exclusions Of A Fire Insurance Policy?

Listed below are the general inclusions and exclusions of fire insurance. However, the exact
inclusions and exclusions may vary between policies and insurers.

Inclusions
Destruction, damage or loss caused to the insured property due to fire from natural heating,
spontaneous combustion or fermentation.

Damages resulting from fire implosions or explosions.

Damage to the insured property caused by spontaneous fires arising from extreme weather
conditions or overgrown bushes set to fire.

Losses suffered because of missile testing operations conducted on property premises.

Damages caused by external physical items like walls, aircraft, falling trees, vehicles, animals,
etc.

Damage caused to the property due to overflowing or bursting of pipes, water tanks, and
apparatus.

Loss or violent destruction resulting from volcanic eruptions and earthquakes.

Violent destruction or damage caused by floods, tornados, storms, typhoons, cyclones,

hurricanes, inundations, and tempests.

Exclusions

If the fire results from heating or drying processes, there is no coverage.

If the property is burnt down by order of a public authority, it is not included.

Explosion or implosion to economisers, boilers, machinery, vessels or apparatus that generate

steam.

Fire resulting from ill intentions.

A fire caused due to burglary.

Some policies cover the losses of other types, like damage to third-party property or loss of rent.
Policyholders must understand the terms of their policy and the types of losses covered under it.

Conclusion

Fire insurance is a crucial type of business insurance policy. It protects assets, residential and
commercial, from the losses occurring due to fire. The policyholder can claim financial
compensation for damages caused by fire, as well as those caused by water and smoke used by
firefighters to extinguish the fire.

Tata AIG offers fire insurance plans with coverage for any kind of loss arising due to fire and allied
perils not in your control. You can choose from two plans - the Business Guard Sookshma Package Policy and the Business Guard Laghu Package Policy.