Classification of Insurance

Classification of insurance
• Insurance can be classified:
– From business-point of view
– From risk point of view
 Business Point of View

• The insurance can be classified into three

categories from business point of view:
(i) Life Insurance
(ii) General Insurance, and
(iii) Social Insurance.
 Life Insurance
• Life Insurance is different from other insurance in the
sense that, here, the subject matter of insurance is life of
human being. The insurer will pay the fixed amount of
insurance at the time of death or at the expiry of certain
period.
• At present, life insurance enjoys maximum scope because
the life is the most important property of the society or an
individual. Each and every person requires the insurance.
• The insurance is not only a protection but is a sort of
investment because a certain sum is returnable to the
insured at the death or at the expiry of a period.
 General Insurance
• The general insurance includes property
insurance, liability insurance and other forms
of insurance.
• Fire and marine insurances are strictly called
property insurance. Motor, theft, and machine
insurances include the extent of liability
insurance to a certain extent.
 Social Insurance
• The social insurance is to provide protection to the
weaker section of the society who is unable to pay
the premium for adequate insurance. Pension plans,
disability benefits, unemployment benefits, sickness
insurance and industrial insurance are the various
forms of social insurance.
• With the increase of the socialistic ideas, the social
insurance is an obligatory duty of the nation. The
Government of a country must provide social
insurance to its masses.
 Risk Point of View
• As per nature of Interest ,Insurance is divided
into :
– Personal Insurance
– property Insurance
– Liability Insurance
– Fidelity Insurance
 Personal Insurance
• The personal insurance includes insurance of
human life which may suffer loss due to death,
accident and disease.
• Therefore, the personal insurance is further
sub-classified into
– life insurance
– personal accident insurance
– health insurance.
• May insure his/her own life or life of another
• Personal accident cover provides you
financial assistance in case you suffer an
accident which leads to a serious injury or
death.
• Health insurance is the insurance taken out to
cover the cost of medical care.
 Property Insurance
• Under the property insurance property of person/persons are
insured against a certain specified risk. The risk may be fire or
marine perils, theft of property or goods, damage to property at
accident.
• It further has sub types:
– Marine Insurance
– Fire Insurance
– Auto Mobile Insurance
– Cattle Insurance
– Crop Insurance
– Monetary Insurance
– Theft Insurance
• Marine insurance covers the losses or damages
caused to ships, terminals and any transport or
cargo by which goods are transferred, acquired, or
held between different points of origin and final
destination.
• Fire insurance is property insurance covering
damage and losses caused by fire.
• An auto mobile insurance is a policy purchased by
vehicle owners to mitigate costs associated with
getting into an auto accident
• Cattle Insurance for protection of cattle
• Monetary Insurance covers "Money" carried by the Insured
or the authorized employees / messengers while in transit.
Money means and includes cash, bank drafts, currency
notes, treasury totes, cheques, postal orders and current
postage stamps.
• Crop insurance refers to an insurance which insures
farmers and crop producers against the their loss of crops
due to natural disasters, such as hail drought, and floods
• Theft insurance is the insurance against loss or damage
caused by the unlawful taking of property
 Liability Insurance
• The liability insurance covers the risks of third
party.
• Liability insurance is insurance that provides
protection against claims resulting from injuries
and damage to people and/or property.  
• Further classified into:
– 3rd party
– Employees
– Re-insurance
• 3rd party Insurance : This policy covers damages
caused by the insured to another. The insured is
considered as the first party, the insurance
company is the second and the third is the injured
or the person/company making the claims.
• Employees Insurance : This type offers cover to
liabilities that an employer may incur if an
employee is injured during his/her employment
due to the job. Sometimes, companies do not deem
this as important but if faced with a claim, they
might be driven to bankruptcy.
• Reinsurance : Reinsurance, also known as insurance for
insurers or stop-loss insurance, is the practice of insurers
transferring portions of risk portfolios to other parties by
some form of agreement to reduce the likelihood of
paying a large obligation resulting from an insurance
claim.
• The party that diversifies its insurance portfolio is
known as the ceding party. The party that accepts a
portion of the potential obligation in exchange for a
share of the insurance premium is known as the
reinsurer.
 Guarantee Insurance
• The guarantee insurance covers the loss arising
due to dishonesty, disappearance and disloyalty
of the employers or other person.
• For example, in export insurance, the insurer
will compensate the loss at the failure of the
importers to pay the amount of dept.
• Further classified into :
– Fiduciary Insurance
– Credit Insurance
• Fiduciary liability insurance is a popular vehicle for protecting
individuals charged with the responsibility of creating, managing,
and administering employee benefit plans within business
organizations.
• Fiduciary liability arises from the obligations set forth in the
Employee Retirement Income Security Act (ERISA) of 1974. ERISA
was passed to assure that employees participating in (1) employee
pension benefit plans and (2) employee welfare benefit plans
receive the benefits promised by such plans. As a result, the law
created a variety of fiduciary liability exposures for employers that
offered these plans, and, in response, fiduciary liability insurance
coverage became available on a widespread basis during the mid-
1970s.
 Example of fiduciary Insurance
• Suresh was an employee of a leading Goa-based manufacturing firm.
He had announced his plans to retire and requested for a pension
calculation in writing. In spite of several requests, the plan
administrator took over 55 days to value the plan assets.
• During that time the stock market showed severe fluctuations and
drops, which had a negative impact on the value of the retirement
funds.
• Due to the suffered loss, Suresh sued the plan administrator and the
pension plan alleging an error in administration and a miscalculation
of plan benefits.
• The fiduciary insurance policy bought by the company protected the
plan administrator from the allegations. The insurance company was
able to settle the case with rupees 95,000 settlement amount.
• Credit insurance is a type of insurance policy
purchased by a borrower that pays off one or
more existing debts in the event of a death,
disability, or in rare cases, unemployment.