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  1. 1. Insurance
  2. 2. Definition <ul><li>“ A social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contribution of all parties participating in the scheme.” </li></ul><ul><li>“ Insurance is a device for the transfer of individuals entities to an insurer , who agrees for a consideration , to assume to a specified extent losses suffered by the insured.” </li></ul>
  3. 3. Essential features for insurance <ul><li>There must be a large numbers of similar risks. </li></ul><ul><li>The loss caused by the risk must be definite </li></ul><ul><li>The occurrence of the loss must be accidental </li></ul><ul><li>The potential loss must be large enough to cause hardship </li></ul><ul><li>The cause of insuring must be economically feasible </li></ul><ul><li>It must be possible to calculate the chance of loss </li></ul><ul><li>There must be an insurable interest to protect </li></ul><ul><li>It must be consistent with public policy </li></ul>
  4. 4. <ul><li>Reinsurance </li></ul><ul><li>It is an agreement between two or more insurance companies by which the risk of loss is proportioned i.e. the risk of loss is spread and as disproportionately large loss under a single policy does not fall on the shoulder of one company. </li></ul>
  5. 5. Double insurance <ul><li>It implies that the same subject matter of insurance has been insured twice either with two different companies or with same company under two policy. </li></ul>
  6. 6. Fundamental principle of insurance <ul><li>Utmost good faith </li></ul><ul><li>Insurable interest </li></ul><ul><li>Indeminity </li></ul><ul><li>Mitigation of loss </li></ul><ul><li>Attachment of risk </li></ul><ul><li>subrogation </li></ul>
  7. 7. Utmost good faith <ul><li>It means each party to a proposed contract is legally obliged to reveal to the other party all information which would influences the other’s decision to enter the contract , whether such information is required or not. </li></ul><ul><li>Material facts are of two types </li></ul><ul><li>Those facts which affects the nature or incidence of risk </li></ul><ul><li>Those facts which affects the character of the insured. </li></ul>
  8. 8. <ul><li>There are many facts concerning any proposed insurance contract which are not of vital consideration to the insurer and insured </li></ul><ul><li>Facts of public, Common or professional knowledge . </li></ul><ul><li>Facts which results in reducing the risk </li></ul><ul><li>Facts embodied in the policy itself </li></ul>
  9. 9. Insurable interest <ul><li>It means that the insured stands in such a relation to the subject matter of insurance that he suffers loss by its destruction or damage and is benefited by its safety or existence </li></ul><ul><li>It must satisfy some conditions like: </li></ul><ul><li>There must be a physical object </li></ul><ul><li>There must be potential liability </li></ul><ul><li>There must be legally recognized relationship with the subject matter. </li></ul>
  10. 10. indemnity <ul><li>Indemnity restores the insured to the same financial position after a loss as he enjoyed immediately prior to the loss. </li></ul><ul><li>Under the principle of indemnity, therefore , no profit can be made out of the insurance contract. </li></ul><ul><li>Methods of providing an indemnity </li></ul><ul><li>Cash </li></ul><ul><li>Replacement </li></ul><ul><li>Repair </li></ul><ul><li>Reinstatement </li></ul>
  11. 11. Mitigation of loss <ul><li>The principle places a duty on the insured to make every effort and to take all such steps , in the event of some mishap to the insured property, to mitigate or minimize the loss, as would have been taken by an uninsured person. </li></ul>
  12. 12. Attachment of risk <ul><li>Under this principle a contract can be enforced only if the risk has attached. </li></ul>
  13. 13. subrogation <ul><li>It is defined as the right to which one person has to stand in the place of another and avail himself of all rights and remedies of that other. </li></ul>