1. P R E S E N T E D B Y :
C H A I T H R A . G
C H A I T R A . M .
C H A N D N I . K .
D E V I K A . B . Z .
N I V E D I T H A . C .
PRINCIPLES OF INSURANCE

2. INSURANCE
Insurance is a form of risk management
primarily used to hedge against the risk of a contingent,
uncertain loss. Insurance is defined as the equitable
transfer of the risk of a loss, from one entity to another, in
exchange for payment.
 An insurer is a company selling the insurance.
 The insured, or policyholder, is the person or entity buying
the insurance policy.
 The amount to be charged for a certain amount of
insurance coverage is called the premium.

3. Insurance governed acts
1) The insurance Act, 1938
2) The life insurance corporation Act, 1956
3) The Marine Insurance Act, 1963
4) The General Insurance Business Act, 1972

4. Contract of Insurance
Is a contract whereby the insurer
undertakes to make good the loss of another called the
insured by payment of some money to him on the
happening of a specific event.

5. Terminologies used
 Insurer
 Insured
 Premium
 Policy
 Subject matter
 Insurable interest
 Insurable risk

6. Insurable Risk
 The law of large number.
 The loss produced by the risk must be definite.
 The loss must be fortuitous or accidental.
 The loss must not be catastrophic.

7. Criteria of determination of whether a risk can be
insured or not
 The risk must arise out of the ordinary course of
business and it should not be artificially created by
parties.
 The risk must be common enough to justify its
spreading at a nominal cost.
 There must be an element of uncertainty as to the
occurrence of risk or the time of the occurrence.
 The party must have some real interest in avoiding
the risk.

8. Types of insurance
1) Personal or Life insurance
2) Property insurance
3) Liability insurance
4) Guarantee insurance

9. Fundamental principles of insurance
1) Essential elements of a valid contract.
 There must be contract between two parties i.e. insurer
and insured.
 The contract must be in writing.
 The insurance policy is printed, stamped, signed my the
insurer and handed over to the insured.
 It should have a valid offer, acceptance and
consideration.
 There should be a lawful object.

10. Contd…
2) Principle of co-operation and probability.
3) Utmost good faith.
4) Indemnity.
5) Contingent contract.
6) Insurable interest.
7) Aleatory contract.
8) Term of policy.

11. Contd…
9) Commencement of risk.
10) Premium.
11) Causa proxima.
12) Mitigation of loss.
13) Contribution.
14) Subrogation.
15) Reinsurance.
16) Double insurance.

12. Distinction b/w double insurance and
reinsurance
Double insurance Reinsurance
Risk The same risk and same
subject in insured by the
policy holder.
The transfer of part of the
risk by the insurer.
Extent of
liability of the
insurer
The loss will be shared by all
the insurers.
The re-insurer will be liable
for a proportion of part of
the loss.
To whom liable Each insurer is directly liable
to the policy holder.
The re-insurer is liable only
to the first insurer.
Object It is a method of assuring the
benefit of insurance.
It is a method of reducing of
the risk of the insurer.

13. Wager
The meaning of ‘wagering’ is staking something of
value upon the result of some future uncertain event, such
as a horse race, or upon the ascertainment of the truth
concerning some past or present event.
 An agreement under which each bettor pledges a certain
amount to the other depending on the outcome of an
unsettled matter.
 A matter bet on; a gamble.
 Something staked on an uncertain outcome.
 A pledge of personal combat to resolve an issue or case.

14. Ingredients of a wager contract
1) It can relate to part, present or future act or event.
2) One party is to win and the other party is to lose
upon the determination of the event.
3) There shall be two persons either to whom stands
to win or lose
4) Stake is the only interest between the two parties.
They have no real interest in the subject matter.

15. Similarities b/w a contract of insurance and wager
1) Uncertainty:
In both uncertainty is involved.
2) Amount :
In both money plays an important role.
3) Speculation :
both depends upon happening or non-happening of
speculative events.

16. Return of premium
There are circumstances which make the contract
of insurance void or even voidable. The contract of
insurance is voidable when the affected party has opted
to avoid the contract. This usually happens when the
consideration has failed.

17. Circumstances when the insurer is bound to
return the premium
1) No risk – no premium.
2) Doctrine of pari delicto.
3) Frustration and impossibility.
4) Non-disclosure of fact or mistake.
5) Fraud by the insurer.
6) Ignorance of the fact.
7) Fraud played by the insurance agent.
8) Cancellation/rescission.
9) Ultra vires the insurance company.
10) Surrender of the policy.