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Insurance basics


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Insurance basics

  1. 1. Basics of Insurance<br />
  2. 2. Principles of Life Insurance<br />
  3. 3. The Indian Contract Act 1872<br />A contract is an agreement between two or more parties to do or to abstain from doing an act and which is <br />intended to create a legally binding relationship<br />
  4. 4. Is Life Insurance a Legal Contract?<br />Intention is legal<br />Proposer offers-insurer accepts<br />Premium is consideration<br />Insured must be major with sound mind-capacity to contract<br />Insured and Insurer are in agreement –of same mind and free consent<br />Yes, since all essentials of valid contract are present<br />
  5. 5. Principles of Life Insurance<br />Insurance Contract is based on Fair Play<br />
  6. 6. Utmost Good Faith<br />A Positive Duty to voluntarily disclose, accurately and fully, all facts material to risk being proposed, whether requested or not<br />
  7. 7. What is a material Fact<br />Which Influences<br />The Mind of a Prudent Underwriter<br />Any Fact or Circumstance<br />In determining whether to take the risk<br />In Fixing the premium<br />
  8. 8. Materials facts that need not to be disclosed<br />Facts Of Common Knowledge<br />Facts Of Law<br />Need not be<br />Material Facts<br />Disclosed<br />Facts Which Lessen Risk<br />Facts that can be discovered<br />With reasonable diligence<br />
  9. 9. Breach Of Utmost Good Faith<br />Breach Of Utmost Good Faith<br />Misrepresentation<br />Non-Disclosure<br />
  10. 10. Section 45 of the Insurance Act,1938<br />Policy<br />Start Date<br />2 years<br />If Material Facts discovered within<br />2 years of the policy then the insurer<br /> can declare the policy null and void<br />The policy cannot be called in question after 2 years, on the grounds of inaccurate or false statement unless it is proved to be material and fraudulent.<br />
  11. 11. What is Insurable Interest ?<br />Recognized in Law and gives Legal Right to a person<br />Relationship with subject Matter<br />To insure that Subject Matter<br />Insurable Interest is the monetary interest<br />
  12. 12. What is Insurable Interest ?<br />Insurable Interest is not defined in Insurance Act 1938<br />If No Insurable Interest .A contract is a Wagering Contract which is void<br />Section 30<br />Indian Contract Act 1872<br />Insurable Interest is a Legal Pre Requisite<br />
  13. 13. Who have insurable interest in each other<br />Any person in himself<br />Husband and wife in each other<br />Creditor on Debtor(To the Extent of Outstanding Mortgage with Interest)<br />Surety on Principal(To the extent of Debt)<br />Partners in business<br />Employer on its employees<br />Parents in Lives of their Minor Children<br />
  14. 14. When do these principles apply?<br />Insurable Interest interest is required at the time of inception of the contract<br />Utmost Good Faith is required Throughout the contract<br />
  15. 15. Principle Of Indemnity<br />Insurance is meant to compensate the losses<br />The Mechanism of Insurance cannot be used to make profits<br />Amount of claim cannot exceed the amount of loss incurred<br />Insurance makes good the loss<br />In Life Insurance, insurable interest on own life is unlimited hence Principle of indeminity does not apply but it does apply in General Insurance <br />
  16. 16. Risk Management<br />Avoidance<br />Transfer<br />Risk can Be managed<br />Retention<br />
  17. 17. Risks Management<br />You can avoid accidents by driving safely<br />Avoidance<br />You have your own resources to take care of needs; (savings for rainy days)<br />Retention<br />Buying insurance; transfer your risk to insurer<br />Transfer<br />
  18. 18. Classification of Needs <br />Protection of the standard of living of family incase of early death<br />Future Expenses eg. Children Education<br />Income incase of Retirement or Disability<br />Helps by facilitating borrowing<br />
  19. 19. Key Learnings<br />Life Insurance contract is also a legal contract<br />The proposer must declare all the facts properly in utmost good faith<br />Proposal Form is the basis of Contract<br />Section 45 of Indian Insurance Act, stipulates that a policy cannot be called for question after 2 years<br />Insurable Interest is a legal pre-requisite<br />
  20. 20. Thank You<br />