INSURANCE Insurance is a form of risk managementprimarily used to hedge against the risk of acontingent, uncertain loss. Insurance is defined as theequitable transfer of the risk of a loss, from one entity toanother, 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.
Insurance governed acts1) The insurance Act, 19382) The life insurance corporation Act, 19563) The Marine Insurance Act, 19634) The General Insurance Business Act, 1972
Contract of Insurance Is a contract whereby the insurerundertakes to make good the loss of another called theinsured by payment of some money to him on thehappening of a specific event.
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.
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.
Types of insurance1) Personal or Life insurance2) Property insurance3) Liability insurance4) Guarantee insurance
Fundamental principles of insurance1) 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.
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.
Contd…9) Commencement of risk.10) Premium.11) Causa proxima.12) Mitigation of loss.13) Contribution.14) Subrogation.15) Reinsurance.16) Double insurance.
Distinction b/w double insurance and reinsurance Double insurance Reinsurance Risk The same risk and same The transfer of part of the subject in insured by the risk by the insurer. policy holder. Extent of The loss will be shared by all The re-insurer will be liableliability of the the insurers. for a proportion of part of insurer the loss.To whom liable Each insurer is directly liable The re-insurer is liable only to the policy holder. to the first insurer. Object It is a method of assuring the It is a method of reducing of benefit of insurance. the risk of the insurer.
Wager The meaning of ‘wagering’ is staking something ofvalue upon the result of some future uncertain event, suchas a horse race, or upon the ascertainment of the truthconcerning 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.
Ingredients of a wager contract1) 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 lose4) Stake is the only interest between the two parties. They have no real interest in the subject matter.
Similarities b/w a contract of insurance and wager1) 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.
Return of premium There are circumstances which make the contractof insurance void or even voidable. The contract ofinsurance is voidable when the affected party has optedto avoid the contract. This usually happens when theconsideration has failed.
Circumstances when the insurer is bound to return the premium1) 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.