2. Types of risks
• Pure and Speculative risk
• Fundamental and Particular risk
• Personal risks – 4 types
• Property risk
• Liability risk
• Fidelity risk
3. Risk Management
Risk Management may be defined as the
identification ,analysis and economic control
of those risks which can threaten the assets or
earning capacity of an enterprise.
4. Objectives of Risk Management
• Protecting employees from accidents that
might result in death or injury
• Due attention given to cost of handling risks
• Effective utilization of resources
• Maintaining good relations with society and
public
5. Features of Risk Management
• Create the right corporate policies and strategy
• Manage men and machines(processes) effectively
• Evaluate the risks confronted by a business
• Effectively handle, spread, monitor and insure the risk
• Introduce various plans and techniques to minimize the risks
• Give advices and suggestions for handling the risks
• Create risk awareness among the people
• Avoid cost, disruption and unhappiness relating to risks
• Decide which risks are worth taking /pursuing and which should be
shunned
• Fix the sum assured under the policy and to decide on whether to
insure or not
• Select the appropriate technique or method to manage the risks.
6. Methods of handling risks
• Prevention of risks
• Reduction of risks-innovative features
• Shifting/transferring of risk- insurance
companies
• Acceptance/ receiving of risks
• Spreading of risks-mutual funds ,factoring
7. Insurance
Functional definition
Insurance is a plan wherein persons collectively
share the losses of risks.
Insurance is a source of distribution of loss of few
persons into many persons
The function of insurance is primarily to decrease
the uncertainity of events.
8. Functional definition
The collective bearing of risk is insurance.
Insurance is a plan by which large number of
people associate themselves and transfer to
the shoulders of all, risks attached to
individuals.
9. Legal Definition
Insurance is a contract in which sum of money is
paid by the assured in consideration of the
insurer’s incurring the risk of paying a large
sum upon a given contingency.
10. Insurance
• Insurance is defined as a cooperative device to
spread the loss caused by a particular risk over
a number of persons who are exposed to it.
• It does not reduce the risk
• It does not alter the probability of risk
• It only reduces/spreads the financial losses.
11. Insurance is a financial arrangement that
spreads the costs of losses among the
members of an insurance pool.
12. 2 principles of insurance
• Sharing of risk (individual –community )
• Peril should occur in an accidental manner
13. Rights and responsibilities of Insurer
• Right to collect premium from the insured
• Right to specify the rules and conditions that
govern the promise made under the policy
• Responsibility to pay for the losses occurred
and claimed by the insured
14. Rights and responsibilities of Insured
• Obligation to pay premium to the insurer
• Right to collect payment from the insurer if a
covered loss occurs
• Obligation to comply with the terms and
conditions prescribed by insurer
15. Insurance contract and wagering
contract
If the event does not happen no payment will be
made this is wagering contract
Insurance contract is a contract of indemnity.
16. Principles of Insurance
• Principle of Utmost good faith
• Principle of Proximate cause
• Principle of Insurable Interest
• Principle of Indemnity
• Principle of Mitigation
• Principle of Subrogation
17. Classification of Insurance
1. Life Insurance
2.Non-life insurance – General insurance –
Marine insurance , fire insurance , personal
accidental insurance
Miscellaneous insurance- Fidelity guarantee
insurance, Crop insurance, Burglary insurance
and Flood insurance.
18. Difference between Insurance and
Assurance
1. Insurance (non –life insurance)
Assurance ( Life insurance)
2. Loss due to risk is not certain to happen i.e
loss is likely to happen or not
Loss due to risk is certain to happen.
19. Insurance and assurance
3. insured-goods or property
Human life is the subject matter.
4. It is usually for 1 year
It is a continuing contract
5. Fire ,marine and other contracts are contracts of
indemnity.,
Life insurance -It is not a contract of indemnity.
6. Insurance – presence of insurable interest.
20. 7. In case of marine and fire insurance,policy
cannot be surrendered.
Life insurance can be surrendered.
8. Insurance purpose is only the protection
element.
Both elements of security and investment.
21. Functions of Insurance
• It helps in capital formation
• It provides certainity
• It provides protection
• It helps prevention of losses
• It shares risk
22. Characteristics of Insurance
• Risk sharing and risk transfer
• Co-operative device
• Calculates risk in advance
• Payment of claim at the occurrence of
contingency
• Amount of payment
• Larger number of insured persons
• Insurance must not be confused with charity or
gambling.
23. Risk and Insurance
• Financial value
• Homogeneous exposures
• Insurance is concerned only with pure risks
• Insurable interest
• Risk of being fined by the police
• The insurer and the insured to have mutual
goals.
24. Features of insurance
devices/products
• Purpose of the device
• Who is eligible to insure?
• After buying the insurance, can the policy be
transferred
• When and what claim is payable under the
terms of the policy.
• Is every loss a claim?
25. Risks
• Financial and non financial risk
• Static and dynamic risk
• Fundamental and particular risk
• Pure and speculative risk
26. Insurance contract
It is a contract between the insurer and the
insured in consideration of a sum to make
good the financial losses.
In consideration of a premium.
27. Essentials of a valid insurance contract
• Agreement (Offer and acceptance)
• Legal consideration
• Parties competent to contract
• Free Consent
• Legal object
28. Basic principles of insurance
• Principle of utmost good faith or Uberrimae
Fides
• Principle of insurable interest
• Principle of indemnity
• Principle of Proximate cause
• Principle of Subrogation – stepping into the
shoes of another
30. Life Insurance
Life Insurance contract may be defined whereby
the insurer , in consideration of a premium
paid either in lump sum or in periodical
instalments, undertakes to pay an annuity of a
certain sum of money either on the death of
the insured or on the expiry of a certain
number of years.
Nominees
31. Ways to ameliorate economic
insecurity
• Social security schemes
• Group Efforts
• Individual efforts
32. Features of life insurance
• Instrument of savings
• Provides social security
• Risk coverage starts from the date of accepting of proposal.
• Beneficiary nominee /legal heir stands to gain.
• Policy can be assigned or mortgaged
• Policyholders can seek loans against the policy.
• Certain policies cover up for treatment to serious ailments.
• Ministry of finance extends income-tax benefits on the amount of premium paid.
• Provision for old age
• Contract must be in writing
• Insurer is liable to pay the amount of compensation either on the death or on the maturity of a
policy whichever is earlier
• Insured is also liable to pay the amount of premium period ally to the insurer till the death arises or
at the maturity of a policy, whichever is earlier.
• Life insurance is not a contract of indemnity.
• Insurable interest must be present in the person insured at the time when the policy is taken ,
which may or may not be present at the time of insured ‘s death.
33. A life insurance contract will
essentially specify
• Sum assured
• Term
• Premium
• Mode of payment of premium
• Premium paying period
• Participation in profits
34. Life Insurance is a scientific concept
• Risk sharing
• The law of large numbers
• Investment
35. Basic elements and features of life
insurance plans
The Life Insurance Corporation(LIC) of India
came into existence with the objectives of :
• Assurance of family protection
• Tax concession
• Housing loans
• Loans for educational purposes
• Provision for old age
36. Pure Term Plan
• In it the insured pays a lower premium for a higher sum assured.
• It is the cheapest form of insurance.
• If insured survives the tenure of the plan ,he gets no returns.
• Only in case of an eventuality the individual’s nominees receives the
sum assured.
For eg Age 30 years
Sum assured 10,00,000
Annual Premium 3430
Tenure #0 years
Total premium 1,02,900
Maturity amount on survival - NIL
37. Pure Endowment Plan
• Covers the individual’s life in case of an eventuality, if he
survives the term he receives the maturity amount
• In the event of the individual’s demise within the plan
period ,his nominees receive the sum assured with
accumulated profits/bonuses on investments.
Age 30 years
Sum assured 10,00,000
Annual premium 29,820
Tenure 30 years
Total premium = 8,94,600
Maturity amount on survival = 33,57,515
38. Types of life insurance policies
Term plan + endowment plan
Duration of policy
Methods of premium payments
Participation in profits
Number of lives covered
Method of Payment of sum assured
39. Endowment Assurance Policy
• The premium under the plan are to be paid for a fixed term.
• If death arises than nominees are liable to claim the compensation.
• If the policyholder survives the term of the policy, he gets the sum
assured himself
• The plan is available with profit and without profit.
• Loans may be given for some specified purposes
Benefits associated to the plan are:
On maturity = Sum assured+ Bonus for full term
On natural death = sum assured +bonus accured
Accidental death = Double the amount of sum assured+Bonus accured
40. Whole life policy (with profits)
• This policy is offered at lower rates of premium.
• Premium is payable throughout the lifetime of the assured.
• Sum assured payable on the death of the life assured or attaining of
85 years (or as specified by insurer) of age whichever is earlier.
• Rate of bonus addition is at a higher rate as compared to
endowment policies.
Benefits associated with the plan
1. On maturity = Sum assured + bonus payable
2. Natural death = sum assured + bonus accured
3. Accidental death = double the amount of sum assured + bonus
accured.
41. Whole life limited payment plan
• Plan suits for persons who are in employment.
• Premium is paid during the productive years of his life.
• Premium is moderate in comparison with the endowment
plan.
• Plan is available both with and without profits.
Benefits
1. On maturity = sum assured + bonus payable on attainment
of 85 (as said by insurer) years of age or on completion of
40 years from the date of commencement whichever later.
2. Natural Death = Sum assured + bonus accured
3. Accidental death = Double of sum assured + bonus accured
42. Whole life single premium plan
• Single premium is paid at the start of the
policy.
• The policy is available both with and without
profits.
43. Convertible Whole life plan
• The plan is useful to the young persons who are
at the start of their careers and their present
income is low.
• The object is to provide maximum protection at
minimum cost.
• It is a whole life without profit plan, premiums
payable upto age of 70 years.
• Premium charged is sufficiently low.
• After 5 years the life assured is given an option to
convert it into an endowment policy.
44. Money Back (with profits) scheme
• These are fixed term policies.
• Premium is paid till the end of the term or till the
death of the policy holder, whichever is earlier.
• A part of the sum assured is returned to the
policyholder once in 5 years or 4 years according
to the plan
• The risk cover continues for the full sum assured
even after payment of installments to the
policyholder..
45. Riders Add ons
• Waiver of premium
• Accidental death and dismemberment
• Guaranteed purchase option- permit
additional purchases of life insurance
• Accelerated benefits rider
46. Difference between Assignment and
Nomination
In assignment –all the rights passes to the
assignee.
In nominTION THERE IS NO TRANSFER OF
RIGHTS
2. Consideration is essential for a valid contract.
No consideration is required for a valid contract.
3. Requirement for a separate deed.
There is no need of a separate policy.
47. Difference between Assignment and
Nomination
4. Assignment is irrevocable.
Nomination can be changed or cancelled.
5. The property in the policy passes to the
assignee.
There is no transfer of property in nomination.
6. Assignee has right to sue under the policy.
Nominee has no right to sue in the policy
48. Group Insurance
• The contract is with the employer or with the
group or association.
• A single master policy is issued covering all the
members by the employer or head group and
apply equally to all members.
• The terms and amount of insurance are
negotiated by the employer.
• The premium is paid by the employer or group in
charge after or without being collected from the
members.
49. • It is customary to allow existing members an
option to join the cover or not.
• Individuals are not separately evaluated on risk
factors rather the underwriting is based on an
assessment of the group as a whole.
• Insurance cover up to certain limits is given to all
without either medical examination or stringent
evidence of insurability.
• At a very low cost
• Premium charge differs from year to year.
50. Some important policies
• Industrial all risk (IAR) Insurance policy
Coverage
Fire insurance
Machine breakdown
Boiler explosion
Sprinkler fire
Bursting of tanks /pipeline
Deteriation of stocks due to power failure
Leakage and contamination
51. Adhikari suraksha kavach
• Specific insurance needs of executive
/businessmen
Section 1- Laptop portable computer
Section 2- cellular phone
Section 3-Loss of cash
Section 4- All risk valuables and jewellery
Sec 5 Baggage insurance
Sec 6 Personal accident insurance
Sec 7-mediclaim insurance
Sec 8- personal liability
52. Videsh Yatra Mitra
• Overseas mediclaim scheme
Personal accident
Loss of checked baggage
Loss of passport
Medical expenses
53. FIRE INSURANCE
Fire insurance is defined as an agreement
whereby one party in return for a
consideration ,undertakes to indemnify the
other party against financial loss which the
later may sustain by reason of certain defined
subject matter being damaged or destroyed
by fire or other defined perils to an agreed
amount.
54. Fire Insurance
• Covers the risks of damage by fire.
• The policy should mention clearly the subject matter
/assets insured.
• Presence of a physical asset is a must to have the risk
of fire covered.
• Occurrence of fire is essential and the damage should
be caused to the asset due to fire.
• If the insurance company finds malafide intentions of
the assured, it can take it as a defense to avoid the fire
insurance claim settlements.
• Should be based on utmost good faith.
55. Essentials of Fire Insurance contract
• Capacity to contract. He should not be a minor,
insolvent or insane.
• Consideration of the contract should be lawful.
• Object of the contract should be lawful.
• Free consent i.e without coercion, undue
influence,fraud or misrepresentation.
• The contract should be backed by the presence of
consideration.
• The happening of event should be uncertain.
• Presence of insurable interest.
• Short duration.
56. Risks covered under the fire insurance
policy
• The damage to aircraft or to the property dropped
from the aircrafts
• Damaged caused due to explosion or implosion other
than the destruction or damage caused to boilers,
machinery or appartus
• The damage caused from missile testing operations
• All loss, destruction or damage caused to the insured
property by causes other than pollution,nuclear peril,
loss or destruction caused to the stock in cold store
units
• Damage by bush fire excluding the forest fire.
57. Kinds of fire insurance policy
• Valued policies
• Unvalued or open policies
• Long –term ,mid term and short term policies
• All risk policies
• Limited risk policies
58. Standard Fire Policy
• All India Fire tariff- terms of coverage, premium rates
and the conditions of fire policy.
The risks covered are as follows:
• Fire
• Lightning
• Explosion/Implosion
• Aircraft damage
• Storm,cyclone,typhoon ,flood
• Bursting and or overflowing of water tanks etc
• Bush fire
60. Marine Insurance
The Indian Marine Insurance Act came into
operation on August 1,1963.
Marine insurance basically covers two types of
business i.e. Cargo insurance and Hull
insurance.
61. Cargo insurance includes the goods in transit
Hull insurance is concerned with body, the
machinery and technical know-how ,stores,
tools etc. Of the ship.
Marine insurance has been made mandatory in
export-import business.
62. Definition
A contract of marine insurance is defined by the
marine insurance act 1963 as “ an agreement
whereby the insurer undertakes to indemnify the
assured , in the manner and to the extent thereby
agreed, against losses incidental to marine
adventure. It may cover loss or damage to
vessels, cargo or freight.
It is the agreement whereby the insurer undertakes
to indemnify the assured ,against the maritime
perils.
63. Marine insurance business includes
1.) Insurance of vessels (hull)
2.) Insurance of cargo
3.) Freight paid or received by the assured
4.) Other merchandise and property assured
5.) Insurance of the transactions which are incidental to
the marine adventure or marine transport
6.) Insurance also includes all perils and risks incidental to
money, documents ,securities and other valuable
goods in the ship.
7.) Other incidental activities concerned with
building,launching of ship or transport of stores .
64. Types of risks covered by marine policy
• Sinking, and grounding of ship/vessel /boat
• Collision or contract of vessels, ships, boats with internal
and external objects
• Discharge of cargo at a port of distress
• Volcanic eruption or lighting or fire or explosion
• Loss caused by delay ,wrongful delivery ,malicious damage
• War, sea pirates,other perils like cyclones,typhoons
• Theft, pilerage, breakage and leakage
• Loss caused by heating due to the closure of ventilators to
prevent the entry of sea water
• Loss caused by rats
65. Kinds of marine Insurance policies
• Voyage policy – covers a voyage. This is a
policy in which the limits of the risks are
determined by place of particular voyage.
Madras to Singapore
66. • Time policy – This policy is designed to give
cover for some specified period of time.2001-
2005. It covers hull insurance.
67. • Voyage and Time policy or Mixed policy: It is a
combination of voyage and time policy. It is a
policy which covers the risk during a particular
voyage for a specified period.
68. • Valued policy –This policy specifies the agreed
value of the subject matter insured,which is
not necessarily the actual value.
69. • Unvalued policy /Open policy
The value of the subject matter is not specified
at the time of insurance.
70. • Floating policy
• Wagering policy – void ,when you not
mentioned the insurable interest
• Construction or builders risk policy
• Port risk policy
