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A PROJECT REPORT ON
“INSURANCE PRODUCTS AND ITS TYPES”
B.COM IN
FINANCIAL MARKETS
SEMESTER V
(2016-2017)
SUBMITTED
IN PARTIAL FULFILLMENT OF REQUIREMENTS FOR THE AWARD
OF THE DEGREE OF B.COM – FINANCIAL MARKETS
BY
SALONI VAKHARIA
ROLL NO. 62

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K.J.SOMAIYA COLLEGE OF ARTS & COMMERCE
VIDYAVIHAR, MUMBAI-400077
PROJECT ON:
“INSURANCE PRODUCTS AND ITS TYPES”
B.COM (FINANCIAL MARKETS)
SEMESTER-V
(2016-2017)
SUBMITTED
In Partial Fulfillment of the requirements
For the Award of the Degree of
B.Com -Financial Markets
BY
SALONI VAKHARIA
ROLLNO: 62

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CERTIFICATE
This is to certify that Miss. Saloni Vakharia studying in T.Y.B.COM (Financial
Markets), Semester V, ROLLNO. 62, for academic year 2016-2017 at
K.J.SOMAIYA COLLEGE OF ARTS AND COMMERCE has successfully
completed the Project on “INSURANCE PRODUCTS AND ITS TYPES” under
the guidance of Prof. MRS. VIRENDERKAUR BHATIA
MRS. VIRENDERKAUR BHATIA
(INTERNAL PROJECT GUIDE) (EXTERNAL EXAMINER)
PROF. HARESH PARPIANI DR. (SMT) SUDHA VYAS
(BFM CO-ORDINATOR) (PRINCIPAL)

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DECLARATION
I, SALONI VAKHARIA, the student of B.COM (FINANCIAL MARKETS)
SEMESRER-V (2016-2017) hereby declare that I have completed the project on
“INSURANCE PRODUCTS AND ITS TYPES”.
Wherever the data/information have been taken from any books or other sources
the same have been mentioned in bibliography.
The information submitted is true and original to the best of my knowledge.
STUDENT’S SIGNATURE
SALONI VAKHARIA
(ROLL NO: 62)

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ACKNOWLEDGEMENT
I take this opportunity with great pleasure to present before you this project on “INSURANCE
PRODUCTS AND ITS TYPES” which is a result of co-operation and hard work. I would like to
express my deep sense of gratitude toward all those people without whose guidance and
inspiration this project would never be fulfilled.
I’m grateful to Mumbai University for giving me the opportunity to work on this project. I
would also like to thank our Principal (SMT).SUDHA VYAS for giving me such a brilliant
opportunity to present a creative outcome in the form of a project.
Any accomplishment requires the efforts of many people and this project is not different. I find
great pleasure in expressing my deepest sense of gratitude towards my project guide “PROF.
MRS.VIRENDERKAUR BHATIA”, whose guidance & inspiration right from the
conceptualization to the finishing stages proved to be very essential & valuable in the completion
of the project.
I would like to thank the library staff, and my classmates for their invaluable suggestions &
guidance for my project work. Last but not the least; I’d like to thank my parents without whose
cooperation and support it would’ve been impossible for me to complete this project.
STUDENT’S SIGNATURE
SALONI VAKHARIA
(ROLL NO: 62)

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METHODOLOGY
The methodology of the study includes the selection of study/survey of library references and the
compilation of the primary and secondary data and information obtained through structured
questionnaires, and certain book references and articles studied. The methodology of the study is
to give brief overview of INSURANCE PRODUCTS AND ITS TYPES.
Research methodology is done by collecting all sorts of information and data pertaining to the
subject in question. The methodology includes the overall research design, sampling procedure
and finally the research procedure.
The primary data has been collected with the help of knowledge acquired from internet, books,
newspapers and other forms of social media and internship done in Birla Sun life insurance.

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INDEX
SR.NO. TOPIC PAGE NO
1. INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY OF INDIA
10
2. HISTORY OF INSURANCE IN INDIA 13
3. EXUCUTIVE SUMMARY OF INSURANCE 16
4. PARTIES INVOLVED IN INSURANCE CONTRACT 19
5. ROLE AND IMPORTANCE OF INSURANCE 28
6. TYPES OF INSURANCE 36
7. LIFE INSURANCE 37
8. HEALTH INSURANCE 40
9. GENERAL INSURANCE 43
10. ADVANTAGES OF LIFE INSURANCE AND GENERAL
INSURANCE
47
11. FUNCTIONS OF INSURANCE 50
12. PRINCIPLE OF INSURANCE 54
13. INSURANCE FRAUD AND ITS TYPES 56
14. LIFE INSURANCE VS GENERAL INSURANCE 63
15. THE ROLE AND RESPONSIBILITY OF ACTURIES 65
16. INSURANCE AGENT AND INSURANCE BROKERS 72

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17. AUTHORITY OF INSURANCE AGENT 73
18. POLICY HOLDERS 77
19. TOP INSURANCE COMPANIES 78
20. SUGGESIONS 82
21. CONCLUSIONS 83
22. BIBLIOGRAPHY AND WEBLIOGRAPHY 85

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INSURANCE REGULATORY AND
DEVELOPMENT AUTHORITY OF INDIA
Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous apex
statutory body which regulates and develops the insurance industry in India. It was
constituted by a Parliament of India act called Insurance Regulatory and Development
Authority Act, 1999 and duly passed by the Government of India.
The agency operates from its headquarters at Hyderabad, Telangana where it shifted
from Delhi in 2001. IRDA batted for a hike in the foreign direct investment (FDI) limit to 49 per
cent in the insurance sector from the erstwhile 26 per cent. The FDI limit in insurance sector was
raised to 49% in July 2014.
What We Do
IRDA’s Mission
Insurance Regulatory and Development Authority (IRDA) Act, 1999 spells out the Mission of
IRDA as:“... to protect the interests of the policyholders, to regulate, promote and ensure orderly
growth of the insurance industry and for matters connected therewith or incidental thereto......”
Functions and Duties of IRDA
Section 14 of the IRDA Act, 1999 lays down the duties, powers and functions of IRDA.
 Registering and regulating insurance companies
 Protecting policyholders’ interests
 Licensing and establishing norms for insurance intermediaries
 Promoting professional organisations in insurance
 Regulating and overseeing premium rates and terms of non-life insurance covers
 Specifying financial reporting norms of insurance companies
 Regulating investment of policyholders’ funds by insurance companies
 Ensuring the maintenance of solvency margin by insurance companies

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Ensuring insurance coverage in rural areas and of vulnerable sections of society IRDA - Role,
Objectives and Functions
IRDA - Insurance Regulatory Development and Authority is the statutory, independent and apex
body that governs and supervise the Insurance Industry in India.
It was constituted by Parliament of India Act called Insurance Regulatory and Development
Authority of India (IRDA of India) after the formal declaration of Insurance Laws (Amendment)
Ordinance 2014, by the President of India Pranab Mukherjee on December 26,2014.
Establishment:
 IRDA Act was passed upon the recommendations of Malhotra Committee report (7
Jan,1994), headed by Mr R.N. Malhotra (Retired Governor, RBI)
 Main Recommendations - Entrance of Private Sector Companies and Foreign
promoters & An independent regulatory authority for Insurance Sector in India
 In April,2000, it was set up as statutory body, with its headquarters at New Delhi.
 The headquarters of the agency were shifted to Hyderabad, Telangana in 2001.
Objectives of IRDA:
 To promote the interest and rights of policy holders.
 To promote and ensure the growth of Insurance Industry.
 To ensure speedy settlement of genuine claims and to prevent frauds and malpractices
 To bring transparency and orderly conduct of in financial markets dealing with insurance.
Organizational Setup of IRDA:
IRDA is a ten member body consists of :
 One Chairman (For 5 Years & Maximum Age - 60 years )
 Five whole-time Members (For 5 Years and Maximum Age- 62 years)
 Four part-time Members (Not more than 5 years)

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The chairman and members of IRDAI are appointed by Government of India.
The present Chairman of IRDAI is Mr. T.S Vijayan.
Functions and Duties of IRDA:
 Section 14 of IRDA Act,1999 lays down the duties and functions of IRDA:
 It issues the registration certificates to insurance companies and regulates them.
 It protects the interest of policy holders.
 It provides license to insurance intermediaries such as agents and brokers after specifying the
required qualifications and set norms/code of conduct for them.
 It promotes and regulates the professional organizations related with insurance business to
promote efficiency in insurance sector.
 It regulates and supervises the premium rates and terms of insurance covers.
 It specifies the conditions and manners, according to which the insurance companies and
other intermediaries have to make their financial reports.
 It regulates the investment of policyholder's funds by insurance companies.
 It also ensures the maintenance of solvency margin (company's ability to pay out claims) by
insurance companies.
Related News
FDI limit in Insurance Sector has been increased to 49% from 26%, approved by The Union
Cabinet. The proposal was made by Finance Minister Arun Jaitley.
 IRDAI has celebrated 19th April, 2015 as Insurance Awareness Day at Hyderabad. (came
into existence in 2000)
 IRDAI has imposed a fine of Rs.10 lakh on TATA AIA Life Insurance for violation of
excess payment to corporate agents. TATA AIA Life Insurance is joint venture Company
formed by Tata Sons Ltd. and AIA Group Ltd. CEO and MD of the company is Mr. Naveen
Tahilyani.
 IRDAI has changed the norms related to cancellation and change of name of nominee.
The insurer will charge fee for any such modification. The fee is up to Rs. 50 for policies
obtained online and up to Rs.100 for others.
 IRDAI has imposed a fine of Rs.20 lakh on APPOLO MUNICH HEALTH INSURANCE
COMPANY for selling its policies through non-authorised insurance selling website
makemytrip.com. The CEO of APPOLO MUNICH HEALTH INSURANCE COMPANY is
Antony Jacob and the Chairman and CEO of makemytrip.com is Deep Kalra.

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HISTORY OF INSURANCE IN INDIA
In India, insurance has a deep-rooted history. It finds mention in the writings of Manu
( Manusmrithi ), Yagnavalkya (Dharmasastra) and Kautilya ( Arthasastra ). The writings talk in
terms of pooling of resources that could be re-distributed in times of calamities such as fire,
floods, epidemics and famine. This was probably a precursor to modern day insurance. Ancient
Indian history has preserved the earliest traces of insurance in the form of marine trade loans
and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other
countries, England in particular.
1818 saw the advent of life insurance business in India with the establishment of the Oriental
Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the
Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870
saw the enactment of the British Insurance Act and in the last three decades of the nineteenth
century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in
the Bombay Residency. This era, however, was dominated by foreign insurance offices which
did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and
London Globe Insurance and the Indian offices were up for hard competition from the foreign
companies.
In 1914, the Government of India started publishing returns of Insurance Companies in India.
The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life
business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government
to collect statistical information about both life and non-life business transacted in India by
Indian and foreign insurers including provident insurance societies. In 1938, with a view to
protecting the interest of the Insurance public, the earlier legislation was consolidated and
amended by the Insurance Act, 1938 with comprehensive provisions for effective control over
the activities of insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a
large number of insurance companies and the level of competition was high. There were also
allegations of unfair trade practices. The Government of India, therefore, decided to nationalize
insurance business.
An Ordinance was issued on 19 January 1956 nationalising the Life Insurance sector and Life
Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16
non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The

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LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.
The history of general insurance dates back to the Industrial Revolution in the west and the
consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a
legacy of British occupation. General Insurance in India has its roots in the establishment of
Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian
Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of
general insurance business.
1957 saw the formation of the General Insurance Council, a wing of the Insurance Association
of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and
sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set minimum solvency
margins. The Tariff Advisory Committee was also set up then.In 1972 with the passing of the
General Insurance Business (Nationalizations) Act, general insurance business was nationalized
with effect from 1 January 1973. 107 insurers were amalgamated and grouped into four
companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd.,
the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General
Insurance Corporation of India was incorporated as a company in
1971 and it commence business on January 1sst 1973.
This millennium has seen insurance come a full circle in a journey extending to nearly 200
years. The process of re-opening of the sector had begun in the early 1990s and the last decade
and more has seen it been opened up substantially. In 1993, the Government set up a committee
under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations
for reforms in the insurance sector.The objective was to complement the reforms initiated in the
financial sector. The committee submitted its report in 1994 wherein, among other things, it
recommended that the private sector be permitted to enter the insurance industry. They stated
that foreign companies be allowed to enter by floating Indian companies, preferably a joint
venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999, the Insurance
Regulatory and Development Authority (IRDA) was constituted as an autonomous body to
regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in
April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance
customer satisfaction through increased consumer choice and lower premiums, while ensuring
the financial security of the insurance market.

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The IRDA opened up the market in August 2000 with the invitation for application for registrations.
Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame
regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed
various regulations ranging from registration of companies for carrying on insurance business to
protection of policyholders’ interests.
In December, 2000, the subsidiaries of the General Insurance Corporation of India were
restructured as independent companies and at the same time GIC was converted into a national
re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.
Today there are 28 general insurance companies including the ECGC and Agriculture Insurance
Corporation of India and 24 life insurance companies operating in the country.
Organizational structure
As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority
(IRDA, which was constituted by an act of parliament) specify the composition of
Authority. IRDAI is a ten-member body consisting of:
A Chairman - T.S. Vijayan.
Five whole-time members - R.K. Nair, M. Ram Prasad, S. Roy Chowdhary, D.D. Singh
Four part-time members - Anup Wadhawan, S.B. Mathur, Prof. V.K.Gupta, CA. Subodh Kr.
Agarwal
Note: All members are appointed by the Government of India.
Insurance Repository
Recently the Finance Minister of India announced the setting of insurance repository system. An
Insurance Repository is a facility to help policy holders buy and keep insurance policies in
electronic form, rather than as a paper document. Insurance Repositories, like Share Depositories
or mutual fund Transfer Agencies, will hold electronic records of insurance policies issued to
individuals and such policies are called "electronic policies" or "e Policies", e.g. CDSL Insurance
Repository Limited ( CDSL IR )

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EXECUTIVE SUMMARY -INSURANCE
A contract whereby, for specified consideration, one party undertakes to compensate the other for a l
oss relating to aparticular subject as a result of the occurrence of designated hazards.
The normal activities of daily life carry the risk of enormous financial loss. Many persons are wil
ling to pay a small amountfor protection against certain risks because that protection provides val
uable peace of mind. The term insurance describesany measure taken for protection against risks.
When insurance takes the form of a contract in an insurance policy, it issubject to requirements i
n statutes, Administrative Agency regulations, and court decisions.
In an insurance contract, one party, theinsured, pays a specified amount of money, called a premi
um, to another party, theinsurer. The insurer, in turn, agrees to compensate the insured for specifi
c future losses. The losses covered are listed inthe contract, and the contract is called a policy.
When an insured suffers a loss or damage that is covered in the policy, the insured can collect on
the proceeds of the policyby filing a claim, or request for coverage, with the insurance company.
The company then decides whether or not to pay theclaim. The recipient of any proceeds from th
e policy is called the beneficiary. The beneficiary can be the insured person orother persons desig
nated by the insured.
A contract is considered to be insurance if it distributes risk among a large number of persons thr
ough an enterprise that isengaged primarily in the business of insurance. Warranties or service co
ntracts for merchandise, for example, do notconstitute insurance. They are not issued by insuranc
e companies, and the risk distribution in the transaction is incidental tothe purchase of the mercha
ndise. Warranties and service contracts are thus exempt from strict insurance laws andregulations
.

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Government-
Issued insurance is regulated like private insurance,but the two are very different. Most recipients
ofgovernment insurance do not have to pay premiums, but they also do not receive the same level
of coverage availableunder private insurance policies.
Governmentissued insurance is granted by the legislature, not bargained for with a privateinsuran
ce company, and it can be taken away by an act of the legislature. However, if a legislature issues
insurance, itcannot refuse it to a person who qualifies for it
Contract and Policy
An insurance contract cannot cover all conceivable risks. An insurance contract that violatsastatu
te, is contrary to publicpolicy, or plays a part in some prohibited activity will be held unenforceab
le in court. A contract that protects against theloss of burglary tools, for example, is contrary to p
ublic policy and thus unenforceable.
Insurable Interest
To qualify for an insurance policy, the insured must have an insurable interest, meaning that the i
nsured must derive somebenefit from the continued preservation of the article insured, or stand to
suffer some loss as a result of that article's loss ordestruction. Life insurance requires some famil
ial and pecuniary relationship between the insured and the beneficiary.Property insurance require
s that the insured must simply have a lawful interest in the safety or preservation of the property.
Premiums
Different types of policies require different premiums based on the degree of risk that the situatio
n presents. For example, apolicy insuring a homeowner for all risks associated with a home value
d at $200,000 requires a higher premium than oneinsuring a boat valued at $20,000. Although lia
bility for injuries to others might be similar under both policies, the cost ofreplacing or repairing t
he boat would be less than the cost of repairing or replacing the home, and this difference is refle
ctedin the premium paid by the insured.
Premium rates also depend on characteristics of the insured. For example, a person with a poor dr
iving record generally hasto pay more for auto insurance than does a person with a good driving r
ecord. Furthermore, insurers are free to deny policiesto persons who present an unacceptable risk.

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For example, most insurance companies do not offer life or health insuranceto persons who have
been diagnosed with a terminal illness.
Claims
The most common issue in insurance disputes is whether the insurer is obligated to pay a claim.
The determination of theinsurer's obligation depends on many factors, such as the circumstances
surrounding the loss and the precise coverage ofthe insurance policy. If a dispute arises over the l
anguage of the policy, the general rule is that a court should choose theinterpretation that is most
favorable to the insured.
. Many insurance contracts contain an Incontestability
Clause to protectthe insured. This clause provides that the insurer loses the right to contest the val
idity of the contract after a specifiedperiod of time.
An insurance company may deny or cancel coverage if the insured party concealed or misreprese
nted a material fact in thepolicy application. If an applicant presents an unacceptably high risk of
loss for an insurance company, the company maydeny the application or charge prohibitively hig
h premiums. A company may cancel a policy if the insured fails to makepayments. It also may re
fuse to pay a claim if the insured intentionally caused the loss or damage. However, if the insurer
knows that it has the right to rescind a policy or to deny a claim, but conveys to the insured that it
has voluntarilysurrendered such right, the insured may claim that the insurer waived its right to c
ontest a claim.
An insurer may have a duty to defend an insured in a lawsuit filed against the insured by a third p
arty. This duty usuallyarises if the claims in the suit against the insured fall within the coverage o
f a liability policy.
If a third party caused a loss covered by a policy, the insurance company may have the right to su
e the third party in placeof the insured. This right is called Subrogation, and it is designed to mak
e the party that is responsible for a loss bear theburden of the loss. It also prevents an insured fro
m recovering twice: once from the insurance company, and once from theresponsible party.
An insurance company can subrogate claims only on certain types of policies. Property and liabil
ity insurance policies allowsubrogation because the basis for the payment of claims is indemnific
ation, or reimbursement, of the insured for losses.Conversely, life insurance policies do not allow
subrogation. Life insurance does not indemnify an insured for a loss that canbe measured in doll
ars. Rather, it is a form of investment for the insured and the insured's beneficiaries

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THERE ARE TWO PARTIES IN CONTRACT OF INSURANCE
Insured:
The first party in the contract of insurance is the INSURED: Insured is a person who is looking to
hedge his future risk of unforeseen losses or events. There are different types and costs of
insurance policies available nowadays. The choice of the policy type depends on the insured as to
what type of risk he wants a cover for.
The insured, is the person in whose favor, the contract is operative and who is indemnified
against, or is to receive a certain sum upon the happening of a specified contingency or event.
He is the person whose loss is the occasion for the payment of the insurance proceeds by the
insurer.
Insurer:
Second party is the INSURER : Insurer or the insurance company agrees to pay for the future
financial losses of the insured against a regular payment of premium. The insurance company
assumes or accepts the risk of loss and undertakes for a consideration to indemnify the insured or
to pay him a certain sum on the happening of
The second party in the contract of Insurance a specified contingency or event.
The business of insurance may be carried on by individuals just as much as by corporations and
associations. The state itself may go into insurance business.

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To whom the proceeds/Claims are paid?
Is it always the case that the proceeds or the claim is paid to the Insured? Not always; the person
paid may be the beneficiary designated in the policy. A common example of this situation is a
life insurance policy where the proceeds are not given to the insured but to a third party
designated by the insured.
Key Stakeholders in Insurance Business:
Any person or entity interested in a particular business is called a stakeholder. They are affected
by the business activity, and they may be part of the core decision-making team. Many people
contribute to the running of an insurance company. Aside from shareholders, the key
stakeholders in the insurance value chain are:
Consumers who buy insurance products are the main constituents of the list of stakeholders for
Insurance Industry. They may be the insured or beneficiaries or persons with insurable interest.
Investors that support insurance companies by purchasing insurance company stock as they
believe in the industry model and invest their money in the insurance company stock.
Insurance carriers that provide insurance coverage through policies and accept the risks covered
by the policies. These are generally large insurance companies, including direct insurers and
reinsurers.
Partners who couple with insurance companies to share profits and losses. Partners include
reinsurers, institutional investors, and trade partners. Partners also include the insurance agencies
and brokerages that distribute insurance products.

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Outside networks that include those that perform professional services for insurers. They include
appraisers, insurance bureaus, reinsurers, claims adjusters, and firms providing consulting, claims
processing, and data collection services.
Regulators and auditors that help secure the financial health of the insurance industry. Regulators
implement and enforce regulations, while auditors ensure adherence to finance and accounting
standards.
Vendors that supply the goods insurers require performing business activities. Examples include
software distributors and administrative goods suppliers.
Internal Stakeholders:
Internal stakeholders are owners, managers, and workers. External stakeholders are the customers
and the suppliers. The community in which the organization does business also is a stakeholder.
All the stakeholders are not equal, and different stakeholders will have varying considerations.
These stakeholders can have direct or indirect stake in the organization and in policy-making.
Given below is a non-exhaustive list of internal stakeholders in insurance industry:
 Insurer Executives
 Product Managers
 Underwriters
 Actuaries
 Distribution Staff
 Claims Assessors
 Claims Managers
 Advisers
 Funds, Master Trusts & Corporates
 Banks & Financial Intermediaries
 Group Fund Members
 Bank Customers
 Alliance Partners
 Third Party Administrators (TPA’s)
 Service Providers
 Reinsurer

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External Stakeholders:
External stakeholders are people who are not directly working within the business but are
affected in some way from the decisions of the business. The range of external stakeholders for
the insurance sector is extremely broad, and includes:
 Trade associations
 Professional bodies
 Analysts and Rating agencies
 International regulators and International bodies
 The political community
 Media- Learn more at www.technofunc.com. Your online source for free professional
tutorials.

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INSURANCE CONTRACTS
An insurance contract is a document representing the agreement between an insurance
company and the insured. Central to any insurance contract is the insuring agreement, which
specifies the risks that are covered, the limits of the policy, and the term of the policy.
Additionally, all insurance contracts specify:
Conditions, which are requirements of the insured, such as paying the premium or reporting a
loss;
Limitations, which specify the limits of the policy, such as the maximum amount that the
insurance company will pay;
Exclusions, which specify what is not covered by the contract.
Obviously, the contents of an insurance contract depends on the type of policy, what the
insurance applicant wants, and how much he is willing to pay. The details of insurance policies
are covered in Standard Insurance Policies. This article covers what are required ofvalid
insurance contracts, since only valid contracts are legally enforceable.
There are 4 requirements for any valid contract, including insurance contracts:
Offer and acceptance,
Consideration,
Competent parties, and
Legal purpose.
If a contract lacks any of these essential elements, then it is a void contract that will not be
enforced by any court. For instance, most contracts signed by a minor are void contracts because
they are not legally competent. A voidable contract is one that can be nullified by a party if the
other party breaches the contract, or because material information was omitted or false in the
contract. The party with the right to void can also choose to enforce it, instead. For instance,
insurance companies can often void a contract because the applicant on the application. Thus, if
someone was in an auto accident, and that person previously filled out the insurance application

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stating that he had no speeding tickets, when, in fact, he had, and then the insurance company can
void the contract and not pay the claim. Although most contracts can be oral, most are written,
especially insurance contracts, because of their complexity.
Offer and Acceptance
In insurance, the offer is typically initiated by the insurance applicant through the services of
an insurance agent by filling out an application for insurance. How the offer is accepted will
depend on whether the insurance is for property, liability, or life insurance. For property and
liability insurance, the offer is the application for insurance and the payment of the 1st premium,
or the promise to do so. In most personal lines of insurance, the agent can, in most cases, accept
the offer for the company, binding the company to the contract. A binder is a temporary contract
that can be oral or written that binds the insurance company to the contract immediately until it
has a chance to examine the application, and issue a formal policy. Through the binder, the
insurance becomes effective immediately. Most binders are written and include general
information, such as the type and amount of insurance, the name of the parties, and the time
during which the binder is effective. However, once a formal policy is issued, then the terms of
the policy override the binder. This is particularly true for oral binders, for once a written policy
is issued, the parole evidence rule makes the written policy determinative where there is any
conflict between the oral and written agreement. If a mistake was made in the policy, such as
mistyping the wrong policy value, then the contract can be reformed by correcting the mistake to
prevent unjust enrichment of either party.
However, some agents cannot bind the insurance company, in which case, the insurance
company must receive and accept the application, or it can reject it. The insurance is not effective
until the company accepts the application.
In life insurance, the agent never has the power to bind the company. In most cases, the applicant
fills out the application and pays the 1st premium. The applicant is then given a conditional
premium receipt — the most common type of receipt is the insurability premium receipt. If
the applicant is insurable according to the company’s underwriting standards, then the life
insurance becomes effective from the date of the application, or, in some cases, from the date of
the medical examination.
However, if the premium is not paid when the application is filled out, then the insurance will not
become effective until the policy is delivered and the premium is paid, and the applicant is in
good health when the policy is delivered. Some companies require that the applicant not receive

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any medical treatment between the application and the delivery of the policy; otherwise the
policy will not become effective.
Thus, a conditional receipt is like a binder, but differs from it because coverage is conditional
upon the health of the applicant, occupation, and other factors. A binder does not require the
payment of a premium to become effective — often the insurer needs the time to determine what
the premium will be.
Contracts of Adhesion
While the insurance applicant is usually considered the one making the offer, the insurance
company dictates the terms of the contracts. The insurance applicant must accept the contract of
adhesion totally or not at all. Because of differing legal definitions and rulings provided by
different courts in the past and because of requirements imposed by state governments and their
agencies, an insurance contract has to be carefully worded to be legally effective and to provide
coverage in the way that it was intended. This is why insurance contracts offered to the public are
standardized. Another reason is because insurance companies can only calculate competitive
premiums based on ac
tuarial studies, and these studies are based on certain limitations and underwriting guidelines.
Thus, most insurance contracts cannot be negotiated. However, the insured can request specific
riders and exclusions to the policy. A rider (aka endorsement) is an amendment or addition to
the basic policy that allows the policy to be tailored in acceptable ways for individual situations.
Exclusion is a loss not covered by the contract.
Because insurance contracts are generally not negotiable, the courts have created case laws to
benefit the insured. The first law, applicable to contracts generally, is that where there is an
ambiguity in a contract, the ambiguity is construed against the maker of the contract,
which, in insurance, is the insurance company. Thus, if the terms of a contract are not specific,
then the terms are interpreted in a way that would most benefit the insured. Another case law that
has developed is the principle of reasonable expectations, which requires that any exclusion or
other qualification be conspicuous; otherwise, the insured is entitled to coverage that he
reasonably expects.
Life insurance and some health insurance contracts usually have entire contract clauses that
require the attachment of any statements, including the application, made by the insured to the
contract itself, to prevent any disputes later. Entire contract clauses also prevent incorporation
by reference, which is alluding to other written works, such as the corporate bylaws, that the
insurance applicant probably hasn't read.

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Personal Contracts
Property insurance contracts are personal contracts between the insured and the insurer. Property
insurance covers the insured for the financial losses of property damage or loss, not the property
itself. If the insured sells the property, the insurance does not transfer with it. The insurance
cannot be assigned to anyone else without the insurer’s consent.
However, the beneficiaries of most insurance contracts can be changed without the consent of the
insurer, but the insurer must be notified.
Consideration
Consideration is the value that the parties to a contract give to each other — it is the reason why
the contract is agreed to. In insurance contracts, the insurer promises to pay for covered losses
that the insured suffers, and the insured promises to abide by the contract and pay the premium.
Most non-insurance contracts are bilateral contracts where the promises that each party makes
are enforceable by the other party through legal proceedings. However, insurance contracts
are unilateral contracts, where only the insurer makes a legally enforceable promise to pay for
covered losses. The company cannot sue the insured for breach of contract. However, insurance
contracts are also conditional contracts — if the insured fails to pay the premium, or fails to
abide by the contract, then the insurer is not obligated to pay for any of the insured’s losses.
Most non-insurance contracts are commutative contracts—the amounts of consideration given
by both parties are usually fairly equal. Thus, a contract to purchase real estate usually requires a
payment equal to its value. Insurance contracts are, however, lavatory contracts, because the
insurance company only has to pay if certain events occur. If they don’t occur, the company
never has to pay, even if the insured has paid premiums for decades. However, if a covered loss
does occur, then the
Contracts are characterized by unequal consideration.
Competent Parties
The parties to the contract must be legally competent to agree to them. Most adults have legal
capacity to agree to contracts, unless they are intoxicated, mentally ill, or mentally retarded. The
key requirement is that the parties must know what they are agreeing to — a meeting of the
minds; otherwise, there could be no agreement. To protect minors, the law does not give them
legal capacity to agree to contracts except where specified by law.
An insurance company has legal capacity if it is licensed to sell insurance in that particular state,
and is acting within the scope of its charter.
Legal Purpose

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All contracts must have a legal purpose to be enforceable by the courts, and, of course, most
insurance contracts do.
Performance and Discharge of Insurance Contracts
The performance required of most insurance contracts is for the insured to pay premiums and
perform any other duties that are required by the contract, while the insurer's main duty is to pay
for losses, if any occur. Most insurance contracts, such as policies for property, liability, and
health insurance, are indemnity contracts, where the insurance company is only required to
compensate for actual losses, up to the policy limits. However, some contracts, such as life
insurance policy contracts, pay the face amount of the policy. In most cases, aside from the
payment of the premium by the insured to the insurer, neither party needs to perform until a loss
occurs, but when a loss does occur, then the insured must initiate performance before the insurer
is required to do anything.
Insurance contracts require the insured to perform specific things or require certain conditions,
both before and after a loss, which the law sometimes categorizes as conditions precedent and
conditions subsequent. If the insured fails to perform these duties or satisfy these conditions, then
the insurance company may be relieved of its obligation to pay the claim because of the breach
of contract. However, in most jurisdictions, a court will only grant relief to an insurer's
obligation to pay a claim if the breach is material.
A condition precedent is either a condition that must be satisfied or something that the insured
must do before or when a loss occurs and before the insurer will perform, which, in most cases, is
by paying the claim. If the insured does not satisfy a material condition precedent, then the
insurer may be relieved of paying the claim. Some common conditions precedent includes:
Requiring the insured to notify the insurer of any loss;
Property insurance requires that the insured provide an inventory of the losses;
Disability insurance requires the insured to submit proof of disability to the insurer.A condition
subsequent is a condition that must be fulfilled after an event that required an act by the insurer.
For example, if the insurance company wants to exercise its subrogation rights and sue a
3rd party for the insured's cause of loss, then the insurer may require the insured to testify in
court.

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ROLE AND IMPORTANCE OF INSURANCE
The process of insurance has been evolved to safeguard the interests of people from uncertainty
by providing certainty of payment at a given contingency. The insurance principle comes to be
more and more used and useful in modern affairs.
Not only does it serve the ends of individuals, or of special groups of individuals, it tends to
pervade and to transform our modern social order, too. The role and importance of insurance,
here, has been discussed in three phases:
(i) uses to individual,
(ii) uses to a special group of individuals, viz., to business or industry, and
(iii) Uses to the society.
Uses to an individual:
Insurance provides Security and Safety:
The insurance provides safety and security against the loss on a particular event. In case of life
insurance payment is made when death occurs or the term of insurance is expired. The loss to the
family at a premature death and payment in old age are adequately provided by insurance. In
other words, security against premature death and old age sufferings are provided by life
insurance.
Similarly, the property of insured is secured against loss on a fire in fire insurance. In other
insurance, too, this security is provided against the loss at a given contingency.

29. 29
The insurance provides safety and security against the loss of earning at death or in golden age,
against the loss at fire, against the loss at damage, destruction or disappearance of property,
goods, furniture and machines, etc.
Insurance affords Peace of Mind:
The security wish is the prime motivating factor. This is the wish which tends to stimulate to
more work, if this wish is unsatisfied, it will create a tension which manifests itself to the
individual in the form of an unpleasant reaction causing reduction in work.
The security banishes fear and uncertainty, fire, windstorm, auto-mobile accident, damage and
death are almost beyond the control human agency and in occurrence of any of these events may
frustrate or weaken the human mind. By means of insurance, however, much of the uncertainty
that centers about the wish for security and its attainment may be eliminated.
Insurance protects Mortgaged Property:
At the death of the owner of the mortgaged property, the property is taken over by the lender of
money and the family will be deprived of the uses of the property. On the other hand, the
mortgagee wishes to get the property insured because at the damage or destruction of the
property he will lose his right to get the loan replayed.
The insurance will provide adequate amount to the dependents at the early death of the property-
owner to pay off the unpaid loans. Similarly, the mortgagee gets adequate amount at the
destruction of the property.
Insurance eliminates dependency:
At the death of the husband or father, the destruction of family needs no elaboration. Similarly, at
destruction of, property and goods, the family would suffer a lot. It brings reduced standards of
living and the suffering may go to any extent of begging from the relatives, neighbors or friends.
The economic independence of the family is reduced or, sometimes, lost totally. What can be
more pitiable condition than this that the wife and children are looking others more benevolent
than the husband and father, in absence of protection against such dependency? The insurance is
here to assist them and provides adequate amount at the time of sufferings.
Life Insurance encourages saving:

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The elements of protection and investment are present only in case of life insurance. In property
insurance, only protection element exists. In most of the life policies elements of saving
predominates. These policies combine the programs of insurance and savings.
The saving with insurance has certain extra advantages
Systematic saving am possible because regular premiums are required to be compulsorily paid.
The saving with a bank is voluntary and one can easily omit a month or two and then abandon
the program entirely.
In insurance the deposited premium cannot be withdrawn easily before the expiry of the term of
the policy. As contrast to this, the saving which can be withdrawn at any moment will finish
within no time.
The insurance will pay the policy money irrespective of the premium deposited while in case of
bank-deposit; only the deposited amount along with the interest is paid. The insurance, thus,
provides the wished amount of insurance and the bank provides only the deposited amount,
The compulsion or force to premium in insurance is so high that if the policy-holder fails to pay
premiums within the days of grace, he subjects his policy to causation and may get back only a
very nominal portion of the total premiums paid on the policy.
For the preservation of the policy, he has to try his level best to pay the premium. After a certain
period, it would be a part of necessary expenditure of the insured. In absence of such forceful
compulsion elsewhere life insurance is the best media of saving.
Life Insurance provides profitable Investment:
Individuals unwilling or unable to handle their own funds have been pleased to find an outlet for
their investment in life insurance policies. Endowment policies, multipurpose policies, deferred
annuities are certain better form of investment.
The elements of investment i.e., regular saving, capital formation, and return of the capital along
with certain additional return are perfectly observed, in life insurance.
In India the insurance policies carry a special exemption from income-tax, wealth tax, and gift
tax and estate duty. An individual from his own capacity cannot invest regularly with enough of
security and profitability. The life insurance fulfils all these requirements with a lower cost. The
beneficiary of the policy-holder can get a regular income from the life-insurer; if the insured
amount is left with him.

31. 31
Life Insurance fulfils the needs of a person:
The needs of a person are divided into (A) Family needs, (B) Old-age needs, (C) Re-adjustment
needs, (D) Special needs, (E) The clean-up needs.
(A)Family Needs:
Death is certain, but the time is uncertain. So, there is uncertainty of the time when the sufferings
and financial stringencies may be fall on the family. Moreover, every person is responsible to
provide for the family.
It would be a more pathetic sight in the world to see the wife and children of a man looking for
someone more considerate arid benevolent than the husband or the father, who left them
unprovoked.
Therefore, the provision for children up to their reaching earning period and for widow up to
long life should he made. Any other provision except life insurance will not adequately meet this
financial requirement of the family. Whole life policies are the better means of meeting such
requirements.
(B) Old-age heeds:
The provision for old-age is required where the person is surviving more than his earning period.
The reduction of income in old-age is serious to the person and his family.
If no other family member starts earning, they will be left with nothing and if there is no
property, it would be more piteous state. The life insurance provides old age funds along with the
protection of the family by issuing various policies.
(C) Re-adjustment Needs:
At the time of reduction in income whether by loss of unemployment, disability, or death,
adjustment in the standard of living of family is required. The family members will have to be
satisfied with meager income and they have to settle down to lower income and social
obligations.
Before coming down to the lower standard and to be satisfied with that, they require certain
adjustment income so that the primary obstacles may be reduced to minimum. The life insurance
helps to accumulate adequate funds. Endowment policy anticipated endowment policy and
guaranteed triple benefit policies are seemed to be a good substitute for old age needs.

32. 32
(D) Special Needs:
There is certain special requirement of the family which is fulfilled by the earning member of the
family. If the member becomes disable to earn the income due to old age or death, those needs
may remain unfulfilled and the family will suffer.
Need for Education. There are certain insurance policies, and annuities which are useful for
education of the children irrespective of the death or survival of the father or guardian.
Marriage. The daughter may remain unmarried in case of father's death or in case of inadequate
provision for meeting the expenses of marriage. The insurance can provide funds for the
marriage if policy is taken for the purpose.
Insurance needs for settlement of children. After education, settlement of children takes time
and in absence of adequate funds, the children cannot be well placed and all the
education go to waste.
(E) Clean-up funds:
After death, ritual ceremonies, payment of wealth taxes and income taxes are certain
requirements which decrease the amount of funds of the family member. Insurance comes to help
for meeting these requirements. Multipurpose policy, education and marriage policies, capital
redemption policies are the better policies for the special needs.
Uses to business:
The insurance has been useful to the business society also. Some of the uses are discussed below:
Uncertainty of business losses is reduced:
In world of business, commerce and industry a huge number of properties are employed. With a
slight slackness or negligence, the property may be turned into ashes. The accident may be fatal
not only to the individual or property but to the third party also. New construction and new
establishment are possible only with the help of insurance.
In absence of it, uncertainty will be to the maximum level and nobody would like to invest a
huge amount in the business or industry. A person may not be sure of his life and health and
cannot continue the business up to longer period to support his dependents. By purchasing policy,
he can be sure of his earning because the insurer will pay a fed amount at the time of death.
Again, the owner of a business might foresee contingencies that would bring great loss. To meet
such situations they might decide to set aside annually a reserve, but it could not be accumulated

33. 33
due to death. However, by making an annual payment, to secure immediately, insure policy can
be taken.
Business-efficiency is increased with insurance:
When the owner of a business is free from the botheration of losses, he will certainly devote
much time to the business. The care free owner can work better for the maximization of the
profit. The new as well as old businessmen are guaranteed payment of certain amount with the
insurance policies at the death of the person; at the damage, destruction or disappearance of the
property or goods.
The uncertainty of loss may affect the mind of the businessmen adversely. The insurance,
removing the uncertainty, stimulates the businessmen to work hard.
Key Man Indemnification:
Key man is that particular man whose capital, expertise, experience, energy, ability to control,
goodwill and dutifulness make him the most valuable asset in the business and whose absence
will reduce the income of the employer tremendously and up to that time when such employee is
not substituted.
The death or disability of such valuable lives will, in many instances, prove a more serious loss
than that by fire or any hazard. The potential loss to be suffered and the compensation to the
dependents of such employee require an adequate provision which is met by purchasing adequate
life-policies The amount of loss may be up to the amount of reduced profit, expenses involved in
appointing and training, of such persons and payment to the dependents of the key man. The
Term Insurance Policy or Convertible Term Insurance Policy is more suitable in this case.
Enhancement of Credit:
The business can obtain loan by pledging the policy as collateral for the loan. The insured
persons are getting more loans due to certainty of payment at their deaths. The amount of loan
that can be obtained with such pledging of policy, with interest thereon will not exceed the cash
value of the policy. In case of death, this value can be utilized for setting of the loan along with
the interest.
If the borrower is unwilling to repay the loan and interest, the lender can surrender the policy and
get the amount of loan and interest thereon repaid. The redeemable debentures can be issued on
the collateral of capital redemption policies. The' insurance properties are the best collateral and
adequate loans are granted by the lenders.
Business Continuation:

34. 34
In any business particularly partnership business may discontinue at the death of any partner
although the surviving partners can restart the business, but in both the cases the business and the
partners will suffer economically.
The insurance policies provide adequate funds at the time of death. Each partner may be insured
for the amount of his interest in the partnership and his dependents may get that amount at the
death of the partner.
With the help of property insurance, the property of the business is protected against disasters
and the chance of disclosure of the business due to the tremendous waste or loss.
Welfare of Employees:
The welfare of employees is the responsibility of the employer. The former are working for the
latter. Therefore, the latter has to look after the welfare of the former which can be provision for
early death, provision for disability and provision for old age.
These requirements are easily met by the life insurance, accident and sickness benefit, and
pensions which are generally provided by group insurance. The premium for group insurance is
generally paid by the employer. This plan is the cheapest form of insurance for employers to
fulfill their responsibilities.
The employees will devote their maximum capacities to complete their jobs when they are
assured of the above benefits. The struggle and strife between employees and employer can be
minimized easily with the help of such schemes.
Uses of society:
Some of the uses of insurance to society are discussed in the following sections.
Wealth of the society is protected:
The loss of a particular wealth can be protected with the insurance. Life insurance provides loss
of human wealth. The human material, if it is strong, educated and care-free, will generate more
income.
Similarly, the loss of damage of property at fire, accident, etc., can be well indemnified by the
property insurance; cattle, crop, profit and machines are also protected against their accidental
and economic losses.

35. 35
With the advancement of the society, the wealth or the property of the society attracts more
hazardous and, so new types of insurance are also invented to protect them against the possible
losses.
Each and every member will have financial security against old age, death, damage, destruction
and disappearance of his wealth including the life wealth. Through prevention of economic
losses, instance protects the society against degradation.
Through stabilization and expansion of business and industry, the economic security is
maximized. The present, future and potential human and property resources are well-protected.
The children are getting expertise education, working classes are free from botherations and older
people are guiding at ease. The happiness and prosperity are observed everywhere with the help
of insurance.
Economic Growth of the Country:
For the economic growth of the country, insurance provides strong hand and mind, protection
against loss of property and adequate capital to produce more wealth. The agriculture will
experience protection against losses of cattle, machines, tools and crop.
This sort of protection stimulates more production hi agriculture, in industry, the factory
premises, machines, boilers and profit insurances provide more confidence to start and operate
the industry welfare of employees create a conducive atmosphere to work: Adequate capital from
insurers accelerate the production cycle.
Similarly in business, too, the property and human material are protected against certain losses;
capital and credit are expanded with the help of insurance. Thus, the insurance meets all the
requirements of the economic growth of a country.
Reduction in Inflation:
The insurance reduces the inflationary resource in two ways. First, by extracting money in supply
to the amount of premium collected and secondly, by providing sufficient funds for production
narrow down the inflationary gap.
With reference to Indian context it has been observed that about 5.0 per cent of the money in
supply was collected in form of premium.
The share of premium contributed to the total investment of the country was about 10.0 per cent.
The two main causes of inflation, namely, increased money in supply and decreased production
are properly controlled by insurance business, Insurance Need and Selling.

36. 36
TYPES OF INSURANCE
Life insurance
Life insurance is insurance coverage that pays out a certain amount of money to the insured or
their specified beneficiaries upon a certain event as death of the individual who is insured. The
cover period of life insurance is usually more than a year. So this requires periodic premium
payments either monthly, quarterly or annually.
 The risks that are covered by life insurance are:
 Premature death
 Income during retirement
 Illness
 The main products of life insurance include:
 Whole life
 Endowment
 Term
 Investment –link
 Life annuity plan
Medical and health
General insurance
General insurance is basically an insurance policy that protects you against losses and damages
other than those covered by life insurance. For more comprehensive coverage, it is vital for you
to know about the risk covered to ensure that you and your family are protected from unforeseen
losses.
 The coverage period for most general insurance are:
 Property loss for example stolen car or burnt houses
 Liability arising from damage caused by yourself to a third party
 Accidental death or injury
 The main products of general insurance includes
 Motor insurance
 Fire/houseowners/householders insurance
 Personal accident insurance
 Medical and health insurance
 Travel insurance

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WHAT AR VARIOUS TYPES OF LIFE INSURANCE ?
There are two basic types of life insurance policies viz. Traditional Whole Life and Term Life
Insurance. A whole life is a policy you pay till death of the policy holder and term life is a policy
for a fixed amount of time.
The basic types of life insurance policies are:
Term insurance
Term plans are the most basic form of life insurance. They provide life cover with no savings /
profits component. They are the most affordable form of life insurance as premiums are cheaper
compared to other life insurance plans.
Online term insurance plans provide pure risk cover, which explains the lower premiums. A fixed
sum of money - the sum assured – is paid to the beneficiaries if the policyholder expires over the
policy term. If the policyholder survives, there is no pay out.
Endowment plans
Endowment plans differ from term plans in one critical aspect i.e. maturity benefit. Unlike term
plans which pay out the sum assured, along with profits, only in case of an eventuality over the
policy term, endowment plans pay out the sum assured under both scenarios – death and survival.
However, endowment plans charge higher fees / expenses – reflected in premiums – for paying

38. 38
out sum assured, along with profits, in either scenario – death or maturity. The profits are an
outcome of premiums being invested in asset markets – equities and debt.
Unit linked insurance plans (ULIP)
ULIPs are a variant of the traditional endowment plan. They pay out the sum assured (or the
investment portfolio if its higher) on death/maturity.
ULIPs differ from traditional endowment plans in certain areas. As the name suggests,
performance of ULIP is linked to markets. Individuals can choose the allocation for investments
in stock/debt markets.
The value of the investment portfolio is captured by the NAV (net asset value). To that end, there
are many similarities between ULIPs and mutual funds. ULIPs differ in one area, they are a
combination of investment and insurance, while mutual funds are a pure investment avenue
Whole life policy
A whole life insurance policy covers a policyholder over his life. The main feature of a whole life
policy is that the validity of the policy is not defined so the individual enjoys the life cover
throughout his life. The policyholder pays regular premiums until his death, upon which the
corpus is paid out to the family. The policy expiresonly in case of an eventuality as there is no
pre-defined policy tenure.
Money back policy
A money back policy is a variant of the endowment plan. It gives periodic payments over the
policy term. To that end, a portion of the sum assured is paid out at regular intervals. If the policy
holder survives the term, he gets the balance sum assured. In case of death over the policy term,
the beneficiary gets the full sum assured.
Once a goal has been identified and a value for it has been crystallized, an insurance policy is an
excellent vehicle to fund the goal. This is because one can be rest assured that even in the
unfortunate event of death or even critical illness, the sum assured will fund a future goal of the
policyholder.

39. 39
Pension Policies
There are the policies that provide benefits to the insured only upon retirement. If the insured
dies during the terms of the policy, this nominee would receive the benefits either as a lump sum
or as a pension every month. The Premiums are paid over a specified period. In general, most of
the pension plans pay 25% of the cash value of the policy as in mediate income and the
remaining value is invested in an investment fund that pays out a sums at a stipulated interval.
Annuity Policies
Annuity is a contract that provides an income for a specified period of time. Annuity schemes are
those wherein policyholder’s regular contributions over a period of time accumulate to form a
corpus with
Insurer. The corpus is used to yield a regular income that is paid to policyholders until death
starting from the desired retirement age. Some annuity schemes have the option to pay the
survivors a lump sum amount upon the death of insured in addition to the regular income while
the insured is alive.Life insurance contracts in simple form are different from the annuity
contracts in the sense that the insurer pays in the event of the death of insured in a life insurance
contract, while in an annuity contract the insurer stops paying upon the death of the insurer.

40. 40
HEALTH INSURANCE
These policies provide cover against major health care expenses like hospitalization, surgery,
critical illness, etc. The benefits could be in the form of fixed pay-outs on hospitalization or a
lump sum on diagnosis against some specified critical illnesses.
Accident benefit
This is usually an add-on cover over a basic policy and pays an additional sum assured to the
beneficiary in case of death due to accident. Since accidental death is sudden and unforeseen, the
family could be faced with issues like relocation, debt servicing and other requirement for funds.
Retirement Planning
Indian life expectancy has improved dramatically over the years due to availability of advanced
medical facilities. However, a longer working life may not really be possible due to occurrences
of life-style induced illness and high burn-out rate. The evolving demographic balance with
plenty of young talent becoming continuously available may also be a deterring factor to a longer
working life unless one is self-employed.
Consequently, our retirement life span could well be as long as our active working life span. This
means that we have to build a solid corpus during our active life to maintain our life style for the
long post retirement life if we are to enjoy the true meaning of the word "retirement". Pension
Plans help us build up our savings during our earning years and provide us a lump sum on
retirement. This lump sum can then provide us a retirement income by investing in an annuity.
Provide Post Retirement Income
The worst situation that a retiree can face is to run out of funds late into retirement. Such a
situation may force him to seek help from friends / relatives or liquidate his fixed assets which
essentially are a compromise of self-respect. This is where insurance offers the best solution in

41. 41
the form of an annuity. Annuities bought from the retirement corpus can either be used to provide
regular post retirement income for a fixed term or for the entire life.
A pension scheme may be broadly divided into two phases, namely accumulation (pre-
retirement) and distribution or consumption (post-retirement). In the above graph*, we assume a
30-year old who plans to retire at the age of 60 years and expects to live till the age of 80 years.
His accumulation phase is between the age of 30 and 60 years when he builds his retirement
corpus and distribution phase is between the age of 60 and 80 years when he drfaws down this
corpus for his living. Pension Plans ensure that the distribution phase of your life is as
comfortable as your earning years.
These policies provide cover against major health care expenses like hospitalization, surgery,
critical illness, etc. The benefits could be in the form of fixed pay-outs on hospitalization or a
lump sum on diagnosis against some specified critical illnesses.
Insurance as Inflation Shield
Inflation lowers the purchasing power of money and makes a dramatic cumulative impact over
the long term. It reduces our real income year after year as our cost of living keeps increasing.
So, it must be taken into account while framing financial goals.
The following illustration depicts the impact of inflation on income and prices.
Insurance products such as Unit Linked Plans help us combat the impact of inflation on our
financial goals by providing the option to invest in equity, which is known to deliver one of the

42. 42
best returns from all asset classes, over the long term. Ignoring inflation would result in our
savings falling short of the estimated value of future goals, especially over the long term.
Select the right insurance plan in 3 easy steps
Engage an insurance advisor
While this may seem trivial, engaging a reliable and competent insurance advisor at the initial
stage in your quest for life insurance is critical. Most individuals are not capacitated to take a
decision by themselves and need the expertise of an insurance advisor.
Calculate the life cover
The insurance advisor will help you calculate the amount of life cover – or the sum assured. He
will assess sources of your income, number of your dependents, your debts and liabilities and
your expenses based on your lifestyle and arrive at a life cover. He will also decide the best plan,
be it a term plan, endowment plan, unit-link plan or a combination of plans, to help provide you
with an optimum life cover.
Likewise, if you have other needs like planning for your child’s education or marriage, pension
for your retirement, a woman’s insurance plan for women, trust your advisor to do the math and
come up with an ideal solution.

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GENERAL INSURANCE
General insurance covers insurance of property against fire, burglary, theft; personal
insurance covering health, travel and accidents; and liability insurance covering legal
liabilities. This category of insurance virtually covers all forms of insurance except life.
Other covers may include insurance against errors and omissions for professionals, credit
insurance etc. Common forms of general insurance are motor, fire, home, marine, health,
travel, accident and other miscellaneous forms of non-life insurance.
Unlike life insurance policies, the tenure of general insurance policies is normally not that of
a lifetime. The usual term lasts for the duration of a particular economic activity or for a
given period of time. Most general insurance products are annual contracts. There are
however, a few products which have a long term.
General Insurance Types and Features
Motor Insurance
You love long drives and speeding on the highways. But have you secured your lovable ride?
Motor insurance, that includes car insurance and two wheeler insurance, covers all damages and
liability to the vehicle. Moreover, according to the Motor Vehicles Act, 1988, driving a motor
vehicle without insurance in a public place is a punishable offense.
A motor vehicle can be covered either by a Liability Only policy which is a statutory requirement
and covers the legal liability for injury, death, and/or property damage caused to a third party in
the event of an accident caused by or arising out of the use of the vehicle, or a package policy
which includes the Liability Only policy and also covers the damage to owner’s vehicle, usually
called O.D. Cover.
The common motor insurance plans include:

44. 44
Car insurance: A comprehensive coverage against physical damage and bodily injury to the car,
and also covers against third-party liability.
Two wheeler insurance: A comprehensive two-wheeler insurance policy provides hassle-free
protection to your bike or scooter against physical damage, theft and third party liability.
Commercial vehicle insurance: Commercial vehicle insurance is a Liability Only policy for
commercial vehicles across the various classes of vehicles like goods carrying vehicles – private
and public carrier, passenger carrying vehicles, miscellaneous and special types of vehicles.
Health Insurance
Ill health can result in a major halt in your life and work. Moreover, the escalating price of health
care costs means that you would be shelling out a massive amount of money to bear the brunt of
these costs. This is the reason why you would need health insurance to cover your medical
expenses following hospitalization from sudden illnesses or expenses caused by accidents.
This al so includes cashless facility in empanelled hospitals, pre and post hospitalization
expenses, and ambulance charges. Here are some of the common types of health insurance
policies:
Individual –A health insurance policy, such as Bajaj Allianz Health Guard Individual policy,
provides cover for an individual with cashless hospitalization and other features. In case you feel
that the sum insured of your existing health insurance plan does not suffice for expenses due to
illness or accidents then opt for a cover such as the Extra Care health insurance policy to extend
your health insurance.
Family Floater Policy – A policy such as the Health Guard Family Floater Option covers family
members under a single plan. The fixed sum insured can be availed by individual member or as a
sum total for treatment of one person.
Surgery Cover – A Surgical Protection Plan provides a fixed benefit amount for specified
surgeries and helps you to take care of the expensive medical treatment in a hospital. This benefit
plan that is used for the surgical treatment of serious illnesses such as cancer, kidney failure, and
heart attack can be availed as a standalone plan or a rider.
Comprehensive Health Insurance – A high value comprehensive health insurance policy, such
as Health Care Supreme with a wide range of sum insured, add-on covers, special benefit covers
such as maternity benefits and dental treatments, fulfills all the healthcare needs and ensures
complete peace of mind, regardless of the situation of life you are in.

45. 45
Other health insurance covers:
Personal Accident
Hospital Daily cash Allowance
Critical Illness
Travel Insurance
Despite all your planning, a trip abroad can go wrong due to medical eventualities, and non-
medical contingencies such as loss of baggage, trip delay and other incidental expenses. Travel
insurance covers the insured against these misfortunes while traveling. Catering to people from
all walks of life, Bajaj Allianz offers three different plans – Travel Companion, Travel Elite and
Student Travel. Choose a basic plan or go for extended covers as per your requirements.
The different travel insurance policies include:
Individual travel policy
Family travel policy
Senior citizens travel policy
Student travel insurance
In addition, there are insurance companies that offer special plans such as a corporate travel
policy or a comprehensive policy for travel to a special place such as Asia.
Home Insurance
Your home is a priceless possession and possibly one of the largest financial investments that
you have made. It needs to be safeguarded from unforeseen events.
Along with your home, property insurance also protects the valuables and other assets that are the
interest of the insured. A comprehensive cover, such as My Home, for your house as well as the
contents ensures that your home is well protected.
Commercial Insurance
Commercial insurance offers solutions for all sectors of the industry ranging from automotive,
aviation, construction, chemicals, foods and beverages, manufacturing, oil and gas,
pharmaceuticals, power, technology, telecom, textiles, transport and logistics.

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Some common types of commercial insurance include:
 Property insurance
 Marine insurance
 Liability insurance
 Financial lines insurance
 Engineering insurance
 Energy insurance
 Employee benefits insurance
 International insurance solutions
Social insurance
The social insurance is to provide protection to the weaker section of the society who i unable to
pay the premium for adequate insurance. Pension plan, disability benefits, sickness. Insurance
and industries are varies forms of social insurance. With the increase of the socialistic ideas, the
social insurance is a nation. The government of a country must provide social insurance to its
masses.
RISK POINT OF VIEW:-
Insurance is divided into property liability and other from high point of view.
Property Insurance: - Under the property insurance of person/ persons are insured against a
certain specified risk. The risk may be fire or marine perils, theft of property or goods, damage to
property at accident.
Marine Insurance: - Marine insurance provides protection against loss of marine perils. The
marine perils are collision with rock, or ship attacks by enemies, fire, and capture by pirates, etc.
these perils cause damage, destruction or disappearance of the ship and cargo and non- payment
of freight. The scope of marine insurance had been divided into two parts: (i) ocean marine
insurance and (ii) inland marine insurance.
Fire Insurance: - Fire insurance covers risks of fire. In the absence of fire insurance, the waste
will increase not only individual but as well. With the help of fire insurance, the losses, arising
due to fire are compensated and society is not losing much. The individual is protected from such
losses and his property or business or industry will

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ADVANTAGES OF LIFE INSURANCE
Life insurance offers several advantages not available from any other financial instrument; yet it
also has disadvantages.
Advantages of Life Insurance
Life insurance provides an infusion of cash for dealing with the adverse financial consequences
of the insured's death.
Life insurance enjoys favorable tax treatment unlike any other financial instrument.
Death benefits are generally income-tax-free to the beneficiary.
Death benefits may be estate-tax free if the policy is owned properly.
Cash values grow tax deferred during the insured's lifetime.
Cash value withdrawals are treated on a first-in-first-out (FIFO) basis, therefore cash value
withdrawals up to the total premiums paid are generally income-tax free.
Policy loans are income tax free.
A life insurance policy may be exhanged for another life insurance policy (or for an annuity)
without incurring current taxation.
Note: All of the above statements are generally true; however the tax benefits of life insurance
have certain limitations which under the wrong set of circumstances can cause the tax benefits
mentioned to be lost. Please discuss with your insurance and tax advisor.
Many life insurance policies are exceptionally flexible in terms of adjusting to the policyholder’s
needs. The death benefit may be decreased at any time and the premiums may be easily reduced,
skipped or increased.
A cash value life insurance policy may be thought of as a tax-favored repository of easily
accessible funds if the need arises; yet, the assets backing these funds are generally held in
longer-term investments, thereby earning a higher return.
Disadvantages of Life Insurance
Policyholders forego some current expenditure to pay policy premiums. Moreover, life insurance
is typically purchased for the benefit of others and usually only indirectly for the insured person.
Cash surrender values are usually less than the premiums paid in the first several policy years and
sometimes a policy owner may not recover the premiums paid if the policy is surrendered.

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THE ADVANTAGEA OF GENERAL INSURANCE
Would you believe that insurance goes back to the time of pirates? It was a form of protection for
the traders against pirate attacks that caused them many goods. The idea behind this insurance is
to make sure that the unfortunate traders can carry on with their lives without the hassle of
starting back from scratch. All over the world, insurance is a language understood by many
countries. They all have their different types of insurances with different meanings and different
functions. The bottom line of insurance is to help each person with their own personal needs in
their lives. It is a great way to protect life from financial constraints after an unfortunate event
caused by natural or artificial forces.
The advantages of purchasing general insurance are numerous. These advantages vary according
to its type. Generally, this kind of insurance is very beneficial because it adds value to your life,
which keeps you reminded of how precious your body and your properties are.
General insurance is a kind of insurance that is being benefited by millions. It is a non-life policy
that includes the scope of health, property, automobile, and travel. General insurance has so
many advantages. When it comes to property and fire insurance, you can be protected from
spending so much after disasters or damages to your house. Fire insurance means that you are
covered and protected from anything that is caused by fire or a disaster that resulted to property
damage. Many unfortunate events are covered by these types of insurance like damages caused
by falling trees or other objects, lighting, air craft damage, electrical installations to name a few.
Other properties misfortunes are caused by natural disasters include volcanic eruptions,
earthquakes, storms, floods, lightning, and landslides.
Another advantage of buying general insurance is that you can have peace of mind. Auto
insurance is another scope of general insurance that brings one of its greatest advantages. As a
common personal insurance policy, this type is very advantageous because most of its coverage
involve benefit payments to your involved vehicle. This also includes bodily injury or liability
coverage, collision and comprehensive coverage, and property damage. The advantage of auto
insurance is that the policy becomes cheaper if you have a good driving history. Therefore, by
becoming a good driver -you have every advantage of purchasing a general insurance policy.
Health is a very important aspect to everyone. This is why getting your health insured is an ideal
move. Personal medical plans have become widespread necessities. This scope of general
insurance policy is very advantageous because it can be a worthy safety net against illness. What

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is great about buying health insurance policies is that you can avail of high degree treatments and
facilities in case of illness. If you have good health insurance coverage, you can even be treated
like royalty when confined in the hospital. There are medical insurance policies that let you
choose the hospital you like along with the opportunity to select a room of your choice

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FUNCTIONS OF INSURANCE
What are the primary and Secondary Functions of insurance?
Insurance is defined as a co-operative device to spread the loss caused by a particular risk over a
number of persons who are exposed to it and who agree to ensure themselves against that risk.
Risk is uncertainty of a financial loss. It should not be confused with the chance of loss which is
the probable number of losses out of a given number of exposures.
It should not be confused with peril which is defined as the cause of loss or with hazard which is
a condition that may increase the chance of loss.
Finally, risk must not be confused with loss itself which is the unintentional decline in or
disappearance of value arising from a contingency. Wherever there is uncertainty with respect to
a probable loss there is risk.
Every risk involves the loss of one or other kind. The function of insurance is to spread the loss
over a large number of persons who are agreed to co-operate each other at the time of loss. The
risk cannot be averted but loss occurring due to a certain risk can be distributed amongst the
agreed persons. They are agreed to share the loss because the chances of loss, i.e., the time,
amount, to a person are not known.
Anybody of them may suffer loss to a given risk, so, the rest of the persons who are agreed will
share the loss. The larger the number of such persons the easier the process of distribution of
loss, In fact; the loss is shared by them by payment of premium which is calculated on the
probability of loss.

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In olden time, the contribution by the persons was made at the time of loss. The insurance is also
defined as a social device to accumulate funds to meet the uncertain losses arising through a
certain risk to a person insured against the risk.
The functions of insurance can be studied into two parts (i) Primary Functions, and (ii)
Secondary Functions.
Primary Functions:
Insurance provides certainty:
Insurance provides certainty of payment at the uncertainty of loss. The uncertainty of loss can be
reduced by better planning and administration. But, the insurance relieves the person from such
difficult task. Moreover, if the subject matters are not adequate, the self-provision may prove
costlier.
There are different types of uncertainty in a risk. The risk will occur or not, when will occur, how
much loss will be there? In other words, there are uncertainty of happening of time and amount
of loss. Insurance removes all these uncertainty and the assured is given certainty of payment of
loss. The insurer charges premium for providing the said certainty.
Insurance provides protection:
The main function of the insurance is to provide protection against the probable chances of loss.
The time and amount of loss are uncertain and at the happening of risk, the person will suffer loss
in absence of insurance. The insurance guarantees the payment of loss and thus protects the
assured from sufferings. The insurance cannot check the happening of risk but can provide for
losses at the happening of the risk.
Risk-Sharing:
The risk is uncertain, and therefore, the loss arising from the risk is also uncertain. When risk
takes place, the loss is shared by all the persons who are exposed to the risk. The risk-sharing in
ancient time was done only at time of damage or death; but today, on the basis of probability of
risk, the share is obtained from each and every insured in the shape of premium without which
protection is not guaranteed by the insurer.
Secondary functions:
Besides the above primary functions, the insurance works for the following functions:

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Prevention of Loss:
The insurance joins hands with those institutions which are engaged in preventing the losses of the
society because the reduction in loss causes lesser payment to the assured and so more saving is
possible which will assist in reducing the premium. Lesser premium invites more business and more
business cause lesser share to the assured.
So again premium is reduced to, which will stimulate more business and more protection to the
masses. Therefore, the insurance assist financially to the health organization, fire brigade,
educational institutions and other organisations which are engaged in preventing the losses of the
masses from death or damage.
It Provides Capital:
The insurance provides capital to the society. The accumulated funds are invested in productive
channel. The dearth of capital of the society is minimized to a greater extent with the help of
investment of insurance. The industry, the business and the individual are benefited by the
investment and loans of the insurers.
It Improves Efficiency:
The insurance eliminates worries and miseries of losses at death and destruction of property. The
carefree person can devote his body and soul together for better achievement. It improves not
only his efficiency, but the efficiencies of the masses are also advanced.
It helps Economic Progress:
The insurance by protecting the society from huge losses of damage, destruction and death,
provides an initiative to work hard for the betterment of the masses. The next factor of economic
progress, the capital, is also immensely provided by the masses. The property, the valuable
assets, the man, the machine and the society cannot lose much at the disaster.
Importance of Insurance in Our Economy
Insurance is a risk transfer mechanism whereby the individual or the business enterprise can shift
some of the uncertainties of life on the shoulder of the other.All the people will desire to live a
cleaner, healthier, comfortable and easy life. To meet this requirement different enterprises
produce and provide goods and services. They make innovation and inventions, which take great
risk. Large responsibility falls on the shoulder of innovators and inventors. A small error or lapse

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may cause numerous side effects and cause death or disability. These types of risks highlight the
importance of insurance. If there had not been insurance at the back of all innovators the world
would have never progressed. After assuring this in security factor the enterprises started looking
for new and more high-tech machines, robots and gadgets, atomic technology, space traveling,
computers, deep sea exploration, development of Concords and Jumbos and medical technology.
All these developments could be possible with the support of insurance. In peace the insurance
provides protection to trade and industry, which ultimately contributes towards human progress.
Thus insurance is the most lending force contributing towards economics, social and
technological progress of man. Without insurance cover all industrial, economic and social
activity of the world will come to a grinding halt. We may have our life, body or property
insured. The insurance company makes good our losses as we pay the insurance premium
regularly. Insurance is clearly of great advantage and importance. It plays following micro
economics roles: Firstly, insurance, like banking, promotes savings to individuals. Secondly,
insurance promotes investment. The insurance company can easily invest its funds in industry,
agriculture and commerce. Thirdly, the insured person can get loans against the security of
insurance policy from insurance company or from banks. Fourthly, insurance as we all know,
protects against dangers to life and property. If a person has got his life insured, his family will get
enoughmoneyonhis death. If he had an insurance policy for a shop, he can get compensation for fire,
theftetc.To be aware of the importance of insurance in our economy one must know roles performed
by insurance in macro-economic development.

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SEVEN INSURANCE PRINCIPLES
1) Principal of Utmost Good Faith
Parties, insurer and insured should enter into contract in good faith
Insured should provide all the information that impacts the subject matter
Insurer should provide all the details regarding insurance contract
For example - John took a health insurance policy. At the time of taking policy, he was a smoker
and he didn't disclose this fact. He got cancer. Insurance company won't pay anything as John
didn't reveal the important facts.
2) Principle of Insurable Interest
Insured must have the insurable interest on the subject matter
In case of life insurance spouse and dependents have insurable interest in the life of a person.
Corporations also have insurable interests in the life of it's employees
In case of life or marine insurance, insured must be the owner both at the time of entering of
entering into the insurance contract and at the time of accident.
3) Principle of Indemnity
Insured can't make any profit from the insurance contract. Insurance contract is meant for
coverage of losses only

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Indemnity means a guarantee to put the insured in the position as he was before accident
This principle doesn't apply to life insurance contracts
4) Principle of Contribution
In case the insured took more than one insurance policy for same subject matter, he/she can't
make profit by making claim for same loss more than once
For example - Raj has a property worth Rs.5, 00,000. He took insurance from Company A worth
Rs.3, 00,000 and from Company B - Rs.1, 00,000.
In case of accident, he incurred a loss of Rs.3, 00,000 to the property. Raj can claim Rs. Rs.3,
00,000 from A but after that he can't make profit by making a claim from Company B. Now
Company A can make a claim from Company B to for proportional loss claim value.
5) Principle of Subrogation
After the insured gets the claim money, the insurer steps into the shoes of insured. After making
the payment insurance claim, the insurer becomes the owner of subject matter.
For example: - Ram took a insurance policy for his Car. In an accident his car totally damaged.
Insurer paid the full policy value to insured. Now Ram can't sell the scrap remained after the
scrap.
6) Principle of Loss Minimization
This principle states that the insured must take all the necessary steps to minimize the losses to
inured assets.
For example - Ram took insurance policy of his house. In an cylinder blast, his house burnt. He
should have called nearest fire station so that the loss could be minimized.
7) Principle of Cause Proxima
Word "Cause Proxima" means "Nearest Cause"
An accident may be caused by more than one cause. In case property insured for only one cause.
In such case nearest cause of the accident is found out.
Insurer pays the claim money only if the nearest cause is insured

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INSURANCE FRAUD
Insurance fraud is any act committed with the intent to obtain a fraudulent outcome from an
insurance process. This may occur when a claimant attempts to obtain some benefit or advantage
to which they are not otherwise entitled, or when an insurer knowingly denies some benefit that
is due. According to the United States Federal Bureau of Investigation the most common
schemes include: Premium Diversion, Fee Churning, Asset Diversion, and Workers
Compensation Fraud. The perpetrators in these schemes can be both insurance company
employees and claimants. False insurance claims are insurance claims filed with the intent
to defraud an insurance provider.
Insurance fraud has existed since the beginning of insurance as a commercial
enterprise. Fraudulent claims account for a significant portion of all claims received by insurers,
and cost billions of dollars annually. Types of insurance fraud are diverse, and occur in all areas
of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to
deliberately causing accidents or damage. Fraudulent activities affect the lives of innocent
people, both directly through accidental or intentional injury or damage, and indirectly as these
crimes cause insurance premiums to be higher. Insurance fraud poses a significant problem, and
governments and other organizations make efforts to deter such activities.
Causes
The “chief motive in all insurance crimes is financial profit. Insurance contracts provide both the
insured and the insurer with opportunities for exploitation.
According to the Coalition Against Insurance Fraud, the causes vary, but are usually centered on
greed, and on holes in the protections against fraud. Often, those who commit insurance fraud
view it as a low-risk, lucrative enterprise. For example, drug dealers who have entered insurance

57. 57
fraud think it’s safer and more profitable than working street corners. Compared to those for
other crimes, court sentences for insurance fraud can be lenient, reducing the risk of extended
punishment. Though insurers try to fight fraud, some will pay suspicious claims anyway; settling
such claims is often cheaper than legal action.
Another reason for fraud is over-insurance, when the amount insured is greater than the actual
value of the property insured. This condition can be very difficult to avoid, especially since an
insurance provider might sometimes encourage it in order to obtain greater profits. This allows
fraudsters to make profits by destroying their property because the payment they receive from
their insurers is of greater value than the property they destroy. The most common form of
insurance fraud is inflating the value of the loss.
Insurance companies are also susceptible to fraud because it's possible for fraudsters to file
claims for damages that never occurred.
Losses due to insurance fraud
It is hard place an exact value on the money stolen through insurance fraud. Insurance fraud is
deliberately undetectable, unlike visible crimes such as robbery or murder. As such, the number
of cases of insurance fraud that are detected is much lower than the number of acts that are
actually committed. The best that can be done is to provide an estimate for the losses that insurers
suffer due to insurance fraud. The Coalition against Insurance Fraud estimates that in 2006 a total
of about $80 billion was lost in the United States due to insurance fraud. According to estimates
by the Insurance Information Institute, insurance fraud accounts for about 10 percent of the
property/casualty insurance industry’s incurred losses and loss adjustment
expenses. The National Health Care Anti-Fraud Association estimates that 3% of the health care
industry’s expenditures in the United States are due to fraudulent activities, amounting to a cost
of about $51 billion. Other estimates attribute as much as 10% of the total healthcare spending in

58. 58
the United States to fraud—about $115 billion annually. Another study of all types of fraud
committed in the United States insurance institutions (property-and-casualty, business liability,
healthcare, social security, etc.)Put the true cost at 33% to 38% of the total cash flow through the
system. This study resulted in the book title "The Trillion Dollar Insurance Crook" by J.E. Smith.
In the United Kingdom, the Insurance Fraud Bureauestimates that the loss due to insurance fraud
in the United Kingdom is about £1.5 billion ($3.08 billion), causing a 5% increase in insurance
premiums. The Insurance Bureau of Canada estimates that personal injury fraud in Canada costs
about C$500 million annually. Indiaforensic Center of Studies estimates that Insurance frauds
in India costs about $6.25 billion annually.
Hard vs. soft fraud
Insurance fraud can be classified as either hard fraud or soft fraud.
Hard fraud occurs when someone deliberately plans or invents a loss, such as a collision, auto
theft, or fire that is covered by their insurance policy in order to receive payment for damages.
Criminal rings are sometimes involved in hard fraud schemes that can steal millions of dollars.
Soft fraud, which is far more common than hard fraud, is sometimes also referred to as
opportunistic fraud. This type of fraud consists of policyholders exaggerating otherwise-
legitimate claims. For example, when involved in an automotive collision an insured person
might claim more damage than actually occurred. Soft fraud can also occur when, while
obtaining a new health insurance policy, an individual misreports previous or existing conditions
in order to obtain a lower premium on his or her insurance policy.
TYPES OF INSURANCE FRAUD
Life insurance
See also: Category: Murderers for insurance money
Life insurance fraud may involve faking death to claim life insurance. Fraudsters may sometimes
turn up a few years after disappearing, claiming a loss of memory.
An example of life insurance fraud is the John Darwin disappearance case, which was an
investigation into the act of pseudocide committed by the British former teacher and prison
officer John Darwin, who turned up alive in December 2007, five years after he was thought to
have died in a canoeing accident. Darwin was reported as "missing" after failing to report to work
following a canoeing trip on March 21, 2002. He reappeared on December 1, 2007, claiming to
have no memory of the past five years.

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Another example is former British Government minister John Storehouse who went missing in
1974 from a beach in Miami. He was discovered living under an assumed name in Australia,
extradited to Britain and jailed for seven years for fraud, theft and forgery.
Health care insurance
See also: Medicare fraud and Health care fraud
Health insurance fraud is described as an intentional act of deceiving, concealing, or
misrepresenting information that results in health care benefits being paid to an individual or
group.
Fraud can be committed either by an insured person or by a provider. Member fraud consists of
claims on behalf of ineligible members and/or dependents, alterations on enrollment forms,
concealing pre-existing conditions, failure to report other coverage, prescription drug fraud, and
failure to disclose claims that were a result of a work-related injury.
Provider fraud consists of claims submitted by bogus physicians, billing for services not
rendered, billing for higher level of services, diagnosis or treatments that are outside the scope of
practice, alterations on claims submissions, and providing services while medical licenses are
either suspended or revoked. Independent medical examinations debunk false insurance claims
and allow the insurance company or claimant to seek a non-partial medical view for injury-
related cases.
According to the Coalition Against Insurance Fraud, health insurance fraud depletes taxpayer-
funded programs like Medicare, and may victimize patients in the hands of certain doctors. Some
scams involve double-billing by doctors who charge insurers for treatments that never occurred,
and surgeons who perform unnecessary surgery.
According to Roger Feldman, Blue Cross Professor of Health Insurance at the University of
Minnesota, one of the main reasons that medical fraud is such a prevalent practice is that nearly
all of the parties involved find it favorable in some way. Many physicians see it as necessary to
provide quality care for their patients. Many patients, although disapproving of the idea of fraud,
are sometimes more willing to accept it when it affects their own medical care. Program
administrators are often lenient on the issue of insurance fraud, as they want to maximize the
services of their providers.