Insurance abcdthejbjjkjfhfiafiirfbbh.pptx

Meaning of Insurance
Insurance is a contract between two parties where by one party agrees to undertake the risk of
another in exchange for consideration known as premium and promises to pay a fixed sum of
money to the other party on happening of an uncertain event/death or after the expiry of a certain
period in case of life insurance or to indemnify the other party on happening of an event.
Human being can suffer heavy loss itself or to the property due to unforeseen event e.g. death,
illness, accident, fire, earthquake etc. These risks may result into financial loss. He wants to
compensate the financial loss caused to the property or to the life. Insurance is the mechanism to
reduce the loss to property or to the life which occur due to such risk or perils. It is a cooperative
device to spread the loss caused by a particular risk over a number of persons. Thus, insurance can
not avert the risk or loss but it can be distributed amongst the insured persons.
Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance
Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community.
In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer.

The first insurance company was formed in the United States in Charles Town (Charleston), South
Carolina, in 1732 which underwrites fire insurance. The modern form of insurance has originated in
the last three centuries. The first life insurance policy was insured in England in 1583. Lloyds
Association, a leading marine insurance company in the world was founded in 1688 in a Coffee
House in London run by Edward Lloyds. However the attention of public were attracted towards the
necessity of fire insurance and starting of fire insurance business on commercial basis after great fire
in London in 1966 which lasted 4 days and destroyed 13000 buildings. In India the concept of
insurance was found in Arya Chanakya’s Arthshatra. There after the British started insurance business
in the modern form by establishing Life and General Insurance companies in India.
E. W. Patterson : Insurance is a contract by which one party , for a consideration called premium
assumes particular risk of the other party and promises to pay him or his nominee a certain or
ascertainable sum of money on specified contingency.
Justice Tindall : Insurance is a contract in which a sum of money is paid to the assured as
consideration of insurers incurring the risk of paying a large sum upon a given contingency.
Parties of insurance
• Insured Premium
• Insurer Indemnity
• Insurance policy Beneficiary

Characteristics of Insurance
1. Insurance is a Contract - in consideration of insurance premium, agrees to compensate the
insured against certain probable risks. Since insurance is a contract the provisions of Indian
Contract Act viz. proposal, acceptance, consideration, competency of parties lawful object etc.
are applicable to insurance contracts as well. It is a contract to pay compensation on the
happening of a certain event in the case of fire, marine and general insurance. If there is no
loss , no compensation is paid and even no premium is returned to policyholder.
2. Means of Mutual help/ Cooperative device -Under this arrangement persons exposed to
same risks come together and create a common fund and compensate the person who has
actually suffered the loss. People individually can not afford to bear the entire loss. But jointly
they can get protection by contributing a small amount each to the common fund.
3. Large number of Insured Person – it works on the principle of large number of insured
persons. Insurance is spreading of loss over a large number of persons. Larger the number of
persons, lower the cost of insurance and amount of premium.

4. Uncertainty of events: The event to be insured must be uncertain and unforeseen. It may occur or
may not occur, e.g. every property insured for fire risk may be not catches fire Insurance can be
taken in case of uncertain events.
5. Protection of Financial Risk : Insurance is a contract to indemnify the financial loss caused to
the insured property due to the specific risk during the period of insurance contract. If the insured
suffers no loss during this period he is not entitled to receive any amount from the insurer. The
maximum amount of compensation is limited to the actual loss of the property. Thus, the insured can
not make any profit out of the loss incurred.
6. Based on certain principles and regulated by law –The life insurance is regulated by Life
Insurance Corporation of India Act 1956 whereas General Insurance is regulated by General
Insurance Business (Nationalization)Act 1972 In India Insurance Regulatory and Development
Authority (IRDA) is set up in 1999 to regulate the Insurance business in the country. The insurance
business is stands upon certain principles such as insurable interest, utmost good faith, indemnity,
subrogation, causa-proxima, contribution etc.

7. Sharing and transfer of risk : Insurance is a social and economic device. It share the
financial loss occurred due to unforeseen events between the public who are exposed to risk.
Insurance is a plan to bear the risks and financial losses occurs due to unexpected event.
8. Valuation of Risk : evaluate the risk and finalize the amount of premium. Thereafter the
insurance company enters into the contract. It is the basis of charging premium which is
depends upon the risk. If risk is high the rate of premium becomes high. The risks involved in
the subject matter can be evaluated by several methods.
9. Payment of claim at contingency: The insurance company is liable to pay compensation
i.e. claim amount only if certain unforeseen event takes place in case of fire, marine and
accident insurance. In other words if the unforeseen event occurs, payment is made to policy
holder.If contingency not take place, there is no need to pay any amount of compensation to
the insured.

Functions of Insurance
Primary functions
• Providing protection
• Collective risk bearing
• Evaluating risks
• Provide certainty
Secondary functions of insurance
• Preventing losses
• Covering larger risk with small
capital
• Helps in the development of
larger industries
• Provides capital
Other functions of insurance
● It is a savings and investment
tool
● Medium of earning foreign
exchange
● Risk free trade

Need of Insurance • 1. Provide Economic Protection :
• 2. Investment:
• 3. Tax Benefit :
• 4. Social Security:
• 5. Business Needs:
• 6. Cover against uncertainty :
• 7. Provision against unexpected death :
• 8. To generate financial resources :
• 9. To enhance labour welfare :
• 10. Medical Support :
• 11. Helpful to business organization:
• 12. Useful to partnership firm :
• 13. Encourages Savings:

Significance of Insurance:
1. Business continuity
2. Development of Trade and Industry
3. Encourages development of aids to trade/ service sector
4. Promote foreign Trade
5. Encouragement to saving
6. Promotes economic development
7. Employee welfare and protection of interest
8. Helps to increase business efficiency
9. Provision of Statutory liabilities
10. Reduction of Probability of loss:
11. Facilitates the development of capital market
12. Measures to prevent Loss

Basic principles of insurance
Insurable interest This principle says that the individual (insured) must
have an insurable interest in the subject matter.
Insurable interest means that the subject matter for
which the individual enters the insurance contract
must provide some financial gain to the insured and
also lead to a financial loss if there is any damage,
destruction or loss.

The fundamental principle is that both the parties in an insurance
contract should act in good faith towards each other, i.e. they must
provide clear and concise information related to the terms and
conditions of the contract.
The Insured should provide all the information related to the
subject matter, and the insurer must give precise details regarding
the contract.
However the following facts are not required to be disclosed by
the insured: -
Facts which the insurer knows already, public knowledge
Facts waived by the insurer
Facts governed by the conditions of the policy
Facts which could have been secondary from the information
supplied by the insured.
Principle of utmost good faith

A contract of insurance is contained in a fire, marine, burglary or
any other policy (except life assurance and personal accident and
sickness) is a contract of indemnity. Here the insured in case of
loss against which the policy has been issued shall be paid the
actual amount of loss not exceeding the amount of the policy. The
maximum amount of compensation does not exceed the amount of
actual loss or the value of the policy whichever is less.
This principle says that insurance is done only for the coverage of
the loss; hence insured should not make any profit from the
insurance contract. In other words, the insured should be
compensated the amount equal to the actual loss and not the
amount exceeding the loss. The purpose of the indemnity principle
is to set back the insured at the same financial position as he was
before the loss occurred. Principle of indemnity is observed
strictly for property insurance and not applicable for the life
insurance contract.
Principle of Indemnity

• Principle of Contribution
Contribution principle applies when the insured takes more than one insurance policy
for the same subject matter. It states the same thing as in the principle of indemnity,
i.e. the insured cannot make a profit by claiming the loss of one subject matter from
different policies or companies.
• Principle of Loss Minimization
This principle says that as an owner, it is obligatory on the part of the insurer to take
necessary steps to minimize the loss to the insured property. The principle does not
allow the owner to be irresponsible or negligent just because the subject matter is
insured.

“The doctrine of subrogation also known as
"doctrine of rights substitution" and applies
only to fire and marine insurance.
According to it, when an insured has received
full indemnity in respect of his loss, all rights
and remedies which he has against third
person will pass on to the insurer and will be
exercised for his benefit until insurer recoups
the amount he has paid under the policy. It
must be clarified here that the insurer's right of
subrogation arises only when he has paid for
the loss for which he is liable under the policy.
Principle of subrogation

Principle of Proximate Cause
This is also called the principle of ‘Causa Proxima’ or
the nearest cause. This principle applies when the loss
is the result of two or more causes. The insurance
company will find the nearest cause of loss to the
property. If the proximate cause is the one in which
the property is insured, then the company must pay
compensation. If it is not a cause the property is
insured against, then no payment will be made by the
insured.

Principle of Causa Proxima
The term Causa Proxima means
nearest or proximate or immediate
cause. It means that the cause of the
loss must be proximate or immediate
and not remote. If the real cause of
the loss is insured, the insurer is
liable to pay compensation.
Otherwise the insurer is not liable to
pay compensation. Proximate cause
means the active, efficient cause that
sets in a motion of events which bring
about a result
Principle of Mitigation of loss
The insured must take all
necessary steps to mitigate or
minimize the loss just as any
prudent person would do in
those circumstances. If he does
not do so, the insurer can avoid
the payment of loss attributable
to his negligence. But it must be
remembered that through the
insured is bound to do his best
for his insurer, he is not bound
to do so at the risk of his life.

It is an outcome of the principle of indemnity.
Where there are two or more insurance on one
risk, the principle of contribution comes into
play. The aim of contribution is to distribute
the actual amount of loss among the different
insurers who are liable for the same risk under
different policies in respect of the same subject
matter. Any one insurer may pay to the insured
the full amount of the loss covered by the
policy and then become entitled to
contribution from his co- insurers in proportion
to the amount which each has undertaken to
pay in the loss of same subject matter.
Principle of contribution

Life Insurance
Life insurance is a contract where you, the policyholder, pay premiums
to an insurer, who then pays a death benefit to your designated
beneficiaries upon your death. This payment, or "death benefit,"
provides a financial safety net to replace lost income and cover
expenses like housing, debts, and funeral costs, helping to maintain
your family's financial security and lifestyle in your absence. There are
two main types: term life insurance, which provides coverage for a
specific period, and permanent life insurance, which offers lifelong
coverage and can also include a cash value component.
Life insurance companies provide coverage against the risk of death
and offer financial security to the family of the insured. These
companies also provide long-term savings, retirement planning, and
investment options.

Benefits of Life Insurance
1. Risk Coverage: Insurance provides risk coverage to the insured family in form of monetary compensation in
lieu of premium paid.
2. Difference plans for different uses: Insurance companies offer a different type of plan to the insured
depending on his need for insurance. More benefits come with the more premium.
3. Cover for Health Expenses: These policies also cover hospitalization expenses and critical illness treatment.
4. Promotes Savings/ Helps in Wealth creation: Insurance policies also come with the saving plan i.e. they
invest your money in profitable ventures.
5. Guaranteed Income: Insurance policies come with the guaranteed sum assured amount which is payable on
happening of the event.
6. Loan Facility: Insurance companies provide the option to the insured that they can borrow a certain sum of
amount. This option is available on selected policies only.
7. Tax Benefits: Insurance premium is tax deductible under section 80C of the income tax Act, 1961.

Advantages/ Disadvantages of Life Insurance
Advantages of Life Insurance
- Provides financial security to
dependents
- Encourages savings and
disciplined financial planning
- Offers tax benefits under Income
Tax Act
- Useful for retirement and wealth
creation
- Provides loans against policy
Disadvantages of Life Insurance
- Long-term commitment, difficult to
exit early
- Returns may be lower compared to
other investment options
- Mis-selling of policies can harm
customers
- Premium burden for low-income
families

Types of Life Insurance
⦿ Term Insurance: Gives life coverage for a specific time period.
⦿ Whole life insurance: Offer life cover for the whole life of an individual
⦿ Endowment policy: a portion of premiums go toward the death benefit, while the remaining
is invested by the insurer.
⦿ Money back Policy: a certain percentage of the sum assured is paid to the insured in
intervals throughout the term as survival benefit.
⦿ Pension Plans: Also called retirement plans are a fusion of insurance and investment. A
portion from the premiums is directed towards retirement corpus, which is paid as a lump-
sum or monthly payment after the retirement of the insured.
⦿ Child Plans: Provides financial aid for children of the policyholders throughout their lives.
⦿ ULIPS – Unit Linked Insurance Plans: same as endowment plans, a part of premiums go
toward the death benefit while the remaining goes toward mutual fund investments.

Non Life Insurance
Non-life insurance companies provide protection against financial losses other than death.
These include health insurance, motor insurance, property insurance, travel insurance, fire
insurance, etc.
What is Non-Life Insurance?
Non-life insurance covers property, businesses and individuals’ and is also known as general
insurance in India. In some markets this type of insurance is known as Property and Casualty
(P&C) insurance. Unlike life insurance which covers lives for assured benefits, non-life
insurance provides coverage for damages on indemnity basis. It protects insured monetarily by
providing money in the event of an accidental loss. Examples of non-life insurance are Fire,
Marine, Motor, Health insurance, home, factory, shop, travel and liability insurance etc.
In other words, you can say that other than life insurance products the types of insurance that
provide cover are non-life insurance products.

Features of Non Life Insurance
- Provides coverage for specific events (fire, accident, theft, illness)
- Short-term contracts, usually one year
- Premiums are relatively smaller compared to life insurance
- Indemnity-based: Compensation equals actual loss suffered
- No savings or investment component

Advantage / Disadvantage Non Life Insurance
Advantages of Non-Life Insurance
- Protects assets and property from risks
- Provides financial assistance during
emergencies
- Encourages economic stability and
reduces financial uncertainty
- Compulsory in certain cases (e.g.,
motor insurance)
Disadvantages of Non-Life Insurance
- Limited coverage (policy-specific)
- No investment or savings benefit
- Renewal required annually
- Risk of claim rejection due to technical
reasons

Types of Non Life Insurance
- Health Insurance
- Motor Insurance
- Fire Insurance
- Marine Insurance
- Property Insurance
- Travel Insurance
- Crop Insurance

Insurance abcdthejbjjkjfhfiafiirfbbh.pptx

More Related Content

Similar to Insurance abcdthejbjjkjfhfiafiirfbbh.pptx

More from MRSNAMRATAKISHNANIBS

Recently uploaded

Insurance abcdthejbjjkjfhfiafiirfbbh.pptx