CHAPTER.

1 INTRODUCTION

Insurance

Insurance is a means of protection from financial loss. It is a form of risk

management primarily used to hedge against the risk of a contingent,
uncertain loss.

An entity which provides insurance is known as an insurer, insurance

company, or insurance carrier. A person or entity who buys insurance is
known as an insured or policyholder. The insurance transaction involves the
insured assuming a guaranteed and known relatively small loss in the form
of payment to the insurer in exchange for the insurer's promise to
compensate the insured in the event of a covered loss. The loss may or may
not be financial, but it must be reducible to financial terms, and must involve
something in which the insured has an insurable interest established by
ownership, possession

Definition of insurance

A financial risk management tool in which the insured transfers a risk of

potential financial loss to the insurance company that mitigates it in
exchange for monetary compensation known as the premium.
Origin of insurance

The roots of insurance might be traced to Babylonia, where traders were

encouraged to assume the risks of the caravan trade through loans that were
repaid (with interest) only after the goods had arrived safelya practice
resembling bottomry and given legal force in the Code of Hammurabi .

The Phoenicians and the Greeks applied a similar system to their

seaborne commerce. The Romans used burial clubs as a form of life
insurance, providing funeral expenses for members and later payments to the
Insurance developed rapidly with the growth of British commerce in the
17th and 18th cent. Prior to the formation of corporations devoted solely to
the business of writing insurance, policies were signed by a number of
individuals, each of whom wrote his name and the amount of risk he was
assuming underneath the insurance proposal, hence the term underwriter.

In recent years insurance premiums (particularly for liability policies) have

increased rapidly, leaving unprecedented numbers of Americans uninsured.
Many blame the insurance conglomerates, contending that U.S. citizens are
paying for bad risks made by the companies. Insurance companies place the
burden of guilt on law firms and their clients, who they say have brought
unreasonably large civil suits to court, a trend that has become so common
in the United States that legislation has been proposed to limit lawsuit
awards. Catastrophic earthquakes, hurricanes, and wildfires in late 1980s
and the 90s have also strained many insurance company's reserves.
Characteristics of insurance

1. It is a contract for compensating losses.

2. Premium is charged for Insurance Contract.

3. The payment of Insured as per terms of agreement in the event of loss.

4. It is a contract of good faith.

5. It is a contract for mutual benefit.

6. It is a future contract for compensating losses.

7. It is an instrument of distributing the loss of few among many.

8. The occurrence of the loss must be accidental.

9. Insurance must be consistent with public policy.

Principles of insurance
7 Most Important Principles of Insurance
The main motive of insurance is cooperation. Insurance is defined as the
equitable transfer of risk of loss from one entity to another, in exchange for a
premium.
1. Nature of contract:
Nature of contract is a fundamental principle of insurance contract. An
insurance contract comes into existence when one party makes an offer or
proposal of a contract and the other party accepts the proposal.
2. Principal of utmost good faith:
Under this insurance contract both the parties should have faith over each
other. As a client it is the duty of the insured to disclose all the facts to the
insurance company. Any fraud or misrepresentation of facts can result into
cancellation of the contract.
3. Principle of Insurable interest:
Under this principle of insurance, the insured must have interest in the
subject matter of the insurance. Absence of insurance makes the contract
null and void. If there is no insurable interest, an insurance company will not
issue a policy.
4. Principle of indemnity:
Indemnity means security or compensation against loss or damage. The
principle of indemnity is such principle of insurance stating that an insured
may not be compensated by the insurance company in an amount exceeding
the insureds economic loss.
5. Principal of subrogation:
The principle of subrogation enables the insured to claim the amount from
the third party responsible for the loss. It allows the insurer to pursue legal
methods to recover the amount of loss.
6. Double insurance:
Double insurance denotes insurance of same subject matter with two
different companies or with the same company under two different policies.
Insurance is possible in case of indemnity contract like fire, marine and
property insurance.
7. Principle of proximate cause:
Proximate cause literally means the nearest cause or direct cause. This
principle is applicable when the loss is the result of two or more causes. The
proximate cause means; the most dominant and most effective cause of loss
is considered. This principle is applicable when there are series of causes of
damage or loss.

Types of insurance
Introduction to home insurance

Home insurance, also commonly called homeowner's insurance is a type of

property insurance that covers a private residence. It is an insurance policy
that combines various personal insurance protections, which can include
losses occurring to one's home, its contents, loss of use (additional living
expenses), or loss of other personal possessions of the homeowner, as well
as liability insurance for accidents that may happen at the home or at the
hands of the homeowner within the policy territory.
Homeowners insurance is a form of property insurance designed to protect
an individual's home against damages to the house itself, or to possessions in
the home. Homeowners insurance also provides liability coverage against
accidents in the home or on the property.
In the U.S. there are seven forms of homeowners insurance that have
become standardized in the industry; they range in name from HO-1 through
HO-8 and offer various levels of protection depending on the needs of the
homeowner.

Types of Home Insurance in India

1.Standard Fire and Special Perils Policy
Offered by every leading insurance company, as the name of the policy
suggests, it provides coverage against certain special perils and fire
outbreak. This coverage can be bought by house owners (for their own
house) and also by tenants residing in a rented house. The sum insured, for
this policy, is calculated as Building - Cost of reconstruction (exclusive of
land value). A Standard Fire and Special Perils policy covers the insured
home against loss and damages caused due to following causes

Natural calamities like lightning, fire, volcanic eruptions, bush fire, forest
fire, earthquakes, storms, floods.
Damages caused due to explosion/implosion, man-made anti-social activities
like strikes, riots, damage caused with malicious intent
Damage caused by direct contact of rail/road, vehicle. Damage caused due to
the insured house, with your own vehicle, is not included in this cover.
Damage caused due to bursting or/and overflowing of water tanks, pipes and
apparatus
Subsidence including rockslide and landslide
Missile testing operations
Damage caused due to leakage from automatic sprinkler installations.
2.Home Structure/Building Insurance
This type of home insurance covers the structure of your house from any
kinds of dangers and risks. In addition to this, the policy also protects any
permanent fixtures within the house. This includes your kitchen and
bathroom fittings, and also the ceiling/roof of the insured house. Some
houses have garages, an outdoor room/house or sheds. This type of
insurance usually extends to these structures as well.
3.Public Liability Coverage
If any guests or third party experience damage caused to them or their
property inside the insureds home, then this type of home insurance policy
provides coverage against the same.

4. Personal Accident
This type of home insurance covers you and your family. A compensation is
given in case of permanent disablement or death of the insured person due to
accidental or physical injury, even if it has happened anywhere is the world.
5. Burglary & Theft
In case of an occurrence of burglary or theft in the insured house, if any
valuable contents are stolen or damaged, the policy covers you for it.
6.Contents Insurance
It is not just the house, that you have insured, but also the contents inside the
house on which you would have spent a lot of time and money deserve equal
protection. This type of home insurance policy protects the goods inside
your house from damages and loss owing to theft, fire, flood and other such
mishaps. Your documents, portable equipment, jewelry, TV, refrigerator, etc.
are covered. It does help you when you have to replace the interiors of house
if your house is flooded, or has been burnt to ashes by break out of fire.
7.Tenants Insurance
As a tenant you would have obviously rented a house or flat. In that case, it
is the wisest option to not opt for a buildings cover, instead you need to
focus entirely on protecting your contents. This type of insurance is a must
have for every tenant. Though you live in a rented house, it is very much
yours, at least, till the time you reside in it.
8. Landlords' insurance
As a landlord, the maintenance and upkeep of the
building/apartment/structure of the house (that you are renting out) are
clearly your responsibility. A standard buildings insurance policy usually
arent exclusively designed for the need of landlords, because there are also
other residents who live in the building. As a landlord you need something
specifically designed for landlords. Hence, a landlords insurance policy is
ideal for you and it also covers things like loss of rent and public liability.
Types of Coverage in a Homeowners Insurance Policy
Most standard homeowners insurance policies include four essential types of
coverage:

Coverage for the structure of your home

Coverage for your personal belongings
Liability protection
Additional living expenses if you are temporarily unable to live in your
home because of an insured disaster
1. The Structure of Your House
Your homeowners policy pays to repair or rebuild your home if it is
damaged or destroyed by fire, hurricane, hail, lightning or other disasters
listed in your policy. It will not pay for damage caused by a flood,
earthquake or routine wear and tear. When purchasing coverage for the
structure of your home, remember this simple guideline: Purchase enough
coverage to rebuild your home.

2. Your Personal Belongings

Your furniture, clothes, sports equipment and other personal items are
covered if they are stolen or destroyed by fire, hurricane or other insured
disasters. The coverage is generally 50 to 70 percent of the insurance on the
structure of your home. The best way to determine if this is enough coverage
is to conduct a home inventory.

3. Liability protection
Liability covers you against lawsuits for bodily injury or property damage
that you or family members cause to other people. It also pays for damage
caused by your pets. So, if your son, daughter or dog accidentally ruins a
neighbors expensive rug, you are covered. (However, if they destroy your
rug, youre out of luck.)
4. Additional living expenses (ALE)
ALE pays the additional costs of living away from home if you cannot live
there due to damage from a an insured disaster. It covers hotel bills,
restaurant meals and other costs, over and above your usual living expenses,
incurred while your home is being rebuilt.
Keep in mind that the ALE coverage in your homeowners policy has limits
and some policies include a time limitation.

Most standard homeowners policies provide

Dwelling coverage. Pays to repair or rebuild your home - including
electrical wiring, plumbing, and heating and air conditioning - if
damaged by a covered cause of loss. It's important to buy enough
dwelling coverage to cover the cost to rebuild. Learn more about cost
to rebuild.
Other structures coverage. Pays for damages to detached structures
like garages, sheds, fences and cottages on your property.
Personal property coverage. Reimburses you for the personal items in
your home that may be damaged or destroyed by a covered cause of
 loss, which could include your furniture, clothes, sporting goods and
electronics. Learn more about Travelers Personal Property insurance.
Loss of use coverage. Pays your additional housing and living
expenses if you must move out of your home temporarily while it's
being restored. Learn more about Travelers Loss of Use insurance.
Liability insurance. Helps protect your assets and cover your defense
costs in the event of a lawsuit because you or your family members
are responsible for causing injuries or damage to other people or their
property. Learn more about Travelers Liability insurance.
Additional home coverages. There are a number of additional
coverages you can add on to your homeowners policy to help you
meet your insurance needs.

Types of home insurance policies

There are several basic types of home insurance that offer different levels of
coverage. Each type of home insurance policy provides coverage for certain
perils. A peril is the particular event that causes the damage or destruction of
the home. Some types of home insurance policies will name the perils
specifically, and others will exclude them. What you need out of home
insurance depends on your home and what you want to cover.

HO-1 is very basic coverage. It only covers damage to the dwelling as a

result of 10 listed perils, and does not include homeowners personal liability
insurance. Therefore, if you're sued by someone who slips on your property,
your insurance company won't defend you in court or pay the plaintiff if you
are found to be at fault. If you have a mortgage, you would not buy this type
of insurance as it would not provide you adequate protection to insure your
home. The ten perils the HO-1 Home Insurance Policy will protect your
home and belongings from are:

Fire or Lightning
Wind storm or Hail
Explosion
Riot or Civil Commotion
Aircraft
Vehicles (unless caused by the insured)
Smoke

HO-2 is sometimes called the broad coverage policy. The HO-2 is similar to
the HO-3 because it covers the dwelling (house) and other structures
(detached garage, fence), but it insures against only specifically named
perils. The policy includes more perils than HO-1 and offers homeowners
personal liability coverage. The sixteen perils that your home and belongings
are protected from with the HO-2 Home Insurance Policy are:
Fire or Lightning
Vehicles
Smoke
Weight of Ice, Snow, or Sleet
Accidental Discharge or Overflow of Water or Stream
Sudden & Accidental Tearing Apart, Cracking, Burning, or Bulging
Freezing
Sudden & Accidental Damage from Artificially Generated Electrical
Current
HO-3 policy is called the special form policy. It insures your home and
detached structures against loss or damage from any peril except for those
specifically excluded in the policy. This is the policy most homeowners
purchase. It is important for you to read your policy carefully to see what is
excludeda"you may want to cover exclusions with special home insurance
riders. The contents of your home are only covered against listed perils, so
be sure to read that list in your policy. This policy also includes liability
coverage. If the damage to your home is not caused by something on the
exclusion list, then you have coverage. Exclusion List for Your HO-3 policy:
Earth Movement (earthquake coverage can be added by endorsement)
Ordinance or Law (some coverage may be provided in your policy)
Water Damage (Sudden & Accidental Water Damage is automatically
included; others can be endorsed onto the policy)
Power Failure
Government Action
Collapse (some coverage may be provided in your policy)
Theft to a Dwelling Under Construction

HO-4 This is the only insurance policy designed for renters. It is however,
part of the homeowner's policy group. It is known as the tenant homeowner's
policy as well as the Contents Broad Form policy, and it covers only the
contents of the home and personal liability for the insured tenant. The policy
also covers additional living expenses if a renter is displaced due to a
covered loss, medical payments to others, as well as the liability protection.

HO-5 is one of the best home insurance policies available in the United
States. It provides excellent coverage for the dwelling itself and for the
contents of your home. The HO-5 insurance policy is an open perils policy,
which means it only lists the perils the policy does not cover. If your home
and/or personal property are damaged by something that is not on the
exclusion list, then you have insurance coverage. This policy provides the
most extensive coverage that is offered. It is one of the most elite home
insurance policies available to homeowners. Exclusion List for Your Home
& Contents:
Earth Movement (earthquake coverage can be added by endorsement)
Ordinance or Law (some coverage may be provided in your policy)
Water Damage (Sudden & Accidental Water Damage is automatically
included; others can be endorsed onto the policy)
Power Failure
Neglect
War

HO-6 covers a condominium owner who wishes to insure items not insured
by the association policy, as well as the personal property inside the unit.
This condo insurance focuses on contents and is similar to the HO-4 because
the policy holder does not own the structure the unit is in. This policy
includes liability insurance as well, which means you'll be covered if
someone is injured in your unit and wants to sue. It also is a name peril
policy and it covers against sixteen named perils. This protection covers
both your dwelling and your personal property. The sixteen perils are:

Fire or Lightning
Wind storm or Hail
Explosion
Riot or Civil Commotion
Aircraft
Vehicles
Smoke

HO-8 is the older home policy. Having an older home may preclude you
from being able to buy a replacement policy; you may have to buy a
modified replacement policy instead. Put simply, you need this insurance if
the cost to rebuild your home far exceeds its current market value. Your
home may currently be valued at $400,000, but costs $500,000 to rebuild if
completely destroyed by fire. For example, if you live in a very old home
built using methods unique to the period it was built, this policy would be
your best option. Make sure you determine whether the policy is covering
you at actual cash value or replacement cost. This is important! You can
always endorse the policy to get replacement cost coverage. The HO-8
insurance policy is a named perils home insurance policy. The ten perils the
HO-8 Home Insurance Policy will protect your home and belongings from
are:
Fire or Lightning
Wind storm or Hail
Explosion
Aircraft