Insurance

By
Suresh kumar
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 What is Insurance?
Insurance is a contract between two parties
where one party undertakes to take the risk of
another in exchange for consideration known
as premium and promises to pay a fixed
amount to the other party on happening of an
uncertain event (death) or after the expiry of a
certain period incase of life insurance or
indemnify the other party on happening of an
uncertain event in case of general Insurance.

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 PURPOSE & NEED OF
INSURANCE
Assets are insured because they are likely to
be destroyed or made non-functional through
an accidental occurrence.

Such accidental occurrences are PERILS.

The damage that these perils may cause is the

RISK.

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 How Insurance Works
• Creation of a common fund by the
contribution of people who are facing the same
risk.
• Past experiences of a particular loss helps to
determine how many persons on an average
can face a particular loss.,
• Contribution to the fund by each member is
accordingly calculated.

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 Sharing of Risk
• Say 1000 motor cars valued @ 300000/- are
observed over a period of five years. On an
average say per year two are total loss by
accident. Then the total annual loss would be
Rs.600000. If the loss is to shared by all the
thousand owners then they have to contribute
Rs.600/-
• The loss experience will be established by
taking the past experience, geographical area
in which the vehicles are used and density of
traffic.
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 Principles of insurance
• Insurable interest
• Principle of indemnity
• Proximate cause
• Utmost good faith

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 Insurable interest
• Insurable Interest is a relation between the
insured and the event insured against such
that the occurrence of the event will cause
substantial loss or injury of some kind to the
assured.

• LEGAL RIGHT TO INSURE IS THE

INSURABLE INTEREST. Insurable Interest is
required to support the contract of Insurance in
order to make it legal, other wise the contract is
null and void.
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 How insurable interest arises
• By ownership
• By Law
• By Contract
• By Legal liability
• Interest of a Person in Life

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 Indemnity
• A contract of indemnity is one in which the
promiser promises to make good the loss that
occurs to the promisee on the happening of an
event.

• Indemnity Contract –Fire or Marine Insurance

• Non-indemnity Contract –Life Insurance

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 Proximate cause
The active efficient cause that sets in motion a
train of events which bring about a result,
without intervention of any force started and
working actively from a new and independent
source.

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 Utmost good faith
It is the duty of the proposer to disclose all
material facts not only already known but also
extends to material facts which he ought to
know.

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 Type of insurance

• Life insurance

• General insurance

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 Types of life insurance

• Term policy

• Whole life policy

• Endowment policy

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 Types of general insurance
• Fire insurance
• Marine insurance
• Motor insurance
• Miscellaneous insurance

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 Insurance documents
• Proposal form
• Policy form
• Cover notes
• Certificate of insurance
• Endorsements
• Renewal notice
• Claim document

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 Reason for taking an insurance
• Protection
• Saving
• Initiates investment
• Tax benefit
• Social security
• Credit worthiness

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Role of insurance in
economic
development

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 IRDA
(INSURANCE REGULATORY &
DEVELOPMENT AUTHORITY)

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