Insurance is a promise by one person/ business to make compensation to other person/business against its financial losses as a result of a certain specific reason.
Terms in Insurance
- Insurer/Underwriter: One who provides insurance.
- Insured: One who gets insurance cover.
- Beneficiary: Is the person who will get payment against insurance claim from insurance.
- Assessor/Actuaries: Somebody employed by an insurance company to assess risks and fix premiums
- Sum Insured: Is amount which the insurer promises to pay at the maximum.
- Premium: Amount which is to be paid on order to buy an insurance cover. Once paid it is non-refundable. Premiums are to be paid on annual basis.
- Insurance Policy: Contract of Insurance.
- Cover Note: A document of transitional nature which acts a proof of insurance before insurance policy is issued.
- Claim form: Is a written document which has to be submitted by the beneficiary to the insurer to the payment against financial loss.
- Proposal form: Document on which written data about the insured is collected. On basis of this data premium are calculated.
Why insurance cover is obtained
- It gives confidence to the person/business.
- It can be obtained as a measure of saving for a certain future plan.
- As an investment
- It can give financial protection.
- Some times it is a obligation.
Types of Risks
1. Insurable Risks
Those risks against which probabilities of occurrence can be mathematically calculated on the basis of available past data for example theft, accident.
2. Non-Insurable Risks
Those risks against which probability of occurrence can not be mathematically determined for example failure in exam and change in fashion.
How Insurance Works
- Insurance works on the basis of pooling of risks.
- All people who have a same type of risk, make payment of premiums to the insurer.
- Of all the people under insurance policy, only few suffer financial loss, they claim and get their payment out of the total premiums submitted.
How Insurer makes Profit
- Only few of the total insured, claim their loss.
- Insurer will invest the money of premiums wisely making sure he has enough liquidity.
How Insurance Company uses Premiums
- To make claim payments.
- Meet administrative expensive.
- To reinsure.
- To invest.
Factors effecting the Premium
|1.||Size of Poll||Pool↑:Premium↓|
|2.||Intensity of Risk||Intensity of Risk↑: Premium ↑|
|3.||No of Risks||No of Risks ↑: Premium ↑|
|4.||Sum Insured||Sum Insured ↑: Premium ↑|
|5.||Previous claim history||Previous claim history ↑: Premium ↑|
Principles and Doctrines of Insurance
1. Insurable Interest
- Applied to all types of insurance.
- Only those things can be insured, loss of which directly effects the insured/beneficiary in terms of financial loss.
2. Utmost Good Faith
- Applies to all types of insurance.
- Nothing should be concealed from the insured.
- Failure to disclose the truth make the policy void.
- Applies to all types of insurance except life assurance and personal accident insurance.
- Insurer will try to compensate the loss.
- Insurer will try to bring the insured to the position it was before loss.
- Insurer will not provide any benefit to the insured.
- For example if your 5 years old car is damaged beyond repair, then insurer will give the money from which you would be able to buy the car of the same model which is
5 years old, instead of making payment from which you can buy a new car.
- If insured tries to obtain insurance cover against the same risk from different insurers, all the insurers will contribute to the loss.
- Once insurer has made the payment of the claim to the beneficiary the wreckage belongs to him.
Types of Insurance
a) General Insurance
a) Fire Insurance: Building due to fire.
b) Motor Insurance
a) Minimum Legal Cover: Injuries to third party on public roads only.
c) Accidental Insurance
a) Care Insurance: Theft, Accident and 3rd Party. b) Medical Policy Insurance:
c) Cash in Transit Insurance: Covers against loss due to robbery of cash in transit.
d) Workman compensation Insurance: Compulsory for employers to insure their employees against any accident during working hours.
d) Liability Insurance
a) Employer Liability: For accidents at work owing to employers negligence.
b) Public Liability: To cover claims made by the public as a result of damage to their property or life.
c) Professional Liabilities: Taken by lawyers, doctors, architects and engineers to cover against claims due to their personal negligence.
d) Insurance of Interest/ Fidelity bond: Guarantee by to cover embezzlement of employs.
e) Life Assurance
a) Whole Life policy: Lump sum payable at death.
b) Endowment policies: Agree sum payable at the end of a number of years on the maturity of the
policy, death which ever is sooner.
c) Family income protection policy: Paid on death of insured in series of regular payment.
d) Mortgage payment Insurance: On the death of legal mortgager, company pays.
e) Group Insurance: Taken by small employer for employees in place of pension scheme for employees
f) Marine Insurance
a) Ship and installation
d) Port and installation
g) Public Liability
g) Aviation Insurance
d) Port Installation
e) Public Liability
h) Nuclear Insurance
Evaluating Insurance Quotation Depends upon
- Amount of Premium.
- Risks covered.
- Claim payment history of insurer.
- Financial worth of insurer.
- Terms and conditions of insurance.
Middle Men in Insurance
|1.||Independent entity.||Works on behalf of insurer.|
|2.||Job to bring the seller and buyer together.||Job is to sell insurance policies on commission basis.|
|3.||Provides risk management advice to the client.||Does not provide advice.|
Effecting an Insurance Policy
- Buyer will contact insurer for covering a certain risk.
- Insurer will appoint a surveyor.
- Surveyor will check the insured and get necessary information on the proposal form.
- On the basis of information collected on the proposal form, the insurer will calculate the premium.
- Buyer will pay the premium and will get the premium receipt and cover note from the insurer.
- After a few days insurance policy is issued.
Effecting Insurance Claim
- After the accident, Insured or beneficiary will contact insurer and the police department.
- Insurer will appoint a surveyor .
- Surveyor will contact the insured or beneficiary and give him/her a claim form.
- The insured/beneficiary will fill in the claim form and provide all relevant documentary evidence.
- If the surveyor and police department find out correctness of the claim, payment will be made to the beneficiary.