Basics & Principles of Insurance

8/8/2019 Basics & Principles of Insurance

1/26


2/26

BASICS OF INSURANCE

INTRODUCTION TO INSURANCE:

In the modern civilized world even after taking

proper

care at every step, life and property is continuouslyexposed to loss or damage. A person moving on

road

can be killed by a car, a motor bike parked may be

stolen, a factory may be gutted, cargo may bedamaged while in transit by a ship what not - to

say

everything including life is exposed to risk and

there


3/26


4/26

BASICS OF INSURANCE

INSURANCE

LIFE INSURANCE GENERAL INSURANCE


5/26

BASICS OF INSURANCE

LIFE INSURANCE GENERAL INSURANCE

Benefit policy Indemnity policy

Renewal cannot be denied Can be denied

Not duty to inform any Changes to be informed

change

Constant Premium Premium varies every yr.


6/26

INSURNCE AS A SOCIAL SECURITY TOOL

General Insurance business was taken over by the

Government in 1972 with objective of severing

better the Needs of Economy.

Hut insurance for poor people.

Crop Insurance for farmers.

Cattle and livestock insurance for the beneficiaries of IRDP

Workmens compensation/Employees State Insurance.

Solatium Scheme (hit and run cases) for road accident victims.

Third party insurance to protect the families of road accidentvictims

Public liability insurance to compensate victims of hazardous

goods manufacturing industries.


7/26

BASICS OF INSURANCE

RISK:

Uncertainty about a Loss.

PERIL :

Cause of Loss

HAZARD :Conditions which may create or increase the

chance of loss arising from any peril.


8/26

INSURABLE RISK

RISK

Pure risks Trade Risks

Risk must be fortuitous in nature

Loss caused must be capable of being measured.

Risk must not be of illegal nature

Insurance must not be against public policy.


9/26

Insurance provides financial security to anindividual

Insurance provides assistance to businessenterprise

Insurance provides financial stability tocommerce, industry, and the community.

Insurance serves as a basis of credit

Insurance plays a vital part in the reduction of

losses Insurance provides fund for investments

Insurance earns foreign exchange

FUNCTIONS OF INSURANCE


10/26

Involves two parties Insured & Insurer

Governed by Indian Contract Act, 1872.

Elements for legal validity of contract:

Offer and Acceptance

Consideration

Agreement between parties consensus ad idem

Capacity of the partiesLegality of the contract

Insurance Contracts


11/26

Insurable Interest

Utmost Good faith

Indemnity

Subrogation and Contribution

Proximate Cause

Principles of Insurance


12/26

There must be property, right, interest, life or

potential liability capable of being insured.

Such property should be the subject matter of

insurance.

The insured must bear a legal relationship to the

subject matter

Insurable interest must exist at the time of loss.

Insurable Interest


13/26

Interest arising from ownership

Interest arising from law

Interest arising from contract

Interest arising from legal liability

Interest of a person in life

Interest arising out of insurance

Insurable Interest


14/26

Duty of Utmost Good faith implies that a proposer

must disclose to the insurer all material facts in

regards to the proposed insurance. The duty

applies not only to the material facts that he knowsbut also extends to the facts that he ought to know.

Material Fact : Fact which would affect the decision

of a prudent underwriter w.r.t acceptance of risk.

Utmost Good Faith


15/26

Excepted Material Fact :

Facts which diminish the risk

Facts which are presumed to be known by

underwriter

Facts which could be ascertained from information

provided.

Matters of law.

Facts in regard to which insurer is indifferent Facts possible of discovery during inspection.

Utmost Good Faith


16/26

A breach of utmost good faith is by :

Non disclosure

Mis-representation.

Utmost Good Faith


17/26

Compensation for loss or injury sustained

Security or protection against loss or damage.

Object:

Loss or damage must be made good in such a

manner that financially the insured should be

neither better off nor worse off as a result of loss.

To place the insured in the same financial position

as he was before a loss.

Prevent insured from making a profit out of a loss.

Principle of Indemnity


18/26

Methods :

Cash Payment

Repairs

Replacement

Reinstatement

Principle of Indemnity


19/26

Subrogation:

Transfer of rights and remedies of insured to the

insurer who has indemnified the insured in respect

of the loss.

This arises from the principle of indemnity.

Collecting claim as well as money/ goods from the

person responsible for loss will be against

indemnity principle.

Subrogation & Contribution


20/26

Contribution :

The right of an insurer who has paid a loss under apolicy to recover a proportionate amount from otherinsurers who are liable for loss.

Arises from the principle of indemnity as theinsured is prevented from claiming from all insurersseparately.

The foll. are reqd.:

Subject matter must be the same.

Peril which causes the loss should be common toall policies.

Policies must be in force at the time of loss.

Subrogation & Contribution


21/26

The active efficient cause that sets in motion a train

of events which brings about a result, without the

intervention of any force started and working

actively from a new independent source. Cause of causes not to be looked into but for the

immediate cause.

Immediate does not mean the cause nearest to the

loss in point of time. It should be understood interms of effectiveness and efficiency.

Proximate Cause


22/26

Pure & Speculative

Pure Risk :

Pure Risk always produce losses. In Pure risks,

there is no possibility of gain.

Speculative Risk:

Speculative risks can result into a gain or loss.


23/26

Offer & Acceptance

Offer from proposer made orally, in paper, over

telephone or by completing a Proposal form.

Acceptance by Insurer usually by issuance of

cover note


24/26

Consideration

Act or Promise offered by one party and accepted

by the other as the price of the promise. In

Insurance, consideration from the insured is

known as Premium and that from the Insurer isthe Promise to Indemnify.


25/26

Capacity of the parties to contract

Insured:

Should have attained age of majority

Is sound of mind

Insurer:

Must have legal capacity to contract.

Authorisation by the Government.


26/26

Legality of contract

Subject matter should be legal.

Object is not lawful if:

it is forbidden by law

Is of such a nature that if permitted would defeat

the provisions of any law.

Involves or implies injury to the person and

property of another.

The court regards it as immoral or opposed topublic policy.

Basics & Principles of Insurance

Documents

Transcript of Basics & Principles of Insurance