FUNDAMENTALS OF INSURANCE

Unit – 1
Introduction to Insurance: Meaning, Definition of insurance – General Principles of
insurance – Types of insurance life, fire and marine – Difference between life and other
types of insurance, Growth & Development of Indian Insurance Industry – Regulations of
insurance business and the emerging scenario.

Introduction to insurance
In law and economics, is a form of risk management primarily used to hedge against the
risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a
loss, from one entity to another, in exchange for payment. An insurer is a company selling the
insurance; an insured or policyholder is the person or entity buying the insurance policy. The
insurance rate is a factor used to determine the amount to be charged for a certain amount of
insurance coverage, called the premium.

Risk management, the practice of appraising and controlling risk, has evolved as a
discrete field of study and practice. The 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 (indemnify) the insured in the case of a large, possibly
devastating loss. The insured receives a contract called the insurance policy which details the
conditions and circumstances under which the insured will be compensated.

General Insurance: Insuring anything other than human life is called general insurance.
Examples are insuring property like house and belongings against fire and theft or vehicles
against accidental damage or theft. Injury due to accident or hospitalisation for illness and
surgery can also be insured. Your liabilities to others arising out of the law can also be insured
and is compulsory in some cases like motor third party insurance.

Insurance is a mechanism that provides financial protection to individuals or

organizations against unexpected losses. It is an arrangement between two parties, the insurer
and the insured, where the insurer agrees to compensate the insured for a loss in exchange for a
premium. The concept of insurance has been around for centuries and has evolved over time to
meet the changing needs of society.
Definition of Insurance:
Insurance can be defined as a contract in which the insurer agrees to compensate the
insured for a loss caused by a specific event in exchange for a premium. The event may be an
accident, illness, fire, theft, or any other occurrence that causes a loss to the insured.
 Insurance is a cooperative form of distributing a certain risk over a group of persons who
are exposed to it. – Ghosh and Agarwal
 Insurance is a contract in which a sum of money is paid to the assured as consideration of
insurer’s incurring the risk of paying a large sum upon a given contingency. – Justice
Tindall
 Insurance is an instrument of distributing the loss of few among many. – Disnadle
 The collective bearing of risk is Insurance. – W. Beverideges
 Insurance is a contract by which one party, for a compensation called the premium assumes
particular risk of the other party and promises to pay to him or his nominee a certain or
ascertainable sum of money on a specified contingency. – E.W. Patterson

Characteristics of Insurance
 It is a contract for compensating losses.
 Premium is charged for Insurance Contract.
 The payment of Insured as per terms of agreement in the event of loss.
 It is a contract of good faith.
 It is a contract for mutual benefit.
 It is a future contract for compensating losses.
 It is an instrument of distributing the loss of few among many.
 The occurrence of the loss must be accidental.
 Insurance must be consistent with public policy.

Nature of Insurance
 Sharing of Risks: Insurance is a social device for division of financial losses which may
fall on an individual or his family on the happening of some unforeseen events. The
events may be the death of a bread winner of a family in the case of life insurance,
marine perils in marine insurance, fire in fire insurance and other events in general
insurance e.g.theft in burglary insurance, accident in motor insurance, etc., the loss
arising from these events if insured are shared by all the insured in the form of premium.
Hence, risk is transferred from one individual to a group.
 Co-operative Device: "All for one and one for all" is the basis for co-operation. The
insurance is a system wherein large number of persons, exposed to a similar risk, are
covered and the risk is spread over among the larger insurable public. Therefore,
insurance is a social or co-operative method wherein losses of one is borne by the society.
 Valuation of Risk: Before insuring the subject matter of the insurance contract, the risk
is evaluated in order to determine the amount of premium to be charged on the insured.
Several methods are being adopted to evaluate the risks involved in the subject matter. If
there is an expectation of heavy loss, higher premiums will be charged. Hence, the
probability of occurrence of loss is calculated at the time insurance.
 Payment made on contingency: An insurer is liable to pay compensation to the insureds
only when certain contingencies arise. In life insurance, the contingency – the death or
the expiry of the term will certainly occur. In such cases, the life insurer has to pay the
assured sum. In other insurance contracts, the contingency – a fire accident or the marine
perils, may or may not occur. So, if the contingency occurs, payment is made, otherwise
no payment need to be made to the policyholders.
In some life policies, payment is not certain due to uncertainty of a particular
contingency within a particular period. For example, in term insurance, the payment is
made only when death of the assured occurs within the specified term, may be one or two
years. Similarly, in pure endowment, payment is made only at the survival of the assured
at the expiry of the period.
 Amount of Payment: The amount to be paid to the policyholders depends upon the
value of loss occurred due to the particular risk, provided insurance cover is there upto
that amount. In life insurance, the assurer has to pay the agreed amount on the happening
 of an event. If an event or contingency takes place, the payment does fall due if the policy
is valid and in force at the time of the event. The amount of loss at the time of
contingency is immaterial in the case of life insurance. But in the case of property and
general insurance, the amount of loss as well as the occurrence of loss are required to be
proved.
 Large Number of Insured Persons: In order to make insurance cheaper and affordable,
it is necessary to insure larger number of persons or property because the lesser would be
cost of insurance and so, the lower would be premium. In past years, tariff associations or
mutual fire insurance associations were found to share the loss at a cheaper rate. In order
to function successfully, the insurance should be joined by a larger number of persons.
 Insurance is not gambling: The contract of insurance cannot be considered as gambling
as the insured is assured to get his loss indemnified only on the happening of such
uncertain event as stipulated in the contract of insurance, whereas the game of gambling
may either result into profit or loss.
 Insurance is not charity: Premium collected from the policyholders under an insurance
is the cost of risk so covered. Hence, it cannot be taken as charity. Charity lacks the
element of contract of indemnity and compensation of loss to the person whosoever
makes it.
Functions of Insurance
I. PRIMARY FUNCTION
 Provides protection: Providing protection to the insured against the probable chances of
loss is one of the main functions of insurance. The insurance guarantees the payment of
loss and thus protects the insured from suffering. The insurance cannot check the
happening of the event but can compensate for losses arising at the happening of the risk
event.
 Provides certainty: Insurance offers certainty of payment for the risk of loss. There are
different types of uncertainty in a risk. Whether the risk will occur or not, when will it
occur, how much loss will be there. In other words, there is uncertainty of happening of
time and amount of loss. Insurance removes all these uncertainty and the insured is given
certainty of payment of loss. The insurer charges premium for providing the said
certainty.
 Distributes Risk: All business concerns face the problem of risk and if the concern is big
enough, handling of risks becomes a specialised function. Risk and insurance are
interwomen with each other. Insurance, as a device, is the outcome of the existence of
various risks in our day-to-day life. It does not eliminate risks but it reduces the financial
loss caused by risks. Insurance spreads the whole loss over the larger number of persons
who are exposed by a particular risk.
II. Secondary Function
 Prevention of loss: The insurers assist financially to the heaith organsations, fire brigade,
educational institutions and other organsations which are involved in prevention of losses
of the general public from death or damage. The insurance joins hands with these
institutions in preventing the losses of the society because the reduction in loss causes
lesser payment to the insured and so more saving is possible which will assist in reducing
the premium. Lesser premium invites more business and more business causes lesser
share to the insured. The reduced premium will stimulate more business and more
protection to the general public.
  Provides capital: Insurance provides capital to the industries in various forms. First, it
reduces financial risks and losses by providing facilities of core capital investments in
various big organisations. Secondly, the amount of premiums collected by the insurers is
made available for the industrial development of the country in various financing forms
such as by providing of share capital, providing long term loans to companies and term
loans and loans to the state to invest in the country’s public sector industries. Thirdly,
insurance makes the company or organisation to avail loans on each term by
hypothecating the insurance policies. Now-a-days, banks and other financial institutions
insist that the assets must be insured if one wants to get loan against those assets.
 Increases Efficiency : Insurance increases the efficiency of the business by reducing the
risks or fear of losses. It provides a sense of security in the business world, which in turn
becomes a source for the growth and diversification of the industry. Management is
relieved of the various risk involved in uncertainties, becomes able to give due attention
to other factors which affect the total efficiency of the organisation such as labour force,
material management, marketing, etc.
 Adequate Financial cover: The necessity of insurance is largely felt to give a cover to
the rural areas and economically backward classes with a view to reach all insurable
persons in the country and provide them adequate financial cover against death at a
reasonable cost.
 Helps in judging the viability of major projects: Generally the insurer conducts an
investigation of the assets or project as a whole before insuring the same with a view to
judge the profitability of the project. Unprofitable projects are denied the benefit of
insurance. Hence, management may drop such projects or units in advance in order to
prevent losses.
Types of Insurance
 1. Life Insurance
2. General Insurance
3. Property Insurance
4. Marine Insurance
5. Fire Insurance
6. Liability Insurance
7. Social Insurance
8. Personal Insurance
9. Property Insurance
10. Guarantee Insurance
11. Other Forms of Insurance
12. Miscellaneous Insurance
Life Insurance
 Life insurance is a type of insurance policy in which the insurance company undertakes
the task of insuring the life of the policyholder for a premium that is paid on a
daily/monthly/quarterly/yearly basis.
 Life Insurance policy is regarded as a protection against the uncertainties of life. It may
be defined as a contract between the insurer and insured in which the insurer agrees to
pay the insured a sum of money in the case of cessation of life of the individual (insured)
or after the end of the policy term.
  For availing life insurance policy the person needs to provide some details like age,
medical history and any type of smoking or drinking habits.
 As there are many requirements of persons for availing a life insurance, the requirements
can be needs of family, education, investment for old age, etc.
 Some of the types of life insurance policies that are prevalent in the market are:
a. Whole life policy: As the name suggests, in this kind of policy the amount that is
insured will only be paid out to the person who is nominated and it is only payable on the
death of the insured. Some insurance policies have the requirement that premium should
be paid for the whole life while others may be restricted to payment for 20 or 30 years.
b. Endowment life insurance policy: In this type of policy the insurer undertakes to pay
a fixed sum to the insured once the required number of years are completed or there is
death of the insured.
c. Joint life policy: It is that type of policy where the life insurance is availed by two
persons, the premium for such a policy is paid either jointly or by each individual in the
form of installments or a lump sum amount. In the case of such a policy the assured sum
is provided to both or any one of the survivors upon the death of any policyholder. These
types of policy are taken mostly by husband and wife or between two partners in a
business firm.
d. Annuity policy: Under this policy, the sum assured or the policy money is paid to the
insured on a monthly/quarterly/half-yearly or annual payments. The payments are made
only after the insured attains a particular age as dictated by the policy document.
e. Children’s Endowment policy: Children’s endowment policy is taken by any
individual who wants to make sure to meet the expenses necessary for children’s
education or for their marriage. Under this policy, the insurer will be paying a certain
sum of money to the children who have attained a certain age as mentioned in the policy
agreement.
General Insurance
 General insurance includes property insurance, liability insurance, and other forms of
insurance.
 Fire and marine insurance are strictly referred to as property insurance. Motor, theft,
fidelity, and machine insurance also include liability coverage to a certain extent.
 The strictest form of liability insurance is fidelity insurance, whereby the insurer
compensates the insured for losses when they are under the liability of payment to a third
party.
Property Insurance
Under property insurance, the property of individuals is insured against specified risks.
These risks may include fire, marine perils, theft, damage to property, and accidents.
Marine Insurance
 Marine insurance provides protection against losses due to marine perils.
 Marine perils include collision with rocks or other ships, attacks by enemies, fire, and
capture by pirates. These perils can cause damage, destruction, or disappearance of the
ship, cargo, and non-payment of freight.
 Marine insurance insures ships (Hull), cargo, and freight.
 Previously, only certain nominal risks were insured, but now the scope of marine
insurance has been divided into two parts: Ocean Marine Insurance and Inland Marine
Insurance.
  Ocean Marine Insurance only covers marine perils, while Inland Marine Insurance covers
inland perils that may arise during the delivery of cargo from the insured’s warehouse to
the buyer’s warehouse.
Fire Insurance
 Fire insurance covers the risk of fire.
 In the absence of fire insurance, fire losses would increase not only for individuals but
also for society as a whole. With the help of fire insurance, losses arising from fires are
compensated, minimizing the impact on society. Fire insurance protects individuals from
such losses, ensuring their property, business, or industry remains in a similar position to
before the loss. Fire insurance not only covers direct losses but also provides coverage for
consequential losses such as war risks, turmoil, and riots.
Liability Insurance
 General insurance also includes liability insurance, whereby the insured is liable to pay
for property damage or to compensate for personal injury or death.
 This type of insurance can be seen in forms such as fidelity insurance, automobile
insurance, and machine insurance.
Social Insurance
 Social insurance provides protection to the weaker sections of society who are unable to
pay premiums for adequate insurance.
 Pension plans, disability benefits, unemployment benefits, sickness insurance, and
industrial insurance are various forms of social insurance.
 Insurance can be classified into four categories based on the risk involved.
Personal Insurance
 Personal insurance includes the insurance of human life, which may suffer losses due to
death, accidents, and diseases.
 Personal insurance is further sub-classified into life insurance, personal accident
insurance, and health insurance.
Property Insurance
 Property insurance covers the property of individuals and society against losses due to
fire and marine perils. It also includes coverage for crops against unexpected decline,
animals engaged in business, machine breakdown, and theft of property and goods.
Guarantee Insurance
 Guarantee insurance covers losses arising from dishonesty, disappearance, and disloyalty
of employees or second parties who are party to a contract.
 Failure on their part causes losses to the first party. For example, in export insurance, the
insurer compensates for losses when importers fail to pay their debts.
DIFFERENCE BETWEEN A LIFE INSURANCE CONTRACT AND A CONTRACT OF
INDEMNITY
Aspect Life Insurance Contract Contract of Indemnity

The event, the death, in life In indemnity insurance (in fire and
Occurring of insurance is certain, but the only marine insurances) the event may not
Event uncertainty is the time when the take place at all or may take place in
death will occur. part.
 The subject-matter in life insurance
is life. The chances of death would
The property in other insurance can
increase along with the advance in
Subject-Matter be repaired and replaced and may
age whatever precautionary
remain usually in good condition.
measures may be taken for
improvement of health.

Variance in In life insurance premium is not In other insurance premium is

Premium much variable. variable in numerous forms.

The classification of risks is

generally simpler in life insurance
Classification of than in other types of the insurance
In other insurance, it may be several.
Risk contract. In life contract, it would
be standard, sub-standard and un-
insurable.

Whereas the other forms of insurance

Period of Generally, the life insurance is
are taken for not more than one two
Insurance taken for a longer period.
years.

Other forms of insurance do not

provide investment because the
The life insurance contract provides premium paid is not returnable if the
Protection and protection against loss of early contingencies (hazards) do not occur
Investment death and investment to meet the within the period. Other forms of
old age requirement. insurance provide only protection
against loss of the damage of the
property against the insured perils.

The mode of premium payment in

Premium Whereas, in other forms of
life insurance is generally level
Payment insurances, it is a single premium.
premium.

Insurable Insurable interest must be at the But in property insurance, it must be

Interest time of proposal in insurance. present at the time of loss.

DIFFERENCE BETWEEN FIRE INSURANCE AND LIFE INSURANCE

Fire insurance, a contract of indemnity, is compared with life insurance, a contract of certainty.
We examine the differences in terms of contract type, event occurrence, risk classification,
insurance period, protection and investment elements, and insurable interest. This comparison
will help clarify the unique characteristics and applications of these two types of insurance.

Aspect Fire Insurance Life Insurance

Fire insurance is a contract of

Life insurance contract is a
indemnity, where payment of
Type of Contract contract of certainty, wherein
loss will be made only when the
the payment is certainly made.
fire occurred.

The fire may or not occur in fire In life insurance, the death will
Occurring of Event
insurance. certainly occur.

The risks in life insurance are

There are numerous types of divided into three classes-the
Classification of Risk
risk in fire insurance. standard risks, sub-standard
risk, and uninsurable risk.

The term of insurance in fire

In life insurance, it lasts for a
Period of Insurance insurance does not exceed
very long period.
generally more than one year.

The life insurance includes the

element of protection and
investment because the
Protection and Fire insurance includes only the
premium paid sum assured is
Investment element of protection.
returnable in the latter case
whereas no premium or amount
is returnable in fire insurance.

In Fire insurance, the insurable

interest must exist from the date
In life insurances, insurable
of the proposal to the date of
Insurable Interest interest must exist at the time of
completion of the contract
proposal.
whether by death or by the
expiry of the term.

The insured property, insurance

policy, or policy amount cannot It is freely assignable in life
Assignability
be assigned to others in fire insurance.
insurance.
 The degree of moral hazard in It is very nominal in case of life
Moral Hazard
fire insurance is maximum. insurance.

DIFFERENCE BETWEEN FIRE INSURANCE AND MARINE INSURANCE

Compare to the fire insurance and marine insurance, both of which are contracts of indemnity but
serve different purposes. Fire and marine insurance contracts are similar in most the cases
because both these contracts are indemnity contracts

Aspect Fire Insurance Marine Insurance

In marine insurances, the chances
In fire insurance, the chances of
Moral Hazard of moral hazard do not exist as
moral hazard are high.
much as are in the fire insurance.

The insurable interest must exist

both the time, at the inception and The insurable interest in marine
at the completion of the contract. insurance must exist at the time
Insurable Interest
This is the reason fire insurance of loss. So, the marine policies
policies cannot be freely are freely assignable.
assignable.

Fire insurance policies do not Marine policies generally allow a

ordinarily allow a certain margin certain margin of profit to be
Profit
of profit to be charged at the time charged at the time of
of indemnification of loss. indemnification of loss.

Fire insurance policies strictly

adhere to the doctrine of
Marine insurance policies are
indemnity and only the market
Valued Policies generally valued policies and the
value of the property at the time
market fluctuation is avoided.
of loss (valuable amount) is
compensated.
 UNIT - II
LIFE INSURANCE
Life Insurance – Introduction to life insurance: Features of life insurance – Essentials of
life insurance, Different types of life policies – Annuities, Formation of life insurance
contracts – Assignment and nominations – Lapses and revivals of policies. Surrender value,
paid up value, Loans – Claims- Procedure for claims – Settlement of claims – Death and
Maturity.
Introduction
It is a common belief that one of the most difficult products to sell is life insurance and
one who sells life insurance can sell anything under the sun. There is no gain saying the fact that
selling life is a difficult proposition because what is sought to be marked is an assurance, a belief
and a faith.
Definition
Life insurance may be defined as a contract in which the insurer, in consideration of a
certain premium either in lump sum or other periodical payments, agree to pay to the assured or
to the person for whose benefits the policy is taken, a stated sum of money on the happening of a
particular event contigent on the duration of human life. Thus, under a whole-life assurance, the
policy money is payable at the death of the assured and under an endownment policy, the money
is payable on the assured’s surviving a stated period of years, for example, on his attaining the
age of 55 or his death, should that occur earlier.
According to Section. 2 and 11 of the Insurance Act, life insurance business means the
business of effecting contracts upon human life. It includes:
Any contracts whereby the payment of money is assured upon death (expect death by
accident only) or the happening of any contingency dependent on human life;
Any conract which is subject to the payment of premiums for a less term dependent on
human life;
ESSENTIAL FEATURES OF LIFE INSURANCE
The following are the essential features of a valid contract of life insurance:
1. Elements of a Valid Contract
Contract of life insurance has the essential elements of a general contract, since
the life insurance contract is also a contract, as defined in the Indian Contract Act. A
valid contract of life insurance comes into existence where the essential elements of
agreement (offer and acceptance, competency of the parties, free consent of the parties,
legal consideration and legal objectives) are present.
2. Insurable Interest
 A person cannot insure the life of another unless he has an insurable interest in
policy is the death of the insured. A person has unlimited insurable interest in his own
life. A husband it. The risk against this is presumed to have insurable interest in his
wife’s life and vice versa. A surety has insurable interest in the life of the principal debtor
to the extent of his claim. In life insurance, the insurable interest must exist at the time of
the contract of insurance.
3. Utmost Good Faith
Insurance contracts, however, are contracts uberrimae fidei i. e., one based on
utmost good faith or the contract of utmost good faith. The insured is bound to disclose
all the material facts and figures known to him but unknown to the insurer. Every fact,
which is likely to influence the mind of the insurer in deciding whether to accept the
proposal and in fixing the rate of premium, is material for this purpose. Similarly, the
insurer is bound to exercise the same good faith in disclosing the scope of insurance
which he is prepared to grant. In life insurance, age, income, education, occupation,
health, family size etc., are some examples of materials facts that should be disclosed at
the time of entering into the contract.
The breach of obligation of disclosing material facts with atmost good faith may arise in the
following cases:
1. International non-disclosure
2. Non-disclosure of material facts by negligence or by oversight
3. Mis-representation of materials with fraudulent proposes
4. Warranties
Warranties are an important feature of life insurance contract. Warranties are the
basis of the contract between the proposer and insurer. If any statement, whether of materials
or non-materials facts and figures are untrue, the contract shall be null and void and the
premium paid may be forfeited by the insurer. The policy insured will contain that proposal
and the personal statement shall form part of the policy and be the basis of the contract.
5. Assignment and Nomination
Both assignment and nomination are essential features of life insurance policy.
Assignment of a life policy means transferring the rights of the assured in respect of the
policy holder to the assignee. In the case of the nomination, a person is merely named to
collect the amount to be paid by the insurer on the death of the assured.
6. Cause is Certain
In life assurance policy, the insurer has to pay the insured amount because the death of
the assured or his reaching a particular age is certain to happen.
7. Premium
The premium is the price for the risk of loss undertaken by the insurer. In case of the
insurance, premium is usually required to be paid in cash and advance payment of the premium
is a condition precedent to the creation of a binding contract of insurance. The amount of
premium for payment insured paid monthly or in annual installments for a certain period. In life
insurance, the premium is calculated on the average rate of mortality and the fixed periodical
premium may continue either until death policy.
8. Terms of Policy
An insurance policy specifies the terms and conditions or period of time it covers. Often
the -nature of risk against which insurance is sought, determines the period or life of the policy.
A life insurance policy may cover a specified number of years or the balance of the insured life.
9. Return of Premium
Premium is the consideration for the risk run by the insurers, and if the risk insured
against is not run, then the consideration fails, the policy does not attach, and as a consequence
the premium paid can be recovered from the insurer. The general principle applicable to the
claim for the return of the premium is that if the insurers have never been on the risk, they cannot
be said to have earned the premium. But where the insurance is avoided by the insurers on the
ground of breach of warranty, the premium can only be recovered if it is shown there was a
breach, ab initio.
PROCEDURE FOR EFFECTING LIFE INSURANCE
The following formalities or procedures are to be adopted while taking a life insurance policy:
1. Selection of Policy
First of all, the person who is interested in taking a life policy, known as prospect or
proposer, should select a suitable policy according to his own requirement from the varied
policies offered by life insurance companies.
2. Filling up a Proposal Form
After selecting the product to be taken, the prospect is required to fill up a proposal form.
The proposal form contains all the information required from the applicant to process the life
insurance. The form is like a questionnaire seeking answers for various questions from the
applicant. The questions are related to name, address and occupation of the proposer, family
details and health of the proposer, policy amount, name of the nominee, policies previously
taken, disease, accident met by the proposer etc. It contains the following details:
a. Name, age, sex, education, occupation, nationality, permanent residential address, etc.
b. Table and terms of assurance and sum to be insured
c. Object of insurance, name of nominee and relation with insured etc.
In the end, the proposer has to make a declaration that the statement given in the proposal is
correct and no information is concealed.
1. Proof of Age
The proposer will have to produce proof of age along with the proposal form.
Vertification of age on the basis of some documentary evidence is done by insurer. T he
following are considered standard age proofs:
 1. Certified extract from municipality or other government record made at the time of birth
2. Copy of certified extract from school or college record if date of birth is stated therein.
3. Copy of certified extracts from service book in the case of government employees of
public limited company.
4. Passport
5. Voters Identity Card.
Any other document where the date of birth or age has been proved on the basis of one of the
standard age proofs such as domicile certificate, naturalization certificate etc.
It should be noted that even section 45 of the Insurance Act, 1938 makes it mandatory for the
assured to get age admitted by the insurer. The importance of this obligation on the part of the
life Assured can be felt by the fact that the condition of age admission is printed on the back of
the policy bond and hence forms part of the policy contract.
2. Medical Examination
Once the proposal form is submitted to the life insurance company, the proposer will
be asked to undergo a medical examination. The confidential report of medical examiner will
be sent directly to the life insurance company for fürther action.
3. Agent’s Confidential Report
The agent is also required to submit a confidential report about the proposer in the
prescribed form. The report contains the facts about the proposer, his health, financial
position and other particulars relevant for the contract of insurance.
4. Acceptance of Proposal
After having gone through the proposal form, medical report, agent’s confidential
report, the insurance company will decide whether to accept the proposal or not. The
proposal is accepted only if it is favourable to the insurance company. After acceptance of
proposal, acceptance letter is seni to the proposer stating the conditions to be fulfilled by him
in the due course. Premium notice is also despatched along with acceptance letter.
5. Payment of First Premium
On receipt of premium notice, the proposer will pay his first premium. The contract
of insurance becomes complete on the payment of first premium. Generally, the first
premium is paid along with the proposal form.
6. Commencement of Risk
After the payment of first premium the risks commences and the proposer becomes
insured. The insurance company is liable to pay the full amount of insurance in the event of
pre-mature death.
7. Issue of Policy
Finally, the insurance company prepares life policy and sends it to the insured. The
policy contains details such as name, address, sum assured, mode of premiums, maturity
 date, etc. The policy bears the seal of the insurance company and the signature of the
competent authority.
8. Alteration
Life assurance being a long-term contract, often requires the lie assured to ask for
alteration in the terms of the contract. Alteration which increase the risk of insurer is not
allowed.
Need for Alterations: If life assured has some compelling reasons or financial difficulties,
alterations are generally allowed.

a. Alteration should not increase the risk to the insurer such as increase in term of policy
form 10 years to 20 years.
b. Alterations necessitated on account of mistakes in the preparation of the policy, or due to
age discrepancy. These occur due to mistake on the part of the office. Alterations relating
to mode of payment of premium or reduction in sum assured arise due
c. To financial difficulties of the policy holder and are usually accepted.
d. Other types of alterations such as reduction in term, conversion from ‘non-profit’ to ‘with
profits’, are also agreed to.
e. Splitting of a policy into two or more because of:
1. The financial difficulties in paying the premium under the policy, say, for 10 lakh. By
splitting into 2 policies of 5,00,000 each, the assured surrenders the one policy and
continues the other.
2. The necessity to appoint different nominess e.g., two children.
9. Renewal Notice
It is an intimation sent by the insurer, conveying to the life assured that a particular
premium is going to fall due. It is a matter of courtesy and business ethics that renewal
notices are issued. The insurer is otherwise, under no obligation to issue the renewal
(premium) notice.
10. Bonus Notice
After the declaration of valuation results, insurer issues to every policy-holder of
a participating policy, a letter/card showing the amount of total bonus vested in his
policy. It is also called bonus card. This notice or card has the information value for the
assured. The assured does not require its production at any level of policy servicing. The
notices are sometimes used by the insurer as a publicity tool by incorporating same tipical
information for the interest of policy holder.
LIFE INSURANCE POLICIES
Objectives
Life Insurance is a contract for payment of a sum of money to the person assured or
to the person entitled to receive the same, on the happening of certain events. The Life
Insurance Corporation came into existence with the objectives of assurance for:
 1. Family Protection
2. Provision for Old Age
3. Tax Concession
4. Housing Loans
5. Loans Advanced for Educational Purposes
6. Donation to Charitable Institutions
To meet the above said objectives, various types of life insurance policies are being issued by the
Life insurance corporation of India.
CLASSIFICATION OF POLICIES
The Life Insurance Policies can be divided on the following basis:
I Policies According to Duration
1. On the Basis of Duration of Policies
a. Whole Life Insurance
b. Limited Payment Whole Life Policy
C. Convertible Whole Life Policy
2. On the Basis of Term Insurance Policies
a. Temporary Assurance Policy
b. Renewable Terms Policy
c. Convertible Term Policy
3. On the Basis of Endowment Policies
a. Pure Endowment Policy
b. Ordinary Policy
c. Joint Endowment Policy
d. Double Endowment Policy
e. Fixed Term (Marriage) Endowment Policy
f. Educational Annuity Policy
g. Triple Benefit Policy
h. Anticipated Endowment Policy
i. Multi-Purpose Policy
j. Children’s Deferred Endowment Assurance
II On the Basis of Premium Payment
1. Single Premium Policy
2. Level Premium Policy
III. On the Basis of Participation in Profit
1. Without Profit Policy (or) Non-Participating Policy
2. With Profit Policy (or) Participating Policy.
IV. On the Basis of Number of Persons Assured
1. Single Life Policy
 2. Multiple Life Policy
3. Joint Life Policy
4. Last Survivorship Policy
V. On the Basis of Method of Payment of Policy Amount
1. Lumpsum Policy
2. Installment or Annuity Policy
VI. Money Back Policies
1. Money Back Policy
2. Sinking Funds Policy
VII. Special Plans
VIII. Group Insurance Schemes
IX. Partnership Insurance
X. Employer-Employee Insurance
XI. Pension Plans
I. POLICIES ACCORDING TO DURATION
1. On the basis of Duration of Policies
a. Whole life policies
Under this policy, the premium is payable for 35 years or till death whichever is more.
The policies where the premium is payable throughout the life of the assured is called the Whole
Life Whole Term Policy. This is the cheapest policy because the premium rate is lower. It is
useful to the dependent of the assured against his/her death to provide for payment of Estate
Duty.
b. Limited payment whole life policies
The policy, where the premium is payable is limited to a certain period, is called as
Limited Payment Whole Life Policy. Under this plan, the premium rate is higher. Premiums are
payable for a selected period of years or till death of the assured whichever occurs earlier. This is
a suitable form of life assurance for family provisions.
C. Convertible whole life policy
This policy is issued by the corporation on the basis of duration. The basic object of this
policy is to convert a Term Assurance policy into Whole Life or Endowment Assurance Policy
without having further medical examinations of the assured. The rate of premium and conditions
are the same as applicable to the new policy. If the policy is converted into as Endowment
Assurance with profits, policy participates in profits from the date of conversion and the bonuses
will be at the rate applicable for Endowment Assurance. If the policy is converted into an
Endowment Assurance without profits, the policy is not entitled to any bonus.
2. On the basis of Term Insurance Policies
 This policy provides the protection of death risk cover. Term Insurance Policies, issued
usually for a shorter period, are treated as temporary contracts. Term assurance provides for
payment only in the event of life, before a certain date or age. This type is frequently adopted as
collateral security for a loan.
A. Temporary assurance policy
This policy is issued by the Corporation on the basis of Term Insurance Policy. This plan
is designed to cover the risk against life assured for a period of less than two years. The sum
assured will be payable only in the event of the life assurer's death occurring within the selected
period from the commencement of the policy. A single premium is required to be paid at the
beginnig Rates are fixed per thousand for the sum assured.
b. Renewable term policies
Renewable Term Policies are issued on the basis of terms of assurance. This plan of
assurance is renewable at the end of the selected term for an additional term period without
having to undergo fresh medical examination. Premiums are usually quoted accordingly at the
time of renewal.
c. Convertible term policies
This plan of assurance is designed to meet the needs of those who to convert it into
Whole Life or Endowment Assurance Policy. Premiums are payable for selected terms of years
or until death, if it occurs within this period, but they may be limited to a shorter term of years, if
so desired. The sum assured shall be payable only in the event of death of the life assured or at
the end of maturity period, whichever is earlier. The main object of this policy is, the life assured
under this plan has an option to convert the policy, provided it is in full force, into either a
Limited Payment Life Policy.
Ran Endowment Assurance Policy without having to undergo fresh medical examination,
anytime uring the specified term expect the last two years. For example, the Convertible Term
Insurance lan can be converted in to an endowment or whole life type contract at the end of
selected term f 5 to 6 or years. During this period this is treated as a term assurance. The assured
is expected exercise his choice of conversion before two years of expiry of term, so as to obviate
adverse election, selection against the insurer during the last two years. If no option is exercised,
the ssurance comes to end at the end of the selected terms.
3. On the Basis of Endowment Policies
This is a popular policy issued by the Life Insurance Corporation of India. The basic
objective that the policy for the sum assured becomes matured on the policy holder’s death or on
his ttaining a particular age, whichever is earlier. The period for which the policy is taken is
called s Endowment Period. The premium under this policy is a little higher when compared with
term ssurance. This policy is useful to the family in case of a sudden death of the policy holder.
Endowment policies are of many types. The important endowment policies are discussed below:
a. Pure endowment policy
 Under pure endowment policy, the sum assured is payable on the policy holder surviving till
the naturity date. The sum assured is payable in the event of death within the term of policy. In
the event of death in the first and the second year of policy, the benefit will be limited to 80%
and 0% respectively of the premiums paid. This is the best form of life assurance for adults and
children. The basic aim of this policy is not only to provide protection against risk of death but
also encourage investments.
b. Ordinary endowment policy
This policy provides a fund for family provision and investment. The sum assured is payable
to The policy holder for a specific term of years either on the assured’s death or on his survival
to the tipulated term, i. e., until the maturity date. Premiums are payable throughout the lifetime
of the ssured or a selected period of years or until prior death of the life assured.
c. Joint endowment policy
This policy is designed to cover the risk on two or more lives under a single policy. The
sum assured shall become payable on the maturity of the policy or on death of either of the two
lives assured, whichever is earlier. This policy is useful to partners of a firm and for husband and
wife n a family. Partnership firms usually go in for such policies to provide for the return of the
capital of the deceased partner.
D. Double endowment policy
Under this policy, premium is payable throughout the life term of the assured or for a
selected period of years or until prior death of the life assured. This is the best form of life
assurance, the insurer agrees to pay the assured, double the amount of the insured sum on the
expiry of the term or on the death of the life assured, whichever is earlier.
e. Fixed term (marriage) endowment policy
This plan is designed to meet the needs of the provision relating to marriage of any one of
the family member of the policy holder. Under this plan, the sum assured with profits, shall be
payable at the end of the maturity or on the death of the life assured, whichever is earlier.
Premiums are payable for the selected terms of the policy or till death of the life assured if it
occurs during the Selected term.
f. Educational annuity policy
This plan provides for a sun assured to be kept aside to meet the educational expenses of
children Under this plan, the sum assured, together with profits, is payable to the insured at the
end of the selected term either in a lump sum or in ten half yearly installments at the option of
the life assured/ nominee/ beneficiary. Premiums are payable for the selected term of the policy
or till death of the life assured if it occurs during the selected term. This policy will be issued to
persons aged not les than 18 years and not more than 60 years at entry. The policies will be
issued for minimum term of 5 years and maximum term of 25 years subject to maturity age of 70
years. The minimum sum assured under this plan is 10,000.
g. Triple benefit policy
 This plan is most suitable for housing loan purpose. Under this plan, the benefits availing
the policy holders, on the death of the life assured during the term of the policy, is thrice the
basic sum payable or on survival till the date of maturity, only the basic sum assured is payable.
Premiums are payable for the selected term of the policy or till prior death of the life assured. As
per the method of calculation, paid up value will be the same as a Whole Life limited payment
and a Pure Endowment Policy.

h. Anticipated endowment policy

Under this policy, the sum assured will be payable on the basis of half of the sum assured
paid before the death of the policy holders and the balance of the sum assured is payable at the
end of the maturity date. In the event of death of the assured before the attainment of the term
period the full assured amount is payable to the policy holder. Preniums are payable during the
selected period or till death, if earlier.
i. Multi purpose policy
This form of life insurance not only makes provision for the family of life assured in the
event of his death, but also meets the needs of a person in old age. It is also useful to meet the
expenses relating to family and provision for education and marriage of children. Premiums are
payable for selected period of years or until prior death of the life assured. Several purposes are
fulfilled under one single policy which is why it is called Multi Purpose Policy.
j. Children's deferred endowment assurance
This policy is designed to meet the expenses relating to children's education and
marriage, Policies under this plan are issued on lives of both male and female children who have
not completed 18 years. This is an Endowment Assurance Policy. It provides the protection of
risk from the date of commencement of policy or from the deferred date to the date on which the
policy emerges as claimed by the death of child or its survival to a stipulated date. This is the
cheapest form of life insurance because of low rate of premium. The main objective of this
policy is to cover the risk against the life of children on behalf of their parents or guardian.
II. ON THE BASIS OF PREMIUM PAYMENT
The following important policies are issued by the Corporation on the basis of premium
payment:
1. Single Premium Policy: Single Premium Policy is useful to those who desire to provide
the whole premium in one installment at the time of taking the policy. Single Premium
Policy becomes matured on the assuror's death or on attainment of the selected term,
whichever occurs earlier.
2. Level Premium Policy: Unlike single premium policy, under this policy, premiums are
payable on a regular basis for a selected term or till prior death. It is useful to those
persons having regular earning. Premium is lesser as compared to a single premium
policy. The sumassured becomes payable if the assured reaches a particular age or on the
assuror’s death whichever is earlier.
III. ON THE BASIS OF PARTICIPATION IN PROFITS
Policies issued on the basis of participation in profits are discussed below:
1. With-profit policies (or) participating policies: With-profit Policies are also termed as
Participating Policies. Unlike Non-participating Policies, Participating policy holders are
entitled to get the share of profits, bonus benefits or paid up facilities as per the terms and
conditions of the Corporation. The sum assured with profits shall become payable to the
insured at the end of the maturity or in the event of death if earlier.
2. Without-profit policies (or) non-participating policies: Under this policy, sum assured
will become payable without any paid up facilities to the insured at the end of the
selected term or on the death of the life assured if earlier.
II. ON THE BASIS OF NUMBER OF PERSONS ASSURED
Important policies on the basis of number of persons assured are discussed below:
1. Single life policies: This policy is designed on the basis of number of persons assured.
Single Life Policy covers the risk on one individual, it may be issued on one’s own life or
on another’s life. The policy amount is payable to the insured on attaining a selected term
or on the death of the life assured, whichever is earlier.
2. Multiple life policies: Multiple Life Policy is a policy issued on the basis of the number
of persons assured. The Multiple Life Policy may be Joint Life policy and Last
Survivorship Policy.
3. Joint life policy: Unlike Single Life Policy, Joint Life Policy covers the risks of more
than two individuals. The sum assured is payable at the time of maturity or on the event
of the death of the first assured, whichever is earlier. This policy is useful to partners of a
firm or to husband and wife of a family.
4. Last survivorship policy: Under Last Survivorship Policy, the sum assured shall be
payable at the last death of assured or on the attaining a selected term earlier.
III. ON THE BASIS OF METHODS OF PAYMENT OF POLICY AMOUNT
On the basis of Methods of Payment of Policy amount, the policy may be:
1. Lump sum policies: Lump sum policies are designed by the Corporation on the basis of
methods of payment of policy amount. Under this policy, the sum assured shall be
payable in a lump sum to the policy holders at the end of the maturity date or on the
assured’s death, whichever is earlier.
2. Instalments (or) Annuity Policies: This is a plan of assurance designed to provide a
large amount of risk cover on payment of a premium which is comparatively a small
amount. Under this policy, the full amount is not payable in lump sum but the insured
amount is payable to the assured in intervals for the period or till the death of the assured.
IV. MONEY BACK POLICIES
1. Money back policy: This type of policy provides moneyback at regular intervals before
the policy expires. For example, on a 15 years policy, one gets 20% of the sum assured
after five years, another 20% on the expiry of another five years and the balance at the
end of 15 years. In case death of the assured occurs during the 2 years, the full sum
assured is paid irrespective of instalments already paid. Thus, the policy gives money in
hand plus insurance cover. Premiums are payable for the selected term of years or till
 death. The bonus additions to the policy will be reckoned on the full sum assured and are
payable at the end of the selected term of years or at the life assured's death, if earlier. No
loan will be granted under this policy.
2. Sinking funds policy: Such a policy is taken with a view of providing for the payment of
liability or replacement of an assert.

VII. SPECIAL PLANS

1. Jeevan Shree: This plan also refered as an exclusive policy for exclusive people.
Under this plan, the minimum sum assured is 5 lakhs. Hence, it is specifically suited to
high-income groups. Basically, it is an endowment plan with flexibility in premium
paying, including single premium. The investment will be managed so as to ensure
guaranteed and loyalty additions and higher liquidity (relaxed conditions for availing
loan).
2. Capital Redemption Assurance: This plan provides for payment of a sum of money
(sum assured) on a specified date in exchange for periodical premiums. There is no life
assurance element and they are independent of the duration of human life, the main factor
being accumulation of interest. In other words, to secure a capital sum to replace a
wasting asset such as machinery or household property.
3. Jeevan Aadhar: Specially designed for the benefit of specific type of handicapped
dependents. This is a limited payment whole life policy with guaranteed additions at the
rate of 100 per 1000 sum assured per annum, where the claimant is paid partly in lump
sum and partly in the form of an annuity. Full Income Tax benefit under section 80 DD is
available up to a premium of 40,000 per annum. Minimum age entry is 22 years and
maximum age entry is at 60 years. Minimum sum assured is 50,000 premium payment
term is 10, 15, 20, 25, 30 and 35 years.
4. Jeevan Vishwas: Specially designed for the benefit of board categories of handicapped
dependents. This is an endowment type with guaranteed additions where the claimant is paid
in lump sum and in the form of annuity.
5. New Jeevan Akshay: A policy that provides for the maximum possible income on the-
invested capital, consistent with absolute safety. The income is assured throughout life but
ceases on death of the annuitant. Options to have definite annuity payments for 5, 10, 15, 20
years and thereafter for life are available. Minimum age at entry is 40 years and maximum
age at entry is 79 years. Minimum purchase price is 25,000. All modes of annuity payments
i.e., monthly, quarterly half yearly and yearly are available.
6. Jeevan Suraksha: Jeevan suraksha plan was introduced on 15th August, 1996. This is a
pension plan with life cover and has various options. The policy holder taking the policy with
life cover provides minimum of 50% of the target pension to spouse on death during the
deferment period.
7. Komal Jeevan: Komal Jeevan plan was introduced as a children's money back policy on
14 November, 2002. The plan is available to children from 0 to 10 years of age. The
premium are payable upto age 18 of life assured. The policy vests in life assured on
attaining the age of 18 years. The very purpose of this plan is to provide for expenses for
higher education-cum-start in life. The minimum sum assured under this plan is fixed at one
lakh and the maximum sum assured is 25 lakhs. Guranteed additions at 75 per thousand sum
assured per annum is payable at the end of 26 years as a maturity benefit and the policy
contract comes to an end.
8. Bima Nivesh: A single premium savings/investment oriented plan of assurance with
compounding guaranteed addition to the sum assured at the rate of 6% is available in 5 and
10years term. The scheme accepts premium for minimum sum assured of ₹25,000 and the
upper limit, touches the sum of 50 lakhs.
9. Bima Plus: Bima plus is a unique insurance plan with investment facility besides getting
tax benefits. It offers unmatched package of benefits. They are (a) Life Insurance Cover, (b)
Accident Benefit Cover (c) Maturity Bonus (d) Returns and (e) Tax rebate at 20% under
section 88. The sum assured is 10 times the annual premiums (i.e., if annual premium is
5000, then the sum assured will be 50,000) or 20 times the half yearly premiurns or equal to
the single premium.
10. Jeevan Anand: Jeevan Anand plan is a combination of whole life and endowment
assurance Plan. The premium can be paid yearly or half yearly. Even after the prenium
paying term is over, risk cover continues till the death of the policy holder. Under this
policy, accident benefit is available during the premium paying term and thereafter upto the
age 70. The sum assured along with vested bonus and final additional bonus, if any, will be
payable on maturity or on death, if earlier, provided the death occurs on or after the date of
commencement of risk.
11. Keyman Insurance: It is an insurance taken by a company on the life of an important
employee - keyman of the company against financial loss that may occur from the
employee's premature death. Under this plan, keyman can be an expert, a Technocrat, a
Director, a Shareholder or an Executive. The keyman may be defined as an employee whose
death would result in a financial loss to the company (including replacement). There can be
any number of keymen in a company.
Eligibility
Keyman insurance is allowed if:
a. The keyman holds less than 51% share in the company
b. Keyman and his family holds less than 70% shares in the company
c. Keyman is a matriculate
d. Age at entry is less than 50 years
Salient features
a. Company will be the proposer for keyman insurance.
b. Term allowed is 10 to 15 years subject to retirement age or service contract.
 c. Keyman Insurance is restricted to 10 times of Keyman's annual compensation package.
Annual package includes salary + perquisites. National value of perquisites will be taken
at 30% of Gross annual salary.
d. Maximum sum assured: For Public Ltd. Companies;
i. It is 5 times of the average of 3 years net benefit
ii. 3 times of average of 3 years gross profit whichever is lower.
Private Ltd. or closely held Public Ltd. Companies:
i. Number of share holders or employees is 10 or more
ii. Number of share holders or employees is less than 10, maximum allowable
cover will be 3 times the average net profits of atleast 3 years
e. Double accident benefit, extended permanent disability benefit and Term riders
benefits are not allowed under keyman insurance policy.
Advantages of taking Keyman Insurance
• The company is protected against the financial loss in the event of key man's death
• It gives substantial income tax savings to the company (while paying the premiums and
while receiving the proceeds)
ASSIGNMENT
Assignment is the transfer of the rights to receive the benefits under a contract accruing
to the party to that contract. In life insurance parlance, assignment is the transfer of rights to
receive benefits stated in the life insurance policy from the Policyholder to the Assignee. The
benefits under an insurance policy accrue by way of survival benefits and death benefits. While
death benefits accrue in every insurance policy, survival benefits typically relate to maturity
benefits under an insurance policy with an underlying investment component, e.g. Endowment
Policy, Money-back Policy, Unit Linked Insurance Policy etc.
The concept and procedure for Assignment is dealt with under Section 38 of the
Insurance Act, 1938. The Section treats an Assignment and a Transfer at par. It lays down that a
transfer or assignment of a policy of life insurance, whether with or without consideration, may
be made only by an endorsement upon the policy itself or by a separate instrument, signed in
either case by the transferor or by the assignor or his duly authorised agent and attested by at
least one witness, specifically setting forth the fact of transfer or assignment.
In practice, a ‘space for endorsements’ is provided in the insurance policy contract where
the Policyholder (Assignor) affixes the statement of assignment along with reasons therefor. This
endorsement is required to be signed by the Policyholder and the signature should be witnessed
by any person competent to contract.
An assignment can be only for valid reasons. The insurance policy can be assigned for
reasons of ‘love and affection’ within the immediate family members, or for a ‘valid
consideration’ to any external person or entity.
A majority of insurance policy assignments are carried out towards providing the
insurance policy as a collateral security towards loans taken from financial institutions. In these
cases, a condition is added to the endorsement which states that on the repayment of the loan, the
policy shall stand automatically re-assigned to the policyholder and the future benefits shall
become payable to the policyholder.
Assignment of an insurance policy to an unrelated person without a valid consideration is
also viewed as a possible route for money laundering, thereby attracting enhanced scrutiny.
Under the current laws, the Insurer has the limited authority of ensuring that the assignment
documents are in order and has the obligation to register the assignment.
The Insurer cannot deny an assignment. An assignment is effective on the date when the
assignment documents in proper order are received by the Insurer. Upon registration of the
assignment with the Insurer, the Assignee becomes the absolute owner of the benefits under the
policy. Any nominations made by the Assignor (Policyholder) stands cancelled. However some
insurance policies enable granting of a loan by the Insurer, in which case the Policy gets assigned
to the Insurer. Under such assignments, if the policy is reassigned or if the assignment is
cancelled, the nomination made earlier by the policyholder survives and the policyholder is not
required to make a fresh nomination after reassignment.
NOMINATION
Nomination is a facility that enables a Policyholder to nominate an individual, who can
claim the proceeds of the Policy, upon the demise of the Policyholder. Nomination is dealt with
under Section 39 of the Insurance Act, 1938. It lays down that the Policyholder who holds a
policy of life insurance on his own life, may nominate the person or persons to whom the money
secured by the policy shall be paid in the event of his death.
Where any nominee is a minor, a major should be appointed to receive the money
secured by the policy in the event of death of the policyholder during the minority of the
nominee. A nomination can be made either at the time of buying the policy or at any time before
the policy matures for payment.
Any nomination made earlier can be replaced by a new nomination during the term of
the policy. Any such nomination in order to be effectual is required to be incorporated within the
policy either by way of a text in the policy itself or by way of an endorsement to the policy.
While it is the right of the Policyholder to effect the endorsement, in order to be effective, such
nomination should be communicated by the policyholder to the Insurer and registered by the
Insurer in the records relating to the policy.
Where a nomination is cancelled or changed by an endorsement or a will and a notice of
such change in nomination is given by the policyholder to the Insurer, the Insurer is not liable for
any payment made under the policy to a nominee mentioned in the text of the policy or
registered in records of the insurer.
Where the policy matures for payment during the lifetime of the Policyholder or where
the nominee(s) die before the policy matures for payment, the amount secured by the policy shall
be payable to the policyholder or his heirs or legal representatives or the holder of a succession
certificate, as the case may be.
Where the policy matures for payment during the lifetime of the person whose life is
insured or where the nominee or, if there are more nominees than one, all the nominees die
before the policy-holder or his heirs or legal representatives or the holder of a succession
certificate, as the case may be. Where the nominee or, if there are more nominees than one, a
nominee or nominees survive the person whose life is insured, the amount secured by the policy
shall be payable to such survivor or survivors.
The legal position of a nominee in an insurance policy, has been well laid down by the
Supreme Court in the Smt. Sarabati Devi & Anr v/s Smt. Usha Devi case where it held that a
mere nomination made under Section 39 of the Insurance Act, 1938 does not have the effect of
conferring on the nominee any beneficial interest in the amount payable under the life insurance
policy on the death of the accused. The nomination only indicates the hand which is authorised
to receive the amount, on the payment of which the insurer gets a valid discharge of its liability
under the policy. The amount, however, can be claimed by the heirs of the assured in accordance
with the law of succession governing them.
Difference between Nomination and Assignment:-
Nomination Assignment
Nomination is appointing some person(s) to Assignment is transfer of rights, title and
receive policy benefits only when the policy interest of the policy to some person(s).
has a death claim.
In other words, by merely nominating In other words, the insurer is bound to pass
someone, the right, title and interest of the over the benefits, claims and/or interests to
insured over the policy is not transferred the assigned person(s). Even during the time
straight forwardly to that nominated person the insured is alive (or even prior to the
and remains with the insured person only. death of the insured person). since the
policy benefits are assigned till the time the
assignment is revoked once again.
We can also say that Nominee is taken to be That means, the right of the legal heirs to
one of the named custodian of the insured recover the money from the nominee is
(after his death) to whom the insurer are protected by law.
suppose to handover the policy benefits,
claim proceeds subject to "No Objection"
being raised by the legal heirs of the insured
after his death.

3. 4. Nomination is done at the instance of the insured Along with the instance of the insured,
consent of insurer is also required 5. It can be changed or revoked several times. Normally
assignment is done once or twice during the policy period. Assignment can be normally revoked
after obtaining the "no objection certificate" from the concerned Assignees.
TITLE AND CLAIMS IN LIFE INSURANCE
Title
A life insurance contract provides both survival and death benefits. Hence it is important
to ascertain the ownership title to the contract at all stages of benefit payment. While usually the
title to the insurance contract is held by the Policyholder, where the policy has been assigned, the
title to the contract passes on to the Assignee and therefore the Assignee assumes the right to
receive all survival and death benefits under the contract. In case of a benefit payable on death,
the title to the contract passes on to the Assignee or nominee as the case may be. As discussed
earlier, where a policy is assigned, the nomination is treated as cancelled and accordingly, the
death benefits become payable to the Assignee. The title to the contract is always determined
based on the policy records as available with the Insurer. There are policies taken by the
parent/legal guardian covering the life of a minor child where the benefits are intended to be
passed on to the child when the child attains the age of majority. These are typically termed
‘juvenile’ policies. In these policies, the parent/ legal guardian holds the title to the policy on
behalf of the minor child till the child attains the age of majority. The policy provisions are
designed in a manner such that the title to the policy automatically vests in the life assured, upon
the child attaining the age of majority.
Claim:
A claim under a life insurance contract is triggered by the happening of one or more of
the events covered under the insurance contract. Claims can be survival claims and death claim.
While a death claim arises only upon the death of the life assured, survival claims can be caused
by one or more events.
Examples of events triggering survival claims are:
(a) Maturity of the policy;
(b) Surrender of the policy either by the policyholder or Assignee;
(c) An instalment payable upon reaching the milestone under a money-back policy;
(d) Critical illnesses covered under the policy as a rider benefit;
For payment of a survival claim, the Insurer has to ascertain that the event has occurred as per
the conditions stipulated in the policy. Maturity claims, money-back instalment claims and
surrender claims are easier to be established as they are based on dates and positive action by the
policyholder.
Critical illness claims are ascertained based on the medical and other records provided by the
policyholder in support of his claim. The complexity arises in case of a policy that has a critical
illness claim rider and such policy is assigned. It is intended that a critical illness benefit should
be paid to the policyholder so as to enable him defray his expenses.
However where the policy is assigned, all benefits are payable to the assignee which, although
legally correct, may not meet the intended purpose. In order to avoid such situation, it is
important to educate the policyholder of such policies on the extent of benefits that the
policyholder may assign, by way of a conditional assignment.
The triggering of a maturity or death claim leads to termination of the insurance cover under the
contract and no further insurance cover is available. This is irrespective of whether the claim is
actually paid or not. Non payment of a claim does not assure the continuity of insurance cover
under the contract. While in most cases, a claim is disputed by the Insurer on the basis of such
claim not meeting the policy conditions, there are times where the insurer has ascertained that the
death claim is payable but is unable to settle the same due to conflicting claims or insufficiency
of proof of title of the rightful claimant.
This happens under the following circumstances:
1. Absence of nomination by the policyholder;
2. Registration of an assignment;
3. Multiple claimants with conflicting claims with insufficient proof of title;
4. Where the claimant has approached the Court for settlement of property disputes including
insurance claims;
5. Circumstances where it is impossible for the Insurer to obtain a satisfactory discharge from the
claimant.
Under these circumstances, Section 47 of the Insurance Act, 1938 provides as follows: 47.
(1) Where in respect of any policy of life insurance maturing for payment an insurer is of opinion
that by reason of conflicting claims to or insufficiency of proof of title to the amount secured
thereby or for any other adequate reason it is impossible otherwise for the insurer to obtain a
satisfactory discharge for the payment of such amount, the insurer may, apply to pay the amount
into the Court within the jurisdiction of which is situated the place at which such amount is
payable under the terms of the policy or otherwise.
(2) A receipt granted by the Court for any such payment shall be a satisfactory discharge to the
insurer for the payment of such amount.
(3) An application for permission to make a payment into Court under this section, shall be made
by a petition verified by an affidavit signed by a principal officer of the insurer setting forth the
following particulars, namely:
(a) the name of the insured person and his address;
(b) if the insured person is deceased, the date and place of his death;
(c) the nature of the policy and the amount secured by it;
(d) the name and address of each claimant so far as is known to the insurer with details of every
notice of claim received;
(e) the reasons why in the opinion of the insurer satisfactory discharge cannot be obtained for the
payment of the amount; and
(f) the address at which the insurer may be served with notice of any proceeding relating to
disposal of the amount paid into Court.
(4) An application under this section shall not be entertained by the Court if the application is
made before the expiry of six months from the maturing of the policy by survival, or from the
date of receipt of notice by the insurer of the death of the insured, as the case may be.
(5) If it appears to the Court that a satisfactory discharge for the payment of the amount cannot
otherwise be obtained by the insurer it shall allow the amount to be paid into Court and shall
invest the amount in Government securities pending its disposal.
(6) The insurer shall transmit to the Court every notice of claim received after the making of the
application under sub-section (3), and any payment required by the Court as costs of the
proceedings or otherwise in connection with the disposal of the amount paid into Court shall as
to the cost of the application under sub-section (3) be borne by the insurer and as to any other
costs be in the discretion of the Court.
(7) The Court shall cause notice to be given to every ascertained claimant of the fact that the
amount has been paid into Court, and shall cause notice at the cost of any claimant applying to
withdraw the amount to be given to every other ascertained claimant.
(8) The Court shall decide all questions relating to the disposal of claims to the amount paid into
Court. Claims on small life insurance policies 47A
(1) In the event of any dispute relating to the settlement of a claim on a policy of life insurance
assuring a sum not exceeding two thousand rupees (exclusive of any profit or bonus not being a
guaranteed profit or bonus) issued by an insurer in respect of insurance business transacted in
India, arising between a claimant under the policy and the insurer who issued the policy or has
otherwise assumed liability in respect thereof, the dispute may at the option of the claimant be
referred to the Authority for decision and the Authority may, after giving an opportunity to the
parties to be heard and after making such further inquires as he may think fit, decide the matter.
(2) The decision of the Authority under this sub-section shall be final and shall not be called in
question in any Court, and may be executed by the Court which would have been competent to
decide the dispute if it had not been referred to the Authority as if it wore a decree passed by that
Court.
(3) There shall be charged and collected in respect of the duties of the Authority under this
section such fees whether by way of percentage or otherwise as may be prescribed. The IRDA
(Protection of Policyholders Interests) Regulations, 2002 also provides as follows: Regulation
8. Claims procedure in respect of a life insurance policy
(1) A life insurance policy shall state the primary documents which are normally required to be
submitted by a claimant in support of a claim.
(2) A life insurance company, upon receiving a claim, shall process the claim without delay. Any
queries or requirement of additional documents, to the extent possible, shall be raised all at once
and not in a piecemeal manner, within a period of 15 days of the receipt of the claim.
(3) A claim under a life policy shall be paid or be disputed giving all the relevant reasons, within
30 days from the date of receipt of all relevant papers and clarifications required. However,
where the circumstances of a claim warrant an investigation in the opinion of the insurance
company, it shall initiate and complete such investigation at the earliest. Where in the opinion of
the insurance company the circumstances of a claim warrant an investigation, it shall initiate and
complete such investigation at the earliest, in any case not later than 6 months from the time of
lodging the claim.
(4) Subject to the provisions of section 47 of the Act, where a claim is ready for payment but the
payment cannot be made due to any reasons of a proper identification of the payee, the life
insurer shall hold the amount for the benefit of the payee and such an amount shall earn interest
at the rate applicable to a savings bank account with a scheduled bank (effective from 30 days
following the submission of all papers and information).
(5) Where there is a delay on the part of the insurer in processing a claim for a reason other than
the one covered by sub-regulation (4), the life insurance company shall pay interest on the claim
amount at a rate which is 2% above the bank rate prevalent at the beginning of the financial year
in which the claim is reviewed by it.
Revival of Lapsed Life Insurance Policy
A life insurance policy provides your family with financial protection and offers a chance to
 grow your wealth in exchange for regularly paid premiums.
However, if you fail to pay the premiums by the end of the grace period, the policy will lapse,
which means you are no longer covered under the policy. Fortunately, you can revive your
lapsed life insurance policy to continue the coverage and benefits at the previous premiums. Let
us see how lapse and revival of insurance policy works.
What happens when Life Insurance Lapses?
In life insurance policy lapse means the policyholder was unable to pay the premiums at the
payment due date and missed premium payment even during the grace period. If the
premium remains unpaid at the end of the grace period, the policy will lapse, and the insurer
will no longer cover and provide benefits to the policyholder. This means that the beneficiaries
will not receive payment in case of your sudden death. However, most insurance companies in
India provide a revival period during which the policyholder can request for the reinstatement
of lapsed life insurance policy.
What is Revival of Life Insurance Policy?
Revival of life insurance policy refers to the renewal of a lapsed policy’s coverage. It is
important to note that the process for the revival of life insurance policy will vary across
policies and companies. Usually, insurers ask for a few documents like a health certificate, late
fee penalty, interest applicable, and the outstanding premium amount for the successful
reinstatement of lapsed life insurance policy.

The revival period in insurance refers to the period provided by the insurer during which the
policyholder’s lapsed life insurance policy can be reinstated. The revival period in life
insurance begins from the date of the first unpaid premium. The reinstatement of lapsed life
insurance policy can easily be done during this period as most insurers provide a revival period
of 3 to 5 years.
How to Revive Lapsed Life Insurance Policy?
The primary reason behind buying a life insurance cover is to provide financial support to your
family when you are not present. If you want to revive lapsed life insurance policy there are
certain points which you need to consider:
Understanding reinstatement: Reinstatement of lapsed life insurance policy or the
documents required for revival will depend on the time between the date of lapse and the
date on which you request the revival.
Paying the right premium: For the revival of lapsed policy, you need to pay the unpaid
premium along with the interest rate which is specified by the insurer. In some cases, you
may also have to pay a penalty.
Processing of the policy: In most cases, a certificate of insurability or a health certificate
needs to be given to the insurance company. This statement needs to be supported by
address proof documents.
Fresh terms and conditions can be imposed: As policy revival is a fresh contract between you
and the insured company, the insurer may impose new terms and conditions.
What are the Benefits of Reinstatement of Lapsed Life Insurance Policy?
Here is how reinstatement of lapsed life insurance policy can benefit you:
Family’s Protection: The revival of life insurance can ensure your family’s financial
protection in the event of your untimely demise during the policy term. Thus, after policy
revival, your family will be eligible to receive the death benefit in case of the
policyholder’s untimely death during the policy term.
Continued Coverage: The revival of life insurance policy can restart the coverage you had
before the policy lapse. This means, that your critical illness, terminal illness, accidental
disability cover, and other rider benefits will also be renewed. Therefore, in case of an
eventuality, you will be financially secure.
Flexibility: Sometimes, the policy lapse is not planned but due to circumstantial
financial strains. The policy revival feature can help policyholders who genuinely want to
continue their coverage at the same premium for the entire policy term.
Timely payments: The entire process of lapse and revival of insurance policy can help
policyholders understand the importance of making timely payments. After the policy revival, the
policyholder can avoid future lapse of life insurance using the following ways.
How to Avoid Policy Lapse in Life Insurance?
Here is how you can avoid the lapse and revival of insurance policy:
Opt for an ECS or an Electronic Clearing Service: Here you can give a standing order to
the bank to deduct a particular amount towards the life insurance policy.
Pay through ATMs: Certain insurance companies have tie-ups with banks where the
banks provide you the option to pay the premiums through their ATMs.
Choose auto-pay service through your ATM card: If you opt for this, your premiums
will be pad automatically through your credit card, and this will reflect in the billing
cycle of your card.
Weigh your resources: Before you opt for a policy ensure that it does not burn a hole in
your pocket.
What is Surrender Value in Insurance?
A surrender value in insurance refers to the amount paid by the insurance company to the
policyholder upon terminating the policy before its maturity date. If the policyholder surrenders
during the policy tenure, the earnings and savings portion will be paid to him or her. Surrender
charges are deducted based on the terms of the plan. Surrender values typically are paid only
after a policy has been active for a specified period of time, usually three to five years.
Imagine purchasing a Rs 2 crore term insurance policy five years ago, but being unable to
pay the insurance premiums due to financial difficulties. In such circumstances, you can
surrender the policy to the insurer. Surrendering a policy results in the surrender value being
reduced by the surrender charge imposed by the insurer, and all associated policy benefits are
terminated. Depending on the policy, surrender charges may vary; however, under IRDAI
regulations, life insurance companies in India are prohibited from levying surrender charges on
policies surrendered after five years.
Types of Surrender Values in Insurance
There are two types of surrender value in insurance:
 Guaranteed Surrender Value
Amounts payable after completion of 3 years are usually stated in the brochure. A sum is
calculated by adding all premiums paid throughout the policy period, excluding first-year
premiums. It also excludes any additional premiums paid for riders and any bonuses you
may have been eligible to receive at maturity. The Guaranteed Surrender Value is the
product of the total premiums paid and the surrender value factor (% of total premiums
paid).
 Special Surrender Value
Depending on the total sum assured, premiums paid, policy term, and bonuses, the
special surrender value can vary. We need to understand the paid-up policy in life
insurance in order to understand the special surrender value. Suppose a person bought life
insurance and could not pay the premiums, the policy itself would convert into a paid-up
policy with the sum assured being reduced by the total premiums paid. Policyholders who
surrender paid-up life insurance receive the special surrender value, which is calculated
by adding the paid-up value to the surrender value factor.
A special surrender value is determined by (Initial base sum assured times (Premiums
paid minus Premiums payable+ Bonus) + surrender value factor). If premiums are
stopped after a certain period, the policy continues with a lower sum assured. We refer to
this sum assured as the paid-up value. Insurer's paid-up value = sum assured + (premiums
paid/premiums to be paid).
As an example, let's say you pay Rs 30,000 in premiums each year for a 20-year policy
with a sum assured of Rs 6 lakh. Assuming you stop paying premiums after 4 years, the
bonus accumulated so far will be Rs 60,000, and because the surrender value factor in the
fourth year is 30%: the special surrender value = (30/100) *(6,00,000*(4/20) + 60,000) =
Rs 54,000.
As more premiums are paid, the more will be the surrender value. Surrender value is
calculated by taking the paid-up value and the bonus into account. In the first three years,
this factor is zero, but it increases from the third year onward. Normally, it varies from
company to company and is influenced by factors such as the type of insurance policy,
the maturity date, the number of years the policy has been in operation, industry
practices, and the fund performance for a particular policy. Surrender value factors are
not mentioned in every company's brochure.
How is Surrender Value Calculated?
In insurance, surrender values come in two forms:
 Guaranteed Surrender Value
Typically outlined in the brochure, this sum becomes due after the completion of a 3-year
period. The premiums paid, excluding the initial year's premium, are included in this
figure. In addition, it excludes any extra premiums or bonuses that may be applicable at
maturity. In order to calculate the Guaranteed Surrender Value, the total premiums paid
are multiplied by the surrender value factor. This factor is expressed as a percentage of
the total premiums paid.
  Special Surrender Value
A special surrender value is determined by factors such as the total sum assured, the total
premiums paid, the policy term, and any bonuses applied. In order to comprehend the
special surrender value in insurance, it is crucial to understand paid-up policies.
In the event that an individual obtains life insurance but can't pay premiums, the policy
becomes paid-up, with the sum assured reduced in accordance with the amount of
premiums paid.
In the event a policyholder surrenders a paid-up policy, he/she is eligible for a special
surrender value. As a general rule, the special surrender value can be approximated by
adding the paid-up value to the surrender value factor following the formula: Special
surrender value = (Initial base sum assured (Number of premiums paid/Number of
premiums payable) + total bonus received.
When premium payments cease, the policy continues with a reduced sum assured known
as the paid-up value. Paid-up value = original sum assured x (premiums paid / premiums
due).
 Example
Here's how we calculate the special surrender value: Imagine that you pay Rs 40,000 per
year for life insurance coverage with a sum assured of Rs 8 lakh, and the policy term is
25 years. After 6 years of paying premiums, if the accumulated bonus equals Rs 80,000
and the surrender value factor is 25% in the 6th year, the special surrender value equals:
(25/100) (8,00,000 (6/25) + 80,000 = Rs 84,000.
The surrender value increases as the number of premiums paid increases. Using a
surrender value factor, one can calculate how much of paid-up value is left over after the
bonus has been taken out. This factor remains zero during the first three years, gradually
increasing from the third year onwards. There are a variety of factors that affect cost,
such as the type of policy, the time to maturity, the completion year of the policy,
industry norms, and the performance of the fund. Some companies do not include
surrender value factors in their brochures.
Factors to Consider While Calculating Surrender Value
1. Types and features of policies: Surrender value is heavily influenced by the choice of
insurance policy. There are several factors that influence surrender value calculations
depending on the type of policy, such as term life, whole life, or endowment plans.
Depending on the policy, some may have cash value components, while others may not.
How surrender values are determined requires an understanding of the specific features of
the policy type selected.
2. Duration of the policy: A longer policy term increases insurance holders' chances of
receiving a more substantial surrender value. The accrued value is directly influenced by
the duration of the policy.
3. Accumulated policy value: The accumulated value of a life insurance policy includes
premiums paid, interest earned, and any additional benefits. Using this cumulative value
as a foundation for the calculation of surrender value is very important.
4. Accumulated bonuses: Based on the company's performance, bonuses may be declared
over the course of the policy. Whether accumulated bonuses are in cash or added
benefits, they are crucial to enhancing surrender value. In most cases, policies with a
consistent bonus accrual are likely to yield a higher surrender value.
 5. Higher premium payments: The amount of premium paid has a significant impact on
surrender value. A higher premium will result in an increased surrender value for
insurance holders. A correlation like this illustrates how premium levels affect surrender
value calculations.
6. Age of the insured: When a life insurance policy is initiated at a younger age, the
surrender value is likely to be higher. During the course of a policy's life, the age at
which it is initiated plays a pivotal role in shaping the surrender value. Due to extended
policy duration, early adoption of policies often results in a higher surrender value.
7. Current market conditions: Surrender value calculations are influenced by the current
market conditions, including economic factors, interest rates, and investment
performance within the insurance portfolio. Attention should be paid to market dynamics
since they can affect the overall value of a policy in the long run.
8. Fees for surrender: A surrender fee may be imposed on some insurance policies.
Surrender fees are crucial to understanding, as they directly impact the amount a
policyholder receives upon surrendering the policy. Those considering premature
surrender may find it more advantageous to select a policy with a lower surrender charge.
9. Optimal surrender timing: It is crucial to time the surrender correctly. Surrendering at
the right time, considering factors such as market conditions, policy accumulation, and
bonus declaration, will maximise the surrender value. A premature surrender will result
in a reduced value, whereas a well-timed surrender will ensure that the policyholder
receives the maximum amount possible. To make informed decisions, it is crucial to
understand when is the best time to surrender.
Paid up value
A paid-up policy in insurance refers to a situation in which the policyholder no longer
pays further premiums but retains certain reduced coverage or benefits. When you have a
traditional life insurance policy, you usually pay regular premiums for the duration of the
coverage.
However, there may be times when you cannot continue making premium payments,
which is when a paid-up policy comes into play.
In the long run, even when it becomes difficult to pay the premiums, letting your policy
lapse is never an option. If your policy enables you to convert your existing plan into a paid-up
one, it is advisable to use this feature.
How Does a Paid-Up Policy in Insurance Work?
 A portion of your premium payments accumulates as cash value over time. This cash
value grows on a tax-deferred basis and can be used to pay future premiums.
 Stopping the premium payments and accumulating the cash value will allow you to
keep the policy in force but with reduced benefits.
 When you opt for the paid-up policy, you essentially freeze the policy’s death benefit
at a lower amount than the originally decided amount. This new amount is completely
decided based on your cash value available at the time of the policy conversion.
 Some policyholders choose to convert that paid-up value in insurance into additions
that are small paid-up policies in themselves. These additions enhance your insurance
coverage even without the premium payments.
Advantages of Paid-Up Insurance Policy
 Coverage: Even if you cannot continue making premium payments, this paid-up plan
provides you with lifelong coverage. This means you can be carefree about your
beneficiaries' financial security in your absence and rely on the paid-up value in life
insurance.
 No premium payments: When you convert your life insurance policy into a paid-up
policy, you have no further obligations to pay the timely premiums. This can be a
great financial relief if you are stuck financially. Apart from that, you get to use up
your cash accumulation from this policy if you have any financial needs or
emergencies.
 Better policy: By converting to paid-up additions, you can increase your coverage
and potentially earn from the insurance company.
Limitations of Paid-Up Insurance Policy
 Reduced Coverage: You or your beneficiaries will not receive the policy’s original
coverage. This is the primary drawback of the paid-up policy. The amount that you
have paid in premium payments up until now will be the deciding factor in how much
coverage you will receive.
 Surrender charges: Some insurance providers might charge some amount in order
to cover up for the conversion. So you will have to pay some surrender charges or
penalties to shift to the paid-up policy insurance.
What Is Loan Against Life Insurance Policy?
A loan against a life insurance policy means you get a loan from your insurer, and the policy's
cash value acts as security. You'll need to pay back the loan with interest, and if you can't,
it may reduce the payout to your beneficiaries when you pass away. It's a way to access
money while keeping your life insurance intact.
How To Get Loan Against Life Insurance Policy?
You can get a loan against life insurance policy in the following ways:

Contact Your Insurance Company: Contact your insurance provider and inquire about
their policy loan options.
Understand Terms and Interest Rates: Learn about the loan terms, including interest
rates and repayment conditions.
Determine Loan Amount: Decide how much you want to borrow based on your policy's
cash value.
Complete Required Forms: Fill out the necessary paperwork and provide any requested
documentation.
Repay the Loan: Make timely payments to ensure the loan doesn't affect your policy's benefits
or coverage.
How life insurance loan works?
A life insurance policy not only protects your family's future and provides a favorable return
on investment but has also become a flexible option, enabling policyholders to obtain loans. This
feature is advantageous in times of financial strain, and the increasing popularity of these
loans is attributed to their lower interest rates than personal loans. Additionally, the stability of
the policy value, unaltered by market fluctuations, distinguishes it from loans against assets
such as gold or shares.
What Are Some Points To Keep In Mind While Taking A Loan Against Life
Insurance Policy?
A loan against life insurance policy is a worthwhile alternative option to take out a personal
loan. Nowadays, availing loan against your life insurance policy is one of the preferred
approaches to meet all the emergency expenses. It is a hassle-free solution that offers
several advantages over other traditional loan types.
There are several factors that one needs to bear in mind before opting for a loan against a life
insurance policy:

Eligibility of Policy
This is one of the first and foremost things that you need to confirm whether your
policy qualifies for a loan, as all insurance policies do not provide this benefit. You can
take a loan against the surrender value of permanent or whole life insurance but not against
term life insurance.
When borrowing a loan against an insurance policy, you are essentially borrowing from
yourself. You can thus borrow the money for any kind of expense without explaining, and
you do not have to undergo intense scrutiny or a stringent approval process. Though the
income of the borrower is also not a deciding factor for determining their eligibility, their
creditworthiness is considered. It is always advisable to read the terms and conditions of
the policy to determine your eligibility.
Loan Amount
You need to check the amount you are eligible for, with the insurance company or the
bank. The loan amount is a percentage of its surrender value.
Once the loan amount is decided, then the policy is assigned to the lender. This means
that all rights of the policy are transferred to the lender, and the loan is sanctioned to the
borrower thereafter. Furthermore, since the loan amount is not recognized as income by the
Income Tax authorities, it is not taxable.
Interest Charged
The interest rate charged in case of a loan against an insurance policy is based on the
premium already paid and the number of premiums that have been paid. The more the premium
amount and number of premiums paid, the lower the rate of interest charged. In most
instances, banks link the rate of interest with their base rate.
Life Insurance Corporation of India currently charges a rate of interest at 9% that
needs to be paid half-yearly. They have a minimum tenure of 6 months, so even if you
want to repay the loan before 6 months you have to pay interest for 6 months.
Waiting Period
A policyholder can't avail loan against the base life insurance policy as soon as he/she
buys it. A waiting period of approximately 3 years is required. In this, the lender checks
that premiums have been paid or have defaulted during the waiting period i.e., of 3 years.
So, the loan is allowed based on surrender value.
Premiums
Upon taking a loan against a life insurance policy, policyholders need to continue
paying premiums. In such an event where the policyholder desists from doing so, some insurers
may terminate the policy.

Repayment of Loan
The loan against life insurance policy should be repaid during the term of the policy.
The policyholder has the option of either paying back the principal along with interest or only
the interest amount. If one pays only interest, the principal amount due will be deducted from
the claim amount at the time of settlement.
One should bear in mind the fact that the dependents of the policyholder will not be the
sole beneficiaries of the policy if the policyholder dies unexpectedly before the repayment
of the loan.
Deed of Assignment
The insurance policy must be assigned in favour of the lending institution or
insurance company, as applicable. The policyholder is required to execute the assignment deed
in the prescribed format, and the assignment details are officially endorsed on the policy
document.
Charges
The insurer or any financing institute may charge a low loan processing charges for the
loan disbursal.
Death and Maturity Claims in Life Insurance
Life insurance provides financial protection to your loved ones in the event of your demise and a
lump-sum amount to you upon the policy's maturity. A death claim in life insurance is a request
for payment by the beneficiaries when the policyholder passes away. On the other hand, a
maturity claim is a request by the policyholder for payment upon the policy's term completion.
Making a Death Claim in Life Insurance
When a policyholder passes away, the nominee or beneficiary should initiate the death claim.
Here's how you can proceed with an insurance death claim:
Step 1: Intimation to the Insurance Company
The beneficiary should notify the insurance company about the policyholder's death as soon as
possible. This intimation should include details like the policyholder's name, policy number, date
of death, cause of death, and place of death.
Step 2: Submission of Required Documents
After the intimation, the beneficiary will have to submit the necessary documents. This typically
includes the duly filled death claim form, original policy document, death certificate, and legal
proof of title if the policy is not assigned to the claimant.
How to fill a death claim form?
The death claim form is a crucial document that must be filled out accurately. To fill out the
death claim form, you will need to provide information such as the policyholder's details, the
claimant's details, and the circumstances of the death. Always ensure that the details provided
match the documents submitted.
Step 3: Verification and Settlement
Upon receiving the documents, the insurance company will verify the claim. If the claim is found
to be legitimate, the insurance company will process the claim and release the funds to the
claimant. This process typically takes 30 days from the receipt of all documents.
Making a Maturity Claim in Life Insurance
A maturity claim in life insurance is when the policyholder receives a payout upon the policy's
maturity. Here's how you can make a maturity claim:
Step 1: Receive the Maturity Claim Intimation
Insurance companies usually send a maturity claim intimation to the policyholder a few months
before the policy matures. This letter includes the details of the policy maturity date and the
amount to be received.
Step 2: Fill out the Maturity Claim Discharge Form
Along with the intimation, the insurance company sends a maturity claim discharge form. Fill
out this form accurately and sign it. This form acts as a receipt for the payment of the maturity
amount.
Step 3: Submit the Necessary Documents
You need to submit the filled maturity claim discharge form along with the original policy
document to the insurance company.
Step 4: Receipt of the Maturity Amount
After verification, the insurance company will release the maturity amount. This payment is
usually made by cheque or directly credited to the bank account.

The 5 main differences between maturity benefit vs death benefit are:

Parameter Maturity Benefit Death Benefit

Trigger Event It is paid after the maturity It is paid after the death of the insured
of an insurance policy. person.

Who receives it A maturity benefit is A death benefit is receivable by the

receivable by the insured beneficiary chosen by the insured
person. person.

Mode of pay out It might be paid out in lump It is usually paid out to the
sum or regular payouts, as beneficiary in a lump sum.
mentioned in terms of a
policy.

Applicability of Bonuses applicable No bonuses

bonuses

Purpose Typically used for long Death benefit’s primary purpose if to

term financial goals, provide immediate financial support
retirement, or wealth to the dependent family in case of the
accumulation policyholder’s death.

Policy Continuation The policy terminates after The policy, in certain kinds of plans
the maturity benefit is paid as in child plans, may continue after
the payment of death benefit.
 UNIT III
FIRE INSURANCE AND MARINE INSURANCE
Fire Insurance – Fire insurance contracts – Fire insurance coverage – Policies for stocks – Rate
fixation in fire insurance – Settlement of claims. Marine Insurance – Functions – Marine perils –
Types of marine policies – Clauses in general use – Warranties and conditions – proximate cause
– subrogation and conciliation – Re-insurance – Double insurance – Types of marine losses.
What is Fire Insurance?
A contract whereby the insurer, in consideration of the premium paid, undertakes to compensate
the insured for any loss that may result due to the occurrence of fire, is known as Fire Insurance.
The fire insurance policy is usually for one year and has to be renewed from time to time. The
premium can be either paid in lump sums or instalments. The document which contains the terms
and conditions of the contract is known as Fire Insurance Policy.
The term ‘fire’ must satisfy two conditions:
(a) There must be actual fire or ignition;
(b) The fire should be accidental.
The property must be damaged or burnt by fire. If the Property is damaged by heat or smoke
without ignition it Will not be covered under the word ‘fire’.
Procedure for Fire Insurance:
Whenever a person or a business house wants to get its Property insured, a proposal form is duly
filled. The formhas columns for information about the property to be Insured. The details of the
property, its location and Contents are given in the proposal. The insured should Give correct
answers to all the questions in the form.Fire insurance contract is based on mutual faith. On
Receipt of the proposal the underwriter assesses the Possible loss involved in the proposal. The
proposal may Be accepted on its receipt or a surveyor may be sent to Assess the proposal. When
the underwriter accepts the Proposal, the contract comes into existence. Sometimes a Cover note
is issued immediately and the policy is sent Later on. A cover note binds the insurer to indemnify
the Risk. The risk coverage starts on the payment of premium.Generally, a fire insurance policy
is issued for one year But it may be periodically reviewed. The insurance company informs the
insured two weeks before the expiry Of the policy so that it may be renewed. However, two
Weeks are given as grace period after the expiry of the Policy. The insured can get it renewed
within the grace Period and insurance coverage continues in the mean Time.The insured must
have insurable, interest in the property To be insured both at the time of taking up of the policy
And at the time of occurrence of the loss. If the insurable Interest passes on to another person,
the insurance Coverage ends unless otherwise the underwriter (insurance company) agrees to
continue it.
Claim for Loss by Fire (Conditions)
The claim for loss by fire must fulfil two conditions:
There must be actual loss.
Fire must be accidental and non-intentional. This means that the property insured must be
damaged or burnt by fire. It will not cover the damages under the word ‘fire’ if the property is
damaged by heat or smoke without ignition and such loss will not be recoverable from the
insurer.
Elements of Fire Insurance Contract:
Fire Insurance Contract is based on certain fundamental principles of Insurance.

Insured must have insurable interest: The insured must have an insurable interest both at the
time of insurance and at the time of loss. The contract of insurance would be void in the absence
of insurable interest. For example, a businessman has an insurable interest in his plants,
machinery, building, etc.

Utmost good faith (uberrimae fidei): Fire insurance contract must be based on utmost good faith.
The insured must be honest and truthful to the insurance company and should disclose all
material facts about the subject matter and the risks attached to it at the time of taking the policy.
All the facts, conditions, etc., should also be disclosed by the insurance company to the proposer.

Indemnity: The contract of Fire Insurance is based on the principle of strict indemnity. The
actual amount of loss can be recovered from the insurer by the insured in the event of loss, which
is subject to the maximum amount for which
The subject matter is insured. The insured is not allowed to make profit out of the contract under
any circumstances.

For example, if Amit (insured) has taken a fire insurance policy for his factory for ₹ 5,00,000,
and his factory is destroyed by fire. In this case, the insurance company (insurer) is not
necessarily liable to pay that ( ₹ 5,00,000) amount, although the factory may have been totally
destroyed by fire. But he will get the actual loss after deducting depreciation within the
maximum limit of ₹ 5,00,000.The purpose being that a person should not be allowed to gain by
insurance.

Proximate Cause: The proximate cause of damage or loss must be fire. The insurer will be
compensated by the insured only when the proximate cause of loss is fire.

FIRE INSURANCE CONTRACT

A fire insurance contract is an agreement between you, the policyholder, and the insurance
company, the insurer. In exchange for a premium payment, the insurer agrees to financially
compensate you for losses covered under the policy if your property is damaged or destroyed by
fire or other covered perils.
One of the critical features of a fire insurance contract is the premium payment. The policyholder
pays a premium to the insurer in exchange for the coverage provided by the contract. The
premium amount is determined by several factors, including the value of the property insured,
the level of risk, and the type of coverage required.
Another key feature of a fire insurance contract is the coverage provided. Fire insurance policies
typically cover damage to the insured property caused by fire, lightning, and explosion. Some
policies may also cover damage caused by smoke, water, or other perils. It is crucial to read and
understand the policy terms and conditions to determine the extent of coverage provided and any
exclusions or limitations.
Types of fire insurance policies in India
The following are the types of fire insurance policies that are available in India:
1. Valued policy: A predetermined value is given for an item or property by the insurer in
this policy. Since the value of a property or an item that has been damaged in the fire
cannot be ascertained, the insurer fixes their value in advance at the time of purchase of
the policy. During the time of claim, it is this predetermined amount that is paid to the
policyholder.
2. Average policy: In this policy, you as the policyholder can have the insured amount to be
less than the actual value of your property. If the value of your property is Rs.30 Lakhs,
you can set the insured value at Rs.20 Lakhs. The compensation amount will not exceed
this level.
3. Specific policy: The compensation amount in this policy is fixed. For example, if the
damaged item was worth Rs.5 Lakhs and the coverage of the policy is Rs.3 Lakhs, you
would receive only Rs.3 Lakhs as that is the maximum amount of compensation offered
under the policy. However, if the amount of loss is within the coverage amount, you get
full compensation.
4. Floating policy: In this policy, you as a business owner can secure more than one
property of yours under its coverage. If your properties are in different cities, the policy
will cover all of them.
5. Consequential loss policy: If vital machinery and equipment of your business get
damaged in a fire, you would get compensated for those losses in this policy. This policy
ensures that your business does not remain shut for long due to the loss of machinery.
6. Comprehensive policy: This policy offers extensive coverage. It offers coverage not only
against damage caused by fire but also against the damage which may happen due to
natural and manmade calamities. It also covers damages and loss caused due to the theft*.
7. Replacement policy: In this policy, if your property gets completely damaged, you are
compensated either with the depreciated value being considered. Or you are compensated
as per the actual value of your property.
Always make sure to know the purpose for which you are buying the policy and choose the fire
insurance coverage accordingly.
FIRE INSURANCE COVERAGE
The coverage provided by fire insurance policies is comprehensive and versatile. It addresses
various aspects of fire-related damages and losses. The scope of coverage extends beyond just
direct damage from fire, encompassing a range of scenarios and expenses that can arise due to
fire incidents.
Fire insurance coverage includes:
Damage to the Insured Property: This includes damages caused by fire, lightning, explosions,
and other allied perils. Whether it’s a residential building or a commercial space, the policy
covers repairs and reconstruction costs.
Compensation for Repair and Reconstruction: If the insured property suffers damage, the
insurance policy provides compensation for the costs involved in repairing or reconstructing the
damaged parts. This ensures that property owners can restore their assets to their previous
condition.
Coverage for Movable Assets: Fire insurance coverage is not limited to immovable properties. It
extends to movable assets such as furniture, machinery, and equipment. This makes it a valuable
option for businesses that rely on these assets for their operations.
Additional Expenses: Fire incidents often require immediate firefighting efforts to minimize
damage. The policy covers additional expenses incurred for these efforts. These expenses can
include the cost of firefighting equipment, water, and other resources.
Liability Coverage: Sometimes, a fire on the insured property can cause damage to neighboring
properties. Fire insurance policies often include liability coverage to compensate for such
damages. This aspect of coverage is especially crucial in preventing legal disputes and
maintaining positive relationships with neighbors.
Special types of Policies available for Stocks:
1. Declaration Policy :
To care care of frequent fluctuations in Stocks/ Stock Values
Minimum Sum Insured INR 1 crore per location.
Monthly declaration on any one of the following basis to be submitted before the last day of the
succeeding month
1. average of the highest values at risk on each day (or)
2. highest value on any day of the month.
Refund of premium, on expiry of policy, based on the average declaration upto 50% of the
provisional premium.
2. Floater Policy :
To take care of frequent changes in values at various locations.
Single sum insured for all the stocks in all the locations.
Nominal premium loading to cover all the stocks in all the locations.
Perils Covered:
 Fire
 Lightning
 Explosion / Implosion
 Aircraft damage
 Riot, Strike, Malicious damage (hereinafter called RSMD Perils)
 Storm, Tempest, Flood, Inundation, Hurricane, Cyclone, Typhoon and Tornado.
 Impact by any Rail/ Road vehicle or animal
 Subsidence / Landslide including rockslide.
 Bursting and / or overflowing of water tanks, apparatus.
  Leakage form Automatic Sprinkler Installation.
 Missile Testing Operation.
 Pollution or contamination resulting from any of the above perils
 Any insured peril resulting from pollution and contamination.
 Bush Fire
Fire Insurance Rate Fixation
Rate fixation in fire insurance refers to the process of determining the premium rates that
policyholders need to pay to secure coverage against fire-related risks. Insurance companies
employ actuaries who use a combination of historical data, statistical models and risk
assessments to set these rates.
The goal is to strike a balance between offering affordable premiums to attract customers and
ensuring that the insurer can cover potential claims while maintaining financial stability for
investors.
Factors Influence Rate Fixation in Fire Insurance
Property Valuation
The value of the property being insured is a major factor in rate fixation. The insurer determines
the property’s replacement cost by considering factors such as construction materials,
architectural features, and overall market value.
Higher premiums are generally associated with higher property values because the potential
payout in the event of a claim is greater.
Risk Assessment
The level of risk associated with a property has a significant impact on premium fire insurance
costs. The property’s location, susceptibility to natural disasters, and proximity to fire-prone
areas are all carefully considered.
A business located in an industrial area with a higher risk of fire, for example, may face higher
premiums than a residential property in a low-risk neighbourhood.
Nature of Flooring
The risk is more heavily influenced by the type of flooring. A further physical risk is introduced
by the building’s wooden floors. In the event of a fire, a wooden floor turns into fuel. It might
easily collapse, resulting in property damage.
The general features, lighting, heating, and power; manufacturing process; exposures to
appliances; management and supervision; and so forth are the basis for the risks inspection. The
three fundamental requirements of clarity, conciseness, and completeness must all be met by a
risk inspection report. There must be no ambiguities in the report.
Occupancy and Usage
The purpose for which the property is used is also important in determining the rate. Commercial
properties, particularly those involved in activities that pose a higher fire risk, may face higher
insurance premiums.
When determining rates, insurance companies consider the type of business, the presence of
flammable materials, and adherence to safety regulations.
Fire Protection Measures
Insurers consider properties with advanced fire security systems, such as smoke detectors, fire
extinguishers, and sprinkler systems, to be less risky.
The presence and effectiveness of these measures can lead to reduced premiums as they enhance
the property’s ability to mitigate fire-related damages.
Claims History and Deductibles
Your fire insurance premium may be directly impacted by your prior claim history. Insurance
companies might see you as a higher risk if you have a history of filing numerous claims. In
addition, your premium may be impacted by the deductible you select.
A higher deductible can frequently lead to a lower premium, but you will incur greater out-of-
pocket expenses in the event of a claim.
When selecting a deductible, take your financial circumstances into account. Compare the cost of
your premium to your capacity to pay the deductible, if applicable.
Insurance Coverage Limits
The extent of coverage chosen by the policyholder also influences premium rates. Higher
coverage limits naturally result in higher premiums because the insurer assumes a greater
potential liability. Policyholders should carefully evaluate their coverage needs and strike the
right equilibrium between adequate coverage and reasonable premiums.
Market Conditions
External economic and market conditions can have an impact on rate setting. In times of
economic uncertainty or an increase in the occurrence of catastrophic events, insurers may adjust
their rates to account for increased risks and uncertainties. Policyholders should be aware of
these market dynamics and be prepared for potential premium rate fluctuations.
steps involved in the claim settlement process in fire insurance
The claim settlement process in fire insurance involves several crucial steps. If you have fire
insurance and need to file a claim, the simple steps outlined below will help you settle your claim
quickly.
1. Estimate the Losses
It is critical to assess the overall loss in order to be properly reimbursed. Try to keep track of all
the losses sustained as a result of the incident. While doing so, make sure that
· The burnt goods should not be discarded.
· It is not necessary to rebuild or repair the damaged infrastructure.
· Keep proper evidence of the damaged or lost items.
2. Intimate Your Insurance Provider
The first step is to contact your insurance company or agent as soon as the fire incident occurs.
You can either call their toll-free number or write to them to inform them about the loss.
Promptly reporting the incident is essential, as most policies have a time limit for filing claims.
3. File a claim
You will need to fill out a claims form provided by your insurer. This form typically includes
details about the incident, such as the date, time, and location, and a description of the damage,
loss, or any related injuries. You may also be required to provide supporting documents like the
police report or FIR (if any) and photographs of the damage. You must lodge the claim form
within a stipulated time frame ( usually within 15 days) of the fire incident, to claim
compensation. A delay in the submission of the claim form may lead to non-acceptance of the
claim.
4. Claim assessment and loss valuation
After receiving your claim, the insurance company will assign a surveyor to assess the extent of
the damage. The surveyor will visit the scene of the fire to evaluate the loss and determine
whether it is covered under your policy. The surveyor will assess the value of the loss or damage,
taking into account factors like the cost of repairs or replacement, depreciation, and any
applicable deductibles. He will work with you to compile a list of items or property affected by
the fire. Present all original documents and evidence needed for the surveyor’s loss assessment.
Please provide every pertinent information as well as your full participation! You should retain a
copy of the original reports of the investigation or associated documents for future reference.
The claim will be estimated by the insurer on the basis of the surveyor’s report. The objective of
the insurance company here is to investigate the circumstances surrounding the fire to ensure
there was no foul play or insurance fraud involved. They will try to gather evidence and
documentation that may support your claim.
5. Policy review
The insurance company will review your policy to determine the coverage limits, deductibles,
and any applicable endorsements or exclusions that may impact your claim
6. Claim settlement offer
Once the above steps are complete, the insurance company will provide you with a claim
settlement offer. This offer outlines the amount they are willing to pay to cover the losses, minus
any applicable deductibles or depreciation.
7. Negotiation (if needed)
If you believe the settlement offer is insufficient or if there are disagreements about the coverage,
you may enter into negotiations with the insurance company. It’s crucial to provide proper
evidence and documentation to support your claims further here.
8. Acceptance of Settlement
If both parties agree on the settlement amount, you can accept it. Once you accept the offer, the
insurance company will proceed with issuing the payment.
9. Payment Issuance
The insurance company will issue a payment, typically in the form of a check, to cover the
approved claim amount. This payment can be used to repair or replace the damaged property or
cover other eligible expenses.
10. Claim Closure
After you receive the payment and use it to address the losses, the claim will be officially closed.
Make sure to keep records of all transactions related to the claim for your records.
It’s important to note that the details of the claim settlement process mentioned above are
indicative only and may vary depending on your insurance company, policy terms, and the
nature of the fire incident. Hence, it’s always advisable to consult with your insurance agent or
company for guidance and clarification throughout the process.
Marine Insurance
Loss or damage to cargo or goods occurring during transportation from the point of origin to the
point of destination is covered by a marine policy. According to Section 5 of the Marine
Insurance Act of 1906 (MIA), anyone with an insurable interest may purchase a marine
insurance policy. Marine insurance policies come in a variety of forms, including those for
courier and postal services, as well as for land, air, rail, and sea transportation.
The most frequent reasons for marine cargo loss during transit include fire, explosion, hijackings,
accidents, collisions, and overturns. A marine insurance policy might provide carefully crafted
plans, in addition to covering theft, malicious damage, shortages, non-delivery of products,
damages during loading and unloading, and cargo mishandling. Depending on business
requirements, coverage can be tailored, and it is offered for a wide range of cargo and items,
whether you are a manufacturer or trader.
Features and Characteristics of Marine Insurance
Here are some of the key features and characteristics of marine cargo insurance:
1.Coverage for Physical Loss or Damage: Marine cargo insurance covers the loss or damage to
goods and cargo during transportation. This can include damage from accidents, theft, fire,
natural disasters, and other unforeseen events.
2.Various Modes of Transport: This insurance can apply to various modes of transportation,
including shipping by sea, air, road, rail, or even a combination of these. It is adaptable to the
specific needs of the cargo and the chosen method of transport.
3. Customizable Policies: Marine cargo insurance policies are highly customizable.
Businesses can tailor their policies to suit their unique cargo, routes, and risk tolerance.
Coverage can be adjusted to include or exclude specific risks or perils.
4. Worldwide Coverage: Marine cargo insurance provides coverage for shipments that
travel across international borders and through different countries. It offers protection
throughout the entire journey, from the moment the goods leave the seller’s premises
until they reach the buyer’s destination.
5. All-Risk vs. Named Perils: Policies can be either “all-risk” or “named perils.” All-risk
policies cover a broad range of perils unless specifically excluded, whereas named perils
policies only cover specific risks explicitly listed in the policy.
6. Valuation Methods: Marine cargo insurance policies typically offer multiple valuation
methods for determining the insured value of the cargo. Common methods include
invoice value, market value, and cost-plus freight.
7. Open and Specific Policies: Open policies provide continuous coverage for an insured’s
cargo shipments over a specified period, while specific policies cover a single shipment
or a series of shipments between specific locations.
8. General Average: Marine cargo insurance often includes provisions for the general
average. This means that if a ship experiences a major incident, such as jettisoning cargo
to save the vessel, all parties involved (insured cargo owners and the shipowner) share
the loss proportionately.
 9. Subrogation Rights: In the event of a loss, the insurer may have the right to subrogate,
which means they can seek reimbursement from third parties responsible for the loss.
This helps to recover some or all of the insurance payout.
10. Deductibles and Excess: Policies may include deductibles (the portion of the loss that the
insured must cover) and excess (the maximum amount the insurer will pay in the event of
a loss), which can affect the cost of the insurance premium.
11. Claims Handling: Insurers typically have established procedures for filing claims in the
event of a loss. Prompt and accurate reporting of losses is crucial to the claims process.
Marine perils.
Some common perils of the sea include:
Fire and Explosion: Fires can break out on ships due to various reasons, such as electrical faults,
fuel leakages, or cargo mismanagement. Such incidents can lead to severe damage and endanger
the crew’s lives. Though the policy does not cover every type of fire, it does cover damage
caused by smoke or heat of fire, damage caused by water used to put out or prevent the spread of
fire, or fire caused by lightning, spontaneous combustion, explosion, negligence of the master or
crew, and so on. However, if the damage is caused by the insured’s willful wrongdoing or the
fire occurs due to the inherent vice or nature of the subject matter insured, the insurer is not
liable.
Storms and Tempests: Violent storms, hurricanes, and cyclones are among the most significant
perils ships encounter at sea. Powerful winds and turbulent seas pose a threat to the vessel’s
structure, navigation, and safety, potentially leading to damages or losses.
Piracy and Armed Attacks: Maritime piracy remains a peril, particularly in certain regions. Acts
of piracy can result in the theft of cargo, ship hijacking, crew abduction, and ransom demands,
causing substantial losses for shipowners and cargo owners.
Jettison: In extreme situations, when a ship is in danger of sinking or facing significant damage,
intentional jettisoning of cargo may be necessary to preserve the vessel and crew’s safety. This
action results in the loss of the jettisoned cargo. If the goods or anything else has been thrown
overboard by mistake or on purpose, it is not considered jettison. It should be noted, however,
that the policy does not cover cargo jettison due to its inherent vice. For example, the disposal of
bad fruits caused by a delay or hemp sent in an inappropriate state that has gotten dangerously
hot is not covered.
Collision: Collisions with other vessels, icebergs, or submerged objects are a constant risk during
sea voyages. These accidents can cause significant damage to the ship’s hull, cargo, or both,
leading to financial losses for shipowners and cargo owners.
Stranding: Running aground or getting stuck in shallow waters can result in hull damage, cargo
losses, and potential environmental hazards.
Sinking and Capsizing: The risk of a ship sinking or capsizing due to adverse weather, heavy
cargo shifting, or instability can lead to total losses and significant financial repercussions.
General Average: In cases of extreme emergencies, where the ship and its cargo face a common
peril, the concept of general average may come into play. It involves a proportional contribution
from all parties involved to cover the losses incurred in protecting the common interest.
Types Of Marine Insurance Policies
Here is a description of the various marine insurance policies:
Voyage Policy: If the voyage is a specific one, a voyage policy is what works better as a kind of
marine insurance.
Time Policy: If the marine insurance validation is limited to a period of time, mostly for a year,
the marine insurance is called a time policy.
Mixed Policy: A mixed marine insurance policy is one that gives the client the advantages of
both time and voyage coverage.
Open (or) Unvalued Policy:
This form of maritime insurance coverage does not include a predetermined value for the cargo
and consignment. As a result, compensation is only given when the goods and consignment that
were lost have been examined and appraised.
Valued Policy:
The contrary of an open maritime insurance policy is a valued marine insurance policy. This kind
of insurance establishes the value of the cargo and consignment and makes it explicit in the
policy document in advance how much will be reimbursed in the event that the cargo and
consignment are lost.
Port Risk Policy:
This type of marine insurance is provided to protect the ship’s privacy and security when it is
docked at a port.
Wager Policy:
A wager policy is one that does not provide any specific timeframes for repayments. If the
insurance provider determines that the damages justifiably support the claim, then
reimbursements are made; otherwise, there wouldn’t be any reimbursement. The fact that a
wager policy is not a documented insurance policy and, thus, is not admissible in court must also
be mentioned.
Floating Policy:
A floating policy is a marine insurance contract in which just the claim amount is stated, and all
other information is withheld until the ship sets sail. This is the most perfect and practical marine
insurance coverage for customers that often carry merchandise via water.
Single Vessel Policy:
The policy suits shipowners who have only one vessel or a single vessel in multiple fleets. It
covers the risk of one vessel.
Fleet Policy:
This coverage ensures multiple ships are owned by the very same owner under one policy.
Block Policy:
The cargo owner is protected by this policy, which is included in marine insurance, from cargo
damage or loss in any method of transportation, including road, rail, and sea transportation.

Different Clauses In Marine Insurance Policy

Institute Cargo Clauses
These standard clauses define the scope of coverage for cargo insurance. Different versions offer
varying levels of protection:
ICC (A): Covers all risks except those specifically excluded (e.g., war, nuclear peril, inherent
vice).
ICC (B): Covers named perils (e.g., fire, stranding, collision, theft).
ICC (C): Covers only a limited number of specific perils (e.g., fire, stranding, collision).
Suppose you are shipping a container of electronics from India to the US. You choose ICC (A)
coverage, which protects your cargo from all risks except those explicitly excluded. If a storm
damages the container and your electronics are destroyed, you can file a claim under the ICC (A)
clause.
Valuation Clause
This marine insurance policy clause establishes the insured property’s agreed-upon value, which
determines the amount paid in case of marine losses. This value can be based on purchase price,
market value, or other agreed-upon criteria.
For instance, based on its market value, you have insured your shipment for ₹50 lakhs. If the
shipment is lost at sea, the insurance company will pay you ₹50 lakhs, as per the valuation
clause.
‘At’ and ‘From’ Clause
This clause specifies the geographical scope of the insurance coverage. It defines the point at
which the insurance attaches (e.g. when cargo is loaded onto the ship) and the point at which it
terminates (e.g. when cargo is unloaded at the destination).
For example, the ‘at and from’ clause in your cargo insurance policy might state that coverage
starts “at a warehouse, India” and ends “at a warehouse, Shanghai.” This means your cargo is
protected from the moment it leaves the warehouse in India until it arrives at the warehouse in
Shanghai.
Sue and Labour Clause
This clause encourages the insured party to take all reasonable steps to minimise losses and
prevent further damage to the insured property. The insurance company will reimburse
reasonable expenses incurred in these efforts.
For instance, during a storm at sea, your cargo ship suffers damage. You take immediate steps to
secure the cargo and prevent further losses. The sue and labour clause allows you to claim
reimbursement from the insurance company for these expenses.

Warehouse to Warehouse Clause

This clause extends coverage beyond the maritime transit, protecting the insured property from
the origin warehouse to the destination warehouse. This provides additional protection for the
cargo during the pre-shipment and post-discharge stages.
For example, your cargo insurance includes a warehouse-to-warehouse clause. This means your
electronics are protected from the moment they are packed at the warehouse in India until they
are delivered and safely stored at the warehouse in any other country.
Memorandum Clause
This marine cargo insurance clause excludes certain inherent risks associated with the nature of
the insured property. The insurance policy does not cover these risks. Examples include ordinary
wear and tear, inherent vice (e.g., spoilage of perishable goods), and ordinary leakage.
For instance, you ship a container of oranges. The memorandum clause in your insurance policy
excludes spoilage due to inherent vice. If the oranges spoil during the voyage due to their
inherent nature, you cannot claim for the loss under the insurance policy.
Change of Voyage Clause
This clause allows for deviations from the planned voyage within specified limits without
invalidating the insurance coverage. This flexibility can be helpful in unforeseen circumstances.
For example, during the voyage, if your cargo ship is diverted to another port due to bad weather,
the change of voyage clause allows this deviation without affecting your insurance coverage.
Inchmaree Clause
The Inchmaree Clause, also known as the Negligence Clause, is a common clause found in
marine insurance policies, particularly those covering the hull and machinery of vessels. It
expands the scope of coverage beyond the traditional perils of the sea, protecting losses and
damage caused by:
Negligence of the captain, crew members, or other personnel responsible for the vessel’s
operation. This includes errors in navigation, maintenance, or handling of cargo.Defects in the
hull, machinery, or equipment of the vessel. This can include latent defects, wear and tear, and
design flaws.Bursting of boilers, breakage of shafts, or other latent defects in machinery or
boilers.
Jettison Clause
The Jettison Clause is another important clause found in marine insurance policies, particularly
those covering cargo. It provides coverage for the loss of cargo that is deliberately thrown
overboard to save the ship and remaining cargo in a maritime emergency.The loss of jettisoned
cargo is considered a general average loss, and the owners of the remaining cargo contribute to
compensate the owner of the sacrificed cargo.
Conditions in Marine Insurance
In essence, marine insurance policies are contracts between the insurer and the insured that
contain various terms and conditions. Conditions are provisions that must be fulfilled by the
insured in order for the policy to remain in force. Failure to comply with a condition may result
in the insurer refusing to pay out on a claim. The conditions can be either express or implied.
A Implied Conditions
Implied conditions are those that are not explicitly stated in the policy but are automatically
included by law. These conditions are deemed to be present in every marine insurance policy,
and they include:
Seaworthiness: The vessel insured must be seaworthy, meaning that it must be in a condition to
withstand the perils of the sea. If the vessel is not seaworthy, the insurer may refuse to pay out in
the event of a claim.
Legality: The insured must not engage in any illegal activities while using the vessel. If the
insured breaches this condition, the insurer may refuse to pay out in the event of a claim.
Good faith: The insured must act in good faith when taking out the policy and when making a
claim. If the insured acts fraudulently, the insurer may refuse to pay out.
B. Express Conditions
Express conditions are those that are specifically stated in the policy. These conditions can vary
depending on the policy, but they may include:
Notification requirements: The insured must notify the insurer of any incidents that may lead to a
claim, such as damage to the vessel or loss of cargo.
Maintenance requirements: The insured must maintain the vessel in a certain condition, such as
by carrying out regular inspections and repairs.
Navigation limits: The insured must adhere to certain navigation limits, such as not venturing
into certain dangerous routes.
It is important for the insured to understand and comply with all of the conditions in their marine
insurance policy. Failure to do so may result in the insurer refusing to pay out in the event of a
claim.

Warranties in Marine Insurance

Warranties are statements of fact that are guaranteed by the insured. In other words, these
warranties are promises made by the insured to the insurer regarding the condition or use of the
insured vessel. If the warranty is breached, the insurer may be discharged from liability. Marine
insurance policies contain warranties that are either implied or express.
A. Implied Warranties
In marine insurance, implied warranties are certain fundamental and automatic promises that are
considered to be inherent in the nature of the contract. These warranties are not explicitly stated
in the insurance policy but are automatically understood to exist as a part of the agreement
between the insured (the shipowner or cargo owner) and the insurer. In the context of marine
insurance in India, some common implied warranties include:
Seaworthiness of the Vessel: The vessel must be seaworthy at the commencement of the voyage.
This implies that the ship is fit for the intended journey, properly equipped, and manned by a
competent crew.
Legality of the Voyage: The insured implicitly warrants that the voyage is legal. This means that
the insured will not engage in any unlawful activities during the course of the journey.
No Concealment or Misrepresentation: The insured implicitly promises not to conceal any
material information or misrepresent any facts that could affect the risk. Full disclosure of
relevant information is expected.
· Warranty of Good Faith: This is an implied warranty that both the insurer and the insured will
operate in good faith throughout the insurance arrangement. This includes submitting accurate
information right through the underwriting process as well as committing to the policy’s terms.
· Warranty of Insurable Interest: The insured is often assumed to have an insurable interest in the
subject matter of the insurance. In marine insurance, this indicates that if the insured subject is
damaged or lost, the insured will incur a financial loss.
B. Express Warranties
Express warranties in marine insurance are specific and explicit promises or undertakings that
are clearly stated in the insurance policy. Unlike implied warranties, which are automatically
assumed to exist as a part of the nature of the contract, express warranties are consciously written
into the policy and agreed upon by both the insured (shipowner or cargo owner) and the insurer.
These warranties are essentially conditions precedent, meaning they must be strictly complied
with for the insurance coverage to be valid.
In the context of marine insurance in India, some common examples of express warranties
include:
· Voyage Warranties: Specifications regarding the route or voyage the insured vessel is permitted
to undertake. Deviating from the agreed-upon route may result in a breach of warranty.
· Cargo Description Warranties: Details about the nature and description of the cargo being
insured. Any deviation from the provided cargo description could lead to a breach of warranty.
PROXIMATE CAUSE:
“Proximate cause means 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 and independent source.”
Insurers are liable if an insured peril is the proximate cause of the loss. If an insured peril is only
the remote cause of the loss, the proximate cause being an uninsured or excepted peril, the
insurers are not liable.
The proximate cause is not necessarily that which is proximate in time, but that which is
proximate in efficiency. It is the dominant, effective and operative cause of the loss.
In case of concurrent causes, following rules apply: -
a) If one of the causes contributing to the loss is an insured peril, and no excepted peril is
involved, the loss is cov
b) If one of the causes is an excepted peril, the loss is not covered at all, unless the consequences
of the insured peril can be separated from those of the uninsured peril, in which event the former,
but not the latter, is cover.
SUBROGATION:
“Subrogation is the right which one person has of standing in place of another and availing
himself of all the rights and remedies of the other, whether already enforced or not.”
Subrogation is a corollary of the principle of indemnity and the right of subrogation therefore
applies only to policies, which are contracts of indemnity. Subrogation is a matter of equity, the
purpose of which is to ensure that the insured is not over-indemnified for the same loss.
(a) In Marine insurance, where an insurer pays for a total loss:
1i) he is entitled to take over the interest of the assured in whatever may remain of the
subject-matter so paid for (abandonment);
 1.ii) and he is subrogated to all the rights and remedies of the assured as from the time of the
loss (subrogation)
(b) Where an insurer pays for a partial loss, he acquires no title to the subject-matter insured or
to such part of it as may remain, but he is subrogated to all the rights and remedies of the
assured as from the time of the loss, and in so far as the assured has been indemnified.
In marine insurance subrogation applies only after payment of a loss. The insurer is entitled to
recover only up to the amount, which he has paid, in respect of rights and remedies.
On payment of a total loss, the insurer is entitled to assume rights of ownership of the subject-
matter insured. The right is conferred upon him by abandonment (not by rights of subrogation)
and the effect is that if the property is subsequently salvaged or recovered the insurer is entitled
to retain the whole of the proceeds of sale even though they may exceed the sum paid out under
the policy, always assuming the property is fully insured and that the assured was not bearing
part of the risk himself.
In addition to this right of exercising ownership of the property, the insurer is subrogated to “all
rights and remedies of the assured” as from the time of casualty causing the loss. This simply
means that if the loss has been caused by the negligence of a third party, against whom the
assured has the right of action in tort – say, against a carrier or bailee – then the Insurer is
entitled to succeed to any recovery (whereby the loss is reduced) the assured may affect from
such third party. This principle applies equally to total and partial losses and has nothing
whatever to do with the doctrine of abandonment.
Double Insurance:
Double insurance refers to a situation where an individual or entity insures the same risk with
multiple insurance companies, resulting in overlapping coverage. This can occur when the
insured party either intentionally or unintentionally purchases separate insurance policies from
different insurers, covering the same property, event, or liability. The primary characteristic of
double insurance is the duplication of coverage, which often leads to complex issues during the
claims settlement process.
Key Characteristics of Double Insurance:
Multiple Policies: Double insurance involves the existence of two or more insurance policies
obtained independently from different insurers.
Overlapping Coverage: Each insurance policy provides coverage for the same risk or property,
resulting in a duplication of protection.
Proportional Claims Settlement: In the event of a claim, the insured can claim compensation
from each insurer in proportion to the coverage provided by their respective policies.
Coordination Challenges: Coordinating claims settlements and avoiding potential disputes
between insurers can be complicated due to the duplication of coverage.
Reinsurance:
Reinsurance, on the other hand, is a contractual arrangement between an insurance company (the
cedent) and a reinsurer. It involves the transfer of a portion of the insurance company’s risk to
the reinsurer, allowing the insurer to mitigate its exposure and protect its financial stability.
Reinsurance operates at the insurer’s level and serves as a mechanism to spread risk and ensure
that the insurer can handle large and catastrophic losses.
Key Characteristics of Reinsurance:
Risk Transfer: Reinsurance involves the transfer of a portion of the insurer’s risk to a reinsurer in
exchange for a premium.
Insurer’s Protection: Reinsurance provides the insurer with protection against catastrophic or
excessively large losses that could jeopardize its financial position.
Financial Stability: By transferring risk, the insurer can maintain financial stability, ensuring its
ability to pay claims and continue its operations.
Reinsurer’s Expertise: Reinsurers typically specialize in assuming risk and have extensive
expertise in managing and evaluating complex risks.
Distinguishing Factors:
Nature of Parties Involved: Double insurance involves multiple insurers and a single insured
party, whereas reinsurance involves a primary insurer (cedent) and a secondary insurer
(reinsurer).
Risk Allocation: In double insurance, the insured carries the risk of coordination and potential
disputes between insurers. In reinsurance, the insurer transfers a portion of its risk to the
reinsurer, who assumes responsibility for those risks.
Purpose: Double insurance is typically accidental or arises from the insured’s desire for
additional coverage. Reinsurance is a deliberate risk management strategy employed by insurers
to protect their financial stability.
Coverage Area: Double insurance typically pertains to individual policies, whereas reinsurance
operates at the level of an insurance company or insurer.
MARINE LOSSES
Marine losses can be divided into two main parts containing several subparts;
A. Total loss;
 Actual total loss
 Contractive total loss
B. Partial loss;
 Particular average losses
 General average losses
 Particular charges
 Salvage charges
These classifications are described in detail below;
Total loss
There is an actual total loss where the subject-matter insured is destroyed or so damaged as to
cease to be a thing of the kind insured or where the assured is irretrievably deprived thereof.
Losses are deemed to be total or complete when the subject- matter is fully destroyed or lost or
ceases to be a thing of its kind. It should be distinguished from a partial loss, where only part of
the property insured is lost or destroyed.In case of a total loss, the insured stands to lose to the
extent of the value of the property provided the policy amount was to that limit.
Actual total loss
The actual total loss is a material and physical loss of the subject matter insured. Where the
subject-matter insured is destroyed or so damaged as to cease to be a thing of the kind insured or
where the insured is irretrievably deprived thereof, there is an actual total loss.
When a vessel is foundered or when merchandise is so damaged as to be valueless or when the
ship is missing, it will be an actual total loss. The actual total loss occurs in the following cases:
The subject matter is destroyed, e.g., a ship is entirely destroyed by fire.
The subject matter is so damaged as to cease to be a thing of the kind insured. Here, the subject-
matter is not totally destroyed but damaged to such an extent as the result of the mishap; it is no
longer of the same species as originally insured. Examples of such losses are—foodstuff badly
damaged by seawater became unfit for human consumption, and hides became valueless as hides
due to the admission of water. These damaged foodstuffs or hides may be used as manure. Since
the characters of the subject matter are changed and have lost their shapes, they are all actual
total loss.
The insured is irretrievably deprived of the ownership of goods even if they are in physical
existence as in the case of capture by the enemy, stealth by a thief, or fraudulent disposal by the
captain or crew. The subject matter is lost. For example, where a ship is missing for a very long
time, and no news of her is received after the lapse of a reasonable time. An actual total loss is
presumed unless there is some other proof to show against it. In case of an actual total loss, a
notice of abandonment of property need not be given. In such total losses, the insurer is entitled
to all rights and remedies in respect of damaged properties. In no case the amount over the
insured value or insurable value is recoverable in a total loss from the insurers.
If the property is underinsured, the insured can recover only up to the amount of insurance. If it
is overinsured, he is not over-benefited, but only the actual loss will be indemnified. Where the
subject matter had ceased to be of the kind insured, the assured will be given the full amount of
total loss provided there was insurance up to that amount, and the insurer will subrogate all rights
and remedies in respect of the property. Any amount realized by the sale of the material will go
to the insurer.
Constructive total loss
The subject matter is not lost in the above manner but is reasonably abandoned when its actual
total joss is unavoidable or when it cannot be preserved from total loss without involving
expenditure that would exceed the value of the subject matter.
For example, the cost of repair and replacement was estimated to be $50,000, whereas the
ship was estimated to be $40,000, the ship may be abandoned and will be taken as a constructive
total loss. But if the value of the ship were more than $50,000, it would not be a constructive
total loss. Here it is assumed that retention of the subject matter would involve financial loss to
the insured. The constructive total loss will be where; The subject-matter insured is reasonably
abandoned on account of its actual total loss appearing to be unavoidable; The subject matter
could not be preserved from actual total loss without an expenditure that would exceed its
repaired and recovered value. The insured is not compelled to abandon his interest; the insurer
will have to pay the full insured value where the goods are abandoned. Where awe is a
constructive total loss, the assured may either treat the loss as a partial loss or abandon the
subject-matter insured to the insurer and treat the loss as if it was an actual total loss.
Salvage loss
Where actual total loss occurred, and the subject matter is so damaged as to cease to be a thing of
the kind insured or when they have been sold before reaching the destination, there is a
constructive total loss. The usual form of settlement is that the net sale proceeds will be paid to
the assured. The net sale proceeds are calculated by deducting the expenses of the sale from the
amount realized by the sale. The insured will recover from the insurer the total loss less the net
amount of sale. This amount received from the insurer is called a ‘salvage loss.’
Partial loss
Any loss other than a total loss is a partial loss. Partial loss is there when only part of the
property insured is lost or destroyed, or damaged. Partial losses, in contradiction to total losses,
include; Particular average losses, i.e., damage or total loss of a part, General average losses
(general average) le., the sacrifice expenditure, etc., done for the common safety of subject-
matter insured,Particular or special charges, i.e., expenses incurred in special circumstances, and
Salvage charges.
Particular average loss
The particular average loss is a partial loss of the subject-matter insured caused by a peril insured
and is not a general average loss. The general average loss or expense is voluntarily made for the
standard safety of all the parties insured. But, the particular average loss is fortuitous or
accidental, and it cannot be partially shifted to others but will be borne by the persons directly
affected. The particular average loss must fulfill the following conditions:
The particular average loss is a partial loss or damage to any particular interest caused to
(hat interest only by a peril insured against. The loss should be accidental and not intentional.
The loss should be of the particular subject matter only. It should be the loss of a part of the
subject matter or damage to that or both. The distinguishing feature in this matter is that the
properties insured are all of the same description, kind, and quality. They are valued as a whole
in the policy; the total loss of a part of this whole is a particular loss, but where the properties
insured are not all of the same description, kind, and quality. They are separately valued in the
policy, the loss of an apportionable part of the interest is a total loss.In case of total loss of a part
of recoverable either as a total loss or as a particular average loss, the basis of the settlement will
be on the total loss of the whole lot or the insurer will be liable to pay in proportion according to
the insured or insurable value of the whole interest.
General average loss
General average is a loss caused by or directly consequential on a general average act that
includes a general average expenditure and general average sacrifices. The general average loss
will be there where the loss is caused by an extraordinary sacrifice or expenditure voluntarily and
reasonably made or incurred in time of peril to preserve the property imperiled in the common
adventure.
The following elements are involved in the general average.
 The loss must be extraordinary, and the sacrifice or expenditure must not be related to the
performance of routine work.A state of affairs may compel the master to do something beyond
his ordinary duty to preserve the subject matter. The whole adventure must be imperiled. The
peril should be something more than the ordinary perils of the sea. It should be imminent and
real.
The general; the average act must be voluntary, and intentional, accidental loss or damage is
excluded. The toss, expenses, or sacrifice must be incurred or made reasonably and prudently.
The master of the ship is the proper person to decide the reasonableness of a particular
circumstance.The sacrifice, loss, or expenditure should be made for the preservation of the whole
adventure, and it should be made for the common safety. If the sacrifice proved abortive, it
would be allowed as the total loss. Therefore, to call it the general average, it must be successful,
at least in part.In the absence of a contrary provision, the insurer is not liable for any general
average loss or contribution where the loss was not incurred to avoid or in connection with the
avoidance of a peril insured against.The loss must be a direct result of an average general act.
Indirect losses such as demurrage and market losses are not allowed as a general average. The
general average must not be due to some default on the person whose interest has been
sacrificed.
 UNIT IV
Miscellaneous Insurance – Motor insurance – Employer's liability insurance – Personal
accident and sickness insurance – Aviation insurance – Burglary insurance – Fidelity
guarantee insurance – Engineering insurance – cattle insurance – Crop insurance.

Miscellaneous Insurance
Burglary & Housebreaking Insurance is a simple, convenient and hassle-free way to defend
yourself and your property from loss by burglary housebreaking i.e. theft following actual,
forcible & violent entry or exit from the insured premises. It protects the contents of offices,
warehouses, shops, etc. & cash in the safe or strong roo m, stock in trade, goods held in trust or
commission. The policy also covers damage caused to the premises or furniture, fixtures, fittings
during the act of burglary.
Introduction
Employer's liability insurance is the insurance that employees of the insured, who engage
in the work that relates to the business of the insured and is specified clearly in the insurance
policy, and suffer from accident or the nation specified occupational disease that relates to work,
resulting in injury, disability or death, then the insurer will compensate within the specified
compensation quota for the medical expenses and economic compensation liability (including
lawsuit fee) which shall be assumed by the insured according to the Labor Law and labor
contract.
Functions
1. Loss compensation
When the death or disability are caused by the following situations, the economic compensation
liability that shall have been assumed by the insured will be assumed by the insurer according to
the agreement of insurance contract:
(1) The accident happens during the working time and in the workplace, and is caused by
working reasons.
(2) The accident happens before or after working hours and in the workplace, when employee
engages in the job-related preparation or ending work.
(3) The accident that happens during the working time and in the workplace, when employee
suffers from violence due to performing duties.
(4) The employees' disease is diagnosed and identified as occupational disease.
(5) During work-out period, suffering from injury as a result of work or missing due to accident.
(6) On the way to or from work, suffering from traffic accidents injury.
(7) During working hours and in the work place, death caused by sudden illness or after the
rescue invalidly within 48 hours.
(8) Other situations as agreed in the insurance contract.
Features
1. Contractual obligation guarantee: On the basis of the employment contract between employer
and employee.
2. Insurance liability is unitary: Only insure the personal injury of employees when they engage
in the work of their profession, and be not responsible for any property loss.
Target Customers
It is applicable for all kinds of construction and installation projects in the process of "going out"
and during their operation period after completion to all kinds of enterprises, such as
construction enterprises, real estate industry, production and processing enterprises, the electrical
power, gas and water production and supply industry.
Process
1. Insuring process
2. Claim settlement process

MOTOR VEHICLE INSURANCE

Meaning and Definition

Motor Vehicle Insurance had its begins received great importance ranies. In the older dar
a major compensation Insurance its beginning in the United Kingdom cently and accounts longs
to the miscellaneous class of insurance. It has income of insurance companieid not get any who
were injured or killed through the negligence of the motorists could not get any from the
motorists, because they did not have the financial resources in order he financial hardships
caused to people, the Motor Vehicles Act 1939 introduced the Compulsory

Motor Vehicle Insurance. The chicle Insurance Act 1938 was amended in 1988. As per
the provision of this Act, it was made compulsory for the motorists to insure against the risk of
liability to third parties. In other words, compulsurancer motor vehicles against risk is not made
compulsory, but the insurance of third party liability arising out of the use of motor vehicles in
public places is made compulsory.

The rate of premium under Motor Vehicle Insurance is standardized because the business
is about tariff. No insurer can charge lower rates than the tariff rates and no insurer can grant
benefits exceeding those prescribed by the tariff.

Classification of Motor Vehicles

 For purpose of insurance, Motor Vehicles are classified into three broad categories:

a. Private Cars (not used for commercial purposes)

b. Motor Cycles and Motor Scooters
c. Commercial Vehicles
Commercial Vehicles can be further classified into

a. Goods Carrying Vehicles

b. Passengers Carrying Vehicles (motorized riskshaws, taxis, buses)
c. Miscellaneous Vehicles (hearses, ambulances, cinema film recording and publicity vans,
mobile dispensaries, garbage dumping trucks, fire tenders)
Classification of Motor Vehicles

 Private Cars
 Commercial Vehicles Motor Scooters and Motor Cycles
 Goods Carrying Vehicles
 Passenger Carrying Vehicles
 Miscellaneous Vehicles
Kinds of Policies

To cover the losses arising due to motor vehicles, the following policies are issued under Motor
Vehicles Insurance:

1. Act Liability: This policy is designed to meet the requirements of Motor Vehicles
Act 1988, which provides for compulsory insurance with regard to liabilities
arising out of the use of motor vehicles in a public place. This policy is also called
Form “A” policy. This policy applies uniformly to all classes of vehicles, whether
private cars, commercial vehicles, motor cycles or motor scooters.
2. Third Party Policy: This policy undertakes the liabilities of the third parties who
suffered loss in connection with the damage of property and personal injury or
death. Thus, the policy indemnifies the insured’s liability for damage to property
of third parties and is limited to 6,000. But at the same time, liability for death or
bodily injury to third party is unlimited.
This policy may be extended to include:

a. Fire
b. Theft risks
c. Legal liability to persons employed in connection with the operation and/or maintenance
and/or loading or unloading of motor vehicles.
 The Private Car Policy extends to indemnify the insured (individual only) against legal
liabilities incurred by him, subject to limitations of indemnity, while personally driving a private
motor car. The private car policy covers legal liability of the insured to passengers (not for hire
or reward) in the car. Liabilities arising while the motor car was used in private places is
covered. It covers bodily injury or death, property damage and medical expenses.

Procedure for Motor Vehicle Insurance

1. Proposal Forms: In Motor Insurance Contract, the Proposal Form is used as a rule. It
constitutes the means of communicating the offer to the insurers or for making proposal
for a motor insurance. It is also customary to indicate on the form a brief statement of the
cover which is provided by the appropriate policy, or the terms and conditions which
relate to motor insurance like:
A. Identification of Vehicles (registration number, horse power, shape, size, etc.)
b. Risk identification

C.Declaration, etc.

2. Rating of Insurance: After selecting an appropriate policy, the proposal form elicits all
information necessary to determine the amount of premium and underwriting. Some
examples of rating are given below:
A. Private Cars
Rates are determined on the basis of the cubic capacity (power of the engine)
as given by the manufacturer, insured estimated value and the zone of operation.

Goods Carrying Vehicles

The rate or amount of premium is determined on the basis of Gross Vehicle Weight i.e.,
the total weight of the vehicle and load certified by the registering authority.

a. Tariff Rules: Some important tariff rules prescribed by the Tariff are as follows: Agreed value
policies are not allowed except for vintage cars.

b. Policies have to be issued in the name of the registered owner only. A. The prescribed cover
note should be used when full details are not available. The cover

d. Note incorporates certificate of insurance.

e. The Tariff prescribes the procedure for issue of a duplicate certificate when the original is
lost, torn, defaced, etc.
f. The Tariff provides concessions. For example, return of premium, restricted cover, etc.,
when the vehicle is laid up in a garage and not in use for a period of two consecutive
years or more.
Policy Form: As soon as the proposal form is accepted, the cover note is issued. Policy 4. Polic
forms, like proposal forms, vary within wide limits as between different classes of insurance, but
they have certain features in common. The policy is not a contract in itself, but an evidence of
the contract. As soon as the policy is issued, the cover note is cancelled.

Term of Insurance: The Motor Insurance Policy is issued generally for one year. However, the
policy can be issued for less than one year but the premium rate will be higher. For example, the
premium rate is three fourths of annual premium of the policy if issued for six months.

Extra Benefits: During the period of the policy, after payment of extra premium, additional
benefits can be added to the original policy. Thus, additional risks can be included to the original
policy.

1. Change of Vehicle: The insured vehicles can be disposed of along with the policy.
The term of policy will remain the same. The policy will continue up to the
unexpired period with the purchaser of the car. Similarly, the insured can replace
another car under the same policy.
Settlement of Claims under Motor Vehicle Insurance

Settlements of insurance claims under Motor Vehicle Insurance usually occur in the following
ways:

1. Claims for Own Damage: On receipt of notice of loss, the policy records are checked to
see that the policy is in force and that it covers the vehicle involved. The loss is entered in
the claims register and a claim form is issued to the insured for completion and return.
The insured is also requested to submit a detailed estimate of repair charges.
Assessment or Survey Report

Independent Automobile Surveyors are assigned the task of assessing the cause and extent of
loss. They inspect the damaged vehicle and submit their survey report along with the copy of the
policy, Claim form and estimate of cost of repairs.

Claim Documents

Apart from claim form and survey report, the other documents required for processing the claim
are:

a. Driving Licence
b. Registration Certificate Book
c. Fitness Certificate
d. Permit
e. Police Report
f. Financial bill from repairs
 g. Satisfaction note from the insured
h. Receipted bill from the repairer, if paid by the insured
Settlement of Claim

On the basis of the survey report and claim documents, the insurance company determines
the extent of its liability and the loss is indemnified. The usual practice in the case of damage of
motor vehicle is that the insurance company may get the vehicle repaired instead of making cash
payment to the insured.

2. Claims for Theft or Total Loss Claims: Total Losses can also arise due to the theft of the
vehicles and its remaining untraced by the police authorities till the end. These losses will
have to be supported by a copy of the First Information Report lodged with the police
authorities immediately ediately after the theft has been detected. If the police authorities
do not succeed in recovering the vehicle for theft claims, the insurer is requested to
submit the certificates of SIDE NO. or CR NO., certification of true and undetected, R.
C. Books and Taxation certification of vehicle, etc., along with documents related to
vehicles and insurers. On the basis of investigation or inspection of valid documents, the
insurance company determines whether the total loss or theft is to be indemnified.
3. Claims for Third Party: Section 165 of the Motor Vehicles Act 1988 empowers the State
Government to set up Motor Accident Claims Tribunals for adjusting third party claims.
On the receipt of notice of the claim from the insured or the third party or from the Motor
Accident Claims Tribunals, the matter is entrusted to an advocate. The insured is requested to
submit full information relating to the accident along with the following documents:

A. Driving Licence
b. Police Report

d. Details of driver’s prosecution

e. Death Certificate
f. Coroner’s Report
g. Medical Certificate
h. Details of age, income, number of dependents, etc.
On the basis of the written statements, the matter is then filed with the Motor Accident Claims
Tribunals by the Advocate. MACT determines the amount of claims to the third party. Pending
cases with the MACT where the liability under the policy is not in doubt are placed before the
Lok Adalat or Lok Nyayalaya, for a voluntary and amicable settlement between the parties.
PERSONAL ACCIDENT INSURANCE

Definition

Lord Macnaughten defines an accident as an unlooked mishap or an untoward event which is not
expected or designed. In the term accident some violence, casualty or major injury is necessarily
involved. Accident insurance consists of three branches:

1. Personal Accident Insurance, including insurance against sickness.

2. Property Insurance including Burglary, Fidelity, Insolvency, etc.
3. Liability Insurance including Motor Insurance and Workmen’s Compensation Insurance.
A contract of personal accident insurance is a contract whereby a sum of money is secured to
the assured or his legal representative in the event of his disablement or death by accident. It is
acontract against injury or death resulting from accident. Personal Accident Insurance akin to life
assurance is not a contract of indemnity. The insurer usually undertakes to pay specified sums in
the event of temporary or permanent disability, whether partial or total. Other sums are agreed to
be payable in the event of death or loss of limb, etc.

For example, the insurer may agree to pay 10,000 for the loss of both eyes and ₹ 5,000 for
the loss of one eye or ₹ 50,000 for permanent disablement and ₹ 1,000 for temporary disability
plus 10 per week during the period of disability and so on.

Rating

The rate of premium charged depends mainly on the type of cover desired and the insured
person’s occupation. This is non-tariff business. The same rate of premium is charged by various
insurers for the same risks. The risks associated with occupation vary according to the nature of
work performed. It is difficult to fix the rate of premium for each profession or occupation.
Hence, occupation is classified into groups, each group reflecting, more or less, similar risk
exposure.

Classification of Occupation

Risk Group 1: Accountants, doctors, lawyers, architects, consulting engineers, teachers, bankers,
persons engaged in administrative functions, persons primarily engaged in occupation of similar
hazards.

Risk Group II: Builders, contractors and engineers engaged in superintending functions only,
veterinary doctors, paid drivers of motor cars and light motor vehicles. All persons engaged in
manual labour (except those falling under Risk Group III), cash carrying employees, garage and
motor mechanics, machine operators, sportsmen, etc.
Risk Group III: Persons working in underground mines, those exposed to explosives and
magazines, workers involved in electrical installations with high tension supply, jockeys, circus
personnel, etc.

Proposal Form

Under Personal Accident Insurance, the Proposal Form consists of the following information:

1. Personal details, i.e. height and weight, full description of occupation and average
monthly salary
2. Physical conditions
3. Habits
4. Other or previous insurance
5. Previous accidents
6. Selection of benefits and sum assured
7. Declaration
Claims

For the settlement of insurance claims under Personal Accident Insurance, the following
procedure is required to be adopted:

1. On the receipt of notice of damage or loss against personal accident, the insured is
requested to Submit the Claim Form along with Medical Certificate, Medical Examiner’s
Report, Receipt/ Discharge Form, Death Certificate, Prescription, Bills and Receipts, etc.
2. On the receipt of the Claim Form, the Insurance Company investigates the relevant
facts and necessary documents in addition to the Claim Form. 3. After the process of
investigation, the Claim Form enclosed with necessary documents is sent to the claim
department for approval of claim to the insured person.
4. On the basis of investigation and inspection, the Insurance Company determines the
extent of its liability and the loss is indemnified.

CROP INSURANCE
The Indian Crop Insurance has been managed by General Insurance Corporation
(GIC), delivered through rural financial institutions, usually tied to crop loans, and
subsidized by the Central and State Governments. The Government has now established a
separate Agriculture Insurance Company with capital participation of GIC, the four
public sector general insurance companies, and NABARD NABARD. Insurance policies
so far have provided Crop Yield Insurance.

Crop Insurance Scheme

This insurance scheme is also known as Rashtriya Krishi Bima Yojana. It came into
existence in India from 22nd June, 1999. The primary objective of the insurance is:
 1. To provide a measure of financial support to farmers in the event of crop failure due
to drought, flood, etc.
2. To restore credit eligibility of farmers after a crop failure, for the next crop season
3. To support and stimulate production of pulses and oil seeds
Salient Features of Crop Insurance
1. Crops to be Covered:
a. Rice, wheat and millets
b. Oil seeds and pulses
c. Cotton, sugarcane and potato
2. Farmers to be Covered:
a. Dwelling hut/house and contents
b. Cattle (indigenous)
c. Agricultural pumpset
d. Bullock cart
e. Gramin Personal Accident (Insured and Spouse)
3. Risk Covered Against:
a. Natural fire and lighting
b. Storm, cyclone
c. Flood and landslide
d. Drought, dry spells
4. Extentions of Schemes: The scheme extends to all States and Union Territories.
5. Sharing of Risk: The coverage in respect of crops insured in any State, the loss or
damage will be shared between General Insurance Corporation of India and the State
Government. The sharing of risk between GIC and State Government will be in the
ratio of 2:1.
6. Area Approach: The scheme will operate in defined areas for each crop as may be
notified by the Union Ministry of Agriculture. A defined area may be a District,
Taluka, Block or other smaller identified areas.
7. Sum Insured: The sum insured, per insured farmer, shall be 100% of the loan
sanctioned to him for growing the crop in the defined area during the insured season,
with effect from the year 1999. The sum insured is restricted to 10,000 for each
farmer for all crops put together in the revised scheme.

8. Threshold Yield of Crop for ‘Defined Area’: The sum assured is fixed with reference
to the Threshold Yield (TY) for a crop, based on past three years average yield in
case of rice and wheat, and five years in case of other crops, for a defined area. This
is multiplied by the level of indemnity viz. 90%, 80% and 60%, corresponding to low
risk, medium link and high risk.
Basis of Indemnity
 If there is a shortfall in the actual average yield per hectare of the insured crop, each of
the insured farmers growing that crop in the defined area will be eligible for indemnity in
the following manner:

Shortfall in Yield* Sum Insured

Central Crop Insurance Fund

To meet catastrophic losses, a Corpus Fund is created with contribution from the Central
Government and State/Union Territory on 50:50 basis.

The Main Objectives of Central Fund

1. To receive crop insurance premium from the financial institutions and issue policy

2. To settle claims promptly

3. To notify crop-wise areas and premium rates well in advance of the season

4. To maintain communications with financial institutions regarding notified crops, areas,

premium rates, etc.

5. Strenghten crop estimation survey machinery in order to furnish accurate yield estimates

6. To keep the excess of crop insurance charged over indemnity claim in good crop years so as to
enable GIC to draw from the fund to meet additional indemnity claims in bad crop years.

State Crop Insurance Fund

The State Government sets up State Crop Insurance Fund. The initial fund of rupees one
to two crores is to be equally contributed by the State Government concerned and the
Central Government. The size of the State Crop Insurance Fund for each State would be
decided in consultation with the State Government, Ministry of Finance and Ministry of
Agriculture of the Central Government.

Advantages of Crop Insurance

Some of the main advantages are outlined here:

1. Crop insurance helps to maintain the stability in the income of the farmers.

2. Crop insurance schemes facilitie the farmers to use modern techniques and
implements, leading to development of the agricultural sector.
 3. Crop insurance provides security to the farmers and they are able to pay their debt in
time.

4. Crop insurance helps to reduce the number of farmers in indebtedness

5. Crop insurance helps in strengthening the financial position of the lending institutions.

6. Crop insurance helps to reduce the Government's responsibility.

7. Crop insurance measures prove to be a great boon to the farmers in cases when natural
calamities destroy their standing crops.

8. Crop insurance is also beneficial to fight the financial difficulties during the periods of
falling crop prices.

Engineering Insurance
Factory, plant and machinery operations are laden with multiple risks that can prove to be
detrimental to a business’s revenue stream. These risks may include breakdown of machinery,
physical loss or damage to equipment, accidents on site etc. Mitigating these risks and protecting
your business from resultant losses becomes an essential step in the smooth functioning of your
organization.
Types of Engineering Insurance
Machinery Breakdown Insurance

Machinery Breakdown policy is an engineering insurance cover for all kinds of plant
and machinery units – this policy covers the cost of repairs or replacement of damaged
parts resulting from unforeseen damages.
Under this policy, the insured unit of machinery is protected whilst at work or at rest or
when it is dismantled for cleaning, inspection and overhauling; additionally, the machinery unit
will also be covered when it is moved to to another position or during their operations or
subsequent re‐erection, provided these are performed within the same premises.
The team at Aditya Birla Insurance Brokers can help you protect your business assets
better with personal consultation and seamless claims settlements

Machinery Loss of Profit Insurance Policy

Accidents, breakdown or failure of machinery critical to an industrial or manufacturing
unit can hamper operations thereby resulting in losses. These critical units like boilers, pressure
vessels or any other essential machines can be covered under the Machinery Loss of Profit
Insurance Policy. Under this protecting solution, the business is protected from losses/decrease in
turnover arising due to unanticipated physical damage to machinery.
A Machinery Loss of Profit Insurance Policy can help your business bounce back from
loss of profit. This policy is a suitable for Small and Medium Enterprises (SMEs) and Corporates
looking to protect machinery essential to their business.
 Electronic Equipment Insurance
Most businesses today heavily rely on electronic equipment for running their daily
operations. Be it cash registers, barcoding systems, software or even printers, businesses cannot
survive without electronic equipment. This makes it very important to protect all electronic
equipment utilised by a business. The Electronic Equipment Insurance policy is a protecting
solution that provides comprehensive coverage against damage to electronic equipment used for
your organization’s operations.
It includes physical loss or damage to all electronic equipment and data media. This
policy also covers the increased in cost of operations resulting from damage to electronic
equipment.
This includes protection from damages caused by operation, electrical energy (short
circuit, excess voltage, induction), faulty operation, faulty design, defects in material etc.

Erection All Risk

Projects that involve storage of equipment, moving or expanding a facility, or
dismantling and re-constructing it can leave your business vulnerable to several significant risks.
The Erection All Risk Insurance Policy assures protection against such risks. The
comprehensive and exhaustive nature of its coverage makes it a suitable solution for businesses
with diverse needs.
This policy is a typical ‘all risk’ insurance for storage, assembly/erection, testing and
commissioning of the following types of activities. Unless specifically excluded, it provides
comprehensive cover for:
 Setting up a new project/individual machines
 Expansion of an existing project
 Dismantling and re-erection of an existing facility
 The interests of suppliers, manufacturers, contractors as well as Subcontractors can be
included in the policy.
 Cover begins from the time of unloading of the first consignment at the project site and
terminates on completion of testing or handing over of the project to the principal, or the
period chosen, whichever is earlier.
 The Erection All Risk Insurance Policy is generally recommended for businesses
involved in construction. These include –
o Contractors and Sub-contractors
o Suppliers or manufacturers of construction equipment
CONTRACTOR’S ALL RISK INSURANCE POLICY
A civil construction site is susceptible to incidents like pilferage, theft, damage, legal
claims etc. We understand that contractors are required to ensure completion of a civil
construction project within a stipulated deadline.
A Contractor’s All Risk Insurance Policy comprehensively covers risks including
physical loss or damage to property, plant, machinery and tools, works brought on to the site and
temporary works erected on-site, as well as third party liability related to work conducted on the
site.
 Coverage begins from the commencement of work or after unloading of the first
consignment at the project site, whichever is earlier, and terminates on handing over of the works
to the principal or on expiry of the policy.
Coverage can be extended to include the interest of suppliers / manufacturers, contractors
and Subcontractors.

Advance Loss of Profit Insurance Policy

Factory operations stand the risk of delays due to damaged machinery. This damage to
machinery not only hampers operations but also leads to loss of profit. The Advance Loss of
Profit Insurance is a protecting solution that is designed to cover losses occurring due to delay /
halt in operations. This protecting solution is designed for Principles and needs to be concurrent
with Material Damage Project Insurance.

Contractor’s Plant & Machinery Insurance Policy

Constructions sites heavily rely on machinery used for day-to-day operations. This
includes jobs like hauling and moving material, excavating earth and debris, round-the-clock
generation of power etc. The Contractor’s Plant and Machinery Insurance Policy is a hassle-free
protecting solution that covers your machinery, minimising repair costs.
The Contractor’s Plant and Machinery Insurance Policy is specially designed to protect
the interest of Civil Contractors.
Benefits of Engineering Insurance
 Protect your assets and revenues
Property located in high-risk areas, for instance, properties with greater proximity to
rivers and other water bodies, earthquake prone zones, dense forest areas etc. will affect
the premium rate for property insurance. Insurers also consider the distance of the
property from available emergency sources like the fire department.
 Secure your projects and profits with comprehensive coverage
Enjoy safety from small as well as larger risks. An engineering insurance policy can offer
coverage from multiple eventualities, including business interruption – this means you
can recover the money or profit you lose when operations are interrupted.
 Protect your machines
Engineering insurance is an excellent way to protect your factory’s machines from risk –
this includes any kind of damage caused during operations, assembly or dismantling.

What is an endowment policy?

An endowment plan is a traditional, savings-oriented life insurance policy that provides a
guaranteed benefit payable on death or maturity of the policy. Endowment plans help you to save
a guaranteed³ corpus for your financial goals. The insurance coverage adds protection as the plan
pays a death benefit if the insured dies during the policy tenure.
Salient features of endowment plans
Some of the salient features of endowment plans are as follows –
 These plans usually come for a tenure ranging from 5 years and going up to 30 or 35
years.
 Some plans also offer bonus addition. Such plans are called participating or with-profit
endowment plans.
 The plan’s benefit is not linked to the capital market. As such, you can earn guaranteed
benefits on death or maturity, irrespective of market volatility.

Types of endowment plans

Broadly, there are different types of endowment plans that you can find in the market. Here’s a
look at them –
Participating endowment plans
As mentioned earlier, participating endowment plans are those that earn bonuses
on the sum assured. Every year, if the insurance company makes a profit, it might
distribute a part of the earned profits among its policyholders in the form of a bonus.
Participating endowment plans participate in bonus declarations and earn additional
returns on the sum assured.
Non-participating endowment plans
Contrary to participating plans, non-participating endowment plans do not earn
bonuses.
Whole life endowment plans
Some endowment plans allow coverage up to 99 or 100 years of age. Such plans
are called whole-life endowment plans. The premium payment tenure is usually limited
to a specified tenure while you can enjoy lifelong coverage. In the case of death, an
assured death benefit is paid. On the other hand, if the policy matures, an assured
maturity benefit is paid.
Whole life endowment plans
Some endowment plans allow coverage up to 99 or 100 years of age. Such plans
are called whole-life endowment plans. The premium payment tenure is usually limited
to a specified tenure while you can enjoy lifelong coverage. In the case of death, an
assured death benefit is paid. On the other hand, if the policy matures, an assured
maturity benefit is paid.
Anticipated endowment plans
Popularly called money-back insurance plans, these policies pay a part of the sum
assured during the policy tenure in the form of money-back benefits. This makes the
planned liquid and gives you funds during the policy tenure. Moreover, the death benefit
is not affected by the money-back benefits that you have received. In the case of death
during the policy tenure, the full death benefit is paid.
Child plans
Child plans are endowment plans designed with the objective of creating a
guaranteed corpus for the child’s future financial needs. Most child plans come with a
premium waiver rider. This rider waives off the premium if the parent dies during the
 policy tenure. The plan is not affected, and it continues till maturity. The insurer
contributes the premium on the parent’s behalf. On maturity, the promised maturity
benefit is paid.
Child plans, thus, ensure that parents can create a guaranteed³ corpus for their child,
which remains unaffected even if they die prematurely.

Single premium endowment plans

These are endowment plans that require only a single premium paid at the onset
of the policy. Thereafter, you don’t have to pay any premium during the policy tenure,
and you can enjoy coverage throughout.

Benefits of endowment plans

Endowment plans can be a good addition to your portfolio because of the following benefits –
Guaranteed benefits
Endowment plans appeal to risk-averse individuals who want to create a secured
corpus for their goals. Since the death or maturity benefit is not related to the
performance of the financial markets, you don’t have to worry about a market crash or
fall affecting your returns. Your corpus will remain secured against market volatility and
help you create an assured fund for your needs.
Attractive returns

The bonus additions will generate attractive returns if you choose participating
endowment plans. Even non-participating plans allow you to earn returns through wealth
boosters, loyalty additions, guaranteed³ additions, etc., that help enhance the benefit
payable on death or maturity.

Insurance and savings in one

Besides creating a corpus for your financial goals, endowment plans also offer
insurance coverage. Thus, in the case of an unfortunate demise of the life insured, the
endowment policy would pay a guaranteed³ death benefit to the family. This benefit will
help the family deal with the financial loss that they might suffer.
Tax benefits
Lastly, endowment plans also prove to be a tax-efficient saving avenue. The total amount
of premiums you pay for the policy, up to 10% of the total sum assured, is allowed as an
income tax deduction U/S 80C of the Income Tax Act, 1961. Any death benefit received,
including bonus and other additions, is always tax-free. Also, provided the premium is up
to 10% of the total sum assured, the complete maturity benefit you receive, including
bonus and other additions, will also be tax-free under Section 10(10D)¹.
Thus, with endowment plans, you can save taxes when you invest and also create a tax-
free corpus.
Understand what endowment plans are, how they work, and their types and benefits. Assess the
plans available in the market and choose one that matches your investment needs and
requirements. Align the plan with your goals and start saving towards a guaranteed³ corpus and
also enjoy life insurance protection.

FIDELITY GUARANTEE INSURANCE

Meaning

In this insurance, the insurer undertakes to indemnify the assured (employer) in consideration of
certain payments, upto certain specified amount insured against for loss arising through fraud, or
embezzlement on the part of the employees. This kind of insurance is also known as fidelity
guarantee insurance and is untried employees frequently adopted as a precautionary measure in
cases where new and are given positions of trust.

Scope

The following are the important scope of Fidelity Guarantee Insurance:

a. The insurance covers any loss caused by forgery, embezzlement, larceny or

fraudulent conversion of money or stock in trade-whether belonging to the
insured or held in trust by him-committed by the employed person in connection
with his employment as specified in the policy, during the period of the policy
and the uninterrupted continuance of the employment in the service of the
insured.
b. The indemnity provided will be for the amount of money lost or for the value of
the stock in trade comprising such loss to the limit of the respective sum insured
applicable against the name of the employee (in case of an individual or collective
policy) or to the limit of the aggregate amount of guarantee (in case of a Floating
policy).
1. Discovery Period:

The loss shall be discovered:

a. Within 6 months after the death, dismissal or retirement of the employee or

b. Within 6 months of the policy expiring, whichever first occurred.

Once the discovery period has expired, no claim can arise even if a fraund is Ister discovered.
This is equitable, as the insured's system of check should be most serious defalcations should
come to light within a reasonable time. such that even the

4. It is to be noted that the policy covers certain specified acts of dishonesty committed by the
employee and does not cover fraud or dishonesty in a general sense, which would include breach
of confidence or want of financial integrity resulting in loss to the employer. Unexplained losses
or shortages discovered at stock taking are not covered as any further loss in respect of the
employee concerned once the debsult is discovered.

5. Floating policies are normally issued for a group of employees of the same status and class,
duties and responsibilities. Therefore, check whether the same floated amount are applied to
different classes of employees whose status and remuneration are vastly different. For example,
an office boy or clerk cannot be given the same amount of guarantee along with a senior
executive.

Classification

Broadly, Fidelity Guarantee Imurance business can be divided into the following sections:

1. Commercial Fidelity Guarantees

2. Court Bonds, and

3. Government Bonds

A Commercial Fidelity Guarantee involves three parties:

The Insurer

b. The insured, who is usually an employer

c. The employee or other person whose honesty is guaranteed

The contract is between the insurer also known as the 'Surety' and the insured who is also known
as the 'guaranteed. The employee whose honesty is guaranteed is also known as the 'debtor who,
although obviously involved, is not a party to the contract.

A contract of guarantee differs from a contract of indemnity in the sense that the insurer acts as
surety (with secondary liability) to make good the financial loss of the employer caused by the
employee, the debtor. The employer however is subject to declare all facts pertaining to his
employee for which the heurer is going to accept the liability as this information same would
enable the insurer to decide acceptance of risk.
The policy should be restricted to cover only full time employees who are remunerated by
salaries or wages and over whom the employer has control, and is actively in their employment.
There must exist an employer employee relationship

Proposals should be considered from firms of repute and whose business methods are entirely
satisfactory. The system of supervision and check and the maintenance of an efficient system of
wcounting are of fundamental importance in the consideration of this class of business.

Types of Policies

1. Individual Policy: This type of the of policy is used where only one individual Name of
the employee, occupation/duties and the sum insured must be clearly stated.
c. Collective Policy: This policy embraces all employees falling within certain
categories, of alternatively, the whole mafi, and has become very common.
d. Floating Policy or Floater: This is an extension of the collective form of contract
in which the names and deer of his to be covered are inserted in a schedule, but
instead of individual ameuses of guarantee, a specified sum of guarantee is
'floated' over the whole group. Under the floating policy and claim. In respect of
one employee will reduce the guarantee by the amount thereof until renewal,
unless such amount if reinstated, proposals for floating policy should be
discouraged. When acceptance has to be considered for business reasons, the
proposal should first be referred to the regional office for approval before
acceptance.
e. Positions Policy: This is similar to a Collective Policy with the difference that
instead of using names, the position is guaranteed a specified amount, so that a
change in the person bolding the position des are for. This policy covers persons
holding a particular position (for example, persom holding the position of cashier
with an organization) of the entire staff of a firm. It Is to be noted that the liability
of the insurers in respect of each position remains limited to the amount
guaranteed for the position, irrespective of the number of persons acting in thai
position
f. Blanket Policy: This policy covers the entire staff without showing names or
positions. No enquiry about the employees are made by the insurers. Such policies
are only suitable for an employer with a large staff as the organization has to
make adequate enquiries into the antecedents of his employees.
Procedure for Applying

1. Proposal Form (Employer’s Form): Several different types of proposal forms are in use
for the various classes of fidelity guarantee. For commercial guarantees, the employer has
 to complete an employer’s statement. This statement forms the basis of the contract
between the employer and the insurer.
2. Application Form: The applicant (the person to be guaranteed) has to fill in an application
form which requires, in addition to his name, age and address, the name, address and
business activities of the employer, the position to be covered by the guarantee, the salary
or other remuneration to be received, details of past guarantees and also details of the
applicant’s status (single or married) and dependents, If any.
3. Private Referee’s Form: At one time, great significance was attached to private
reference’s forms. This is a form which may be sent to persons whose names and
addresses have been supplied by the applicant.
4. Previous Employer’s Form: A reference for the application from all the employers for the
previous five years is an important underwriting tool to the insurers. This form is only for
the proof of the applicant’s integrity and honesty.
5. Collective Proposal: For collective floating and blanket policies, individual applicant’s
forms are dispensed with. The employer has to set out in a statement all such particulars
relating to the employees to be covered, as required for individual ppolicies.
Rating

The rate of premium depends upon the type of occupation, status of the employce, the system of
check and supervision. Under individual and collective policies, the rate is a percent of the
amoun of guarantee, e.g., 1%. The premium for a floating policy comprises of a percentage
charge and -a per capita charge. The percentage charge is applied on the amount guaranteed and
the per capita charge on the number of employees to be guaranteed.

Claims

For the sentement of insurance claims under Fidelity Insurance, the following procedure is
required to be adopted the investigation of fidelity guarantee claims is entrusted to independent
surveyors like Chartered Accountants. The surveyor would conduct a detailed investigation into
circumstances of the loss which would involve mainly the examination of the books of accounts
of the employer. The policy provides that the amount payable by the insurer in respect of the
defaulting employer shall not exceed the amount of indemnity stated in the schedule of the
policy in respect of such an employee. Any money, but for fraud or dishonesty of an employee,
would become payable is him and shall be deducted from the amount of the loss before a claim is
made under the policy.

PROPERTY INSURANCE

Meaning

Property insurance includes fidelity, burglary and insolvency. Property insurance covers all loss
of property by burglary, theft or house breaking or by any other act which is a criminal offence
Burglary Insurance

Burglary insurance is a major business in the miscellaneous class of insurance. The policy is
available to commercial establishments, factories, godowns, shops, etc. Property in any form
Including cash, in the business premises can be covered

Types of Policies

The main type of policies are as follows:

1. Business Premises Insurance Policy: Business Premises Insurance Policy is designed to meet
the cover against risks of burglary and house breaking only. Mere theft without the use of force
and violent entry into the premises is not covered. This policy is issued to 'commercial
establishments as a cover against risks relating to damage to insured property or premises by
burglars or house to breakers.

2. Private Dwelling insurance Policy: This policy is specially suitable for covering theft risk also
in addition to burglary and house breaking risks. The sum assured under this policy must
represent the full value. One policy may be issued for furniture, household goods and personal
effects and another for jewelry and valuables.

3. Jewelry and Valuable Insurance Policy: Insurance of property under this policy is made for
jewelry, plates, watches, personal ornaments and other valuables. This policy covers loss or
damage by any cause including fire and theft to the insured property. But the policy does not
cover loss or damage caused by the consequence of war, act of foreign enemy, etc.

4. All Risk Policy: This policy is intended to cover risks in respect of jewelry, valuables, works
of art, paintings and other similar articles. All Risks Policy is suitable for covering any damage
or loss by fire, burglary or theft or by any other accident or fortuitous circumstances. The
insurable value in these cases is decided on agreed value basis.

Insurance of Money in Transit

This is a modified version of Burglary Insurance covering money or securities in transit between
the insured's premises and bank, post office or other specified place or between the insured's
premises and branch premises. The cover is granted only to commercial and industrial
establishments.
 Unit V
Procedure for becoming an agent – pre-requisite for obtaining a license –
duration of license – cancellation of license – Termination of agency – code of
Conduct – Functions of the Agent.
An insurance advisor is one who represents insurance providers to offer advice to
clients about the various policies they can choose from. Not only does an insurance
advisor suggest policies suited to clients’ needs, but they also solve any queries
customers might have about the policies as well as educating them regarding the ins
and outs of every policy. As per the Insurance and Regulatory Authority of India, there
are three types of insurance advisors.
Types Of Insurance Consultants
1. Internal insurance sales agent: This insurance consultant is a full-time
employee of an insurance company. She works for a specific company only
and therefore offers consultation and advisory services on the company’s
policies only.
2. Captive insurance agent: A captive insurance agent refers to one who
works to sell just one of the products of an insurance company.
3. Independent broker/Point of Sales: A point-of-sales person is an
insurance agent that is IRDAI approved who has the benefit of offering a
bouquet of policies from a variety of insurance companies to their customer.
A license code affiliated with the IRDAI is given to every PSOP so they have
the freedom to work with multiple companies and sell multiple insurance
policies to clients at one time.
How To Become An Insurance Advisor

Those interested in becoming insurance agents should firstly register online via the
IRDAI’s portal. One also has the option to reach out directly to insurance companies so
they can register online through their websites. If looking for a wide range of products
and companies, one can easily approach an insurance aggregator. By visiting the
insurer’s website, one will get access to a form where they will have to enter a few
details to apply after which the company will get back to them.

The IRDAI’s website currently offers online training for PSOP and insurance advisory
agents. The course material is available in a variety of languages like Hindi, English,
Marathi, Gujarati, Bengali, Tamil, Malayalam, Punjabi, and Telugu. The website will also
have a slew of useful links to the insurance institute of India portal, corporate agents,
FAQs about being an insurance consultant, and more.

For most people, becoming an insurance agent or a PSOP can be both a stress-free and
lucrative job. This kind of work allows one to operate from home without being tied to a
9–5 desk job. For those who are retired and mothers who stay at home, as well as those
looking to supplement their income, working as an insurance consultant can be very
beneficial.
Eligibility Criteria To Become An Insurance Consultant

Some basic eligibility criteria need to be fulfilled by the client so that they can become
an insurance agent.

1. Education: The applicant needs to be past the tenth standard.

2. Age: The applicant should be over the age of 18 years.
3. IRDAI Certification: The applicant should be certified by the Insurance
Regulatory and Development Authority of India (IRDAI).
4. State License: Each Indian state has a license for the insurance business. One
simply needs to qualify for the state-level exam in order to get a license as per
the state’s regulation policies.
Procedure To Become An Insurance Consultant

The following procedure needs to be mapped out if one wishes to become an

insurance consultant.

1. Registration: First, log on to the insurer’s website. Seek out the

insurance agent application, and submit your basic details as required.

2. Training: Next, you will be required to complete the basic training that
has been mandated by the IRDAI, which can be online or offline. This
training typically takes 15 hours and can easily be completed within
two to three days. After completion, the applicant will be provided with
a certificate.

3. Exam for License: Once the training is complete, the applicant must sit
through a pre-licensing exam in order to qualify for this training. The
format of this exam is one that is objective. One is required to score a
minimum of 17 out of 50 marks in order to qualify as an insurance
agent.

4. Receiving the License: Once the exam is passed, the candidate is now
qualified to work as an insurance consultant. The IRDAI will award the
candidate with the license to practice as a certified insurance agent.

Qualities of an successful agent

People Skills
People skills are the number one characteristic of a successful insurance agent. They must be able to
communicate with others easily without using technical terms or insurance jargon that could mislead
clients. Agents must have the ability to listen and empathize with clients to understand what they
need and want. On top of all these skills, good agents must put the needs of the client first. Doing so
will allow the agent to put together a successful insurance program for their clients. An agent who
only wants to earn a commission without considering their clients needs will not last long in the
insurance industry.
Good Salesmanship
Insurance agents are salespeople by nature. Along with strong people skills, agents need to have
strong sales skills to acquire, nurture and maintain their clients. Agents can hone their skills by
attending a variety of seminars and participating in professional training programs.
Customer Service Skills
Strong customer service skills are essential for an insurance agent to succeed. Timely responses to
inquiries, emails and phone calls are a must. Customers want their insurance agents to help them
resolve issues quickly and easily. Having a strong work ethic works hand-in-hand with having good
customer service skills. Being proactive both when developing new client relationships and
maintaining current client relationships is key to a successful career as an insurance agent.
High Energy Level
To be a good insurance agent, it is important to be motivated, excited, upbeat and engaging with your
customers. Showing a passion for what you do will reflect in your relationships with your clients.
Honesty
As the old adage goes, “Honesty is the best policy.” This is never more true for insurance agents. A
good agent will win more respect and gain more trust from their clients by telling the truth up front.
Deceptive agents do not stay in the insurance industry very long.
Knowledge on a Variety of Products
A successful insurance agent will be able to offer a comprehensive solution that can meet their
customers’ demands. They understand the products and services they are selling and can describe
them in an easily understandable manner.
Technical Knowledge
Insurance agents must know more than just how to sell an insurance policy. They must understand
their clients’ financial situations, plus be aware of tax and other legal aspects that would apply to the
policies they are selling and how that can impact their clients’ finances.
Persistence
No one likes rejection, but how well you handle it will help you become a better insurance agent.
Persistence is vital to building a strong book of business. Good insurance agents understand that
someone saying “no” could ultimately lead them closer to another person who will say “yes.”
Love of Learning
Great insurance agents are always learning. They are eager to learn new products, understand more
about their industry and add to their skill base on an ongoing basis. Building connections to other
agents or leaders in their field can further enhance your knowledge and provide helpful suggestions
and opportunities to learn valuable lessons about your industry.
Choose the Right Carrier
Working with the right carrier is key to an insurance agent’s road to success. An established insurance
company will allow the agent to sell a variety of products, earn commissions and provide options for
personal and career growth.

In order to sell insurance products, one must first obtain an insurance company license from the
insurance commissioner of that particular state. The introduction of the Insurance Regulatory
Development Authority of India (IRDAI) has brought about significant changes to the insurance sector
overall. Moreover, it is the IRDAI that grants the permit for different classes of insurance businesses,
including life insurance, fire insurance, and marine insurance. If the selling of insurance business is on an
interstate basis, a license is required in every state where the business is carried out.

The registration of insurance company and issuance of insurance company license is regulated under the
Insurance Regulatory and Development Authority of India (Registration of Indian Insurance Companies)
(Seventh Amendment) Regulation, 2016.

As per a 2020 report, 57 insurance companies exist in India out of which 24 are in the business of life
insurance, whereas the remaining 33 are in the business of insurance other than life insurance.

Eligibility C riteria for Insurance Company

License
Any company among the prescribed class of companies

 Any company that is recognised by the IRDAI.

 Any LLP registered under the LLP Act, 2008.
 Any company that was an insurance provider before the commencement of the Act, provided
only a maximum of 26% of the paid-up capital is allowed to be held by a foreign company.
  In terms of the incorporation of LLPs, the registered name should contain the words “insurance
marketing firm”.

Procedure to Obtain Insurance

Company License
 In order to initiate the procedure, the person who wishes to set up an insurance business has to
first make an application using Form IRDA/R1 accompanied by the necessary documents,
including:
 The certificate of incorporation of the company (Companies Act 2013).
 Certified copies of the charter documents (Memorandum of Association and Articles of
Association).
 A five-year business plan that has been duly approved by the Board of Directors.
 Details of all the directors, including their names, addresses and occupation-related details duly
verified.
 Certified copy of the document containing the shareholding agreement between Indian
promoters and foreign investors.
 Certified copy of the Annual Report of the Indian promoters and foreign investors for the
preceding five years.
 The form IRDA/R1 is submitted for the issuance of the registration application.
 If all goes according to plan and if the reviewing authority (IRDAI) finds the initial submission of
Form IRDA/R1 satisfactory, the candidate may further apply for the issuance of the registration
certificate in Form IRDA/R2.
 If this application is made for the business of Life Insurance, General Insurance, or Health
Insurance, there must be documentary evidence proving that the paid-up capital of the business
is at least Rs.100 crore.
 If the application is made for the business of Reinsurance, there must be documentary evidence
proving that the paid-up capital of the business is at least Rs.200 crore.
 The form will have to be submitted along with the following documents:
 The affidavit provided by the Indian promoters and foreign investors stating that the paid-up
capital available is adequate even after the exclusion of the preliminary expenses.
 Certified copies of the prospectus.
 Documentary evidence showing proof of payment of a non-refundable fee of Rs. 5 lakh.
 Document certifying the compliance of FDI Rules, ensuring that the ceiling on capital held by
foreign investments stands at 26% and is being adhered to.
 Practising Chartered Accountant or Company Secretary certification as required.

The reviewing authority shall grant the certificate of registration to the insurance company in Form
IRDA/R3 if it is satisfied with all aspects of the application. However, if it is not satisfied with the
application, it shall reject the same, and make known the rejection within 30 days of the order or
rejection along with the reasons for the same. Within 30 days of the order of rejection being received by
the applicant, he/she may prefer an appeal to the Securities Appellate Tribunal regarding the rejection.
Where the applicant has been granted the certificate of registration, he/she is obligated to commence
the business within 12 months of receiving the registration certificate. If the applicant fails to do so, the
registration shall stand lapsed. However, if the reason for non-commencement is genuine, the
authorities may grant an extension of 12 months to the applicant to do the same.

Non-eligibility of the applicant to file IRDA/R1

An applicant will stand ineligible to file IRDA/R1 if:
 The application for the request of registration has been rejected by IRDAI.
 The name of the applicant does not contain the words ‘insurance’ or ‘assurance’.
 For any reason, foreign investors or Indian promoters have exited the project.
 A time period of two years has not elapsed since the latest rejection of the application by the
authorities.