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1. CLASSIFICATION OF INSURANCE:
There are two broad categories of insurance:

1. Life Insurance
2. General insurance

Life Insurance – The insurance policy whereby the policyholder (insured)

can ensure financial freedom for their family members after death. It
offers financial compensation in case of death or disability.

While purchasing the life insurance policy, the insured either pay the
lump-sum amount or makes periodic payments known as premiums to the
insurer. In exchange, of which the insurer promises to pay an assured sum
to the family if insured in the event of death or disability or at maturity.

Depending on the coverage, life insurance can be classified into the

below-mentioned types:

 Term Insurance: Gives life coverage for a specific time period.

 Whole life insurance: Offer life cover for the whole life of an individual
 Endowment policy: a portion of premiums go toward the death benefit,
while the remaining is invested by the insurer.
 Money back Policy: a certain percentage of the sum assured is paid to the
insured in intervals throughout the term as survival benefit.
 Pension Plans: Also called retirement plans are a fusion of insurance and
investment. A portion from the premiums is directed towards retirement
corpus, which is paid as a lump-sum or monthly payment after the retirement
of the insured.
 Child Plans: Provides financial aid for children of the policyholders
throughout their lives.
 ULIPS – Unit Linked Insurance Plans: same as endowment plans, a part of
premiums go toward the death benefit while the remaining goes toward
mutual fund investments.

General Insurance – Everything apart from life can be insured under

general insurance. It offers financial compensation on any loss other than
death. General insurance covers the loss or damages caused to all the
assets and liabilities. The insurance company promises to pay the assured
sum to cover the loss related to the vehicle, medical treatments, fire,
theft, or even financial problems during travel.
General Insurance can cover almost anything, and everything but the five
key types of insurances available under it are –

 Health Insurance: Covers the cost of medical care.

 Fire Insurance: give coverage for the damages caused to goods or property
due to fire.
 Travel Insurance: compensates the financial liabilities arising out of non-
medical or medical emergencies during travel within the country or abroad
 Motor Insurance: offers financial protection to motor vehicles from damages
due to accidents, fire, theft, or natural calamities.
 Home Insurance: compensates the damage caused to home due to man-made
disasters, natural calamities, or other threats

2.Principles of Insurance:
Principle of Utmost Good Faith

The fundamental principle is that both the parties in an insurance contract

should act in good faith towards each other, i.e. they must provide clear
and concise information related to the terms and conditions of the
contract. The Insured should provide all the information related to the
subject matter, and the insurer must give precise details regarding the
contract.

Example – Jacob took a health insurance policy. At the time of taking

insurance, he was a smoker and failed to disclose this fact. Later, he got
cancer. In such a situation, the Insurance company will not be liable to
bear the financial burden as Jacob concealed important facts.

Principle of Proximate Cause

This is also called the principle of ‘Causa Proxima’ or the nearest cause.
This principle applies when the loss is the result of two or more causes.
The insurance company will find the nearest cause of loss to the property.
If the proximate cause is the one in which the property is insured, then
the company must pay compensation. If it is not a cause the property is
insured against, then no payment will be made by the insured.

Example – Due to fire, a wall of a building was damaged, and the

municipal authority ordered it to be demolished. While demolition the
adjoining building was damaged. The owner of the adjoining building
claimed the loss under the fire policy. The court held that fire is the
nearest cause of loss to the adjoining building, and the claim is payable as
the falling of the wall is an inevitable result of the fire.

In the same example, the wall of the building damaged due to fire, fell
down due to storm before it could be repaired and damaged an adjoining
building. The owner of the adjoining building claimed the loss under the
fire policy. In this case, the fire was a remote cause, and the storm was
the proximate cause; hence the claim is not payable under the fire policy.

Principle of Insurable interest: This principle says that the individual

(insured) must have an insurable interest in the subject matter. Insurable
interest means that the subject matter for which the individual enters the
insurance contract must provide some financial gain to the insured and
also lead to a financial loss if there is any damage, destruction or loss.

Example – the owner of a vegetable cart has an insurable interest in the

cart because he is earning money from it. However, if he sells the cart, he
will no longer have an insurable interest in it. To claim the amount of
insurance, the insured must be the owner of the subject matter both at
the time of entering the contract and at the time of the accident.

Principle of Indemnity

This principle says that insurance is done only for the coverage of the loss;
hence insured should not make any profit from the insurance contract. In
other words, the insured should be compensated the amount equal to the
actual loss and not the amount exceeding the loss. The purpose of the
indemnity principle is to set back the insured at the same financial
position as he was before the loss occurred. Principle of indemnity is
observed strictly for property insurance and not applicable for the life
insurance contract.

Example – The owner of a commercial building enters an insurance

contract to recover the costs for any loss or damage in future. If the
building sustains structural damages from fire, then the insurer will
indemnify the owner for the costs to repair the building by way of
reimbursing the owner for the exact amount spent on repair or by
reconstructing the damaged areas using its own authorized contractors.

Principle of Subrogation
Subrogation means one party stands in for another. As per this principle,
after the insured, i.e. the individual has been compensated for the
incurred loss to him on the subject matter that was insured, the rights of
the ownership of that property goes to the insurer, i.e. the company.

Subrogation gives the right to the insurance company to claim the amount
of loss from the third-party responsible for the same.

Example – If Mr A gets injured in a road accident, due to reckless driving

of a third party, the company with which Mr A took the accidental
insurance will compensate the loss occurred to Mr A and will also sue the
third party to recover the money paid as claim.

Principle of Contribution

Contribution principle applies when the insured takes more than one
insurance policy for the same subject matter. It states the same thing as
in the principle of indemnity, i.e. the insured cannot make a profit by
claiming the loss of one subject matter from different policies or
companies.

Example – A property worth Rs. 5 Lakhs is insured with Company A for

Rs. 3 lakhs and with company B for Rs.1 lakhs. The owner in case of
damage to the property for 3 lakhs can claim the full amount from
Company A but then he cannot claim any amount from Company B. Now,
Company A can claim the proportional amount reimbursed value from
Company B.

3.INSURABLE INTEREST:

Lucena v. Craufurd (1806)- insured a number of enemy ships when

they were still on high seas (mere expectancy doesn’t create insurable
interest).

Bartolo Wood Turners Limited v. Middle Sea Insurance plc (2007);

the court outlined that an insurable interest exists when the insured “may
be said to benefit by the continued existence of the property or life
insured and will suffer a loss by reason of its damage or destruction.” [2]

Bertu Camilleri et v. Harold Bartoli et noe (2003); the court outlined

that for insurable interest to exist “it is not absolute ownership which is
required but the existence of a relationship between the person insured
and the thing which could be adversely affected by the happening of the
risk insured against.”

In Macaura v. Northern Assurance Company (1925), one Macaura

insured the timber on his land against fire. He sold timber to a business in
which he held the sole substantial shares. After the majority of the timber
was destroyed by fire, he requested that he be compensated. The insurer was
able to avoid complying with the requirement. The insured had no statutory
interest in the firm’s assets, despite the fact that he would suffer loss if the
firm lost its property, nor did he have any contractual interest under the
policy because he couldn’t show interest at the time of the loss. Despite the
fact that the insured had no statutory interest in the property, the policy was
found to be not a wagering contract since, as the only shareholder, he had an
interest or, to put it another way, an insurable interest in it.

4.UTMOST GOOD FAITH:

David Curmi ne v. Martin Mifsud (1992) [11] ; insured had failed to
disclose material facts. This case shows that it is the duty of the insured to
disclose all material facts.

Rozanes v. Bowen (1928); shows that the underwriter knows nothing

about the risk and thus the duty of the proposer is to disclose all material
facts.

Duty to tell the truth and not hide anything that is relevant.

Antonio Zammit v. Joseph Micallef ne (1952); [12] the information

declared by the insured in the proposal form didn’t matchup with the
facts. The court emphasized that a false declaration invalidates the
contract.

Margherita Bonnici v. Capital Insurance Services Ltd noe

(1998) [13] ; the insured cancelled a holiday due to health problems and
was claiming for loss of deposits under travel insurance. The insurer
refused to meet the claim as the insured concealed a material fact; the
health condition.

Kettlewell v. Refuge Assurance (1908); shows misrepresentation on

the part of insurers is also possible.

5.PROXIMATE CAUSE:
Emanuel Micallef v. Theresa Falzon (1973)- [27] the defendant
collided with Emanuel Micallef’s car in order to avoid hitting pedestrians
who suddenly crossed the road. The court stated that the proximate cause
was the pedestrians who unexpectedly crossed the road and thus the
defendant is not liable for the damages.
Bikor Ebejer v. Joseph Attard (1973) [28] ; Ebejer in order to avoid
hitting a car which suddenly moved into his lane, drove into the lane
where the defendant was driving and unfortunately the defendant was
unable to avoid colliding into Bikor Ebejer’s car. The court stated that the
defendant didn’t have any fault and the proximate cause was the sudden
move of the first car.

Leyland Shipping v. Norwich Union Fire Insurance Society Ltd

(1918)- sometimes there is more than one cause operating and thus the
most dominant cause must be selected. In this case the Torpedo which hit
the ship was the proximate cause.

Wayne Tank and Pump Co. Ltd v. Employers’ Liability Insurance

Corporation Ltd (1974); sometimes there is a concurrent cause which
produces a loss. Defective equipment and negligence of employee alone
could not cause the loss, but both together were enough to produce a
loss.

6.PREMIUM:

 An insurance premium is the amount of money an individual or business must pay for
an insurance policy.
 Insurance premiums are paid for policies that cover healthcare, auto, home, and life
insurance.
 Failure to pay the premium on the part of the individual or the business may result in the
cancellation of the policy and a loss of coverage.
 Some premiums are paid quarterly, monthly, or semi-annually depending on the policy.
 Shopping around for insurance may help you find affordable premiums.

When you sign up for an insurance policy, your insurer will charge you a premium. This is
the amount you pay for the policy. Policyholders may choose from several options
for paying their insurance premiums. Some insurers allow the policyholder to pay the
insurance premium in installments—monthly or semi-annually—while others may require an
upfront payment in full before any coverage starts.

The price of the premium depends on a variety of factors, including:

 The type of coverage

 Your age
 The area in which you live
 Any claims filed in the past
 Moral hazard and adverse selection

7.RISK:

Definition of 'risk' in insurance is the "uncertainty of the occurrence of an event that

can cause economic losses".
Pure risk is the risk that consequently there are only two kinds: loss or break even,
for example, theft, accident or fire.
Speculative risk is the risk that consequently there are three kinds: loss, gain or
break even, for example, gambling. Particular risk is the risk that comes from
individuals and local impacts, such as plane crashes, car crash and the ship ran
aground.
While the fundamental risk is the risk that is not derived from the individual and the
impact area, such as hurricanes, earthquakes and floods.

The term of risks in insurance says that how the insurers evaluate their risks in
issuing insurance policies to the policyholders on the loss that may occur due to
loss, theft, or damage to the property or even someone is injured. This concept
also says the types of those risks are involved in the issuance of insurance. It
also helps the insurers to evaluate the risk and calculate the claims that can be
paid in the future at any point in time if the damage or loss occurs.

Examples of insurance risks include the risk of fire, earthquake losses, or

even liability when an insured is found responsible for causing bodily injury,
death, or property damage to 3rd parties.

8.OMBUDSMAN:
An Ombudsman is an officer appointed by the Government of India. At the
moment, there are 17 Insurance Ombudsman working in different parts of the
world. Any person having a grievance against an insurance company may,
himself or by his legal heir, nominee, or assignee, write an official complaint to
the Insurance Ombudsman.

However, you can approach the Ombudsman with complaint if:

 The first step you took was to contact your insurance company with the
complaint.
 It has been rejected by the insurance company or
 It has not been resolved to your satisfaction or
 For the last 30 days, the insurer has not replied to the compliant at all
 This complaint relates to an individual policy that you have taken and the
claim amount including expenses claimed does not exceed Rs 30 lakhs.

You can complain to the Ombudsman about:

1. Claims that are not settled within the specified time period, outlined in the
IRDAI Act, 1999.
2. Life, general, or health insurers have totally or partially rejected claims.
3. Disputes about premiums paid or payable under an insurance policy
4. The document or contract containing the policy terms and conditions has
been misrepresented, any time.
5. A legal construction of insurance policies in relation to a dispute over a
claim.
6. Grievances against insurance companies, their agents, and intermediaries
related to policy servicing.
7. Issue of life insurance policies, general insurance policies, and health
insurance policies that do not conform to the proposal submitted by the
proposer.
9.DOUBLE INSURANCE:
Double Insurance or multiple insurances is the method of getting the same risk
or the same subject matter insured with more than one insurance company or
with the same insurance company but by two different policies.
No provision under the Insurance Act, 1938, or under any other law for the time
being, prohibits double insurance, rather the Act facilitates the concept of double
insurance. The statutory definition of Double Insurance is provided under Section
34 of the Marine Insurance Act, 1963. So accordingly, every person is at liberty
to take as many insurance policies on the same subject matter, as he wishes.
The concept of Double Insurance is possible in all types of insurances, may it be
a life or general.
FEATURES:
More than one Policy: A particular subject matter needs to be insured with
more than one insurer or with the same insurer but by two different policies.

Same Insured: The insured person must always be the same in double
insurances, if the same person is not entitled to the benefits of all the policies it
cannot be termed as Double Insurance.

Same Subject: All the policies need to be related to the same risk or the same
subject matter; if it is not the same then it cannot be called double insurance.

Same Interest: The interest needs to be the same in all the concerned
insurance policies.

Same Duration: at last the duration for which the insurance policy running
must be the same.

10.REINSURANCE:

 Reinsurance, or insurance for insurers, transfers risk to another company to reduce

the likelihood of large payouts for a claim.
 Reinsurance allows insurers to remain solvent by recovering all or part of a payout.
 Companies that seek reinsurance are called ceding companies.
 Types of reinsurance include facultative, proportional, and non-proportional.
 Reinsurance occurs when multiple insurance companies share risk by purchasing
insurance policies from other insurers to limit their own total loss in case of disaster.
 By spreading risk, an insurance company takes on clients whose coverage would be
too great of a burden for the single insurance company to handle alone.
 Premiums paid by the insured are typically shared by all of the insurance companies
involved.

11.IRDAI:
Insurance Regulatory and Development Authority of India (IRDAI) is an apex
regulatory body involved in regulating and developing the insurance and
reinsurance industry in India. It was constituted as a statutory body as per the
provisions of Insurance Regulatory and Development Authority Act 1999. The
body was created on the recommendations of the Malhotra Committee Report.
All the companies wanting to run the insurance business in India are to be
registered with the IRDAI.

Organisational Set-up:

The authority is a ten member body consisting of

A chairman, Five whole time members, Four part time members

All the members to the Insurance Regulatory and Development Authority of India
are appointed by the Government of India.

The IRDAI is headquartered in Hyderabad in Telangana. Prior to 2001, it was

headquartered in New Delhi.

IRDA Functions
The functions of the IRDA are listed below:

 IRDAI is responsible for the registration, renewal, modification, withdrawal,

suspension or cancellation of such registration for applicants wanting to start
an insurance business in India.
 Protection of the interests of the policyholders.
 Control and regulation of the rates, advantages, terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee.
 Regulating and maintaining a margin of solvency.
 Specifying qualifications, the code of conduct and training for intermediaries
and agents
 Specifying the code of conduct for surveyors and loss assessors
 Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
 Supervising the functioning of the Tariff Advisory Committee
 Calling for information from, undertaking an inspection of, conducting
inquiries and investigations including audit of the insurers, intermediaries,
insurance intermediaries and other organizations connected with the
insurance business
 Promotion of competition so as to enhance customer satisfaction through
increased consumer choice and lower premiums

12.SETTLEMENT CLAIM:
The general procedure for the settlement of an insurance claim with an
insurance company is as follows:
 1. File a claim with your insurance company as soon as the loss occurs or
within the permissible time prescribed in the insurance policy.
2. The insurance company, after receiving your claim, may appoint a
surveyor to do an investigation and determine the loss or damage that
occurred to the insured property and the reason for the loss. the
surveyor shall be appointed within 72 hours of receipt of the
information.
3. An insured must provide complete information to the surveyor; non-
cooperation may lead to a delay in the evaluation of a claim
4. After evaluating the claim, the surveyor has to submit a survey report
to the insurer.
5. Upon receiving the survey report, if the insurance company accepts the
claim, then the insurance company has to make an offer of settlement
of the claim within 30 days of the receipt of the survey report to the
insured, and if the insurance company rejects the claim, then they
should inform the insured within 30 days of the receipt of the survey
report.
6. If the insured accepts the offer of settlement, then the insurer shall
reimburse the accepted amount within 7 days of receipt of the
acceptance of the offer.

13.KINDS OF LIFE INSURANCE POLICY:

This is the most common kind of insurance taken by individuals as well as the
businesses for its employees to provide financial protection to the family
members of the policy taker after the death of that person. If the person who
is taking life insurance is the only person earning for the whole family, then
Life Insurance is the best option. Kinds of Life Insurance policies:
Term Life Insurance Policy

Term Life Insurance is the easiest to understand and to buy with an

affordable price and it’s the simplest kind of life insurance policy. This term
life insurance policy provides insurance for sick terms for example- insurance
after the death of the policy taken. Insurance amount can be taken by the
family members of the policy taker on what is death monthly basis or a
complete lump sum amount depending on their own need.

Endowment Life Insurance Policy

It is also known as a term saving option at a much lower risk. This insurance
plan helps the policy taker by three ways:

1. Insurance amount after the death.

2. Half the insured amount is invested by the insurance company
which gets matured after a certain period.
 3. And periodical bonuses that the policy taker gets company.
Whole Life Insurance Policy

Whole life insurance policy covers the lifetime of the whole life whether limit
of up to 100 years. It is different from other kinds of life insurance policy. It is
there limited to a specific term which is not up to 100 years. This policy the
person insured for the whole life and even leaves that for their heirs.

Money-Back Life Insurance Policy

This is this kind of insurance an amount of from time to time after a certain
period of time arts giving back the amount of money a short on a periodical
basis for the survival benefits to the insured person.

Child Life Insurance Policy

This policy is usually taken by the policy taker for his child who covers the
future plan of the child such as financial assistance in education and
marriage. The benefit of this plan in India can only be taken after the child
gets an 18 year old.

Retirement Insurance Policy

This policy helps the insured person to get the amount of insurance after the
age of 60 years the age of retirement in India. A certain amount of money is
paid from time to time and after the retirement period, a certain amount of
assured money is paid annually on a monthly basis which helps the person to
survive when he has no financial security.

14. CLASSIFICATION OF MARINE INSURANCE:

 Hull & machinery insurance – Hull is the most noticeable part of any
ship. It is the watertight body of a ship or a boat that protects the cargo
inside the ship from being damaged. Hull and Machinery Insurance,
therefore, covers the loss or the damage caused to the body of the ship
or any machinery or equipment in it, used for the functioning of the
ship. It mostly covers accidents caused due to collisions, or the
damages caused by earthquakes and explosions. This type of insurance
is generally taken by the owners of the ship.

 Marine cargo insurance – Marine cargo insurance is a type of

property insurance that covers the cargo owners against any loss or
damage caused to their cargo during its transit. It has extensive
coverage, but also has certain limitations, for instance, the cargo
owners lose their claims if the packaging of the cargo was defective. It
also comes with a third-party liability, which covers the damages
caused to the port, or a ship, or a railway track due to the presence of
defective cargo.
  Liability insurance – Liability insurance covers the financial liability of
the person who is insured. It covers primarily the liabilities which arise
due to the damages or injuries caused to the third party, for instance,
the death or personal injury caused to any third party traveling in the
ship.
 Freight insurance – Freight insurance covers the liability of the
shipping company or the logistics provider for the damage or loss
caused to the shipment during transit due to events outside the control
of the company
 Voyage policy – A voyage policy works on the same lines as the marine
cargo insurance. Under this policy, the insurance company agrees to cover
the losses or damages caused to the cargo during a specific voyage. It
expires when the vessel reaches its destination, irrespective of the time it
takes to reach there. Usually, it is bought by small exporters who ship
their goods by sea only on some occasions.

15. TOTAL AND PARTIAL LOSS:

Total loss
In cases of marine insurances, the total loss has been categorised into two
divisions, namely, actual total loss, and constructive total loss.

Actual Total Loss

As per section 57 of the MIA, an actual total loss could occur in three
situations-

1. Destruction of the insured object.

2. When extensive damage is caused to the insured object which
changes its very inherent nature and quality.
3. Irretrievable deprivation of the insured object to the assured.
While the first two cases make the ascertainment of a loss as actual or
constructive relatively easier, it is the third scenario where determination
becomes difficult or a little dubious to fathom. In the case of George Cohen
Sons and Co v/s Standard Marine Insurance Co Ltd, an insured ship had been
taken to the port but it somehow went shore. The British Court observed that
the assured had not been irretrievably deprived of the ship. The process of
retrieval, the Court opined, would be difficult and also expensive to a large
extent but would not be impossible. Therefore, the Court held the
aforementioned loss to not be in the nature of an actual total loss. Further, in
the case of Loyal Marines v/s National Insurance Co Ltd, it was found that the
insured ship had got submerged in the sand up to its deck and it was
therefore not possible to retrieve it for the use of the assured. The Court
declared the said loss to be an actual total loss and asked the insurers to
indemnify the assured for the same.
Apart from the foretasted three scenarios, a missing ship that is insured, of
which nothing has been heard about even after the passage of a significant
time period, would also be deemed to have been actually totally lost and the
assured would be eligible for claiming indemnity.

Constructive total loss

The term constructive stands for something which is not explicit but derived
from conjecture. Applying the said definition to understand a constructive
total loss, it can be said that when an actual total loss defined under Sections
57 and 58 have not explicitly taken place but the loss caused is such that the
insured object is as useless as it would have had been in case of an actual
total loss.

Section 60(1) of the MIA, giving out a general definition of a constructive total
loss, states that in case an actual total loss of the insured object becomes
inevitable, or that prevention from the same demands the incurring of an
expense higher than the value of the insured object, it is said that a
constructive total loss has taken place. In the case of Marstrand Fishing Co
Ltd V/s Bear, it was stated that the inevitability or unavoidability of the actual
total loss must be determined on the basis of the facts and not on the basis
of what the assured believed to be true. If what the assured believed to be
true but was not true in fact, it is out of the question to consider such loss as
a constructive total loss.

Further, Section 60 states the following to further explain what particular

instances could lead to a constructive total loss-

1. Where the assured loses the possession of the insured object owing
to a peril of the sea they were insured against and recovery of
possession is either a) not possible, or b) can be made possible but
only by incurring such cost that would go beyond the value of the
object.
2. The damage caused to the insured object, owing to a peril of the sea
the assured was insured against, is so severe that it could only be
repaired by incurring such cost that would exceed the value of the
object.

Effect of a constructive total loss

In case the loss in the nature of the aforementioned takes place, the assured
could either abandon the object or continue possessing it. In the case of the
former, the loss is to be treated as an actual total loss, whereas if the assured
does the latter, they are said to be treating the loss as a partial loss.
Abandonment is thus a necessary prerequisite for a loss to be deemed as an
actual total loss. The concept of abandonment has been discussed in greater
detail in the subsequent chapter.
Defining the said term, Lord Atkin in the case of Moore & Gallop v Evans,
(1918) AC 185, remarked that it is a form of amalgamation of a total loss and
a partial loss. It lies somewhere in between of the both with its determination
dependent upon the doctrine of abandonment (discussed in the subsequent
chapter).

However, the application and exhaustibility of a constructive total loss as

defined under Section 60 depend upon the terms and conditions as stipulated
in the marine insurance policy on a case to case basis. The Supreme Court of
India, in the case of Peacock Plywood (P) Ltd v/s Oriental Insurance Co
Ltd, ruled that if any provision of a marine insurance policy does not
correspond to what is mentioned in Section 60 of the MIA, the former will
prevail over the latter.

Difference between an actual total

loss and constructive total loss
In simple words, the difference between the two aforementioned types of
total losses is that while the former is a factual total loss, the latter is but a
legal fiction, created to give those losses that are akin to an actual total loss
equitable protection. Thus constructive total loss is a total loss in law and
spirit.

Partial loss
Section 56 of the MIA defines partial loss as any loss other than a total loss.
While the exact definition of Partial loss cannot be found in the MIA, Sections
64-66 deal with various components of a partial loss, namely, average
general loss, particular average loss, and salvage charges.