ASSIGNMET 2025

INSURANCE

Name- Shalini Chauhan

Enrolment No. - 22FLUCBBB01015

Batch Name & Year- LLB (2022-25) 3rd Year

Project Title- INSURANCE

Date- 14/04/2025

Submitted By- Shalini Chauhan

Submitted To- Mr. ASHISH SINGHAL
INTRODUCTION TO INSURANCE

Insurance is a form of risk management in which the insured transfers the cost of potential
loss to another entity in exchange for monetary compensation known as the premium.
Insurance allows individuals, businesses and other entities to protect themselves against
significant potential losses and financial hardship at a reasonably affordable rate. We say
"significant" because if the potential loss is small, then it doesn't make sense to pay a premium
to protect against the loss. After all, you would not pay a monthly premium to protect
against a loss because this would not be considered a financial hardship for most. Insurance is
appropriate when you want to protect against a significant monetary loss. Take life insurance
as an example. If you are the primary breadwinner in your home, the loss of income that your
family would experience as a result of our premature death is considered a significant loss and
hardship that you should protect them against. It would be very difficult for your family to
replace your income, so the monthly premiums ensure that if you die, your income will be
replaced by the insured amount. The same principle applies to many other forms of insurance.
If the potential loss will have a detrimental effect on the person or entity, insurance makes sense.
Everyone that wants to protect themselves or someone else against financial hardship should
consider insurance. This may include:

 Protecting family after one's death from loss of income

 Ensuring debt repayment after death
 Covering contingent liabilities
 Protecting against the death of a key employee or person in your business
 Buying out a partner or co-shareholder after his or her death
 Protecting your business from business interruption and loss of income
 Protecting yourself against unforeseeable health expenses
 Protecting your home against theft, fire, flood and other hazards
 Protecting yourself against lawsuits
 Protecting yourself in the event of disability
 Protecting your car against theft or losses incurred because of accidents
 And many more

Insurance- Meaning and definition

Insurance is a contract between two parties. One party is the insured and the other
party is the insurer. Insured is the person whose life or property is insured with the insurer.
That is, the person whose risks are insured is called insured. Insurer is the insurance
company to whom risk is transferred by the insured. That is, the person who insures the risk
of insured is called insurer. Thus insurance is a contract between insurer and insured. It is
a contract in which the insurance company undertakes to indemnify the insured on the
happening of certain event for a payment of consideration. It is a contract between
the insurer and insured under which the insurer undertakes to compensate the insured for
the loss arising from the risk insured against. Some definitions of insurance are given below:

According to Gosh and Agarwal, “insurance may be defined as a co-operative form

of distributing a certain risk over a group of persons who are exposed to it’
 According to Mc Gill, “Insurance is a process in which uncertainties are made certain”.
In the words of Jon Megi, “Insurance is a plan wherein persons collectively share
the losses of risks”.
Thus, insurance is a device by which a loss likely to be caused by uncertain event
is spread over a large number of persons who are exposed to it and who voluntarily join
themselves against such an event. The document which contains all the terms and conditions
of insurance (i.e. the written contract) is called the ‘insurance policy’. The amount for which
the insurance policy is taken is called ‘sum assured’. The consideration in return for which the
insurer agrees to make good the loss is known as ‘insurance premium’. This premium is to be
paid regularly by the insured. It may be paid monthly, quarterly, half yearly or yearly.
History of Insurance in India

In India, insurance has a deep-rooted history. Insurance in various forms has been
mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kantilla
(Arthashastra). The fundamental basis of the historical reference to insurance in these ancient
Indian texts is the same i.e. pooling of resources that could be re-distributed in times of calamities
such as fire, floods, epidemics and famine. The early references to Insurance in these texts have
reference to marine trade loans and carriers' contracts.

Insurance in its current form has its history dating back until 1818, when Oriental Life
Insurance Company [3] was started by Anita Bhavas in Kolkata to cater to the needs of European
community. The pre-independence era in India saw discrimination between the lives of
foreigners (English) and Indians with higher premiums being charged for the latter. In 1870,
Bombay Mutual Life Assurance Society became the first Indian insurer.

At the dawn of the twentieth century, many insurance companies were founded. In the
year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate
the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the
premium-rate tables and periodical valuations of companies should be certified by an actuary.
However, the disparity still existed as discrimination between Indian and foreign companies. The
oldest existing insurance company in India is the National Insurance Company, which was
founded in 1906, and is still in business.

The Government of India issued an Ordinance on 19 January 1956 nationalizing the Life
Insurance sector and Life Insurance Corporation came into existence in the same year. The
Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75
provident societies—245 Indian and foreign insurers in all. In 1972 with the General
Insurance Business (Nationalization) Act was passed by the Indian Parliament, and consequently,
General Insurance business was nationalized with effect from 1 January 1973. 107 insurers were
amalgamated and grouped into four companies, namely National Insurance Company Ltd., the
New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India
Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a
company in 1971 and it commence business on 1 January 1973.

The LIC had monopoly till the late 90s when the Insurance sector was reopened to the
private sector. Before that, the industry consisted of only two state insurers: Life Insurers
(Life Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation
of India, GIC). GIC had four subsidiary companies. With effect from December
2000, these subsidiaries have been de-linked from the parent company and were set up as
independent insurance companies: Oriental Insurance Company Limited, New India
Assurance Company Limited, National Insurance Company Limited and United India Insurance
Company Limited.

Insurance in India refers to the market for insurance in India which covers both the public
and private sector organizations. It is listed in the Constitution of India in the Seventh Schedule
as a Union List subject, meaning it can only be legislated by the Central government. The
insurance sector has gone through a number of phases by allowing private companies to solicit
insurance and also allowing foreign direct investment. India allowed private companies in
insurance sector in 2000, setting a limit on FDI to 26%, which was increased to 49% in 2014. [1]
However, the largest life-insurance company in India, Life Insurance Corporation of India is still
owned by the government and carries a sovereign guarantee for all insurance policies issued by
it.

Terms used in Insurance

Insured
The party or the individual who seeks protection against a specified task and entitled
to receive payment from the insurer in the event of happening of stated event is known as
insured. An insured is normally in insurance policy holder.
Insurer
The party who promises to pay indemnity the insured on the
happening of contingency is known as insurer. The insurer is an insurance company.

Beneficiaries
The person or the party to whom the policy proceeds will be paid in the event of the
death or happening of any contingency is called beneficiary.
Contract
An agreement binding at law between two or more parties is called contract.
Premium
The amount which is paid to the insurer by the insured in consideration to insurance
contract is known as premium. It may be paid on monthly, quarterly, half yearly, yearly or
as agreed upon it is the price for an insurance policy.

Insured sum
The sum for which the risk is insured is called the insured sum, or the policy money
or the face value of the policy. This is the maximum liability of the insurer towards the insured.
Peril
A peril is an event that causes a personal or property loss by fire,
windstorm, explosion, collision premature death, sickness, floods, dishonesty etc.
Hazard
Hazard is a condition that may create, increase or decrease the chances of loss from a
given peril.
Exposure
An exposure is a measure of physical extent of the risk. An individual who owns a
business house may be subjected to economic loss and individual loss because of his
business and personal exposure.
Cover note
An unstamped document issued by or on behalf of insurers as evidence of insurance
pending issue of policy.
Damages
Monetary compensation award at law for a civil wrong or breach of contract.
Indemnity
Compensation for actual loss suffered is call indemnity.
Reinsurance
Reinsurance is a method where by the original insurer transfer all or part of risk
he has assumed to another company or companies with the object of reducing his own
commitment to a reducing his own commitment to an amount that he can bear for his own
account commensurate with his financial resources in the event of loss. It was originally
confined to offers and acceptances on individual risk known as facultative reinsurance
transactions.
Double Insurance
Double insurance implies that subject matter is insured in two or more insurance
companies (insurers) and the total sum insured exceeds the actual value of subject matter. In
other words, the same subject matter is insured in more than one insurer.
No claim bonus
The bonus is getting under the policy, if the claim is not reported during the policy
period and after that the time renewal (in time) then as per the policy term no claim bonus is
avail for the vehicle insurance policy and the rate of bonus is different in different general
insurance companies, and the maximum rate should be up to 50% as per the norms.
Characteristics of Insurance
Insurance follows important characteristics – These are follows
1. Sharing of risk
Insurance is a co-operative device to share the burden of risk, which may
fall on happening of some unforeseen events, such as the death of head of family or on
happening of marine perils or loss of by fire.
2. Co-operative device
Insurance is a co-operative form of distributing a certain risk over a group of persons who
are exposed to it. A large number of persons share the losses arising from a particular risk
3. Large number of insured persons
The success of insurance business depends on the large number of persons Insured
against similar risk. This will enable the insurer to spread the losses of risk among large number
of persons, thus keeping the premium rate at the minimum.
4. Evaluation of risk
For the purpose of ascertaining the insurance premium, the volume of risk is evaluated,
which forms the basis of insurance contract.
5. Payment of happening of specified event
On happening of specified event, the insurance company is bound to make payment to the
insured. Happening of specified event is certain in life insurance, but in the case of
fire, marine of accidental insurance, it is not necessary. In such cases, the insurer is not liable
for payment of indemnity.
6. Transfer of risk
Insurance is a plan in which the insured transfers his risk on the insurer. This may be
the reason that may person observes, that insurance is a device to transfer some economic losses
would have been borne by the insured themselves.
7. Spreading of risk
Insurance is a plan which spread the risk & losses of few people among a large
number of people. John Magee writes, “Insurance is a plan by which large number of
people associates themselves and transfers to the shoulders of all, risk attached to Individuals”.
8. Protection against risks
Insurance provides protection against risk involved in life, materials and property. It is
a device to avoid or reduce risks.
9. Insurance is not charity
Charity pays without consideration but in the case of insurance, premium is paid by
the insured to the insurer in consideration of future payment.
10. Insurance is not a gambling
Insurance is not a gambling. Gambling is illegal, which gives gain to one party and
loss to other. Insurance is a valid contact to indemnity against losses. Moreover, Insurable
interest is present in insurance contracts it has the element of investment also.
11. A contract
Insurance is a legal contract between the insurer and insured under which the Insurer
promises to compensate the insured financially within the scope of insurance Policy,
the insured promises to pay a fixed rate of premium to the insurer.
12. Social device
Insurance is a plan of social welfare and protection of interest of the people. Ridged
and miller observe “insurance is of social nature”.
13. Based upon certain principle
Insurance is a contract based upon certain fundamental principles of insurance, which
includes utmost good faith, insurable interest, contribution, indemnity, causa Proxima,
subrogation etc., which are operating in the various fields of insurance.
14. Regulation under the law
The government of every country enacts the law governing insurance business So as
to regulate, and control its activities for the interest of the people. In India General insurance act
1972 and the life insurance act 1956 are the major enactment in this direction.
15. Insurance is for pure risk only
Pure risks give only losses to the insured, and no profits. Examples of pure Risks are
accident, misfortune, death, fire, injury, etc., which are all the sided risks and the ultimate results
in loss. Insurance companies issue policies against pure risk only, not against speculative risks.
16. Based on mutual goodwill
Insurance is a contract based on good faith between the parties. Therefore, both the
parties are bound to disclose the important facts affecting to the contract before each
other. Utmost good faith is one of the important principles of insurance.

Insurance as A Social Security Tool

1. United Nations Declaration of Human Rights 1948 provides: -” Everyo ne has a

right to adequate standard of living for health and wellbeing of himself and his family,
including food, clothing, housing, medical care, necessary social services and the
right to security in the event of unemployment, sickness, disability, widowhood, or other
lack of livelihood in circumstances beyond his control.”
2. Under a socialistic system the responsibility of full security would be placed upon
the state to find resources for providing social security. In the capitalistic left to the
individuals. The society provides instruments which can be used in securing this
aim. Insurance is one of aim. In capitalistic society too there is a tendency to provide
 some social security by the state under some schemes where members are required
to contribute.
3. In India, Article 41 of our Constitution requires the State (within limits of its economic
capacity and development) to make effective provision for securing the right to work,
to education and to provide public assistance in case of unemployment, old age,
sickness and disablement.
4. Part of the obligations under Article 41 are met by the State through the mechanism
of Life Insurance.
5. Where breadwinner of family dies, family’s income stops to that extent, affecting the
economic condition. Life Insurance provides such alternate arrangement as we have
discussed above. Otherwise another family would have been pushed into the lower strata
of society. The lower strata create a cost on society. Poor people cost the nation
by way of subsidies etc.
6. Life insurance helps in restoration of the adverse economic condition so caused.
Functions of Insurance

Insurance is defined as a co-operative device to spread the loss caused by a particular risk
over a number of persons who are exposed to it and who agree to ensure themselves against that
risk. Risk is uncertainty of a financial loss. It should not be confused with the chance of loss
which is the probable number of losses out of a given number of exposures. It should not be
confused with peril which is defined as the cause of loss or with hazard which is a condition
that may increase the chance of loss. Finally, risk must not be confused with loss itself which
is the unintentional decline in or disappearance of value arising from a contingency. Wherever
there is uncertainty with respect to a probable loss there is risk. Every risk involves the loss of
one or other kind. The function of insurance is to spread the loss over a large number of persons
who are agreed to co-operate each other at the time of loss. The risk cannot be averted but
loss occurring due to a certain risk can be distributed amongst the agreed persons. They are agreed
to share the loss because the chances of loss, i.e., the time, amount, to a person are not known.

Anybody of them may suffer loss to a given risk, so, the rest of the persons who are agreed
will share the loss. The larger the number of such persons the easier the process of
distribution of loss, in fact; the loss is shared by them by payment of premium which is calculated
on the probability of loss. In olden time, the contribution by the persons was made at the time
of loss. The insurance is also defined as a social device to accumulate funds to meet the
uncertain losses arising through a certain risk to a person insured against the risk. The
functions of insurance can be studied into two parts (i) Primary Functions, and (ii) Secondary
Functions.

Primary Functions:

(i) Insurance provides certainty:

Insurance provides certainty of payment at the uncertainty of loss. The uncertainty of loss
can be reduced by better planning and administration. But, the insurance relieves the person from
such difficult task. Moreover, if the subject matters are not adequate, the self- provision may
prove costlier. There are different types of uncertainty in a risk. The risk will occur or not, when
will occur, how much loss will be there? In other words, there are uncertainty of happening of
time and amount of loss. Insurance removes all these uncertainties
and the assured is given certainty of payment of loss. The insurer charges premium for
providing the said certainty.

(ii) Insurance provides protection:

The main function of the insurance is to provide protection against the probable chances
of loss. The time and amount of loss are uncertain and at the happening of risk, the person will
suffer loss in absence of insurance. The insurance guarantees the payment of loss and thus
protects the assured from sufferings. The insurance cannot check the happening of risk but can
provide for losses at the happening of the risk.

(iii) Risk-Sharing:

The risk is uncertain, and therefore, the loss arising from the risk is also uncertain. When
risk takes place, the loss is shared by all the persons who are exposed to the risk. The risk-sharing
in ancient time was done only at time of damage or death; but today, on the basis of probability
of risk, the share is obtained from each and every insured in the shape of premium without which
protection is not guaranteed by the insurer.

Secondary functions:

Besides the above primary functions, the insurance works for the following functions:

(i) Prevention of Loss:

The insurance joins hands with those institutions which are engaged in preventing the
losses of the society because the reduction in loss causes lesser payment to the assured and so
more saving is possible which will assist in reducing the premium. Lesser premium invites more
business and more business cause lesser share to the assured. So again premium is reduced to,
which will stimulate more business and more protection to the masses. Therefore, the insurance
assist financially to the health organization, fire brigade, educational institutions and other
organizations which are engaged in preventing the losses of the masses from death or damage.

(ii) It Provides Capital:

The insurance provides capital to the society. The accumulated funds are invested in
productive channel. The dearth of capital of the society is minimized to a greater extent with the
help of investment of insurance. The industry, the business and the individual are benefited
by the investment and loans of the insurers.

(iii) It Improves Efficiency:

The insurance eliminates worries and miseries of losses at death and destruction of
property. The carefree person can devote his body and soul together for better achievement. It
improves not only his efficiency, but the efficiencies of the masses are also advanced.
(iv) It helps Economic Progress:

The insurance by protecting the society from huge losses of damage, destruction and
death, provides an initiative to work hard for the betterment of the masses. The next factor of
economic progress, the capital, is also immensely provided by the masses. The property, the
valuable assets, the man, the machine and the society cannot lose much at the disaster.

Advantages of Insurance

1. Assures for financial compensation

Insurance provides financial security to the insured. It gives guarantee of compensation

against large financial losses in return of small premium.

2. Reduction of risks

Human beings are exposed to different kinds of financial risks, which may cause large
financial losses. It is not possible to eliminate the risks but it can be forecasted and reduced
by applying some precautionary measures. Insurance helps in reducing risks by suggesting
for pre caution measures on one side and by sharing the losses to a group of person who has
agreed to join the common pool.

3. Encouragement to saving and investment

In the insurance agreement, the insured has to pay a certain regular premium to the
insurer in return to the compensation of the probable future loss or compensation at old age or
compensation after his/her death. Insurance is thus a method of collecting saving from the parties
willing to get secured from the financial risks. Hence, it encourages persons to make regular
savings.

4. Basis of credit

An insured can easily get loan by pledging insurance policy as a security from the insurance
company itself. Besides, financial institutions grant credit facilities on the pledge of the properties
which are being insured.

5. Maintains economic stability

Financial risks and uncertainties pushes the entire economy into instability. It is a very
bad sign to total business and social sectors. Insurance assures the compensation of the financial
losses caused by the specified future events and considerably helps in maintaining economic
stability.

6. Promotes business activities

Business sector is riskier sector. The chances of fire in the go down, loss of stocks by theft,
explosion in the ship, train or plane etc. are more frequent in this sector. Insurance takes away
these risks and promotes and develops business activities in consideration to a nominal charge i.e
premium.
 7. Provides employment opportunities

As insurance has become business in the modern day business world, hundreds of
entrepreneurs and thousands of employees have been engaging in this line. Hence, by establishing
and developing insurance companies, it has provided employment opportunities to thousands
of people as per their qualification and caliber.

Disadvantages of Insurance

Besides a number of benefits, insurance has also some limitations.

 Insurance leads to negligence as the insured feels that he/she can be compensated for
any loss or damage.
 Insurance companies do not make the compensation promptly on maturity of the
policy or for the financial losses as the expectation of the insured.
 It may lead to the crimes in the society as the beneficiaries of the policy may be
tempted to commit crimes to receive the insured amount.
 Although insurance encourages savings, it does not provide the facilities that are
provided by bank.

Basic Principles of Insurance

1. Nature of contract:

Nature of contract is a fundamental principle of insurance contract. An insurance contract comes

into existence when one party makes an offer or proposal of a contract and the other party accepts
the proposal.

A contract should be simple to be a valid contract. The person entering into a contract should
enter with his free consent.

2. Principal of utmost good faith:

Under this insurance contract both the parties should have faith over each other. As a client it
is the duty of the insured to disclose all the facts to the insurance company. Any fraud or
misrepresentation of facts can result into cancellation of the contract.

3. Principle of Insurable interest:

Under this principle of insurance, the insured must have interest in the subject matter of the
insurance. Absence of insurance makes the contract null and void. If there is no insurable interest,
an insurance company will not issue a policy.

An insurable interest must exist at the time of the purchase of the insurance. For example, a
creditor has an insurable interest in the life of a debtor, A person is considered to have an
unlimited interest in the life of their spouse etc.
4. Principle of indemnity:

Indemnity means security or compensation against loss or damage. The principle of indemnity
is such principle of insurance stating that an insured may not be compensated by the insurance
company in an amount exceeding the insured’s economic loss.

In type of insurance the insured would be compensation with the amount equivalent to the actual
loss and not the amount exceeding the loss.

This is a regulatory principal. This principle is observed more strictly in property insurance than
in life insurance.

The purpose of this principle is to set back the insured to the same financial position that existed
before the loss or damage occurred.

5. Principal of subrogation:

The principle of subrogation enables the insured to claim the amount from the third party
responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of
loss, for example, if you get injured in a road accident, due to reckless driving of a third
party, the insurance company will compensate your loss and will also sue the third party to
recover the money paid as claim.

6. Double insurance:

Double insurance denotes insurance of same subject matter with two different companies or with
the same company under two different policies. Insurance is possible in case of indemnity
contract like fire, marine and property insurance.

Double insurance policy is adopted where the financial position of the insurer is doubtful.
The insured cannot recover more than the actual loss and cannot claim the whole amount
from both the insurers.

7. Principle of proximate cause:

Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This principle is applicable
when the loss is the result of two or more causes. The proximate cause means; the most dominant
and most effective cause of loss is considered. This principle is applicable when there are
series of causes of damage or loss.

Kinds of Insurance

Business Point of View:

The insurance can be classified into three categories from business point of view: (i) Life
Insurance, (ii) General Insurance, and (iii) Social Insurance.
(i) Life Insurance:

Life Insurance is different from other insurance in the sense that, here, the subject matter
of insurance is life of human being. The insurer will pay the fixed amount of insurance at the
time of death or at the expiry of certain period. At present, life insurance enjoys maximum scope
because the life is the most important property of the society or an individual. Each and
every person requires the insurance. This insurance provides protection to the family at the
premature death or gives adequate amount at the old age when earning capacities are reduced.
Under personal insurance a payment is made at the accident. The insurance is not only a
protection but is a sort of investment because a certain sum is returnable to the insured at
the death or at the expiry of a period. The business of life insurance is wholly done by that
Life Insurance Corporation of India.

(ii) General Insurance :

The general insurance includes property insurance, liability insurance and other forms of
insurance. Fire and marine insurances are strictly called property insurance. Motor, theft, fidelity
and machine insurances include the extent of liability insurance to a certain extent. The
strictest form of liability insurance is fidelity insurance, whereby the insurer compensates the loss
to the insured when he is under the liability of payment to the third party.

(iii) Social Insurance:

The social insurance is to provide protection to the weaker section of the society who
is unable to pay the premium for adequate insurance. Pension plans, disability benefits,
unemployment benefits, sickness insurance and industrial insurance are the various forms of
social insurance. With the increase of the socialistic ideas, the social insurance is an
obligatory duty of the nation. The Government of a country must provide social insurance to
its masses.

Risk Point of View:

Insurance is divided into property liability and other form from high point of view

A. Property Insurance:

Under the property insurance property of person/persons are insured against a certain
specified risk. The risk may be fire or marine perils, theft of property or goods, damage to property
at accident.

(a) Marine Insurance:

Marine insurance provides protection against loss of marine perils. The marine perils are
collision with rock, or ship attacks by enemies, fire and capture by pirates, etc. These perils
cause damage, destruction or disappearance of the ship and cargo and non-payment of freight.
So, marine insurance insures ship (Hull), cargo and freight. Previously only certain nominal risks
were insured but now the scope of marine insurance had been divided into two parts: (i) Ocean
Marine Insurance and (ii) Inland Marine Insurance. The former insures only the marine perils
while the latter covers inland peril which may arise with the delivery of
cargo (goods) from the godown of the insured and may extend up to the receipt of the cargo
by the buyer (importer) at his godown.

(b) Fire Insurance:

Fire insurance covers risks of fire. In the absence of fire insurance, the fire waste will
increase not only to the individual but to the society as well. With the help of fire insurance,
the losses, arising due to fire are compensated and the society is not losing much. The individual
is protected from such losses and his property or business or industry will remain approximately
in the same position in which it was before the loss. The fire insurance does not protect only
losses but it provides certain consequential losses also. War risk, turmoil, riots, etc., can be
insured under this insurance, too.

(c) Miscellaneous Insurance:

The Property, goods, machine, furniture, automobile, valuable articles, etc., can be
insured against the damage or destruction due to accident or disappearance due to theft. There are
different forms of insurances for each type of the said property whereby not only property
insurance exists but liability insurance and personal injuries are also insured.

B. Liability Insurance:

The general insurance also includes liability insurance thereby the insured is liable to pay
the damage of property or to compensate the less of personal injury or death. This insurance is
seen in the form of fidelity insurance, automobile insurance and machine insurance, etc.

C. Other Forms:

Besides the property and liability insurances, there are certain other insurances which are
included under general insurance. The examples of such insurances are export-credit insurances,
State employee’s insurance, etc., whereby the insurer guarantees to pay certain amount at the
certain events. This insurance is extending rapidly these days.

1. Personal Insurance:

The personal insurance includes insurance of human life which may suffer loss due to
death, accident and disease. Therefore, the personal insurance is further sub-classified into
life insurance, personal accident insurance and health insurance.

2. Property Insurance:

The property of an individual and of the society is insured against the loss of fire and
marine perils, the crop is insured against unexpected decline in production, unexpected death
of the animals engaged in business, break-down of machines and theft of the property and goods.
 3. Liability Insurance:

The liability insurance covers the risks of third party, compensation to employees,
liability of the automobile owners and reinsurances.

4. Guarantee Insurance:

The guarantee insurance covers the loss arising due to dishonesty, disappearance and
disloyalty of the employers or second. The party must be a party of the contract. His failure causes
loss to the first party. For example, in export insurance, the insurer will compensate the loss
at the failure of the importers to pay the amount of debt.

Life Insurance Vs General Insurance

Types

Life insurance is a non-personal insurance contract. This means that the policyholder and
the person being insured do not have to be the same person. General insurance is always
a personal contract where the insurance company contracts with you directly for
insurance protection.

Function

Both life insurance and general insurance accept premiums in exchange for insurance
benefits. Insurance premiums are invested into bonds or bond-like investments that
produce stable and consistent returns for the insurance company. The investments,
plus premium payments, also ensure that the insurance company can pay the promised
benefits that are outlined in the insurance policy. When you need to file a claim, both
types of insurance require a claim form for you to fill out. The payment of benefits,
and the amount of the benefit that is payable, are always spelled out in your insurance
contract.

Significance

Life insurance insures your life or the life of someone that you have an economic interest
in, like your spouse, children, siblings or business partners. When the insured individual
dies, the life insurance policy pays a death benefit that is fixed. This is called a
valued contract. A valued contract pays a fixed sum of money, regardless of the nature
of the loss insured by the contract.

General insurance insures homes, automobiles and other personal property. This type
of insurance is sometimes referred to as "property and casualty" insurance. General
insurance is indemnity insurance. Indemnity insurance pays just enough money to you to
repair or replaced the insured property. For example, your homeowner's insurance may
cover your entire home and the contents of it. However, if your roof is damaged in a
storm, the policy only pays enough to repair the damage.
Conclusions
Reforms in banking and insurance in Bangladesh began in mid 1980s with the implementations of the SAP. Within
the SAP, financial sector reform program was one of the major components. The central bank was entrusted with
the responsibility of carrying forward the reforms in this area. A project entitled Financial Sector Reform
Programme (FSRP) was implemented in the Bangladesh Bank. The major aim of FSRP was to improve the
operations of the NCBs through development of new banking technologies, computerization of banking operations,
enhancing skills, changing outdated internal banking practices and corporate and credit cultures etc. During the
FSRP period (1992-96) a number of new management and operational tools were developed and implemented.
During this period Bangladesh also extensively participated in General Agreement on Trade and Tariff (GATT).
Bangladesh was one of the earliest members of WTO. Despite making no commitments related financial sector
liberalization, financial sector reform has been continuously carried out in Bangladesh. The regulations regarding
foreign direct investment have also been liberalized as a part of ongoing reform
Case:-
L.I.C. Of India & Anr vs Consumer Education & Research Centre &
... on 10 May, 1995

The whole life or endowment policies are not easily accessible to the poorer segments of
the society. Only term insurance under Table 58 policy is more attractive and easily
accessible to those segments of the society. Imposition of conditions including the one
struck down by the High Court are, therefore, unconstitutional and impermissible.

We have given our anxious and careful consideration to the respective contentions, since
our answers to the questions involved are bound to have far reaching effect on the business
of life insurance, we have minutely examined all the questions bearing in mind the larger
public interest. Life insurance policies based on actuarial Tables and the Policy Holders'
needs suited to their requirements. It appears that LIC has, in assessing the risk, taken into
consideration the factors: (a) present condition of health and physical build of the person
whose life has to be insured; (b) his/her personal history i.e., record of illness suffered in
the past by the person whose life has to be insured, risks to be covered and the person's
habits in general; (c) family history, i.e. record of health and longevity of members of the
family of the person to be insured; (d) occupation and environment of the person
whose life has to be insured; and (e) the likelihood of any change in the occupation of the
person whose life has to be insured, calculated to increase the risk of his/her life. Based
thereon, the amount of premium would be charged depending upon whether a particular
policy is a term insurance or an endowment or whole life policy etc. based on actuarial
method. The terms and conditions subject to which the risk is to be covered, undoubtedly,
would play a vital role in deciding the amount of premium payable and the conditions on
which the policy is to be issued. In that behalf, it would be necessary to foresee mortality
among insured lives within a relatively narrow margin of error. The insurer, therefore
would be entitled to devise its plans, relative terms and conditions, its advantages and other
relevant factors. Therefore, the insurer would be entitled to specify eligibility criteria in
various plans of life insurance. Each policy differs in its contents and conditions, the
degree of risk, the amount of premium payable in that behalf and also mortality rate.

Sezhivan Committee Report after its elaborate study of the working of the LIC
on insurance recommended in the year 1980 for improvement on several factors of the
working system. It had recommended to make available policies to wider sections of the
people. It analyzed diverse life insurance policies in para 13.1(i) and concluded that the
cost of providing life insurance through individual life insurance policies is high and
beyond the means of a large section of the population both in urban and rural areas;
(ii) in pursuance of one of its basic objectives, namely, mobilization of savings
through life insurance, the LIC has been concentrating its efforts mainly on upper strata
and employed sections of the population which has a regular income and saving potential.
The obligatory linking of life insurance to savings inherent in the conventional individual
assurance plans and the LIC's concentration on this type of business together, had the effect
of denying life insurance cover to the vast section of the people who do not have regular
income and whose savings potential is low; (iii) as a result of the above, only about 10%
of the insurable male lives in the country have been provided cover against death. That too
on the salary earning classes and persons in the higher income groups who take out LIC
mainly because of the tax relief available. The coverage of persons in rural areas and of
those employed in the unorganized sector in the urban areas in meagre;
(vi) Life insurance in India can still be a viable savings medium, as it is in U.K., provided
the LIC is enabled to improve substantially the yield on its investment and to control
effectively its expenses of management. In para 13.18, the report further states that "there
is one other plan which the Committee feels the LIC ought to introduce and that is a level
premium term insurance plan. The Committee has noted that the Committee of Actuaries
had recommended introduction of such a plan............... Therefore, the
term insurance policy introduced, though based on calculations of actuarial consideration,
was intended to cover not only the elite and employed in government, semi-government
and reputed commercial establishments but also need to cover wider public, self-employed
or those working in unorganized sectors. The term insurance policy under table 58 is
beneficial to all sections and restricted to lives in specified area alone. The original clause
in Table 58 reads thus: -

It would thus be well settled law that the Preamble Chapter of Fundamental Rights and
Directive Principles accord right to livelihood as a meaningful life, social security and
disablement benefits are integral schemes of socio-economic justice to the people in
particular to the middle class and lower middle class and all offend able
people. Life insurance coverage is against disablement or in the event of death of the
insured economic support for the dependents, social security to livelihood to the insured or
the dependents. The appropriate life insurance policy within the paying capacity and
means of the insured to pay premier is one of the social security measures envisaged under
the Constitution to make right to life meaningful, worth living and right to livelihood a
means for sustenance.

National Insurance Co. Ltd vs Pranay Sethi on 31 October, 2017

Dipak Misra, CJI.

Perceiving cleavage of opinion between Reshma Kumari and others v. Madan Mohan and
another1 and Rajesh and others v. Rajbir Singh and others 2, both three-Judge Bench
decisions, a two-Judge Bench of this Court in National Insurance Company Limited v.
Pushpa and others3 thought it appropriate to refer the matter to a larger Bench for an (2013
) 9 SCC 65 (2013) 9 SCC 54 (2015) 9 SCC 166 authoritative pronouncement, and that is
how the matters have been placed before us.

“46. In the Indian context several other factors should be taken into consideration including
education of the dependants and the nature of job. In the wake of changed societal
conditions and global scenario, future prospects may have to be taken into consideration
not only having regard to the status of the employee, his educational qualification; his past
performance but also other relevant factors, namely, the higher salaries and perks which
are being offered by the private companies these days. In fact while determining the
multiplicand this Court in Oriental Insurance Co. Ltd. v. Jashuben 10 held that even
dearness allowance and perks with regard thereto from which the family would have
derived monthly benefit, must be taken into consideration.
“17. The situation has now undergone a change with the enactment of the Motor Vehicles
Act, 1988, as amended by Amendment Act 54 of 1994. The most important change
introduced by the amendment insofar as it relates to determination of compensation is the
insertion of Sections 163-A and 163-B in Chapter XI entitled ‘Insurance of motor vehicles
against third-party risks’. Section 163-A begins with a non obstante clause and provides
for payment of compensation, as indicated in the Second Schedule, to the legal
representatives of the deceased or injured, as the case may be. Now if we turn to the Second
Schedule, we find a Table fixing the mode of calculation of compensation for third- party
accident injury claims arising out of fatal (1996) 4 SCC 362 accidents. The first column
gives the age group of the victims of accident, the second column indicates the multiplier
and the subsequent horizontal figures indicate the quantum of compensation in thousand
payable to the heirs of the deceased victim.

8. The Court also referred to Supe Dei v. National Insurance Company

Limited13 wherein it has been opined that the position is well settled that the Second
Schedule under Section 163-A to the Act which gives the amount of compensation to be
determined for the purpose of claim under the section can be taken as a guideline while
determining the compensation under Section 166 of the Act.

9. After so observing, the Court also noted the authorities in United India Insurance Co.
Ltd v. Patricia Jean Mahajan14, Deepal Girishbhai Soni v. United India Insurance Co.
Ltd.15, and Jashuben (supra). It is perceivable from the pronouncement by the three-Judge
Bench that it has referred to Sarla Verma and observed that the said decision reiterated
what had been stated in earlier decisions that the principles relating to determination of
liability and quantum of compensation were different for claims made under Section 163-
A and claims made under Section 166. It was further observed that Section 163-A and the
Second Schedule in terms did not apply to determination of (2009) 4 SCC 513 (2002) 6
SCC 281 (2004) 5 SCC 385 compensation in applications under Section 166. In Sarla
Verma (supra), as has been noticed further in Reshma Kumari (supra), the Court found
discrepancies/errors in the multiplier scale given in the Second Schedule Table and also
observed that application of Table may result in incongruities.