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(FIFTEEN QUESTIONS)

PART – B (2X5=10 MARKS)

ANSWER ANY TWO QUESTIONS

(OUT OF FIVE QUESTIONS)

PART – C (5X10=50 MARKS)

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(FIVE QUESTIONS WITH EITHER OR CHOICE)

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 FUNDAMENTALS OF INSURANCE

UNIT - I 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.

UNIT-II 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.

UNIT-III 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- Doubt insurance Types of marine losses.

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.

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.

TEXT BOOKS: 1. Fundamentals of Insurance- Dr. Periyasamy, Himalaya Publishing Pvt Ltd,
Mumbai. 2. Insurance principles and practice - Moorthy.A , Margham publications, Chennai. 3.
Fundamentals of insurance - Dr. P.K. Guptha, Margham publications, Chennai

REFERENCE BOOKS: 1. Insurance principles and practice - Periasamy.P, Margham publications,

Chennai 2. Insurance principles and practice - Mishra.M.N, Sultan Chand & Sons, NewDelhi 3.
Insurance principles and practice -

Balu.V.& Premilan, Margham publications, Chennai

UNIT –I

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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

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 a uncertainty of a financial risk. Every risk involves the loss of one or other kind. The risk
cannot be averted but loss occurring due to 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 of the
person is not known. The loss is shared by them by payment of premium which is shared by them
by payment of premium which is calculated on the probability of loss .

Definition of insurance

According to Gosh and Agarwal insurance may be defined as a cooperative form of distributing a
certain risk over a group of persons who are expressed to it

According to alien Z.Mayerson defined insurance as a “ device for the transfer to an insurer of
certain risks of economic loss that would otherwise come by the insure”

From the above definition , it is observed that ‘Insurance’ is a contract between the insurer and the
insured under which the insurer undertakes to compensate the insured for the loss arising from the
risk insured against.In consideration, the insured agrees to pay a premium regularly.The person
whose risk is insured is called insured or Assured.The person who agrees to compensate the loss
arising from the risk is called insurer or Assurer or under writer

TERMSUSEDININSURANCE:
There are certain terms which are used very often in insurance. These terms require some
explanation .

 INSURER: The party who agrees to pay compensation on the happening of a contingency is
known as insurer. Generally the insurance companies are the insurers.
 INSURED: The party who has taken a policy for his life or property in the insurance company
is called insured.
 PREMIUM: It is the consideration for which the insurer gives protection to the insured. It is
the price of the insurance cover.
 POLICY: It refers to the documents which contains the terms and conditions of the insurance
contract. It is issued by the insurance company.
 INSURED AMOUNT: The amount for which the risk is insured is called the insured amount
or policy money or face value of the policy.
 PERIL: It is an event that causes a personal or property loss (risk).
 PROPOSER: The person who sends the proposal form for taking an insurance policy is
known as proposer.

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  BENEFICIARY: The person to whom policy amount will be paid in the event of the death of
the assured is called beneficiary.
 HAZARD: It refers to a conditions that may create , decrease or increase the chance of loss
from a given peril hazard is of two types:
 Physical hazards : An objective characteristic increasing the chance of loss, such as
the age or health of an is insured person or the location use and construction of insured
property the production of gun powder in a buildings.
 Moral hazards: A subjective characteristics increases the chances of loss such as
dishonesty, negligence or insanity.
 RISK: It is defined as a phenomenon closely associated with uncertain events or perils such as
fire, storms, collision to which the object is exposed or a hazard or set of hazardous conditions
which may cause a loss or the probability of a loss occurring otherwise
 REINSURANCE: It is a insurance that an insurance company purchases from another
insurance company to insulate itself (at least in part) from the risk of a major claims event..
 DOUBLE INSURANCE: If an insured insures the same subject matter with two or more
insurance companies.

PRINCIPLES OF INSURANCE

The main objective of every insurance contract is to give financial security and protection to
the insured from any future uncertainties. Insured must never ever try to misuse this safe
financial cover. Seeking profit opportunities by reporting false occurrences violates the terms
and conditions of an insurance contract. This breaks trust results in breaching of a contract and
invites legal penalties. An insurer must always investigate any doubtable insurance claims. It
is also a duty of the insurer to accept and approve all genuine insurance claims made, as early
as possible without any further delays and annoying hindrances.

There are seven principles of insurance

 PRINCIPLES OF UTMOST GOOD FAITH

 Both parties, insurer and insured should enter into contract in good faith.
 Insured should provide all the information that impacts the subject matter
 Insurer should provide all the details regarding insurance contract
For example - John took a health insurance policy. At the time of taking policy, he was a smoker and
he didn't disclose this fact. He got cancer. Insurance company won't pay anything as John didn't reveal
the important facts.

 PRINCIPLES OF INSURABLE INTEREST

 Insured must have the insurable interest on the subject matter

 In case of life insurance spouse and dependents have insurable interest in the life of a
person. Corporations also have insurable interests in the life of it's employees
 In simple words, the insured person must suffer some financial loss by the damage of
the insured object.

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 For example :- The owner of a taxicab has insurable interest in the taxicab because he is
getting income from it. But, if he sells it, he will not have an insurable interest left in that
taxicab.
 PRINCIPLES OF INDEMNITY
 Indemnity means security, protection, and compensation given against damage, loss or
injury.
 Insured can't make any profit from the insurance contract. Insurance contract is meant
for coverage of losses only
 Indemnity means a guarantee to put the insured in the position as he was before
accident
 This principle doesn't apply to life insurance contracts

 PRINCIPLES OF CONTRIBUTION
 It is a corollary of the principle of indemnity.
 In case the insured took more than one insurance policy for same subject matter, he/she
can't make profit by making claim for same loss more than once.
According to this principle, the insured can claim the compensation only to the extent of actual loss
either from all insurers or from any one insurer. If one insurer pays full compensation then that insurer
can claim proportionate claim from the other insurers.
For example - Raj has a property worth Rs.5,00,000. He took insurance from Company A worth
Rs.3,00,000 and from Company B - Rs.1,00,000.

In case of accident, he incurred a loss of Rs.3,00,000 to the property. Raj can claim Rs. Rs.3,00,000
from A but after that he can’t make profit by making a claim from Company B. Now Company A can
make a claim from Company B to for proportional loss claim value.
 PRINCIPLE OF SUBROGATION
 Subrogation means substituting one creditor for another.
 It is an extension and another corollary of the principle of indemnity.
 The insured is compensated for the losses due to damage to his insured property, and then the
ownership right of such property shifts to the insurer.
 This principle is applicable only when the damaged property has any value after the event
causing the damage, the insurer can benefit out of subrogation rights only to the extent of the
amount he has paid to the insured as compensation.
 For example Rohit took a insurance policy for his car, in an accident his car totally damaged
insurer paid the full policy value to insured , now Rohit can’t sell the scarp remained after.

 PRINCIPLE OF LOSS MINIMISATION

 In principles of insurance, a principle of mitigation of loss is the fundamental principle.
Under this principle, the insured must give his 100% to save his property and not just sit
and watch destruction of his property. All tough his property is insured his effort should be
there to minimize the losses.
 For example – Virat took insurance policy for his house. In a cylinder blast, his house
burnt. He should have called nearest fire station so that the loss could be minimised.
 This principle states that the insured must take all the necessary steps to minimize the
losses to inured assets.

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  PRINCIPLE OF CAUSA PROXIMA
 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.
 The principle states that to find out whether the insurer is liable for the loss or not, the
proximate (closest) and not the remote (farest) must be looked into.
 PRINCIPLES OF WARRANTY:
 There are certain conditions and promises in the insurance contract which are called
“warranties”. A warranty is that by which the insured under takes that same particulars
thing shall or shall not be done or that some conditions shall be fulfilled or where by the
terms or negative the existence of particulars state of faults.
 PRINCIPLES OF MITIGATION OF LOSS:
 This principle emphasis the duty of the insured to take all the possible steps to
minimize the loss or damage to the property covered by the insurance policy in case the
mishap happens.

NATURES OR FEATURES OF INSURANCE:

On the basis of the definitions of insurance given above one can observe the following features:

1. Contract: The insurance is a written agreement between the insurer and the insured wherein
the insured makes an offer and the insurer accepts his offer.
2. Consideration: It is a contract under which the insurer in a consideration called premium,
agrees to take over a particular risk of the other party and promises to pay the insured or his
nominee a certain sum of money on the happening of an uncertain event.
3. Co-operative device: It is a cooperative device under which a group of persons who agree to
share the financial loss may be brought together voluntarily or through publicity or through
solicitations of the agents. An insurer would be enable to compensate all the losses from his
own capital. So by insuring a large number of persons he is able to pay the amount of loss.
4. Protection of financial risk: It offers protection to those risks which can be measured in terms
of money that is financial risks .
5. Certainty and contingency : The life insurance is a contract of certainty as the insurer has to
pay the amount as compensation to the assured if he survives till the date of maturity of policy
or to the nominee if he dies earlier. In other insurances, the contingency namely fire, theft,
earth quake, accident or the marine perils may or may not occur . So only on the happening of
certain contingency payment is made otherwise no amount is payable to the insured.
6. Regulated by law: In India, life insurance and general insurance are regulated by Life
Insurance Corporation of India Act 1956 and General Insurance Business Act 1972 and IRDA
regulations etc.
7. Value 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.

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 8. Based upon certain principles : The contract of insurance is based upon certain principles
such as insurable interest, utmost good faith, indemnity, subrogation, causa-proxima,
contribution etc.
9. Insurance is not gambling: The insurance cannot be considered as gambling as the insurer
has to indemnify the loss incurred by the insured on the happening of an uncertain event as
stipulated in the contract of insurance whereas the game of gambling may either result into
profit or loss.
10. Insurance is not a charity: The concept of insurance is entirely different from the concept of
charity. The charity is offered to the poor or needy without expecting any consideration from
them. But the insurer offers protection to the insured’s life and property only after getting
consideration in the form of premium.

IMPORTANCE OF INSURANCE
1. Importance to an individual:
 The main advantage of insurance is to offer security and safety to the insured against
uncertainty.
 The insurance protection gives mental peace to the insured and enables him to eliminate
constant fear about the loss of his possession.
 It includes the habit of savings among the people especially in the case of life
insurance.
 The insurance policy can be pledged as a security for getting loan.
 The assured gets tax benefits U/S 80 C in life insurance .
 It supplies old age pensions to the life policy holders.
2. Importance to business :
 A trader can get bank loans easily if his stock or property is insured as insurance
provides a sense of security to the lenders.
 Businessmen can concentrate on their business activities without spending more time
on safeguarding their properties.
 The key men insurance provides protection to the industry in case of death of
professional executives.
 Insurance indirectly reduces the cost of manufacturing goods.
 The working population feel a sense of security if there is an insurance.
 Rapid industrialization is made possible by insurance as tits funds are employed in the
development of business and industry.
3. Importance to society :
 Life insurance provides social security to a family.
 The insurance fulfills its social obligations by providing employment opportunities to
the general public.
 Insurance funds are employed for the development of basic human facilities like
housing, electricity, water and sanitation etc.
 Insurance distributes the loss of few among a large group of society.
 Insurance has the effect of raising the standard of living of the people.
4. Importance to nation:
 Insurance increases national savings.

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  It develops the money market.
 It contributes to the national plans.
 It earns foreign exchange.
 It relieves the government from facing the liability of providing for the depends in the
event of the bread winner’s death.

FUNCTIONS OF INSURANCE :

Insurance performs numerous functions which are beneficial to the general public
directly or indirectly. As such functions of insurance can be classified into following three categories:

a. Primary functions
b. Secondary functions
c. Other functions

a) Primary functions :

The main functions which are performed by the insurance are as follows:

 Provides protection: Providing protection to the people against the probable risk of loss is the
main function of insurance. Under the contract of insurance, the insurer guarantees the insured
person to indemnify the losses on the occurrence of an uncertain event, in consideration of
premium paid by the insured.
 Provides certainty: Due to uncertainties people are apprehensive about the risk of loss likely
to arise in future. Insurance removes the fear from the minds of the people and provides
certainty of payment at the uncertainty of losses. Of course premium is charged for providing
such certainty.
 Distribution of risk: When risk occurs the loss is shared by all the persons who are exposed to
the risk.
The share is obtained from each and every insured in the form of premium without which the
insurer cannot guarantee protection.

b)Secondary functions:

Some functions of insurance are categorized as secondary functions. Such functions are as
follows :

 Prevention of loss : Prevention of loss is by far the best solution to the problem of risk. By
providing better medical facilities life span can be prolonged. By using free resistant materials
in construction installation of automatic sprinkler system etc. Fire can be prevented. But
sometimes prevention of loss is not possible or effective. When prevention fails, other methods
must be tried.
 Provides capital : The insurer renders positive help in the development of trade, commerce
and industries of a country through different schemes of investments. A country’s natural
resources can be exploited with long term and huge amount of investments by the insurance
companies.

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  Increases efficiency : Insurance eliminates fear in the minds of people about possible losses
likely to arise due to death and destruction of property. The person, who has taken a policy can
act freely and devote his entire attention towards achievements of certain goals. It ultimately
improves not only individuals efficiency but also efficiency of the masses as everybody feels
himself carefree.
c) Other functions :
Apart from primary and secondary functions the insurer performs various other functions
which are highly beneficial to the common man, business community and the nation as a whole. A few
are given below :
 Encourages savings : Life insurance is considered as one of the important forms of savings.
The premium paid by the assured is accumulated and is returned to him if he survives till the
date of maturity.
 Promotes foreign trade :Foreign trade fully depends on insurance. The banker will not come
forward to discount the marine trade bills unless the cargo is fully insured. In india insurance
has been made mandatory for foreign trade . It relieves entrepreneurs from the uncertainties of
foreign trade.
 Credit facilities : Business people can borrow loans from banks and other financial institutions
by pledging their insurance policies. In case the insured trader is unable to return the loan the
financial institutions can recover their amount out of the policy;s surrender value.
TYPES OF INSURANCE:
There are two main branches of insurance in our country namely, Life Insurance and General
Insurance. The General insurance is subdivided into three types namely Fire insurance, Marine
insurance and Miscellaneous insurance.

Types of insurance:

Life insurance General Insurance

Fire Insurance Marine Insurance Miscellaneous Insurance

1.Life insurance:
It refers to a contract in which the insurance agrees to pay a specified amount on the death of the
assured or on the expiry of a certain fixed period, where ever is earlier.In consideration of this, the
insurers collect premium, from the insured. Since the sum for which a policy is taken is assured to be
paid whether there is a death or not, Life insurance is also after referred to as “Life Assurance”. In
India, the life insurance business is being undertaken by Life Insurance Corporation of India (LIC) and
twelve private insurance companies.

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2. General insurance:

Expect life insurance all other insurance come under general insurance. The government of
India enacted general insurance business act 1982 to takes over general insurance business. Under the
provision of this act, the General Corporation (GIC) India was established in Jan 1973 for the purpose
of directing controlling and carrying on the general insurance. For the classified into fire,
miscellaneous.

a. Fire insurance:

This insurance covers the risk of fire to property because there is every like hood factories,
godowns, houses, shops and ships. The insurance is not only covers the fire but not also the
consequential losses from such loss.

b. Marine insurance:

This is the oldest form of insurance and covers all the marine perils, due to marine perils the
ships can be damaged or destroyed, carriage can be cost and consequently there can be loss of freight.
Therefore the marine insurance covers the risk to ship cargo and freight on the high seas.

c. Miscellaneous insurance:

All other general insurance fall under the miscellaneous category. It includes

 Personal accident Insurance

It provided an absolute protection against death or disability arising solely and directly from
accident caused by violent external and visible means.

 Fidelity guarantee Insurance

It falls under the miscellaneous insurance class. This type of insurance is also a contract of
guarantee to which general principles of insurance apply. It does not mean the guarantee of the
employee’s honesty. But it guarantees the employer for any damages or loss resulting from the
employee’s dishonesty or disloyalty.

 Crop Insurance
It is contract to provide as measure of financial support to farmers in the event of a crop failure
due to drought or flood. This insurance covers all risks of loss or damage relating to production or rice,
wheat, millets, oil seeds and pulses etc.

 Burglary Insurance
In this case the loss or damage of household goods and properties and personal effects due to
theft, larceny, burglary, house-breaking and acts of such nature are covered. The actual loss is
compensated.

 Cattle Insurance

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 A contract of cattle insurance is a contract whereby a sum of money is secured to the assured in
the event of death of animals like bulls, buffaloes, cows and heifers. It is contract against death
resulting from accident, disease, parturitions or pregnant condition as the case may be.

 Cash in transit insurance

Cash in transit insurance is one of the contracts of insurance which falls under the category of
miscellaneous insurance. This form of insurance covers to the insured against any loss in the event of
money or cash being stolen from his business premises or while it is being carried from or to the bank.
This is suitable for business as large sum of money are drawn from banks to pay wages and to meet
the day to day expenses.

 Bhagyashree child welfare policy

 Group mediclaim policy
 Individual mediclaim policy
 Jewelers insurance
 Money insurance
 Motor insurance
 Overseas mediclaim policy
 Personal accidents
 Product liability insurance
 Public liability insurance
 Rajeswari Mahila Kalayan BimaYojna
 Shop keepers insurance
 Workman compensations

DIFFERENCE BETWEEN LIFE INSURANCE AND GENERAL INSURANCE

1. Life Insurance is a contract which ensures your life risk and also works as in an investment
avenue. Whereas, General Insurance is a contract of indemnity which promises to make good
your losses.
2. In Life Insurance, the sum assured along with benefits is paid either on the event of death of
the policy holder or on maturity of the policy. On the contrary, in General Insurance, the
amount of actual loss or claim is reimbursed on the happening of the certain event against
which the policy has been issued.
3. Life Insurance is a long term contract, some policies even run till such time you are alive. On
the other hand General Insurance is a short term contract, generally for one year and needs to
be renewed every year on expiry.
4. Since Life Insurance is a long term contract, the premium needs to be paid throughout the term
of the policy or upto the minimum premium paying term. The premium for General Insurance
is payable only in case the policy is renewed after one year.
5. Through certain Life Insurance policies you can also create wealth in the long term apart from
securing your life. Contrary to this, in General Insurance, the amount payable is confined to the
losses suffered or the maximum cover amount of the policy. If there is no claim during a year,
the premiums are not returned to the policy holder; therefore, there is no savings component
attached to the General Insurance policy.

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 6. In case of Life Insurance, the insurable interest i.e. the individual who is taking the policy must
be present at the time of contract. Whereas, in case of General Insurance, the insurable interest
must be present both at the time of contract and at the time of loss.

DIFFERENCE BETWEEN LIFE INSURANCE AND FIRE INSURANCE

1.NATURE OF CONTRACT :-
Life insurance : Life insurance is not the contract of indemnity.
Fire insurance : Fire insurance is a contract of indemnity.
2. DURATION PERIOD :-
Life insurance : Life insurance covers larger duration.
Fire insurance : Fire insurance duration is from 1 years to 10 years but it is renewable.
3. CREDIT FACILITY :-
Life insurance : Against the life insurance policy credit can be obtained.
Fire insurance : Against fire insurance policy credit can not be obtained.
4. TAX CONCESSION :-
Life insurance : In case of life insurance sometimes income tax concession is granted.
Fire insurance : In case of fire insurance income tax concession is not granted.
5. NATURE OF EVENT :-
Life insurance : The event of death which is considered the base in the contract of life insurance is
death which is certain.
Fire insurance : In the fire insurance event fire is uncertain. It may take place or may not take place.

6. SECURITY AND INVESTMENT :-

Life insurance : Life insurance possess the element of security and investment both.
Fire insurance : Fire insurance includes the element of security only.
7. TITLE :-
Life insurance : The word Assurance is generally used along with life policy due ti its certainty.
Fire insurance : The word insurance is used along with fire due to its uncertainty.
8. INSURABLE INTEREST :-
Life insurance : Insurable interest must exist when insurance policy is taken but no need at the time
of loss.
Fire insurance : Insurable interest must be present at the time of fire policy taken and at the time of
loss.
9. DOCTRINE OF SUBROGATION :-
Life insurance : In the life assurance it is not applicable.
Fire insurance : In case of fire insurance it is applicable.
10. SHARE IN PROFIT :-
Life insurance : In a life insurance insured person also takes the share from profit.
Fire insurance : In case of fire insurance nothing is paid excess from insured amount.
11. TRANSFER OF LOSS :-
Life insurance : In case of loss insured person can not transfer the loss to insurance company.
Fire insurance : In case of fire insurance loss can be transferred to insurance company.

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12. SURRENDER VALUE :-
Life insurance : Life insurance policy has a surrender value after three years of its existence.
Fire insurance : Fire insurance does not have any surrender value.
13. DETERMINATION OF PREMIUM :-
Life insurance : The life insurance policy premium determination is very simple and do not change
Fire insurance : Fire insurance premium rate changes according the change in risk.
14. CLAIM LIMIT :-
Life insurance : In the life assurance after maturity whole of the assured amount becomes payable.
Fire insurance : In fire insurance case only the actual value of the property destroyed by fire can be
claimed.

DIFFERENCE BETWEEN LIFE INSURANCE AND MARINE INSURANCE

1. NATURE OF CONTRACT :-
Life insurance : Life insurance is not the contract of indemnity.
Marine insurance : Marine insurance is a contract of indemnity.
2. DURATION PERIOD :-
Life insurance : Life insurance covers larger duration.
Marine insurance : Marine insurance is issued for a specified period but maximum period is not more
than one year.
3. CREDIT FACILITY :-
Life insurance : Against the life insurance policy credit can be obtained.
Marine insurance : Against marine insurance policy credit can not be obtained.
4. TAX CONCESSION :-
Life insurance : In case of life insurance sometimes income tax concession is granted.
Marine insurance : In case of marine insurance tax concession is not granted.
5. NATURE OF EVENT :-
Life insurance : The event of death which is considered the base in the contract of life insurance is
death which is certain.
Marine insurance : In marine insurance the event of sea perils may take place or may not take place.
6. SECURITY AND INVESTMENT :-
Life insurance : Life insurance possess the element of security and investment both.
Marine insurance : Marine insurance includes the element of security only.
7. TITLE :-
Life insurance : The word Assurance is generally used along with life policy due to its certainty.
Marine insurance : The word insurance is used along with marine due to its uncertainty.
8. INSURABLE INTEREST :-

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Life insurance : Insurable interest must exist when insurance policy is taken but no need at the time
of loss.
Marine insurance : When the marine insurance policy is taken insurable interest may not exist but
these should exist at the time of loss.
9. DOCTRINE OF SUBROGATION :-
Life insurance : In the life assurance it is not applicable.
Marine insurance : In case of marine insurance it is applicable.
10. SHARE IN PROFIT :-
Life insurance : In a life insurance insured person also takes the share from profit.
Marine insurance : In case of marine insurance not profit is paid.
11. TRANSFER OF LOSS :-
Life insurance : In case of loss insured person can not transfer the loss to insurance company.
Marine insurance : In case of marine insurance loss can be transferred to insurance company.
12. SURRENDER VALUE :-
Life insurance : Life insurance policy has a surrender value after three years of its existence.
Marine insurance : Marine insurance does not have any surrender value.
13. DETERMINATION OF PREMIUM :-
Life insurance : The life insurance policy premium determination is very simple and do not change
Marine insurance : Marine insurance premium rate changes according to the change in risk.

DIFFERENCE BETWEEN FIRE INSURANCE AND MARINE INSURANCE

BASIS FOR
FIRE INSURANCE MARINE INSURANCE
COMPARISON

Meaning Fire insurance is an insuance contract Marine insurance refers to a

wherein the insurer commits to contract, wherein the insurance
compensate the insured in case of company promises to compensate
any incident happening with the the insured in case of loss caused
subject matter due to fire or any such to ship or cargo due to perils of
event. sea.

Insurable interest Must exist both while taking the Must exist when the loss takes
policy and on the occurrence of loss. place.

Objective To cover fire risk. To cover sea perils.

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 BASIS FOR
FIRE INSURANCE MARINE INSURANCE
COMPARISON

Claim Lower of amount insured or actual Purchase price of the material plus
loss sustained. 10-15% profit.

Moral Important condition Does not exist

responsibility of
insured

Policy amount It cannot be more than the value of It can be the market value of the
subject matter. cargo or ship.

RECENT DEVELOPMENTS IN THE INSURANCE INDUSTRY.

Growth of Life Insurance Business in India: In life insurance business, India ranked 9th
among the 156 countries, for which data are published by Swiss Re. During 2011-12, the estimated life
insurance premium in India grew by 4.2 per cent (inflation adjusted). However, during the same
period, the global life insurance premium expanded by 3.2 per cent. The share of Indian life insurance
sector in global market was 2.69 per cent during 2012, as against 2.45 per cent in 2011.

Importance of Agent’s Training: The future success of the life insurance profession
depends, above all, upon the knowledge and integrity of the people who advise customers – and are
their first and most important point of contact. At the IRDA, the regulator’s goal is to see that life
insurers are increasingly able to attract, motivate and retain outstanding people, committed to adopting
a ‘needs-based’ approach to financial advice.

Agent’s Qualification: Keeping the present market needs, the IRDA conducted a thorough
review of the existing life insurance agent licensing qualification. It was decided to utilize the
expertise of Chartered Insurance Institute (CII). IRDA has developed a syllabus that is challenging in
its scope and depth.

Need Analysis: This is another initiative identified by IRDA as a step in curbing wrong advice
and misselling. The idea is to require insurers to have Prospect Product Matrix that will match a
product with the requirement, based on the Needs Analysis carried out. The feedback of the
stakeholders on the initiative has been received and draft guidelines are under preparation. Guidelines
relating to distance marketing have been issued by IRDA which address challenges relating to mis-
selling using distance marketing mode, a fallout of the advancement in technology. While the benefits
of having new and faster channels need to be reaped, the loopholes created by them need plugging and
this is precisely what the guidelines are aimed at.

15
 Persistency of Life Insurance policies: IRDA has issued guidelines to agents for persistency
of life insurance policies to ensure that servicing of policies by agents is sustained and is with a long
term of objective of servicing the policyholder and not driven by an objective of just pushing sales.

Growing importance of IT All insurance companies now use information technology (IT) to
benefit their business and to improve convenience for their customers. Today, customers can pay their
premiums and check the status and other details of their policy using the company’s website. Updates
relating to the receipt of premiums or changes to their policy are sent to the customer through mobile
SMS. 30

Bancassurance: Many banks have joined with insurance companies to cross-sell insurance
products to their customers. Insurance companies benefit from the wide network and loyal customer
base of banks, and the contribution that bancassurance makes to insurance sales has steadily grown
over the last few years. The banks benefit through being able to provide value-added products to their
customers and from the fee income they receive in return from the insurance companies. Many banks
have started their own life insurance subsidiaries.

Online sales: Most of the insurance companies have now started selling insurance products
online. This eliminates the need for an intermediary and reduces costs. This saving can be passed to
customers in the form of reduced premiums.

Micro-Insurance: Micro-Insurance guidelines were issued by the IRDA in 2005. Micro-

insurance products provide insurance protection to people in lower income groups, such as self-help
group (SHG) members, farmers, rickshaw pullers and others against the risks that they and their assets
are exposed to. The premiums for these products may be as low as 15 and are collected on a weekly
basis. The minimum life insurance cover specified by the Regulator for this category is 5,000 and the
maximum cover that can be provided is 50,000. People who work in agriculture and allied activities
are exposed to the hazards of nature so they need protection against risks like monsoon failure, floods
etc. This is where micro-insurance can come to their rescue.

Grievance redressal: Whenever any industry is experiencing fast growth there are bound to be
concerns, and the insurance industry is no different. There has been an increase in complaints from
customers about the settlement of their claims and customer service in general. The IRDA has taken
several steps to protect the interest of the policyholders. It has asked 31 insurance companies to set up
internal customer grievance redressal cells/departments, and an Insurance Ombudsman has also been
established. The latest initiative from the IRDA is the setting up of a call centre which an insured can
contact to seek the resolution of a grievance they have against their insurer. The unhappy customer can
either call a toll-free number (155255) or email complaints@irda.gov.in to register their complaints.

EVOLUTION OF INSURANCE ORGANISATIONS

With a view to serve the society, the insurance organisations have been developed in different
forms with the innovation of insurance practices for social welfare and development. Some of these
forms are as follows.

 An individual insurer.

16
An individual like in other business can perform the business of insurer provided he has sufficient
resource and talent of insurance business. The individual organisation has been rare in the field of
insurance.

 Partnership
A partnership firm can also carry on the insurance business. A partnership firm is not an entity distinct
from the person comprising it and the personal liability of partners is unlimited.

 Joint stock companies

These are limited liability companies. These are organised by the shareholders who subscribe the
necessary capital to start the business. These are formed to earn profit. The management of the
companies is entrusted to a board of directors who are elected by the shareholders from among
themselves. Before nationalization of life insurance business in India, most of the life business was
done by joint stock companies in our country. Such companies are regulated by company’s act 1956.

 Co-operative societies
These are registered under the co-operative society’s act 1912. The basic object of these societies is to
provide insurance protection to their members. In view of the complex natures of present co-operative
societies and growth of companies, co-operative societies were gradually closed after nationalization.

 State insurance
If the government of a country undertakes insurance business for the benefit of masses, it is known as
state insurance. This form of insurance is meant for providing social security. After nationalization of
LIC in 1956 and GIG in 1972, the scope of state insurance restricted to state government employees
only.

 Lloyds Association
It is one of the greatest insurance institutions in the world. It does all types of insurance accept life
insurance. It was formed in the coffee house of Edward Lloyds in London in 1686 and today it has
more than 1800 members who are popularly known as “underwriters”.

********************UNIT-I COMPLETED************************

QUESTION BANK

5 MARKS
1. What are the principles of insurance?
2. What are the features of insurance?
3. What are the functions of insurance?
4. What are the importance of insurance?
5. What are the terms used in insurance?

10 MARKS

17
 1. What are the types of insurance?
2. Difference between life insurance and general insurance.
3. Difference between life insurance and fire insurance.
4. Difference between life insurance and marine insurance.
5. Difference between fire insurance and marine insurance.
6. What are the recent developments in insurance industry?

UNIT-II

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.

LIFE INSURANCE

MEANING :

Life insurance is a contract whereby the insured promises to pay a uniform rate of
premium at fixed intervals of time against which the insurer agrees to pay a fixed amount o the
happening of the event which may be the death of the assured or the expiry of a certain number of
years.

DEFINITION OF LIFE INSURANCE:

Life insurance contract may be defined as the contract, whereby the insurer in
consideration of a premium undertakes to pay a certain sum of money either on the death of the
insured or on the expiry of a fixed period. The definition of the life insurance contract is enlarged by
section 2 (ii) of the insurance Act 1938 by including annuity business. Since the life insurance
contract is not an indemnity contract, the undertaking on the part of the insurer is an absolute one to
pay a definite sum of maturity of policy at the death or an amount in installment for a fixed period or
during the life

FEATURES OF LIFE INSURANCE :

The following are the features or characteristic of life insurance :

 Protection Element :
Like any other form of insurance, life insurance offers protection to the family
members of the person who has taken a life policy. In the event of death of policy holder the
insured sum will be paid to his nominee who may be members of his family.
 Investment Element :
Life insurance is one form of investment. If the insured wants to get a fixed
amount at a certain age he can take endowment life policy maturable at that age. When he
attains that age, he will be paid that fixed amount, sometimes with bonus. Thus the premium
paid by him regularly is like depositing money in a bank. In case of his premature death, the
policy amount is paid to his nominee.

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  Convenience Element :
There is an element of convenience in the life insurance . The policy holder
whether he takes an endowment policy or whole life policy is allowed to pay the premium
amount according to his convenience. The premium may be payable yearly or half yearly or
quarterly or even monthly.

The Essentials of Life Insurance:

 Offer and Acceptance. When applying for insurance, the first thing you do is get the proposal
form of a particular insurance company. After filling in the requested details, you send the
form to the company (sometimes with a premium check). This is your offer. If the insurance
company agrees to insure you, this is called acceptance. In some cases, your insurer may agree
to accept your offer after making some changes to your proposed terms.
 Consideration. This is the premium or the future premiums that you have pay to your
insurance company. For insurers, consideration also refers to the money paid out to you should
you file an insurance claim. This means that each party to the contract must provide some
value to the relationship.
 Legal Capacity. You need to be legally competent to enter into an agreement with your
insurer. If you are a minor or are mentally ill, for example, then you may not be qualified to
make contracts. Similarly, insurers are considered to be competent if they are licensed under
the prevailing regulations that govern them.
 Legal Purpose. If the purpose of your contract is to encourage illegal activities, it is invalid.

ADVANTAGES OF LIFE INSURANCE:

The advantages of life insurance are listed out as under:
 Superior savings plan:
In case of death, the full sum assured is made available under a life insurance policy, whereas
in other savings scheme, the total accumulated savings alone will be available. This is why life
insurance is considered superior than other forms of savings.
 Encourages thrift:
As premiums are paid regularly in installments, life insurance encourages thrift and forces
savings which makes an individual a prudent consumer.
 Protection against creditors :
By affecting a valid assignment of the policy, the sum assured can be protected against the
claims of the creditors of the life assured. The policy holder can nominate a person to whom
the policy amount would be payable in the event of his death.
 Tax benefits:
The amount paid as premiums to the life insurance companies can be deducted from the policy
holder’s total income under section 80c of Income Tax Act
 Provides peace of mind:
Life insurance relives the policy holders from all sorts of worries and fears about future of their
family members a one among them is sure of getting assured sum in the event of their
premature death.

TYPES OF LIFE INSURANCE POLICY

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1. Term Life Insurance

Term insurance is the simplest form of life insurance plan. Easy to understand and affordable to buy.

A term inurance provides death risk cover for a specified period. In case the life assured passes away
during the policy period, the life insurance company pays the death benefit to the nominee. It is a pure
risk cover plan that offers high coverage at low premiums.

The death benefit is payable as lump sum, monthly payouts, or a combination of both.

There’s no payout if the life assured outlives the policy term. However, these days there are companies
offering Term Plans with Return of Premiums (TROPS), where insurance companies payback all the
paid premium amount in case the life assured outlives the term period. But, such plans are costlier than
the vanilla term insurance plan.

Example:

An individual non-smoker male who is looking for a term life plan of Rs.1 crore cover, will cost him
approximately Rs.6, 800 to Rs.10, 500 per year.

AGE TERM SUM ASSURED ANNUAL PREMIUM RANGE

25 years 40 years Rs.1 Crore Rs.6,800 – Rs.10,500

Best known for: High sum assured (coverage) at a low premium.

Benefit of Term Plan: In case of an untimely death of the breadwinner, family is supported with an
enormous amount of money – sum assured, which helps them to replace the loss of the income caused
due to the breadwinner’s death. Moreover, the money could be utilized to pay off loan, monthly
household expenses, child’s education, child’s marriage, etc.

2. Unit Linked Plans (ULIPs)

A unit linked plan is a comprehensive combination of insurance and investment. The premium paid
towards ULIP is partly used as a risk cover (insurance) and partly is invested in funds. One can invest
in different funds offered by the insurance company depending on his risk appetite. The insurance
company then invests the accumulated amount in the capital market i.e. in bonds, equities, debts,
market funds, or a hybrid funds...

Example:

20
 SUM ANNUAL
TERM FUND VALUE
ASSURED PREMIUM

20 Depending on the fund value at

Rs.2 lakh Rs.20,000
years the time of maturity.

Best known for: Long-term investment option with much more flexibility to invest.

Benefit of ULIP: Invest money as per your risk appetite. You have the option to invest either in equity,
debt or in hybrid funds through the life insurance company with complete transparency.

Related Article: Term Plan Vs ULIP: What makes more sense

3. Endowment Plans

Endowment plan is another type of life insurance plan, which is a combination of insurance and
saving.

A certain amount is kept for life cover – insurance, while the rest is invested by the life insurance
company. In an endowment plan, if the life assured outlives the policy term, the insurance company
offers him the maturity benefit. Moreover, Endowment Plans may offer bonuses periodically, which
are paid either on maturity or to the nominee under death claim. On death, the death benefit is payable
to the nominee.

Endowment plans are also commonly known as traditional life insurance, although, there is an
investment component but the risk is lower than the other investment products and so are the returns.

Example:

SUM ANNUAL PREMIUM

TERM BONUS
ASSURED RANGE

Depending on the
30 years Rs.10 lakh Rs.20,000 – Rs.25,000 Bonus at the time of
maturity.

Best known for: Long-term saving option for people with much lower risk appetite for investment.

Benefit of Endowment Plan: Long-term financial planning and an opportunity to earn returns on
maturity.

4. Money Back Life Insurance

Money back plan is a unique type of life insurance policy, wherein a percentage of the sum assured is
paid back to the insured on periodic intervals as survival benefit.

21
Money back plans are also eligible to receive the bonuses declared by the company from time to time.
This way, policyholder can meet short-term financial goals.

Example:

ANNUAL
SUM PERIODIC MATURITY
TERM PREMIUM
ASSURED RETURNS BENEFIT
RANGE

A percentage of Accrued
Rs.20,000 – Sum Assured bonuses/Guaranteed
20 years Rs.5 lakh
Rs.25,000 paid on regular Money Back +
intervals Coverage

Best known for: Short-term investment product to meet short-term financial goals.

Benefit of Money Back Plan: Short-term financial planning and an opportunity to earn returns on
maturity.

5. Whole Life Insurance

A whole life insurance policy covers the life assured for whole life, or in some cases, up to the age of
100 years. Unlike, term plans, which are for a specified term.

The sum assured or the coverage is decided at the time of policy purchase and is paid to the nominee
at the time of death claim of the life assured along with bonuses if any.

However, if the life assured outlives the age of 100 years, the insurance company pays the matured
endowment coverage to the life insured.

The premiums are higher as compared to term plans. Whole life insurance plans also offer partial
withdrawals after completion of premium payment term.

SUM ASSURED
(WITH ANNUAL
PREMIUM PAYING
GUARANTEED PREMIUM MATURITY BENEFIT
TERM
MATURITY SUM RANGE
ASSURED)

Guaranteed Sum Assured +

Rs.10,000- non-guaranteed bonus (if
20 years Rs.3 lakh
Rs.15,000 any) + non-guaranteed
terminal bonus (if any)

Best known for: Life coverage for whole life.

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Benefit of Whole Life Plan: Lifelong protection to the insured and an opportunity to leave behind a
legacy for heirs.

6. Child Plan

Child plan helps to build corpus for child’s future growth. Child plans help to build funds for child’s
education and marriage. Most of the Child Plan provides annual installments or one time payout after
the age of 18 years.

In case of an unfortunate event, the insured parent passes away during the policy term - immediate
payment is payable by the insurance company. Some child plans waive off the future premiums on
death of the life insured and the policy continues till maturity.

ANNUAL
SUM PERIODIC MATURITY
TERM PREMIUM
ASSURED RETURNS BENEFIT
RANGE

Maturity benefit +
Lump sum guaranteed returns +
20 years Rs.18 lakh Rs.1 lakh payouts on non-guaranteed
regular interval accumulated bonus (if
any)

Best known for: Building funds for your child’s future.

Benefit of Child Plan: Helps in fulfilling your child’s dream.

7. Retirement Plan

Retirement plan helps to build corpus for your retirement. Helping you to live independently
financially and without worries. Most of the child plans provide annual installments or one time
payout after the age of 60 years.

In case of an unfortunate event, life assured passes away during the policy term - immediate payment
is payable to the nominee by the insurance company. Death benefit will be higher of coverage or fund
value or 105% of premiums paid. Vesting Benefit will be payable if the life assured survives the
maturity age. In which case, payout will be fund value which has to be utilized for buying an annuity.

Best known for: Long-term savings and retirement planning.

Benefit of Retirement Plan: Helps in building corpus for retirement.

ANNUITIES

An annuity is a method by which a person can receive a yearly sum in return for payment to an
insurance company for a sum of money. It is not a life assurance, though life assurance companies deal
with it and is based on actuarial principles. For example; if a person with a large sum of money wants

23
to provide on income for oneself when on retirement, or at any other time, she or he can approach a
life assurance company and purchase an annuity.

Forms of Annuities The annuity can start immediately ( that is immediate annuity or may start at a
future date ( that is deferred annuity ) .

 It can provide an annuity for the life of the person ( the annuitant) or may be payable
irrespective of death for a certain period ( annuity certain )
 Guaranteed annuity provides annuity for a guaranteed period until the annuitant dies.
 Reversionary annuity provides for payment to annuitant that is wife or death of another
named person that is husband.
 Joint and last survivor annuity payable while two people husband and wife are alive and on
death of one, will continue at the same rate or less rate on the life of survivor.

FORMATION OF LIFE INSURANCE CONTRACT

Life Insurance is Legal Contract and its formation is subject to fulfillment of the requisites of a valid
contract under Indian Contract Act 1872. Since Insurance is a contract section 2(h) and Section 10 of
the Indian Contract Act 1872 are applicable.
I) Parties to a Contract
To constitute a contract, there must be an offer/ proposal and acceptance. One person signifies to
another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said to make a proposal. When a person to whom the
proposal is made, signifies his assent thereto the proposal is said to be accepted. A proposal, when
accepted, becomes a promise. The person making the proposal is called the “promisor”, and the
person accepting the proposal is called “promisee”. Therefore in every contract, there must be two
or more parties/persons at least two parties/persons. For the Formation of Life Insurance Contract,
there must be two Parties.

II) Agreement
Agreement between the parties is an essential element for the formation of Valid Contract. Like
other all Contracts, a Contract of Life Insurance there must be Agreement between the party.
The people who wish to get ensured intend to buy the policy make the 'offer' and the other party who
is ready to assume the risk stated, as the acceptance. In case of life insurance offer is called the
proposal. If Life Insurance Company accepts the proposal, it is converted into an agreement. Anyone
who is willing to buy life insurance policy proposes to enter into the contract is an offer and when this
offer is accepted by another party who agrees to assume the risk stated, it is an acceptance.
III) Competency of the parties or capacity to contract
According to Section 11 of the Indian Contract Act, 1872 To constitute a valid contract,
contracting parties must be competent. Every person is competent to contract who is of the age of
majority according to the law to which he is subject, and who is sound mind and is not disqualified
from contracting by any law to which he is subject. That means one who is Major, Sound Mind
and not disqualified is competent to enter into a contract. In the Contract of Life Insurance, It
(Competency of the Parties) is essential.

24
IV) Free consent
Free Consent is an essential element for formation of a contract. According to Section 10 of the
Indian Contract Act, 1872, all agreements are contracts, if they are made by the free consent. Section
13 and Section 14 of the Indian Contract Act, 1872 defines 'Consent' and 'Free Consent' respectively.
According to Section 10 of the Indian Contract Act, 1872, to constitute a valid contract, parties should
enter into the contract with their free Consent. Consent is said to be free when it is not obtained by
coercion, or undue influence or fraud or misrepresentation or mistake

V) Legal Consideration
Consideration is necessary for the formation of a contract. It means "something return". It is the
price paid for the contract. It must be Lawful. A contract without consideration is void. According to
Section 2(d) of the Indian Contract Act 1872, there are three kinds of Consideration, viz Past, Present
and Future Consideration. In a contract of life insurance, the insured gives premium as a consideration
in return of which insurer undertakes to pay a certain amount at a specified contingency. The contract
of life insurance cannot be termed as a valid contract without the payment of the first premium.
VI) Lawful object
To constitute a valid contract the object of the contract must be lawful. It must not be against
public policy. According to Section 23 of the Indian Contract Act 1872, the object is unlawful
which is -
a) Forbidden by law
b) Opposed to public policy
c) Immoral
d) Which defeats the provision by any Law

LIFE ASSURANCE:
Both these two terms are used synonymously in the context of insurance. The term ‘
Assurance ‘ is applied in life insurance, while the term “insurance “ is used in other types of insurance
like fire or marine.

DIFFERENCE BETWEEN LIFE INSURANCE AND LIFE ASSURANCE:

Assurance refers to a contract in which the sum assured is bound to be payable sooner or
later. But a contract of insurance for compensation of damage or loss and the question of claim
do not arise in case there is no loss.

The term insurance is used when the risk is undertaken and in such cases the policy does
not become a claim. But in case of assurance the policy is bound to become a claim in the
stipulated manner e.g. the insured may die in the course of the term of the policy or else he is bound to
attain a particular age. In common usage the terms are very widely used to mean one and the same
thing.

PRINCIPLES OF ASSURANCE:

 PRINCIPLES OF COOPERATION:

25
 Insurance is a cooperative device . If any person providing for his own losses , it
cannot be strictly insurance, because in insurance the loss is shared by a group of persons are
willing to cooperate.
 PRINCIPLES OF PROBABILITY:
The degree of loss is depends the various factors the affecting factors are analyzed
before determining the amount of loss.
 LEGAL INSURANCE:
The legal principles are essential for the validity of the insurance contracts.
 PRINCIPLES OF INDEMNITY:
The object of this principle is to place the insured as far as possible in the same
financial position occupied by him before the happening of the event. The insured is not
allowed to make any profit.
 PRINCIPLES OF CONTRIBUTION:
Contribution is the right of an insurer who has paid a loss under a policy to recover
a proportionate amount from other insurer who is liable for the some loss. Thus the
contribution is the right of an insurer who has paid under a policy to call upon the other
insurer who is to contribute equally or otherwise liable for the same loss.

ASSIGNMENT MEANING:

According to section 38 of the Insurance Act, an assignment means the complete transfer of
rights, title and benefits under the policy., The insured making an assignment is called “Assignor” and
the person to whom the policy is assigned is called the “assignee”.

FEATURES:

 For valuable consideration- loan on the security of life policy;

 As a gift out of love and affection ; and
 To the government for the purpose of paying estate duty provided the policy is on life of the
policyholders.

ASSIGNMENT FORMS:

Assignment may take two forms:

1. Conditional Assignment :
The assignment is made with a provision that in the event of the assignee predeceasing
the assignor or the assignor surviving the date of maturity, the policy may revert to the
assignor.
2. Absolute assignment :
The assignment is made by transferring all the rights titles and interests in the policy to the
assignee without any reversion. The policy becomes the property of the assignee who alone can
deal with the policy in any manner he likes and may assign to another person.

THE STEPS IN ASSIGNMENT

26
  PROCEDURE :
A transfer of life insurance can be made either by endorsement on the policy itself
or by executing a separate instrument.
 NOTICE:
On valid assignment a return must be given to the insurer together with a certified copy
of the endorsement.
 PRIORITY:
If the policy has been assigned to more than one assignees the priority of the claims of
the assignee shall be governed by the order in which the notice to the insure is delivered.
 ACKNOWLEDGEMENT:
The insurer shall on the request of the person to gave notice grant a written
acknowledged of the receipt of such notice of payment of a fee not exceeding Rs. 1lakhs.
 RECOGNITION:
From the date of receipt of the notice the insurer shall recognized the transferee
named in the notice as the only person entitled to the benefits under the policy.
 CONDITIONAL ASSIGNMENT:
An assignment in favour of a person made with the condition that is shall be
operative during the life time of the person whose life is insured is valid.

THE CONDITION OF AN ASSIGNMENT:

 The assign must have absolute right or interest and title in the policy as an original
policyholder.
 The assignor must be major and competent to a contract.
 The assignee must have not any legal disqualification.
 The assignment must be in writing.
 The assignor must after his signature to the assignment deed.
 At least one witness must attest the signature of the assignor.
 It should must have lawful consideration.
 That is it should be measured in terms of money.

NOMINATION:

To nominate means to name or mention by name. The holder of a policy of life insurance on
his own life may nominate a person to whom the amount of the policy is to be paid in the event of his
death. Nomination may be done at the time of taking out of the policy or at time before its maturity.
The person who is so nominated in the policy is called the “ Nominee”.

A nomination may be cancelled or changed by an endorsement or a further endorsement or a

will before the policy matures for payment only when a notice in writing of any cancellation or change
of nomination is received from the assured.

RULES APPLICABLE FOR NOMINATION

 PROCEDURE :
The nomination may be an endorsement on the policy.

27
  DISCHARGE FROM LIABLITY:
The insurer is discharge from his liabilities under the policy by paying to the
nominee.
 CANCELLATION AND CHANGE:
A nomination can be cancelled or changed by a further endorsement on the policy.
 AUTOMATIC CANCELLATION:
An assignment of policy automatically cancels a nomination except on an
assignment to the insurer to secure a loan.

DIFFERENCE BETWEEN NOMINATION AND ASSIGNMENT

NOMINATION ASSIGNMENT
It can be done at time of the proposal. It is not possible at the time of proposal as he has
not acquired any property which can be
transferred.
It can be done only by an endorsement on the It is possible both by endorsement or a separate
policy not by a separate deed. deed.
Life assured alone can nominate Assignment is possible by the owner who can be
an assignee also.
It does not need a consideration It has to be for a consideration unless it is for
love and affection.
It does not be witnessed It must be witnessed.
The creditors can get the policy attached A creditor of the life assured has no right to an
assigned policy.
Nominee has no right to the policy money so The assignee is the owner of the policy and can
long as the life assured is alive. give a valid discharge to the insurer even if the
assured is alive.
On the death of the nominee , nomination On the death of the assignee his successors
becomes invalid inherit the right to the policy.
It is automatically cancelled by a subsequent A assignee can further assign the policy.
assignment.
A nominee merely receives the money on behalf The assignee is the owner of the property which
of the beneficiaries. He does not own it. is the insurance policy.

REVIVAL:

When the assured fails to pay the premium amount within the days of grace , his policy is
said to be “Lapsed”. Such a lapsed policy may however be revived during the life time of the assured
under the following schemes:
(a) Ordinary revival scheme:
The arrear premiums are paid with interest along with other medical requirements, if
any.
(b) Special revival scheme:
It is meant for those policyholders who cannot pay all the arrear premiums, but are
interested to receive the policy. In this scheme, the date of commencement of the policy is

28
 shifted to the date of survival. A necessary condition for this revival is that the policy should
not have lapsed for more than two years and it must not have acquired a paid up value.
CLAIM:

Life insurance company depending upon the types of policies sold by them receive a
variety of claims. However the claims can be simply categorized as (1) Maturity claims and (2) Death
claims.

FEATURES:
 Policy must be in force at the time of claim.
 Insured must be covered by the policy.
 Nothing was outstanding to the insurer at the time of claim.
 The claim is covered by the policy

SETTLEMENT OF CLAIMS :

Settlement of claim

CLAIMS OF DEATH CLAIMS

MATURITY

Let us discuss the procedure for settlement of death and maturity claims.
1. Maturity claims:
If the policyholder lives through the duration of the policy and becomes eligible to
get the maturity value, it is called settlement of a maturity claim. As the policyholder is alive the
nomination is of no significance. In order to facilitate the settlement of the maturity claim on time, the
insurer gets in touch with the concerned policyholder about two months in advance sending him the
discharge voucher and requesting him to return the same duly stamped , signed and witnessed along
with
o The policy document for cancellation;
o Proof of age , if age is already not admitted; and
o If there is an assignment executed on a separate stamped paper the document of
assignment.
2. Death claim:
When the life assured dies before the date of maturity the policy emerges into
death claim and the amount of claim is paid to the nominee or assignee as the case may be. The death
claims are of two types viz., normal death claim and premature claim. If the assured dies after two
years of the commencement of the policy it is treated as normal death claim. In case the assured dies
within two years of the commencement of the policy it is called premature claim.
Procedures :
1. Intimation of death
2. Proof of death

29
 3. Confidential report by the agent
4. Proof of death
5. Proof of title
6. Confidential report by the agent
7. Other documents
8. Calculation documents:

LOANS:

The insurer may grant loan against the security of the surrender value of the policies.
In India loans are granted on unencumbered policies up ,to 90 percent of the surrender value in case of
policies which are in force for full sum assured and 85 percent of the surrender value in the case
policies which are paid up being in force for reduced sum assured. In case policies are due to mature
within three years a large percentage may be granted. The minimum amount for which a loan can be
granted is Rs.150 and the rate of interest is 7.5 percent per annum payable half yearly. Loans are not
granted on certain type of policies when surrender values are not accumulated.
LAPSE VALUE :
If the policy holder fails to pay any of the due premiums with in the days of grace the
insurers liability ordinarily ceases under the policy and the contract to an end.

Normally every policy has a grace period - varying from 15 to 30 days - within which premium
can be paid even after the due date. However, if the premium is not paid even within the grace period
the policy lapses.
Thus the policy is lapsed and all the benefits related to the policy are terminated . The insurer
however provides certain alternatives to help the insured at the time of lapsation.
SURRENDER VALUE :
The term surrender value refers to the amount of money which the insurer agrees to
pay in case the assured decides to surrender his policy before it maturity. Ii is said that the policy
holder wishes to surrender his policy to the insurer and gives up his claim on it.
Surrender of policy indicates termination of the contract of insurance. The amount of
surrender value is calculated on the basis of actual premium paid and number of years the policy has
been alive. Surrender value increases with each payment of premium.
When the assured is unable to revive his policy, he can surrender his policy and can get cash
surrender value .With this payment the contract comes to an end and the assured will get the cash
value without any liability to pay further premiums. In India the corporation has guaranteed surrender
value if the premiums have been paid for at least two years or to the extent of one tenth of the total
number of premiums stipulated for in the policy provided such one tenth exceeds one full year’s
premium.
The minimum surrender value allowable under this policy is equal to 30 percent of the total
amount of the within mentioned premium paid excluding the premiums for the first year and all extra
premium.
TERMS AND CONDITIONS:
 The policy shall be assigned absolutely to the corporation.

30
  Interest will be charged for a minimum period six months even if rapid within six
months.
 Interest shall be paid half yearly at the specified rate.
 If a policy has been assigned to someone else, the assignment has to force in the loan
transaction.

********************UNIT-II COMPLETED************************

QUESTION BANK

5 MARKS

1. What are the types of life insurance policy?

2. What are the features of life insurance policy?
3. Difference between assignment and nomination?

10 MARKS

1. What are the procedures for settlement of claim?

2. What are the types of life insurance policy?

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.

UNIT - III

FIRE INSURANCE

INTRODUCTION:

Fire has become a part of our day to day life. Fire is needed in almost all the places like houses,
offices, factories, railways, cinema houses, hostels, even in hospitals. Fire insurance is a method to
compensate for the loss due to fire. Fire causes huge losses to property, human lives and animal lives.
By fire insurance, owner can prevent damage due to fire.

Meaning of Fire:

The term “fire” means a visible flame or glow accompanied by heat. In fire insurance the term
“fire” means actual ignition. Ignition means “burning”. The presence of flame is a condition pre-
requisite. Thus, damage by smoke, heating, scorching or charring without actual burning, is not
considered as “fire”.

Meaning of Fire insurance:

Fire insurance is a social device to compensate for the loss consequent up on destruction by
fire. It is a co-operative device to share the loss. It relives the insured from the dislikes of the fire
losses to which he is exposed. The insurer undertakes to indemnify the insured against any loss due to
fire caused to the property insured in consideration of premium paid by the insured. Fire insurance
provides timely financial help in case of loss of insured properties. It also provides for the
consequential loss including profit due to interruption of business on occurrence of fire.

Definition of Fire insurance:

According to sec.2 of insurance act, 1938, “Fire insurance business means the business of
affecting, otherwise than incidentally the some other class of insurance business, contracts of
insurance against loss by or incidental to fire or other occurrence customarily included among he risks
insured against in fire insurance policies”.

V.R. Bhushan and R.S. Sharma defines fire insurance is an agreement whereby one p[arty, in
return for a consideration, undertakes to indemnify the other party against financial loss which he may
sustain, by reason of certain defined subject matter being damaged or destroyed by fire or other
defined perils up to an agreed amount”.

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Fire insurance is “A contract whereby the insurer in consideration of the premium paid undertakes to
compensate the insured for any loss that may result due to occurrence of fire”. FIRE INSURANCE
CONTRACT

1. Essentials of a valid contract:

Like any other ordinary contract, a fire insurance contract must fulfill the essential elements of
a valid contract.

2. Indemnity:

The contract of fire contract is contract of indemnity and the insured cannot claim anything
more than the value of goods or properties lost or damaged by fire or the amount of policy whichever
is less

3. Good faith:

A fire insurance contract, being a contract of utmost good faith, requires the insured and the
insurer to disclose everything which is in their knowledge and which might affect the contract.

4. Insurable interest:

A fire policy is valid only if the policy holder has an insurable interest in the property insured.

5. Consideration:

Fire insurance policy is issued from a lawful consideration i.e., premium.

6. Term of the policy:

A fire policy is issued usually for one year duration but in some cases for shorter periods also.

7. Scrap:

The scrap or whatever left of the goods or properties after damage or destroyed by fire,
automatically pass on to the hands of the insurer after the payment of the claim under fire insurance.

8. Several policies:

In case of several policies for the same property, each insurer is entitled to contribution from
other insurers. After indemnification, the insurer is subrogated to the rights and the interest of the
policy holder.

9. No claim when a fire is deliberate:

Nothing can be recovered from fire insurance company if the fire is caused deliberately

10. No claim under certain conditions:

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 Fire policies generally contain conditions exonerating the insurer from liability under certain
circumstances like unrest, civil disturbances; war etc. in the absence of any specific exception, the
insurer is liable for all losses caused by fire what ever may be its causes.

11. Indirect risks:

The fire insurance also includes indirect risks such as comprehensive risks, consequential risk
caused by fire and reinstatement or rehabilitation risks which occur after the fire destroys the goods or
properties.

12. Assignment:

Fire policies can be assigned with the prior consent of the insurer.

13. Intimation of fire:

On occurrence of the fire, the insurer should be intimated immediately so that he could salvage
the remainder of the property and can also determine the amount of loss

14. Cover note:

If fire insurance, a cover note is issued in advance of the policy and usually contains the same
terms and conditions on which a policy is to be issued. If any loss occurs before the policy is issued,
cover note will be sufficient to prove the insurance.

15. Settlement of claim:

The claim may be settled in cash or by reinstating the goods or properties damaged by fire
under the fire insurance.

16. Indivisibility:

The fire insurance contract covers the fire losses in whole and generally indivisible unless
specifically provided by the contract.

17. Personal in nature:

Fire insurance does not ensure the safety of the insured property. Its purpose is to see that the
insured does not suffer loss by reason of his interest in the insured property. So, it is personal in nature
in the sense that it involves the payment of money if the loss occurs.

FIRE INSURANCE POLICIES FOR STOCKS:

Fire insurance may be of any kind of movable and immovable having pecuniary value. The
property intended to be insured must be properly described. As per fire insurance, the following are
the examples of insurable property such as:

 Buildings

34
  Electrical installation in buildings
 Contents in building such as machinery, plant and equipment, accessories etc..
 Goods (raw materials, WIP, semi finished goods, finished goods, packing materials) in
factories and godwon
 Contents in dwelling, shops, hotels etc..
 Goods in open
 Furniture, fixture and fittings
 Pipelines located inside and outside the compound etc

USES OF FIRE INSURANCE

The fundamental principles of fire insurance are:

1. Insurable interest:

The insured should be interested in preserving the subject matter. Without insurable interest,
the contract will be regarded as a gambling policy and therefore void. Three essential conditions must
be fulfilled to constitute an insurable interest in the property:

 There should be a physical object capable of being damaged or destroyed by fire

 The object must be the subject matter of insurance
 The insured must stand in such relationship as recognized by law where the insured is
benefited by the safety of the subject matter
The insurable interest in fire insurance must be present at the time of effecting contract and ta the time
of loss. Insurable interest in fire insurance may arise as follows:

 Ownership is the most common form but in addition to full ownership, joint ownership
gives the right to insure
 An agent may affect an insurance on behalf of his principal, if he possesses an
insurable interest
 Administrators, executors and trustees
 Bailee who possesses legality
 A mortgagee has an insurable interest in the property pledged as security for the debt
 A partner has an insurable interest in the firm’s property
 A official receiver or assignee has an insurable interest
 Building contractor

2. Utmost good faith:

Both insured and insurer are supposed to be faithful to each other. They should not conceal any
information pertaining to property to be insured. The insured, in particular, is required to reveal all the
material facts known to him about the subject matter. The insured or the proposer is generally not
required to disclose the following information:

 Any circumstances which diminish or improve the risk

35
  Facts which are known or can reasonable be presumed to be known to the insurer and fall
within his professional knowledge
 Facts waived by the insurer and
 Facts which are embodied in the policy itself.

3. Indemnity:

Fire insurance contracts are strictly indemnity contracts. The insurer must indemnify only the
actual loss of property insured under the policy. In case the actual loss incurred is more than the
assured amount, then only the policy amount will be paid to the insured and nothing more is paid. The
measure of indemnity varies with the type of property. The indemnity may be in the form of cash,
repair, and replacement or re instatement.

Consequences of indemnity:

The following are the consequences of the doctrine of indemnity:

 The insured is allowed to claim only the actual amount of loss sustained
 If part of the property is destroyed by fire, the insured can claim compensation only
to extent of damage suffered.
 If the insured possesses more than one policy, he is precluded from getting more
than one complete indemnity.
 If the insured possesses any rights against a third party for recovery of his loss, the
same should be transferred to the insurer
4. Causa proxima:

It means direct or nearest cause but not distant or remote cause. The insurer is liable only for
those losses which directly and reasonably follow from the event insured against. To claim the loss,
the fire must be proximate or direct cause of loss. If the fire is a remote cause of loss, the insurer is not
liable for the damage to the insured property and not for all the consequences that mechanism from
such loss.

5. Doctrine of subrogation:

Subrogation is a combination of the two Latin words: Sub and rogare, meaning under and
asking respectively. This means stepping in to the shoes of other. By this principle, one party to a
contract gets the power to exercise all the rights of another party against a third party.

6. Warranties:

A warranty is an agreement expressed in the policy whereby the insured claim that certain facts
shall be true or that certain acts shall be done relating to the risk. Some warranties can be removed
from a policy by the insurer on the payment of additional premium while some warranties are
considered by the insurance companies as very important and with out them they would not be willing
to accept the risk.

7. Contribution:

36
 It refers to sharing the loss between co-insurers. There are more than one insurer for a
particular property or the insured has insured the same property with many insurers. The insurer
paying the claim has a right up on other insurers to pass or transfer part of his burden. The total loss
will be shared by insurers ratably.

Essential requirements of the doctrine of contribution:

 The insured must be the same person for all contracts

 Policies concerned must cover the same peril which has caused the loss
 They must try to protect the same interest of the insured and
 Policies must be in force at the time of loss

Features:

The following are the features;

1. A fire insurance contract like any other contract, must fulfill the essential elements of a valid
contract like offer and acceptance, lawful consideration, legality of object, etc.,.
2. A fire insurance contract is a contract of indemnity. This means that in the event of loss, the
insured can recover from the insurer the actual amount of loss or the maximum amount for
which the subject matter is insured whichever is less.
3. The insured should have insurable interest in the subject matter if the contract both at the time
of taking the policy and at the time of loss.
4. Premium is required to be paid at the time of taking policy.
5. Fire insurance policies are usually taken for one year duration but in some cases for short
periods also.
6. Fire policies can be assigned with the prior consent of the insurer.
7. Nothing can be recovered under a fire policy if the fire is caused deliberately.
8. The loss must be outcome of fire or ignition only.
9. In case of several policies for the same property, each insurer is entitled to contribution from
other insurers after indemnification; the insurer is subrogated to the rights and interests of the
policy holder.
10. The fire insurance also includes indirect risks such as comprehensive risks, consequential risks
caused by fire and reinstating or rehabilitation of risks which occur after the fire destroys the
goods or digestions.
Fire Insurance Coverage:

The scope of fire insurance is of two kinds like ordinary scope and comprehensive scope.

1. Ordinary scope or fore insurance:

It includes only those risks which define the narrower scope of fire insurance. The losses
caused by the fire only. Some losses caused in the insurance against fire and some losses are left out.

A.)Risks covered under fire insurance:

37
 The risks causing losses have to be stated in the fire policy and only these links are indemnified
by the insurance company in case of loss. The following are in the risks caused by fire in fire
insurance.

 Fire or ignition
 Blasting of boiler used for household purposes
 Blast of gas cylinders used for household cooking
 Blast of gas etc., used for the purpose of lighting and heating in any building.
 These blasts causing fire must be uncertain and accidental.
B.)Risks not covered under fire insurance:

These are certain risks for which insurer don’t indemnify the insured in case of loss. They are
as follows;

 Loss, destruction, damage to precious stone and metals, artistic goods and articles, maps,
stamps, cheques, account books, archives and rare documents etc.,
 Loss, destruction or damage caused by riot, civil disturbances, revolutions, war, aggression,
internal emergencies, storms, cyclones, etc.,
 Spontaneous fire in jungle or bushes
 Spontaneous combustion caused by chemicals.
 Theft during fire or after the break out of fire.
 Compulsory burning of goods or properties by the order of government or court’s decision.
2.) Comprehensive scope of fire insurance:

Numerous fire policies have been introduced to cover various types of risks allied to the risk of
fire. Coverage of such risks under the ambit of fire insurance has the scope. Some special policies have
helped in great way in broadening the scope of fire insurance in the following manner.

By including the excluded perils and risks:

In these risks which cannot be injured under general insurance schemes, have been brought
under the cover of fire insurance such policies are called special perils insurance relating to
spontaneous combustion, earthquakes, blasts, etc.,

By including consequential losses and other indirect fire risks:

In these, the indirect risks and losses are covered. Such risks or losses are also known as
consequential risks or loss. Expenses after the fire, rehabilitation expenses of the burnt factory,
expenses the examples of such risks or losses.

Special coverage:

A part from standard coverages, fire policy may also be issued to meet the indirect risks or losses of
clients like consequential losses. These losses are those which have been created by the fire. Such risks
or losses are also known as “Loss of Profit”. Whenever fire takes place, not only its assets are
damaged or lost, but the production work in the factory is also stopped for a considerable time. Burden
of fixed costs and additional costs are also to be borne. The consequential losses inculde loss of net
profit, loss of fixed expenses, increased cost on account of problems arising out of fire and Rent of the
building taken on hire.

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Hazards in fire insurance:

Fire loss in the result of two types of hazards

1.) Physical hazards:

It refers to the inherent risk of fire in the property which may on account of the situation,
inflammable nature, construction, artificial lighting and heating, lack of fire extinguishing appliances
etc. Fire insurance provides protection to the property against the occurrence of fire, an unavoidable
physical hazard.

2.) Moral hazard:

The term “moral hazard” refers to the willful and malicious setting on fire of the property by
the owners or somebody else. Moral hazard may be in anymore of the following forms.

 In Cendiarism:
It refers to the deliberates destruction of one’s own property by fire. Some insured indulge in such
activities to realize the insured amount from the insurer.

 Arson:
It refers to setting on fire the property of the insured by some other persons. Some persons may
set fire to property of others with a view to getting reward for information about the breakout of the
fire or assisting in extinguishing it.

 Passive dishonesty:
It refers to the willful neglect by the insured to take proper action for extinguish fire and his
carelessness during the occurrence of fire.

Kinds of fire policies for products:

The various fore insurance policies which are issued in order to meet different demands of the
insured.

1. Valued policy:

It is policy in which the amount payable, in case of loss, is determined at the time when the
policy is taken. In the event of fire, the actual loss subject to a maximum of the insured value will only
be payable irrespective of its market value. This policy is applied for insuring special works, paintings,
works of act, paintings, sculptures, jeweler etc., since the value of damage these articles cannot be
determined at the time of loss, valued policies are commonly used.

2. Valuable policy:

It is a policy in which the amount payable to the insured, in case of fire, is determined on the
basis of market value of the damaged property. The amount of compensation is not determined at the
time of risk happening.

3. Special policy:

39
 A specific policy is one which insurer a risk for a specific amount. Under such a policy, the
insurer will pay the entire loss to the insured provided that this loss does not exceed the specified
amount mentioned in the policy. In this policy, the value of property insured has no relevance in
arriving at the measure of indemnity and the sum insured sets the upper limit of loss compensation.

4. Excess policy:

When stock in hand fluctuates every time policy for an amount below which the stock never
goes and another policy caused the excess policy for the balance amount of stock declared every
month for which premium is charged on average monthly excess amount. Thus any loss more than the
minimum stock value is covered by the second policy.

5. Declaration policy:

Stocks kept in wholesaler’s godown are subject to frequent fluctuation in value or in volume.
In order to provide cover for such stocks, a special policy known as “declaration policy” has been
designed. This policy is taken for a maximum value of stock which may go up at any time; but a
provisional premium is paid for only 75% of the sum assured. At regular intervals, the insured is
required to furnish the declaration of stock in hand. At the end of the period of insurance, an average is
taken of the total declarations and the premium actually payable is calculated for the average. If this
premium exceeds the provisional premium, the extra premium is collected. Otherwise, refund of
premium is allowed.

6. Floating policy:

A floating policy is one which covers different kinds of goods lying in different localities and
sites under one sum and for one premium. Under this policy, the insurers fire the average rate of
premium. Which is ascertained by taking into account the total premium that would have been paid if
each lot of goods lying in different locations had been insured under specific policies for specific
amounts? Then an average of the total on a percentage basis is found out. The rates are likely to be
revised annually.

7. Comprehensively policy:

The insurer undertakes to indemnify the insured not only against the fire risk, but all other risks
such as burglary, theft, riot, civil commotion, flood, lightning, etc., the comprehensive policy is also
known as “all risk policy” which does not mean to cover such and every risk. There are certain
exclusions also.

8. Consequential loss policy:

This policy provides protection not only against loss of stock due to fire but also against loss of
profit due to stoppage of work in the factory affected by fire. Thus, the fore consequential loss

40
following the outbreak of fire is also covered under this policy. This policy is also known as “loss of
profits” policy.

9. Average policy:

The policy which contains the “Average Clarke” is termed as an average policy and the amount
of indemnity is determined according to the value of the property insured. If the insured has taken a
policy for lesser amount than the actual value of the policy, the insured will be deemed to be his own
insurer for the amount of under insurance. The insurer will pay only such proportion of the actual
value of loss as his insurance amount bears to the actual value of the property at the time of fire. The
amount payable under average clause is calculated as given below:

Claim= (insured value\value of property) x Actual loss

10. Building in course of construction policy:

The building in course of construction and machinery in course of installation are insured fewer than
one of these basis:

 Policy is issued for a sum insured at the outset, which sum is increased periodically on
payment of proportionate additional premium.
 The policy is issued for the total estimated completed value of the building and premium is
calculated at half the normal rate applicable.

Fire policy conditions:

The conditions are as follows

1. Misdescription:

As per this clause, there should be no misdescription or misrepresentation of non-disclosure of

the material facts as regards the subject matter is concerned, otherwise the policy is voidable at the
option of the insurer.

2. Payment of premium:

This condition states that only the printed form of receipt duly signed by an official or duly
appointed agent of the company will be a proper receipt for premium and will be given to the insured.
If this is not done, then the payment in respect of any premium shall not be deemed to be payment of
the company.

3. Insurance with other companies:

41
The insured shall give notice of any insurance or insured which may be, subsequently affected. The
purpose of this condition is to know the details of the other insurances and to call upon the other
companies in the event of loss to contribute proportionately.

4. Collapse of building:

According to this condition, the insurance cover is automatically cancelled in the event of insurance
collapse of the building or of any important part of the building if it goes to change the original risk.
The fall or displacement may subject the building or its contents to an increased risk of fire. The
insurance cover is not cancelled if the collapse is caused by fire.

5. Excluded losses:

The standard policy does not cover the losses such as

 Loss or damage due to natural heating or spontaneous combustion.

 Loss by theft after occurrence of fire.
 Loss of burning of public authority.
 Loss or damage caused by radiation.
 Loss or damage caused by contamination by radio activities.
6. Excluded perils:

The standard fire policy excludes damage caused by certain perils. Such perils are:

 War and civil war.

 Mutiny, riot, military action.
 Typhoon, hurricane, tornado, cyclone,
 Bush fire, practice, pampas or jungle fire and
 Explosion, except as given in the preamble
7. Excluded articles:

The articles, which are excluded from the scope of standard fire policy, are

 Goods held in trust or on commission

 Work of act or curiosity not exceeding Rs. 1000
 Any precious stones or bullion.
 Manuscripts, plans, drawings, models or moulds.
 Any kind of stamps, coins or paper money, cheque books, human work and
8. Aliekation:

The policy shall be avoided in any of alteration in the following nature:

 By removal of property to a place other than stated

 Whereby the risk of destruction or damage is increased and
 Whereby the insurer’s interest ceases except by will or operation of law.
9. Marine clause:

In case, a property is insured under marine and fire policies, the payment of compensation for
fire loss will be from marine first and any balance left of the loss will be met by fire policy.

10. Cancellation of the insurance:

42
 The contract of fire insurance can be canceled either by the insured or the insurer by giving
notice to the other party. In case of, the insurer cancels the policy; the insured can claim pro-data
redefined of premium. If the insured can cancels the policy at his own request, the refund of premium
will be made according to the short period scale.

11. Procedure of claim:

At the time of making a fire claim, the insured should give

 Immediate notice of loss

 Written statement of particulars property lost or damaged and
 Proof of loss, at his expense.
Rate Fixation in Fire Insurance

the term ‘Rate fixation’ refers to determination of an appropriate premium rate for different risks. The
rate fixation in fire insurance is not so scientific as in life insurance. While fixing the rates of premium
for different risks in fire insurance, various factors of both the physical and moral hazards are to be
properly evaluated and calculation work is to be carried out as accurately as possible. The rates of
premium determined must be adequate, not unfairly discriminatory, not excessive, economically
feasible, stable and flexible and should encourage loss prevention. In other words, the rates of
premium should be adequate enough to provide for full payment of claims including catlastrophe
losses, administrative costs(i.e. printing costs, transport requirements, staff salaries etc.) provision for
unexpectedly large claim in the form of reserve and a margin of profit.

System of rate fixation :

The actual process of rating consists of three steps viz., (i) Classification (ii) Discrimination and (iii)
Fixing rates or scheduled rating.

(i) Classification:

The first step in fixing rates of premium for different risk is the process classifying the various
properties to be insured. Properties are generally classified into three categories viz (a) common or
ordinary; (b) Hazardous ; and (c) Extra hazardous or doubly hazardous. Different rates of premium
are determined for each class of property. These classification do not hold good for a long time
because of varied nature of risk. Now the risks or properties are classified into various classes
according to factors affecting fire risk.

i) construction: for the purpose of rating simple risks e.g. dwellings, offices etc., buildings are
classified into two categories according materials used in construction of external walls and roof. Class
“A” construction includes buildings which have external wall of stone /bricks/concrete blocks and off
of RCC/ Masonry asbestos concrete sheets/ metal sheets/ tiles. The layer of grass hay or reeds on
incombustible roofing is permitted. Any construction other than class “A” construction as above
stated is considered class “B” construction.

(ii) Occupancy:

43
 Risks or properties are classified according to occupancy of the premises e.g. private residents ,
shops, godowns, industrial or manufacturing risks etc.

(iii) Natugoure of Flooring:

Wooden floors add fuel to fire. Besides wooden floors collapse easily in the event of fire,
causing damage to property on lower floors through falling machinery or goods from upper floors.

(iv) Height :

The grater the number of stroeys, the greater the hazard because of difficulties of fire
extinguishment. Besides, the grater number of floors involve the risk of collapse of the upper floors
causing heavy impact damage.

(v) Floor and Wall openings:

Openings in the floor for lifts and belts constitute higher physical hazard. It may case greater
chances of ignition of fire and can cause difficulty in extinguishing the fire.

(ii) Discrimation:

After classifying the properties on the basis of factors affecting fire risk mentioned above, the
insurer will have to make discrimation. Discrimation means “ the process of differentitation of the
risks from each other according to their merits and demerits”.

(iii) Fixing Rate or Schedule Rating:

 After having made differentiation of risks, the last step in rate making is to work out the
actual rate of premium for it. The usual method of ascertaining the average premium rate
premium rate for a particular risk is to choose a particular period of years and compare the
total of the losses in that class with the total values at risk as represented by the sums
insured in the class. in order to make the results fairly representative, a sufficiently loss
period from as wide a field as possible should be taken into account. The total loss figure
should include all management expenses such as staff salaries, cost of buildings, printing
costs, a margin or reserves commission and reasonable profits. The average fire rate
percentage may be calculated with the help of the following formula:
Average fire rate percentage(R) = L\V x 100

Where L represents the losses plus all other expenses including margin of profit and reserve and V
represents the values of insured amount.

The average fire rate percentage calculated above is known as “ Normal rate or average rate or
average rate for a particular group.” In each group , risks may differ from one another and in order to
maintain equity between different types of risk and between the insurer and the insured, it is necessary
to charge different rates of premium for different risks. Extra premium rates may be charged for
inferior construction, timber flooring, height, situation in a congested area and discounts may be
offered in premium for the buildings which have fixed extinguishing devices, automatic sprinklers etc.
the rebate will be allowed taking into consideration the efficacy of the means adopted.

44
Procedure for Settlement of Claims under Fire Insurance:

When the subject matter of insurance is lost or damaged in fire, the insured victim looks
towards the insurance company for rehabilitating himself. Generally, the following procedure is
adopted while settling the claims under fire insurance.

 Notice of loss :

First of all, the insured, immediately after the occurrence of a fire, has to send a notice of
loss to the insurance company. This notice enables the insurer to take such measures to
determine the cause of loss, estimate the extent of loss and deal with salvage.

 Evidence of loss:

If possible, the evidence of loss and other details such as time, place and circumstance under
which the loss occurred, may be sent along with the notice of loss to the insurer. Besides, he
should send particulars about the preventive measures taken by him during fire to mitigate the
loss. The duty of providing full particulars and proof of loss rests entirely upon the insured.
 Policy Report in case of Arson:

In case, the loss or damage due to fire is caused by arson(i.e. act of setting something on fire
intentionally and unlawfully by an unscrupulous person), the matter will have to be brought to
the knowledge of the near by police station. Even if there is a slight suspicion of anybody’s
involvement in this arson, the same should be mentioned in the complaint report submitted in
the police station. The police officials will after making proper investigation, issue a report.
Such report has to be submitted to the insurer. If the fire-brigade was summoned, the fire
brigade records should also be produced with the insurer.
 Formal claim form:

After having received the notice of the fire loss, a claim form is issued by the insurer to the
insured and he is requested to return it after completing and giving therein all the information
about the loss. The claim form contains the following information:\

 Name of the insured, policy number and address circumstances

 Date, time, cause and circumstances of the fire

 Details of damaged property

 Sound value of the property at the time of fire, where the insurance consists of several
items, a declaration is required of the value of each item under which the claim is made.

 Amount claimed after deduction of salvage value

 Situation and occupancy of the premises in which the fire occurred

 Capacity in which the insured claims whether as owner, mortgagee or the like

 If any other person is interested in the property damaged and

45
  If any other insurance is in force upon such property.

Incase the amount of the loss is small and the claim is simple and straight forward, the insurer will
admit the claim and send the cheque in full settlement without further enquiry.

 Inspection of loss:

If the loss is known or expected to be large and serious, the insurer will depute a independent
loss surveyor to ascertain the cause and extent of loss. The surveyor would inspect the
damaged property or goods at the scence of fire and contact the insured, his neighbours,
employees and other persons connected with the fire and collect the desired information. This
investigation enables the surveyor to have an idea of the nature and extent of loss and origin
and cause of fire.
 Ascertainment loss:

Having inspected the site of loss and gathered the relevant evidence, the surveyor will now
determine the liability and find out the total amount of loss. While determine the liability and
find out the total amount of loss. While determining the liability of the insurer, the surveyor
has to take into consideration several factors such as (a) the time of occurrence of fire. This is
an important factor as no liability arises when fire occurs before commencement of risk or after
the expiry of the policy. (b) the number of polices taken on the property, in order to make a
distinction between the concurrent insurance and non-concurrent insurance and apportion the
amount of loss. (c) the exact cause of fire as it directly affects the liability of the insurer. For
this purpose, the surveyor consults all the persons connected with the fire, and study the police
report, fire –brigade report or news paper reports of the fire accident.
 Application of Average clause:

While ascertaining the extent of the actual loss, the surveyor has to see if the policy is
subject to average clause. The average clause necessitated the valuation of the undamaged
property also. These amounts are generally determined by mutual agreement between the
insurer and the insured. This clause is inserted to penalize under-insurance by the
corresponding under – payment (pro-rata) of loss. Hence , in an average policy, the insurer can
be called upon to pay only such proportion of the loss as the sum insured bears to the total
value of the property.
The insurer will pay:
Claim : insured value/ value of property x actual loss
 Estimating claim when more than one fire takes place:

Sometimes, more than one fire may take place in the property or godown of the insured
during the currency of one fire insurance policy i.e. one fire takes place in January, and the
other in april, still a third in july of the same year. In such a situation, the insurer will pay only
the aggregate a sum upto the original amount of insurance.

 Estimating claim when property is insured with more than one insurer”:

46
 If an insured has insured his property, which is destroyed in fire later, with two or more
than two insurers, the insurer will settle his claim by applying contribution clause in the policy
i.e., the liability of the insurer will pay a rateable proportion. Thus in such situation each
insurer will pay a rateable proportion of the loss. For example, suppose a house is insured with
X co. for Rs. 1,50,000, with Y co. for Rs.1,20,000 and with Z co. for Rs.30,000. Later, the
house destroyed in fire, the actual loss due to fire, will be shared by all the three companies as
given below:
Xco, will pay ½ (1,50,000/3,00,000)
Y co, will pay 2/5( 1,20,000/3,00,000) and
Z co, will pay 1/10 (30,000/3,00,000)
The insured can claim the loss of Rs. 3,00,000 from any insurer in any order he likes but the
co-insurers will make adjustments among themselves in such a manner that the above
proportion is shared.
 Estimating claim when accounting records are destroyed;

Sometimes, the entire accounting records, which contain details about the value of stock of
lying in the godown may be destroyed in fire. As a result, the insured is not in a position to
ascertain the value of stock lost in fire and the amount of claim to be made a Memorandum
Trading Account is prepared for the period of interval from the date of last account till the date
of fire.
 Payment of claim:

After ascertaining the actual amount of loss incurred by the insured from the various steps
discussed above, the surveyor will determine the amount of compensation to be paid. Before
paying compensation, the surveyor will take a declaration from the insured regarding his
acceptance of his claim money and final settlement of his claim. This declaration and
surveyor’s final and comprehensive report is sent to the insurer, thereafter finally , the insurer
will settle the claim accordance with terms of the policy. There are four ways in which claim
are settled:
(a) cash payment
(b) Replacement of insured property
(c) Repair of insured property and
(d) Reinstatement.

The basic principle which applies in this respect is the principle of indemnity. The fee of the surveyor
is paid by the insurer but the insured has to bear the cost incurred in the preparation of his claim and
documents.

MARINE INSURANCE

INTRODUCTION:

Capital or consumer goods are produced in one country and the user is located in different
parts of the world. When these goods are transported from one country to another country by ship, the
ship has to face certain hazards due to marine perils face certain hazards due to marine perils such as
cyclone, storm, rocks, burning and sinking of the ship. These perils cause immense losses to both the

47
cargo owner and the ship owner. In order to cover such loss arising by marine perils, a special
insurance has been devised which is known as marine insurance.

Meaning:

Marine insurance is a form of insurance by which the insurer undertakes to indemnify the insured
against losses incidental to marine adventure. The insured agrees to pay a certain sum of money called
premium in consideration of the insurer’s guarantee to make good losses arising from certain specific
perils which may include “Perils of sea” as well as any land risks incidental to a sea voyage.

An instrument containing the contract of marine insurance is entered into, between the insurer
and the assured is called a marine policy or a sea policy. The consideration for the policy is called the
premium. The insurer under marine insurance is known as ‘Underwriter’.

DEFINITION:

Section 3 of Marine Insurance Act 1963 defines marine insurance as “an assignment whereby
the insurer undertakes to indemnify the assured in a manner and to the extend thereby agreed against
marine losses, that is to say the losses incidental to marine adventure”

Arnold defines “Marine insurance as a contract whereby one party for an agreed consideration,
undertakes to indemnify the other against loss arising from certain perils and sea risks to which a
shipment and other a marine adventure may be exposed during a certain voyage or a certain time”.

CHARACTERISTICS OF MARINE INSURANCE CONTRACT:

 It is a contract of indemnity
 It is a contract based upon the utmost good faith
 Doctrine of subrogation and contribution apply
 A marine policy is invariably subject to average clause
 All marine insurance contracts are subject to certain express and implied warranties
TERMS IN MARINE INSURANCE:

Insurable property

It means any ship, goods or other moveable exposed to maritime perils section (2)c. insurable
property is also called the subject matter of insurance. It must be designated in the policy with
reasonable certainty.

Marine Adventure

The term marine adventure includes any adventure where

Any insurable property is exposed to marine perils

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 The earning or acquisition of any freight, passage money, commission, profit or other
pecuniary benefit or the security for any advances, loans or disbursement is endangered by the
exposure of insurable property to maritime perils,
Any liability to a third party may be insured by the owner of, or other person interested in or
responsible for, insurable property by reason of maritime perils sec.2 (d).
Maritime Perils

Maritime perils are also called as “Perils of sea”. It means the perils consequent on, or
incidental to the navigation of the sea, fire, war perils, rovers, thieves, captures, seizures, restraints and
determinants of prices and people, jettisons, barratry and any other perils which are either of the like
kind or may be designated by the policy.

The term “Peril of sea” refers only to fortuitous accidents or casualties of the sea, and does not
include the ordinary action of the winds and waves.

Perils cover the following losses

Loss caused because of

Collision against a sunken rock

Collision with another ship
Heating due to the closure of ventilators to prevent the immersion of sea waters
Rats made hole in the bottom of a ship and sea water entered the ship through the
hole and damaged the cargo
Perils don not cover

Loss caused by rats

Loss caused to timber by worms
Loss caused by natural action of salt water of the sea.
TYPES ON MARINE PERILS

Marine perils are defined as “consequent on, or incidental to the navigation of the sea, fire, war
perils, rovers, thieves, captures, seizures, restraints and determinants of prices and people, jettisons,
barratry and any other perils which are either of the like kind or may be designated by the policy”.

Types of marine perils

i.) Perils of sea

It includes accidents, capture of the ship or its cargo by pirates, loses by collision etc. the loss
caused by perils of sea cannot be prevented by any care, skill and diligence on the part of the human
beings.

ii.) Fire
Though every type of fire or damage by water to put out or prevent the spread the spread of fire
or fire resulting from lightning, spontaneous combustion, explosion, negligence of the master of crew
etc., are covered by the policy.

iii.) Enemies

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 It includes all damages or losses sustained owing to the hostile acts of an enemy. Enemies
include all types of ships belonging to the foe or enemy countries and to their hostile acts, provided
such acts formed part of the enemy campaign.

iv.) Jettison
It is the voluntary and intentional throwing overboard or away a part of the cargo or part of
vessel’s equipment for the purpose of lightning or relieving the ship in case of necessity or emergency
to have a safe adventure or voyage.

If the cargo or any other thing is thrown overboard accidentally or fortuitously, then it does not
constitute jettison.

v.) Barratry
It refer to every wrongful act willfully committed by the, master of crew to the prejudice of the
owner without the connivance of the owner.

vi.) Men-of-war
It refers to the vessels authorized and maintained by nations for the purpose of defense or
attack in the event of hostilities and the loss arising out of collision against a man-of-war is covered in
a policy.

vii.) Pirates, Rovers, Thieves

In the olden days, when means of communications and transport were not so developed, the
perils on account of pirates, rovers and thieves were very common. But in modern time, however these
cases are rare.

viii.) Restraints
The prevention of free use of a port by the government of the country is known as restraint. It
may cause interruption and possible loss of voyages involving such ports and sacrifice of cargo.

ix.) Detainments
It covers losses resulting from the detention of a vessel and its cargo by blockage or possibly
quarantine regulation or other interferences by the police of nation while a vessel is in port.

x.) Arrest
It means forcibly taking away of the vessel and refer to political or executive acts.

xi.) Letter of Mart

It means power granted by a state government to individual citizen who undertakes to attack an
enemy’s merchant ship in revenge for losses where they had themselves suffered.

xii.) Letter of countermart

It refers to the power granted by the opposing nation to other persons to resist and retaliate
such attacks.

xiii.) Taking at sea

It refers to the stopping and taking into port a ship for examination in the event of any
suspicion of carrying contraband goods.

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MARINE INSURANCE POLICY

The instrument in which the contract of insurance is affected is known as the “Marine Policy”
or “Sea Policy”.

It is a document which incorporates the details of terms and conditions on which the contract
of insurance is entered into between the parties.

A contract of marine insurance is evidenced by the policy and the clauses attached to it.

Contents of marine insurance policy

 Name of the insured

 Policy number
 Sum assured
 Premium
 Stamp duty
 Steamer or other conveyance
 Voyage or journey
 Number of date of bill lading or lorry or registered post or air fright receipt
 Interest to be insured
 The subject matter insured and the risk insured against
 Place where claims are payable
 Place of issue of policy and date
 Signature of the authorized person signing on behalf of the insurers

FUNDAMENTAL PRINCIPLES OF INSURANCE OR FUNCTIONS OF MARINE

INSURANCE

The marine insurance has the following essential features which are also called fundamental
principles of marine insurance.

1. Fundamental features of general contract

2. Insurable interest to exist at the time of loss
3. Utmost good faith
4. Contract of indemnity
5. Principles of subrogation and contribution
6. Warranties
7. Proximate cause
8. Assignment and nomination of policy
9. Return of premium
1. Features of general contract:

It comprises offer, acceptance, lawful consideration and issue of policy. Broker prepares the
slip after getting ship owners instructions, merchant or other proposers. The original slip is presented
to a Lloyd’s underwriter who initials the slip and it is accepted. The premium is determined on the
assessment of the proposal. The premium is the consideration. The broker will send the cover note
with the terms and conditions.

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2. Insurable interest:

The insured should have insurable interest in the subject matter of insurance. When a man
stands in a pecuniary relationship with the subject matter of insurance, he is said to have insurable
interest. It is not essential for the insured to have an insurable interest at the time of effecting insurance
though he should have an expectation of acquiring such an interest. There are two exceptions to
insurable interest:

a. Lots of not lost:

There is no bar to buy an insurable policy even if one does not know about the
existence of the subject matter. There is complete reliance on mutual good faith of parties. If one
of the parties knows about the subject matter and does not disclose, then the contract is void.

b. P.P.I policies:
Insurance policy itself is the insurable interest in such a policy (policy proof of
interest). If loss takes place, the insurer will not verify the insurable interest of the holder. These
are not legally enforceable though insurers keep their promise.

The following parties should have insurable interest in marine insurance:

 Owner of the ship has an insurable interest on his ship and freight as he is likely to suffer
financial loss
 Crew of the ship have an insurable interest to the extent of their wages and salaries
 Owners of a warehouse or any other bailee has insurable interest as he has certain
responsibilities for the goods
 A mortgagee of a vessel or a lender has an insurable interest to the extent of his dues only
 Holders of bottomry and respondentia bonds
 The cargo owner can purchase policy up to the full price of the cargo
 The insurer under a contract of marine insurance has an insurable interest in his risk and
may re insure in respect of it

3. Utmost good faith:

Marine insurance contracts are based up on the legal principle of utmost good faith. If this is
not observed by either of the parties, the contract can be avoided by the other party. The burden of this
principle falls heavily on the insured. The insurer has to rely on the statement made by the prospective
policy holders. The insured must, before signing the contract, disclose to the insurer every material
circumstance which is known to him or which is ought to be known by him. The following are the
material facts in the contract of marine insurance:

a. Method of packaging:

Whether in cases or in bags. If in bags whether single gunny bags or double gunny bags

b. The exact nature of goods:

If the machinery to be covered is second hand, that fact must be disclosed

c. Carriage of goods on deck which are normally carried in the hold.

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 The doctrine of utmost good faith does not apply to:

a. facts of common knowledge

b. facts ought to be known to insurer

c. facts not required by insurer

d. facts which insurer can infer and

e. facts of public knowledge

4. Indemnity:

In marine insurance, the principle of indemnity is applied in a modified form. The marine
insurance act 1963 provides that the principle of indemnity may be applied “in a manner and to the
extent agreed” by the parties to the contract.

5. Subrogation:

The doctrine of subrogation refers to the right of an insurer to stand in place of insured after the
settlement of claim and to secure all the rights and remedies against the third party. In the marine
insurance, the right of subrogation arises to the insurer only after the payment of claim money to the
insured. Sec. 79 of the Marine insurance act 1963, says the loss paid is total or partial, insurers are
subrogated to all the rights and remedies of the insured. But in case of total loss, insurers are entitled to
take over the remains of the property.

6. Warranties:

A warranty in a marine insurance contract denotes a clause in the policy which must be strictly
complied with for the insurance to be effective. Any breach of warranty on the part of the insured frees
the insurer from his liability, though the insurer may overlook such a breach and go ahead with the
performance of contract. Warranties are

a. Express warranty and b. Implied warranty.

a. Express warranty:

An express warranty is one which is expressed or written on the face of the policy itself. It includes:

i. That the ship is safe on a particular day

ii. That the ship will sail on a particular day

iii. That the ship will proceed to the destination without any deviation from the
specified route

iv. That the ship is neutral and shall remain so during the voyage

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b. Implied warranty:

An implied warranty is that which is not expressly stated in the policy but which is understood
to be a part of the policy by law, general agreement or usage. It relates to a. sea worthiness of the ship,
b. legality of venture and c. non deviation.

7. Proximate cause:

In marine insurance, if loss is brought about only by one event, it would be no problems to
decide the question of liability. The insurer is required to identify the proximate cause of loss among
the various causes and verify if it is included in the insurance. Only if proximate cause of loss is
included in the insurance, the insurer will be held liable to pay compensation to the insured.

8. Assignment and nomination of policy:

A marine insurance policy is assignable unless it contains terms expressly prohibiting

assignment. It may be assigned either before or after loss and it may be assigned by endorsement
thereon or on other customary manner.

9. Return of premium:

The general principle applicable to the claim for the return of premium is that if the
insurers have been on the risk, they cannot be said to have earned the premium. But where the
insurance is voided by the insurers on the ground of breach of warranty, the premium can only be
recovered if it is shown there was breach ab initio

TYPES OF MARINE INSURANCE:

1. Hull Insurance:

The insurance of ship is known as “Hull Insurance”. The subject matter of insurance is the ship
or vessel which is subject to marine adventure of other dangers of navigation. Hull insurance to cover
(line missing)

Or damage to the vessel. Hull policies also cover the risk while the vessel is in course of their
consultation.

2. Cargo insurance:

Goods sent by ship are known as cargo. Marine insurance of goods is called the cargo
insurance. The subject matter of insurance is cargo of the owner of the cargo (importer or exporter)
takes a cargo insurance to cover the loss on the happening of maritime perils which affect the cargo in
the ship.

3. Freight Insurance:

Insurance of freight is termed as “freight Insurance”. If freight is payable on the arrival of the
ship at the port of destination. The shipping company may have to lose the freight on the non-arrival of

54
goods safely at the port of destination. To cover such loss the shipping company takes a freight
insurance of subject matter of insurance is the freight receivable on cargo.

4. Liability insurance

It is also known as protection and indemnity insurance (P & I), is designed to provide
protection to the vessel-owners against liabilities for damages to docks, cargo, illness or injury to the
passengers or crew, and the consequent fines and penalties payable by the ship- owner.

KINDS OF MARINE INSURANCE POLICIES:

Different types of marine insurance policies have been introduced to cover a large number of
risk including sinking and burning of ship, standing or going astray of the ship, accident, collision of
ships, jettison, piracy, explosion, sea deco ties, stormy winds causing losses to ship and cargo and
many other perils of sea. The following are the major policies issued under marine insurance

1.) Voyage Policy

When a marine risk during a particular voyage only is covered under the policy. It is
called voyage policy. This policy is suitable for cargo insurance as cargoes are in danger of
destruction from maritime perils during the period of transportation.

For Ex – a policy insuring cargo voyage from Chennai to London

2.) Time Policy

When a policy is taken for a definite period of time, it is called time policy. The policy
would cover all the risks from the perils of the sea for a stated period of time and it cannot be issued
for a period eceeding12months.

For Ex- a policy insuring the ship from 1.1.2009 to 31.12.2009

3.) Mixed Policy

A policy which combines the features of both time and voyage policy is called as
Mixed policy. These policies are issued for ships and steamers operating over particular routes or
sailing between certain fixed ports.

For Ex – a policy insuring a subject matter from Mumbai to Karachi from

1.1.09 to 31.3.10.

4.) Valued Policy

When the value of the subject matter is declared at the very outset in the policy itself at
the time of taking insurance, it is called valued policy. Such value consists of

 Cost of goods
 Freight and shipping charges etc., and
 A margin of anticipated profits.

5.) Unvalued Policy

When the value of the subject matter is not expressly declared at the time of taking
insurance and is left to be declared at the time of loss, it is called Unvalued policy and the value to be

55
decided later is known as insurable value which consists of the market value of the goods at the time
of loss and freight and shipping charges only and not of margin of anticipated profits.

6.) Floating Policy

It is a policy which is taken for a sufficient round sum to cover several shipments, the
name of the ship and other particulars about shipments made under it being declared as and when they
are made till the total sum insured or opened is exhausted.

7.) Construction Builders risk Policy

This policy is issued to the builders of the ship, covering risks of vessels during the
period of construction which may be more than a year.

8.) Blanket Policy

This policy is issued to cover several different properties or all assets fixed as well as
current of the insured under one insurance. It is a policy which covers more than one type of property
in one location or one more property at several locations.

9.) Port risk Policy

It protects the loss to the ship when it is anchored in a port. Thus all losses or damages
to the subject matter of insurance after arrival of the ship on the port are covered during a certain
period.

10.) P.P.I Policy

A policy proof of interest is issued to avoid complication of insurable interest. These
policies are honoured even if there is absence of insurable interest because these are based on mutual
understanding and proof of insurable interest is not required. These policies are cannot be enforced in
any court of law if the insurer refuses to make the payment.

11.) Named Policy

When a policy contains the name of the ship by which the shipment is made, it is
named policy and also known as specific policy.

For Ex – The policy may specify “500 bales of cotton for R. Vishwa from
Calcutta to Tokyo”

12.) Fleet Policy

When a policy is issued to covering the risks for all vessels of the insured, it is called
fleet policy. These policies are beneficial to the owner in-as-much-as they insure the older and less
desirable vessels at an average rate along with the perfect and new vessel.

13.) Currency Policy

A policy issued in foreign currency is called currency policy. In other words, a currency
policy specifies the sum insured and the value of the goods in foreign currencies such as dollar, yen,
mark etc. The premium under this policy is collected in the currency which is mentioned in the policy.

Marine policy conditions (or) Clauses in a Marine Policy:

In order to satisfy the varied requirements of the insured, suitable conditions are incorporated
in marine policy. These conditions are the clause which is found in the policy.

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1. Assignment Clause:

According to this clause Marine policy is freely assignable unless this is expressly prohibited.
The policy may be assigned to the any person who has insurable interest or who may acquire it at
some later date. Generally a cargo policy is assigned by the endorsement of delivery of a hull policy
by specific endorsement.

2. Lost or not Lost Clause:

When the insure happens to take insurance after the date of shipment if it is not known whether
the subject matter to be insured is host or safe either to him or the insurer on the date of insurance by
this clause the insurer undertakes to indemnify any loss which might have occurred during the period
between the date of shipment or the date of issue of the policy.

3. Inchmaree Clause:

This policy covers perils other than the perils of the sea, such as losses caused by the
negligence of the master, crew, pilots etc., or by explosives or any other talent defect in the machinery
of the vessel. It derives its name from the name of the ship “Inchmaree”.

4. At and from Clause:

At and from covers the subject matter while it is lying at the port of departure of from the time
to the ship sails. But if it contains the word from only the risk is covered from the time of departure
and not previous to that. The insurer is not liable for any loss arising in the process of loading the
cargo from the shore to the ship.

5. Sue of labours Clause:

This clause authorizes the insured and also his employees, to take all reasonable and necessary
steps to preserve the subject matter of insurance when is danger if further, the insurers agree to
contribute their share of any expenses which may be incurred in this connection.

6. Collision clause:

This clause provides that the insurer under a hull policy, agrees to bear 3/4 th of the liability for
loss or damage to the vessel owing to collision could another vessel.

7. Touch and Safety Clause:

This clause permits the ship to touch of stay at such ports of in such order is as

Mentioned in the policy. If nothing specific in this regard is mentioned in the policy, the ship must
touch and safety at ports which are usually called at that particular to add routes.

8. Reinsurance Clause:

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 The marine re-insurance is effective and exactly in the same manner as in the other branch of
insurance. The re-insurance is liable only to the original insurer. If the original insurer is not for the
loss the re-insurer also not liable. As insured has no direct dealing with the re-insurer, he cannot
approach for the settlement of claim to the re-insurer.

9. Valuation Clause:

This clause specifies the subject matter insured in the policy that is, the descriptive details
pertaining to the quantity, shipping marks, weight no of cases.

10. Warehouse to Warehouse Clause:

Under this clause, the island risks from the original place of departure to the port of sailing of
from the port discharge to the place of final destination are also covered in the marine policy.

MARINE LOSSES

In marine business losses arise due to various marine perils. Some perils are insured while some perils
are not insured. An insurer is liable to indemnify an insured in respect of only losses which result from
perils insured against. When the loss occurred is beyond the insured peril, the insured himself will
have to bear.

TYPES (OR) KINDS OF MARINE LOSSES

The losses of marine insurance may be divided into two classes (a) Total loss and (b) Partial loss. And
the Total losses are again sub divided into (a) Actual Total loss and (b) Constructive total loss. Partial
loss may be ( a) Particular average loss and (b) General average loss.

Marine losses can be classified as shown in the following chart.

MARINE LOSSES

TOTAL LOSS PARTIAL LOSS

Actual total Constructive total General average loss Particular average

Loss loss loss

1. TOTAL LOSS

When the subject matter of insurance (the ship, cargo, or freight) is totally lost it is called total loss. A
total loss may be either an actual total loss or a constructive total loss.

Actual total loss

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Actual total loss arises-

 Where the subject matter insured is destroyed or so damaged as to cease to be a thing of kind
insured or
 Where the assured is irretrievably deprived there is an actual total loss.
 Where the ship concerned in the adventure is missing and after the lapse of a reasonable time
no news of her has been received, an actual total loss may be presumed.
In case of an actual total loss, the underwriter has to pay either the insured amount or the actual loss
whichever is less. But the cause of loss must be one of the perils insured against.

Constructive total loss

Constructive total loss is defined in particular:

 Where the assured is deprived of the possessions of his ship or goods by a peril insured against.
 In case of damage to the ship , where she is so damaged by the peril insured against that the
cost of repairing the damage would exceed the value of the ship when repaired..
 In case of damage of goods, where the cost of repairing the damage and forwarding the goods
to their destination would exceed their value on arrival.
2. PARTIAL LOSS:

In marine insurance the term ”average” means loss or damage resulting from loss or damage to ship,
cargo, or freight. Partial loss is any loss other than a total loss. The partial loss may be classified into,

 Particular average loss

 General average loss
a.) Particular average loss
When the subject matter is partially lost or damaged by a peril insured against, it is called particular
average loss. A particular average loss must fulfill the following conditions.

 Only a particular subject matter should have been lost or damaged.

 The loss should be accidental
 It should be caused by a peril insured against.
 The damage should not have been suffered for the general benefit.
Particular average on ship

The loss on account of partial damage to the ship from the peril insured against is called particular
average on ship. A particular average loss falls directly upon the party interested in the subject matter.
When a ship meets with several accidents the insurer is liable to pay successive losses to the extent of
the insured amount even though the total amount of such successive losses may far exceed the amount
of the policy.

Particular average on cargo

A claim for particular average on cargo arises where the cargo has been either partially damaged by
the peril insured against or when a portion of the cargo is totally lost.

Salvage charge

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It is the reward paid under maritime law of the salvor for saving or helping to save property at sea or
property of life. No salvage will be awarded if the services of the salvor are no material consequence.
Further the salvor must be a stranger to the adventure. In other words, he should not have connected
with the adventure.

b.) General average loss

A general average loss occurs where any extraordinary sacrifice or expenditure is voluntarily and
reasonably made or incurred in time of peril, for the purpose of preserving the property involved in a
common adventure. The rule with regard to general loss is that it must be borne rate ably by the parties
interested in the common adventure.

For example when a cargo ship caught fire, water is thrown to extinguish fire by which cargo is
damaged. The loss caused by cargo is a general average loss.

DIFFERENCE BETWEEN GENERAL AVERAGE LOSS AND PARTICULAR AVERAGE

LOSS:

SL.NO GENERAL AVERAE LOSS PARTICULAR AVERAGE LOSS

1. It is incurred for the benefit of all the It is in connection with any of the
interested interested.

It is always voluntary and reasonably It is accidental or fortuitous.

incurred
2.

3. General average is shared by all those Particular average is paid by the

who are benefited by the average act. insurer.

It includes expenditure and sacrifice Particular average loss is resulting from

along with loss. an accident or normal perils of the sea.
4.

It is an extraordinary character or No such extraordinary or emergency

emergency nature. losses.
5.

The cause relating into a general It must be caused by peril against

average loss cannot be duly insured at which the property is duly insured.
6. it cannot be anticipated.

Premium calculation:

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 The premium is the consideration as price paid by the insured under a contract of insurance. In
marine insurance premium to be charged on the insured, can be calculated by using the following two
methods

1. Numerical rating:

Under this method each and every item is evaluated and assigned marks to them. According to
their merits and degree of influencing risk.

2. Judgment method:

In this tabulation of statistical data on many risks can serve the proposer as a basis of
supplementary factors for underwriter's judgment.

Factors to be considered for rating:

The following factors are generally taken into account while determining the rating vessels of
cargo.

1.For Hull / ship rating:

a. Type and trade

The quality and fitness of the ship is an important factor considered for rating on hull
insurance. The insurer, while underwriting the risk, should know the ship with respect to its builder,
owner, age of its physical condition, horse power of engine and its type and the special type of
equipments on board etc. so on the basis of ship's construction of standard. The risk is injured and rate
is fixed accordingly.

b. past claim experience:

The no of claims made by insured during the past few years is to be considered foe fixing the
rates of premium. If there were too many claims in the past, the insurer will charge higher rates of
premium of different marine risk.

C .Valuation of the ship:

The valuation ship to be insured is very important for determining the rate.

The insurer while underwriting the risks should check valuation of should ask for the valuation
certificate from competent surveyors before granting the cover. valuation includes adjustment for the
gross registered tonnage make machinery installed therein special equipment, modern machinery
gadgets, nature of type of engine, age horse power etc.,

D . Normal trade and suitability:

Marine insurance cannot be used for giving protection to illegal in suitable trade.

E .Repair lost:

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Extra expenditure incurred for the safety of the vessel is also to be considered for determining the
rates.

F . Natural factors and topography:

The insurer should take into account the natural hazards, such as frequency of storm, shallow water,
narrow channel, ice, tides, seaquakes etc., while calculating premium to be charged on a particular
route.

2. For cargo rating:

The cargo rating depends upon the following factors

a. Character of the insured:

Rates of premium differ with individuals. Different rates of premium can be charged from the
two separate owners of the same type of cargo on the same place. Proper packing of previous history
of insurance proposal may determine the rates.

B . Nature of the cargo:

The difference in hazard between various kinds of goods, different forms of the same goods,
different types of packing and durability of goods may influence the premium rate.

C . Natural conditions and cargo:

The effect of season on the goods should also be considered while determining the rate of
premium.

D . Quality and suitability of ships:

The insurer takes into consideration the fitness of the ship to carry a particular cargo. The
premium is higher in case of slow speed ship because in that risk is higher during voyage.

E . Duration of voyage and terms of the policy:

While fixing the rates of premium, the insurer considers the length of time also time in loading
of the good abroad the vessels of protection of the goods while on the docks are considered for
calculation of premium.

F . Other factors:

The operating efficiency, the method of handling and storing cargo etc., influence the premium
rate.

DIFFERENCE BETWEEN MARINE AND FIRE INSURANCE

The marine insurance differs from fire insurance on the following counts:

 Meaning
Marine insurance protects against marine perils. Fire insurance protects against fire perils.

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  Insurable interest
In marine insurance insurable interest has to exist only at the time of loss, it need not be there
at the time of commencement of policy, whereas in fire insurance, insurable interest should
exist at the time of effecting insurance as well as the time of loss.

 Indemnity
In the case of marine insurance the measure of indemnity is the actual loss plus 10 % to 15 %
margin for profit. But in fire insurance the measure of indemnity is the actual loss.

 Assignment
A marine policy can be assigned freely. But a fire policy cannot be assigned without the
permission of the insurer.

STEPS FOR TAKING MARINE INSURANCE POLICY

The marine policy may take either with Lloyd’s writers or with marine insurance companies
and the policy goes by the name of lyold’s policy or company policy as the case may be.

 Company Policy

Generally an insurance company is a joint stock company which undertakes marine

insurance business. In India marine policies cab be taken from any one of the four subsidiaries of
general Insurance Corporation of India such as

 National insurance company, kolkatta,

 India assurance company, Mumbai,

 Oriental insurance company New Delhi,

 United India insurance company, Chennai.

 Lloyd’s Policy

In England, the marine insurance business is being undertaken by marine insurance

companies as well as Lloyd’s association, each doing an important fraction of the total business.
London Lloyd’s association is a model on which various association were formed in other countries is
recognized internationally and operate throughout the world.

Procedure for taking a company policy

Generally the following steps adopted while taking out a company policy.

 Selection of a company
In India there are four subsidiaries of General Insurance Corporation of India. The
person who is willing to take a marine insurance policy will have to choose any one of the subsidiary
company

 Selection of Agent or Broker

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 After chosen a company the proposer will have to decide whether to take the policy
directly from the concerned company or through an agent or broker.

 Marine Declaration Form

A proposal form is submitted with the insurance company to initiate the process of
insurance. But in marine insurance, instead of proposal form, a marine declaration form or requisition
form is to be submitted with the insurer.

This form includes all details about the risk such as

 Name of the insured

 Number of cases
 Port of destination
 The value of gods
 The name of the carrying vessel
 The place where the claim given
 Assessment of the risk
After receiving the declaration from the officials of the insurance company will
evaluate the risk to be insured, then they determine the rate of premium to be paid by the insured along
with the stamp fee.

 Payment of premium
After the acceptance of the form, the proposer is asked to pay the required premium to
the insurer the premium may be paid either cash or cheque or any other agreed mode of payment.

 Issue of cover note

As soon as the proposer paid the premium, the insurer will issue a Cover Note, subject
to the conditions of the company’s printed policy and the relevant institute clause, if any mentioned.

 Issue of policy
Finally the insurer will prepare a final copy on a proper form with full details and
stamps and will hand over the same to the insured.

Procedure for taking a Lloyd’s policy

 Approaching the Broker

The person who is willing to take Lloyd’s policy has to contact the broker and give him
all the information elating to the property to be insured (ship, freight or cargo) and the amount which
insurance is required.

 Preparation of the slip

After receiving the instructions from the proposer to proceed further, the broker will
prepare a brief memorandum of the risk to be covered which is known as “Slip”. This slip contains the
details relating to the subject matter to be insures, their amount, the name of the vessel, the voyage or
the duration of time or both, the nature of risk to be insured, the port of loading and discharge any
other condition.

 Submitting the slip to the underwriter

64
 The broker will go to the particular market at Lloyd’s, and offer the slip to one
underwriter with whom he actually deals. The underwriter signs his name on the slip and mentions the
amount of underwritten by him. The broker will then contact the other underwriter with the remaining
portion of the risk and the process is repeated till the entire amount is covered and the total amount of
premium payable is ascertained.

 Preparation of a debit note

Once the entire amount of risk is underwritten and the premium payable is ascertained,
the broker will then forward a debit note to the insured stating the details of insurance, premium and
the stamp duty payable.

 Preparation of the policy

The broker will prepare the policy in a prescribed form fro the information give in the
slip. Later he takes the policy to the Lloyd’s signature Bureau to be signed by the various underwriters.

 Payment of premium
Finally the brokers hand over the policy to the insured on payment of the premium. The
broker gets commission from the underwriters in the form of a reduction on the premium charged.

UNIT-III COMPLETED

QUESTION BANK:

PART-B

1. State the nature (or) elements (or) principles of fire insurance?

2. What are the different kinds of fire policies for products?
3. What are the principles or nature or elements of marine insurance?
4. Explain the different types of marine insurance?
PART-C

5. Explain the fire policy conditions?

6. How loss is prevented in fire insurance?
7. Explain the various clauses of marine insurance policy?
8. State the difference between general average loss and particular average loss?
9. How premium is calculated in marine insurance?
10. State the difference between marine insurance and fire insurance?

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 UNIT – IV

[Miscellaneous Insurance]

Apart from life, fire and marine insurance several other forms of insurance known as
miscellaneous insurance are also available in the insurance market to cover a variety of other risks.
Some of the most important forms of miscellaneous insurance are as follows.

Insurance not falling under fire insurance and marine insurance is considered as miscellaneous
insurance as per insurance Act 1938. The most important form of miscellaneous insurance are: motor
insurance, legal liability insurance, accidents and hospitalization insurance, social sector insurance,
business insurance, industrial insurance, personal package insurance and other insurances.

1. Motor insurance
The motor insurance coves accidental loss of or damage to any motorized vehicle used on
public roads. There are two types of covers available.

(i). Compulsory insurance for liability to third parties because of using the vehicle and

66
(ii). A package that covers damages to the vehicle itself in addition to the third party liability.

The motor insurance also covers the following risks by collecting extra premium from the insured:

a.
Fire
b.
Theft and burglary.
c.
Strike, riot and civil commodities.
d.
Legal liability towards persons employed for operation, maintenance, loading and
unloading of vehicles and
e. Death or injury to any members of the family who travelled.
Fundamental principles of motor insurance

a. Utmost good faith

This imposes a legal obligation to disclose material facts to the insurer. The proposal form
must have to be filled up and the declaration clause in the proposal form makes the duty a
contractual duty of utmost good faith.

b. Insurable interest
Ti implies “the legal right to insure”. The vehicle is the property which is exposed to loss or
damage as a result of which the owner insured is to suffer financially. The insured also has
legal liability towards third parties.

c. Indemnity
The principle ensures that the insured does not make any profit out of the loss.

When there is total loss of the vehicle, indemnity is the market value of the vehicle ( its
depreciated value) at the time of loss or the sum insured whichever is less.

In partial loss the cost of repairs is paid, but in replacement of old parts by new, depreciation is
charged on the cost of new parts.

In the event of third party liability the amount are settled subject to the limit of liability if any.

d. Subrogation
It refers to transfer of rights from the insured to the insurer i.e right to cover loss from the party
responsible.

The policy condition provides for subrogation before the settlement of the claim.

e. Contribution
In case of double insurance when the vehicle is insured under two policies as per policy
conditions, the loss is shared between the insurers on pro- rata basis.

f. Proximate cause
The loss or damage must be proximately caused by an insured peril.

Types of motor vehicles

For the purpose of insurance motor vehicle are classified into three broad categories.

1. Private cars

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 2. Motor cycles / scooter (two wheelers) and three wheelers not exceeding 350 cc engine
capacity.
3. Commercial vehicles such as goods carrying vehicles, passenger vehicles, tractors and
others.
Kinds of policies

According to the coverage of risks, each vehicle policy can be divided into the following three
categories.

 Act only policy

 Third party policy and
 Comprehensive policy
A. ACT ONLY POLICY
This policy is created to meet the requirement of motor vehicles act 1939, which provides for
compulsory insurance in regard to liabilities arising out of use of motor vehicle in a public place. This
policy is confined to bodily injury or death of the third parties. According to sec 95(2) of the motor
vehicle act, an insurance policy shall cover any liability incurred in respect of any one accident up to
the following limits.

(1) Goods vehicle

Rs 50,000 in all include the liabilities if arising under the workmen compensation act 1923, in respect
of death of or bodily injury to employees (other than driver) not exceeding six in number being carried
in the vehicle.

(2) Passenger vehicles

Vehicles which are used for carrying passengers for (a) for hire or reward (b) by reasons of or in
pursuance of contract of employment.

(3) Other vehicles

The amount of liability incurred except as provided otherwise

B. THIRD PARTY POLICY

This covers the insurance of legal liability to others for accidental death or personal injuries and
damages to the property of third parties. Thus this policy indemnifies the insured against his legal
liability in respect of damages of property of third parties over and above Rs 2000. The limit of
liability is as follows.

(i) Private car – unlimited

(ii) Commercial vehicle
a. Goods or passenger carrying vehicles Rs 20,000
b. Other miscellaneous or special type of vehicle Rs 50,000
c. Motor cycle – unlimited
This policy may be extended to include:

 Fire
 Theft risks
 Legal liability to persons employed in connection with the operation and or maintenance and or
loading and or unloading of motor vehicles.
C.COMPREHENSIVE POLLICY

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This policy covers all risks to be insured arising out of legal liability i.e to third parties under motor
vehicle act, total accident and common law. It also covers loss or damage to vehicles. It provides cover
for private car, motor cycle / scooter and commercial vehicles. This policy generally coves risks such
as

i. Loss or damage to the car. The car inclusive of lamps, tyres, accessories etc is insured
against loss or damages by accident external means fire, external explosion, lightning,
frost, burglary, self ignition, house breaking or theft, damage by malicious act or while in
transit by road, rail, inland water way, lift or elevator etc.
ii. Removal changes up to a certain limit regarding removal of the car to and from the
premises of the nearest repairs.
iii. All costs and expenses incurred with the prior consent of the insurance company.
iv. Risks covered under third party policy
v. Medical expenses incurred in connection with injuries sustained by the insured or any other
occupant of the car upto a certain limit.
vi. Repair charges of the car upto a certain limit for which the company liable.
At the payment of extra premium this policy covers the risks like

i. Death or injury to family members who are above 16 years and below 65 years.
ii. Riots, strikes, thefts etc and
iii. Loss of rugs.
Motor policy conditions

The usual conditions incorporated in the motor policy are as follows.

a. Notice of accident
Immediately after occurrence of accident the same has to be brought to the knowledge of the insurer
by serving a notice of accident.

b. Supply of data
The insured should provide all necessary information to the insurer whenever needed.

c. Keeping vehicle in good condition

It is the duty on the part of the insured to keep his vehicle in good conditions and permit the insurer to
inspect the vehicle at any time.

d. Double insurance
In case the vehicle is insured with more than one insurer, the amount of compensation will have to be
claimed in pro- rata from all the companies.

e. Utmost good faith

The insured is supposed to observe good faith throughout the running of the policy. He should fulfill
all the terms and conditions of the policy.

f. Arbitration clause
If there is any dispute between the insured and the insurer over the amount of claim, the matter will be
referred to the arbitrator. The decision of the arbitrator will be final.

g. Renewal of policy

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When a policy is renewed, bonus in the form of reduction of renewal premium will be allowed,
provided that there was no claim under that policy in the previous year.

Settlement of claims under motor insurance

The claim arise under motor insurance are broadly classified into two types, i.e (a) claim for own
damages and (b) claim for third party liability

(a). Claim for own damages

Own damages arise when damages to the vehicle is caused by the insured. These damages are
generally caused by collisions or over running of the vehicle. The settlement of claims for own
damage is done in three phases, namely preliminary scrutiny, assessment of loss and settlement.

(i) Preliminary scrutiny

Immediately on the occurrence of any accident or loss of or damages to the vehicle, the insured has to
serve a notice of loss to the insurer. On receipt of the notice, the insurer will check his record to find
out whether policy is in force or discontinued. Later the loss is entered in claims register and a claim
form is sent to the insured to be filled up by him and to be returned to the insurer. The insured should
provide all the relevant information in the claim form such as date and time of accident, causes of
accident, extent of damages to the vehicle etc. The insured is also required to submit a detailed
estimate of repairs from repairer of his choice.

(ii) Assessment
Immediately after receiving the claim form and other details, the insurer employs the independent
automobile surveyors to ascertain the cause and extent of loss. The surveyors are given a copy of the
policy, the claim form and repairer’s estimates. They inspect the damaged vehicle, discuss the cost of
repair or replacement with repairer and submit their survey reports.

(iii) Settlement
Finally the report of the surveyors is examined thoroughly and settlement is made according to the
recommendation in the report. The usual practice is to authorise repairs. The repairer receives a letter
from the insurer. The repairer gets payment after completion of repair. The insured must give a
satisfaction note or voucher that he is satisfied with the repairs.

(b). Claim for third party liability

The third party liability arises when a motor vehicle hurts a third party so as to cause damage to his
property or his death or a personal injury to him. For settlement of claims for third party liability, sec
110 of the motor vehicle act 1988 gives power to state government to set up motor accident claims
tribunals payable to third party. Generally the following procedure is involved in settling the claims of
the third party.

 Entry of notice

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As soon as the notice of claim is received, the same is entered in claims register, date of intimation,
claim number, policy number, period, date of accident, vehicle number, insured, driver, claimant,
MACT number and amount claimed, Advocates name, legal fees paid, etc.

 Appointment of advocate
After entering the relevant particulars in the claim register, a competent advocate from the panel is
appointed and case is entrusted to him for further action.

 Letter to MACT
In case, the claim is received from MACT, a letter is issued to MACT to get details of the claim
information necessary for the case like claim number, police station report, driver, advocate, number
of policy and Drivers prosecution history.

 Letter to police station

A written request is to be made to police station for giving police report or panchnama statements on
account.

 Own damage claim

The insured is to produce a copy of own damage claim.

 Determination of quantum of damages.

Amount of damage is determined for death / injury in the following manner.

a.) Fatal accident : Deceased’s status, monthly income, contribution to family, relationship with
claimant and claimant’s status.
b.) Injury : Medical certificate on injury, extent of disability, medical expenditure with vouchers
and monthly income.
 Advocate’s opinion
Based on above facts, the opinion of advocate is sought. He files a written statement.

 Payment of claims
After having gone through all the relevant information, the MACT decides the claim in the presence of
insurer, insured and third party and their advocates. The amount awarded is finally paid to third party
with proper damage of all claims arising out of the occurrence.

PERSONAL ACCIDENT INSURANCE.

This insurance is an integral part of health insurance and is designed to replace a substantial
part of earned income lost through disability caused by accidental injury and also may provide for
payment of medical expenses occasioned by accidental injury and indemnity for death or loss of limbs
or sight suffered through accident. Generally this policy is issued for a period of 12 months but it can
also be issued for less than 12 months.

Under this insurance for death loss of two limbs, two eyes or one limb and one eye or
permanent total disablements from injuries, the amount of policy is paid in full. In other case, amount
of compensation depends upon the extent to which insured sustained the injury.

Age of insurance

71
In this policy, the cover is normally restricted to persons between the age of 5 to 70 years for both
male and female. Cover beyond these age limits can be had at a higher rates of premium as under.

a. Renewal of policy above 70 years of age but upto 80 years is subject to loading of 5% on the
premium.
b. Fresh proposal above 70 years but below 80 years is subjects to a loading of 10 % on the
premium.
c. No medical examination is to be insisted for (a) and (b) above.
Additional benefits

Some additional benefits are offered to the insured even without the payments of any additional
premium are being discussed as given below.

I. Educational fund for dependent children:

Personal accident policies are extended to provide compensations towards education fund
for the dependent children of the insured as follows in the event of death or permanent total
disablement of the insured due to accident.

a.) If insured person has one dependent child below the age of 25 years (at the time of
accident) and amount equal to 10 % of the sum insured subject to maximum of Rs 5,000
b.) If insured persons has more than one dependent child below the age of 25 ( at the time of
accident) an amount equal to 10% of the sum insured subject to maximum of Rs 10,000.
II. Expenses for carriage of dead body
This policy covers reimbursement of actual expenses incurred for transportation of the
dead body of the insured to the place of his residence in the event of death claim being
admissible under the policy subject to a maximum of 2% of sum insured or Rs2,500 whichever
is lower.

III. Cumulative bonus

At the time of renewal of policy, in case no claim having been reported under the
earlier policy, the amount of compensation payable for death and permanent disablement is
increased by 5% each completed year subject to a maximum 50 % of capital sum insured. This
provision is not applicable for temporary disablement cases.

BURGLARY INSURANCE.

This policy coves contents of business premises against the risk of loss or damage by burglary and
house breaking only. Fire risk must be covered by the issue of a separate fire policy. The property
insured is covered only if loss or damage takes place whilst contained in the premises described in the
schedule.

Property covered

The properties that can be covered under the policy are as follows:

(i) Stock in trade ( excluding any class of stock specifically insured)

(ii) Goods in trust or on commission for which the insured is responsible.
(iii) Fixtures, fittings and utensils in trade.
72
 (iv)Cash and currency notes secured in locked safe.
Insured perils

(i) Burglary or house breaking of property following upon felonious entry of the premises by
violent and force able means.
(ii) Theft by a person in the premises who subsequently break out by violent means an forcible
means and hold up.
(iii) Damage to the premises by the burglars falling to be made good by insured.
Special conditions

(i) Reinstatement of sum insured

Immediately upon the happening of any loss or damage as described in the policy, the total
sum insured upon the various descriptions of property which have been lost or damaged, shall
be reduced by the amount of loss or damage and such reduced sum insured shall be the limit of
the company’s liability in respect of any further loss or damage occurring during the current
period of insurance unless the company consents upon payment of additional premium to
reinstate the full sum insured.

(ii) Maintenance of books and keys

a) Daily record of the amount of cash contained in the safe or strong room shall be maintained
and such record shall be deposited in a secure place other than safe or strong room.
b) The keys of the safe or strong room shall not be left on the premises out of business hours or in
the vicinity of safe or strong room.
Claim procedure:

o All losses are required to be reported to the police authorities though formal written complaint
a copy of which has to be given to the insurer along with FIR member, diary entry numbers by
which police register the case.
o The insured must give immediate notice of the loss to the insurance company.
o Burglary claims upto Rs.2,500 are generally settled by the insurer on the basis of the completed
claim form and copy of the first information report, provided the insurer is satisfied about the
genuineness of the claim.
o Burglary claims over Rs.2, 500 are required to be surveyed by an independent surveyor. If
need arises, the matter may also be entrusted to a professional investigator for a thorough
investigation.
o Claim in excess of Rs 2,500 will be settled on further obtaining the survey report and after
submission of the final investigation report / non- detectable certificate issued by the police
authorities.
o Necessary letter of undertaking / subrogation form and the loss voucher duly discharged should
be obtained prior to issue of cheque towards settlement.
o On payment of the claim, the sum insured automatically reduced by the amount of claim paid.
The sum insured may be reinstated.

OTHER INSURANCE

A. LEGAL LIABILITY INSURANCE

1. PUBLIC LIABILITY INSURANCE

73
Under public liability insurance act 1991, all companies / individuals / persons owning / dealing
hazardous goods are required to take insurance policy satisfying the limits specified in the act.

2. PRODUCT LIABILITY INSURANCE

This policy is intended to provide an indemnity to the insured in the event of a claim being bought
against him. This may be caused by anything harmful or defective in the products sold or supplied by
the insured in connection with the business specified. There are two types of limits of liability
provided in this policy, namely any one accident and any one year ratios of limits can be 1:1, 1:2,
1:3,1:4. Maximum limit of indemnity under this policy is restricted to Rs 3.5 crores in any one year
applies to liability arising within India.

3. PROFESSIONAL INDEMNITY POLICY

This type of policies are granted to

 Medical practitioners.
 Medical establishment (hospital)
 Engineers , Architects and interior decorators
 Chartered accountant, financial consultant and management consultant
 Advocates and solicitors
B. SOCIAL SECTOR INSURANCE
1. BHAGYASHREE CHILD WELFARE POLICY
This policy is applicable to girl child in the age of 0 to 18 years whose neither parent’s age should
greater than 60 years. The policy provides relief to insured girl in the case of death of either / both of
the parents arising out of accident. In the event of death of the parents Rs 25,000 will be deposited in
the name of the child in any of the nationalised banks.

2. RAJESHWARI MAHILA KALYAN BIMA YOJNA

This policy has been designed to provide relief to the family members of insured women in case of
their death or disablement arising due to all kinds of accidents and or death and or disablement arising
out of problems incidental to women only.

C. INDUSTRIAL INSURANCE
1. ELECTRONICS EQUIPMENTS INSURANCE
The electronic equipment like computers, micro processors, word processor, tele- communication
equipments, medical equipments etc is covered in this policy. This policy indemnifies the insured
against any physical loss or damages due to fire and allied perils, machinery breakdown, riot and
strike, short circuit and other electrical causes such as voltage fluctuations, theft and burglary.

2. BOILER & PRESSURE PLANT INSURANCE

Under this policy, boilers like fire tube boilers / recovery boilers and unfired pressure vessels / steam
pipers are covered. This policy is taken by the owner of the boiler / pressure plant. The policy provides
protection against

 Damages to the boilers / pressure plant

 Damages to the surrounding property of the insured
 Death or bodily injury
3. MACHINERY BREAKDOWN INSURANCE

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This policy was developed to grant industry effective insurance cover for expensive plant, machinery
and mechanical equipment.

D. PERSONAL PACKAGE INSURANCE

1. MOBILE PHONE INSURANCE
In this policy the insurer will indemnify the insured for the loss of damage to cellular phone by fire,
riot, strike, malicious damages, terrorist activities, theft and accident.

2. SAHANA SAFER INSURANCE

This policy would be beneficial for domestic travelers by all modes ( road / rail / water and air )
irrespective of their age and income group. This policy is valid for transit period subject to maximum
of 60 days.

3. HOUSE HOLDER’S INSURANCE

This policy is designed to cover various risks and contingencies faced by householder under a single
policy. The policy provided protection for property and interest of the insured and his family members
who permanently reside with the insured.

UNIT IV COMPLETED

QUESTION BANK

PART-B
1. What are the different kinds of policies in motor insurance?
2. What is motor insurance? State its principles?
PART-C
1. Write a detail note on
(a) Burglary insurance
(b) Personal accident insurance
(c) Legal liability insurance
(d) Social sector insurance
(e) Industrial insurance
(f) Personal package insurance

UNIT- V

INSURANCE AGENT

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
agent

WHAT IS INSURANCE?

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 Insurance is a means of security and protection from financial loss. It is a kind of risk
management, originally used to hedge upon the risk of a contingent or random loss. An entity which
gives insurance is recognized as an insurer.

Like Star Health & Allied Insurance Company Limited and SBI Health Insurance Company
Limited insurance company and many more. An individual or entity who purchases insurance is
known as an insured or Policyholder.

The insurance transaction includes the insured expecting a guaranteed and recognized a nearly
small loss. In the form of payment to the insurer in trade for the insurer’s guarantee to pay the insured
in the case of a covered loss. The loss can be or not be financial. But it need be reduced to financial
terms. Normally includes something in which the insured has an insurable interest built by ownership
and possession and many more.

“Insurance Agent” means an Insurance agent duly licensed and who receives or agrees to
receive payment by way of commission or other remuneration in Consideration of his soliciting or
procuring Insurance business including business Relating to the continuance, renewal or revival of
policies of Insurance

WHO IS THE INSURANCE AGENT?

An Insurance Agent is a point of contact with an insurance company for all individual. They
help individuals with insurance products that are fully fit for them and to assemble all the required
documentation and support policyholder during the term of the policy. One can become Insurance
Agent one of the companies i.e. for a Life Insurance company or general Insurance company or
become a composite Agent.

One would require addressing an Insurance company to become an Insurance Agent. Then apply in
the designated format along with financing documents. Documents are:

 Identity proof
 Address proof
 PANCARD copy
 Some copies of one’s photograph

After this documentation completion, then apply. One will have to know about online training.
Once it’s clear one obtains certified to grow as an Agent. It takes nearly 60 days from the time one
enroll to become an Agent.

INSURANCE AGENT: FUNCTIONS

 The insurance agent assists in advertising and sale of insurance products and services to its
customers.
 He/ she must have all knowledge and customary awareness about the markets.
 Providing reliable financial consulting services and customer support to the clients.

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  Business Development tactics necessitate being tracked in a determined way.
 Well-planned policies and plans require to be attained.
 Promotion of insurance brands requires to have fully illustrated plans.
 Marketing strategies need to be formed and re-formed from time to time. Also, having in mind
the customer choices.
 Public-relations structure-activity must be presented to have vital importance.
 Agent's duties include: to

(1) Act on behalf of and be subject to the control of the principal,

(2) Act within the scope of authority or power delegated by the principal,

(3) Discharge his or her duties with appropriate care and diligence,

(4) Avoid conflict between his or her personal interests and those of the principal, and

(5) Promptly hand over to the principal all monies collected on principal's behalf.

Principal's duties include: to

(1) Compensate the agent as agreed, and

(2) Indemnify the agent against claims, liabilities and expenses incurred in discharging duties
assigned by the principal.

WHAT KIND OF INSURANCE ONE WANT TO MARKET

There are many types of insurance upright in the market. Now One has to choose which upright is
most fitting. For one to trade the insurance products, these areas comprehending:

 Life insurance
 Auto insurance
 Income protection insurance
 Property insurance
 Burial insurance
 Surplus line insurance
 Business interruption insurance
 Travel insurance

People usually join specific upright, such as property and casualty insurance.

Presently, one can only be linked with 1 general insurance & 1 life insurance Company. More, to
perform for the exam, one needs to register with an insurance company. The company will provide
one’s training and license.

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 Till 1999 the insurance sector was controlled by Controller of Insurance as per the provisions of
Insurance Act 1938 but after formation of the IRDA it is felt by the Authority that the most of the
provisions of this Act were irrelevant in the present scenario of the country. Therefore the Authority
issued various regulations, as deemed fit, to develop the insurance sector in the country.

PROCEDURE OF :–

 Granting of license to companies to start insurance business.

 Approval of insurance product.
 Appointment of different insurance intermediary.
 Investing the insurance premium.
 Accounting & audit.
 Miscellaneous important provisions of Insurance Act.
 These regulations were not issued in the above sequence but we have followed this logic -
firstly the insurance company will come into existence, secondly the insurance product will be
design and developed, thirdly the manpower is required to sell the product, fourthly the
premium received by the insurance companies is to be invested, fifthly the accounts are to be
maintained and lastly, various provisions.

PROCEDURE OF GRANTING OF LICENSE

No person can carry on Insurance business unless & until he has obtained a certificate from the
Authority for a particular class of Insurance business. For e.g. A person can start life Insurance, marine
Insurance, fire Insurance, health Insurance etc. But a life Insurance business cannot be combined with
other type of Insurance business. Those who are already in Insurance Business like General Insurance
Corp., National Insurance, New India Assurance, Oriental Insurance & United India Insurance have to
obtain a fresh certificate within 3 months from the date of commencement of this Act or before such
date as fixed by the Govt. Even those insurers for whom the registration was not necessary before the
commencement of this Act will require the registration certificate. To get the registration certificate
the following procedure is to be followed: Every application in the prescribed form (IRDA/R1) for
registration shall be made with the following enclosures:—

1. A certified copy of Memorandum and Articles of association if the applicant is a company.

2. The name, address & the occupation of the directors of the company.

3. A statement of the class of insurance business proposed to be carried on.

4. A statement indicating the sources that will contribute the share capital. On receiving the above
documents IRDA will verify the contents and may ask for additional information if any.

The Authority may ask the Principal Officer to appear to their office for any information or
clarification. If the Authority is satisfied with the information and documents provide with the

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application form (IRDA/R1), the Authority may ask for an additional application in the prescribed
form (IRDA/ R2) which should be accompanied with then following documents:—

1. Every Insurance shall deposit in cash or in approved securities or partially in cash or partially
in approved securities as per details given below:
(i) In case of Life Insurance business, a sum equivalent to 1% of his total gross premium written
in India in any financial year commencing after the 31st day of March 2000 not exceeding
rupees ten crores (Rs.10 crores).
(ii) In the case of General Insurance business a sum equivalent to 3% of his total gross premium
written in India in any financial year commencing after 31/3/ 2000 not exceeding rupees ten
crores (Rs.10 crores).
(iii) In case of reinsurance business, a sum of rupees twenty crores (Rs.20 crores).
(iv) If the business is to be done in marine Insurance only & relates exclusively to country craft or
its cargo or both the amount to be deposited Rs.1,00,000/- (Rs.1 lakh) only.
(v) A certificate from the Reserve Bank of India showing the amount deposited.

2. A declaration verified by an affidavit from the “Principal Officer” that the equity capital of the
company has been complied with. The paid up equity excluding preliminary expenses and registration
charges should be Rs.100 crores for life or General Insurance business and Rs.200 crores for the
Reinsurance business. If any insurer is carrying on business of insurance already then within 6 months
from the commencement of the Act the paid up capital should be as per prescribed limits in the Act.

3. A certified copy of the published prospects and of the standard policy forms of the insurer.

4. Statement of assured rate, advantages, terms & conditions to be offered in connection with
Insurance policies.

5. In the case of the business the certificate from the actuary that such rates are workable & sound.

6. In the case of marine accident & miscellaneous Insurance business other than workmen’s
compensation & motor car Insurance the available forms, prospects and statements to be submitted.

7. The receipt of deposit of Rs. 50,000/- for each class of business.

8. If there is any foreign partner, a certified copy of Memorandum of understanding between Indian
promoter and foreign promoter including details of support comfort letters exchanged between the
parties.

9. Any other document as desired by the Authority after scrutiny the application.

2A) If on the receipt of an application for registration and the authority is satisfied that

a) The financial condition & the general character of management of the applicant are sound.

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 b) The volume of business likely to be available to & the capital structure & earning prospects of the
applicant will be adequate.

c) The interest of the general public will be served if the certificate of registration is granted to the
applicant then the certificate of registration is granted.

REFUSAL OF REGISTRATION

 If the Authority refuses the registration the reason of such decision will be intimated to the
applicant.
 The Applicant whose application has been rejected can file an appeal before the Central Govt.
within 30 days from the date on which a copy of the decision is received.
 The decision of the Govt. shall be final and shall not be questioned before any court.

CANCELLATION OF REGISTRATION

The Authority has the right to cancel the certificate of registration either wholly or in so far as it
relates to a particular class of Insurance business if the any of the conditions specified for registration
is not complied with.

RENEWAL OF REGISTRATION

Every year the registration is to be renewed and the application is to be made to the Authority
before 31st Dec. of the preceding years with the prescribed fees i.e.,

(i) 1/4th of 1% of premium received or Rs. 5 crores whichever is less.

(ii) It should not be less than Rs. 50,000 in each class of business.
(iii) For reinsurer companies 1/4th of 1% will be considered of total premium in respect of
facultative reinsurance accepted in India.
(iv) Fees to be paid in Reserve Bank of India.

REGULATION FOR PRODUCT APPROVAL

No Insurance Company can sell any insurance product unless & until the product is approved by
the Authority. The procedure to get the approval from the Authority is as follows:—

Life Insurance Products The life Insurance products are classified as:—

1) Linked Business.

2) Non-Linked Business.

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 3) Non-life/General Insurance Business.

An insurer who wishes to introduce a new product or to make changes to any existing product or to
withdraw an existing product shall submit the application in the prescribed proforma to IRDA with full
details and reasons to make changes in any existing product or to withdraw an existing product.

The insurer shall not commence selling the product in respect of which additional information has
been sought by the Authority until the Authority confirms in writing. If no such information is sought
by the Authority, the insurer can commence selling the product in the market.

PERIOD OF APPROVAL

Within 15 days (earlier 30 days) of the receipt of the application the Authority may seek
additional information with regard to the product, and the insurer shall not commence selling the
product in respect of which additional information has been sought by the Authority, until the
Authority confirms in writing having noted such information. If no such information is sought by the
Authority, the insurer can commence selling the product in the market, as set out in the application
after the expiry of the said 15 days (earlier 30 days) period. This procedure is known as “File & use.”

Wholesaler/ Stockiest: The Wholesaler will buy the goods from the manufacturer in large
quantities and hold the stock and distribute them to retailers as per their requirements.

Retailers:

The retailer is one of the last distribution channels, who is selling the product to the customer.

Retail outlet:

Sometimes the manufacturer opens a retail outlet in each part of country to have a direct access
with customer. For e.g.; BATA showroom for shoes, Titan for wrist watches.

Door to Door Sales:

Under this system, the sale is made directly to the customer through the salesman who is
visiting at residence of the customer prospects. For e.g.; Eureka Forbes Products – Water filter,
Vacuum Cleaner, Tupperware, Avon Cosmetic.

Network Marketing:

This concept of marketing started few years back under which the manufacturer is selling the
product to an individual and forms a chain to provide more benefit to the customers. For e.g. Amway
If we look at the distribution channel of Insurance Company, it may be different because the insurance
is a intangible product. The distribution channels before nationalization were as follows:

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Before Nationalization

Insurance companies

Principal / Chief/ Special Agents

Agents Agents

Customer

The distribution channel of insurance sector is regulated by the Insurance Act 1938.

Principle Agent/ Chief/ Special Agents:

These Agents were appointed under Section 42A, 42B and 42C of the Insurance Act 1938. But the
appointment of these agents was stopped i.e. 1/4/1950.

After Nationalization

Insurance Companies

Agent

Customers

The Insurance product is being sold either through an agent or directly by the company.

After Privatization of 2000

Insurance Companies

Broker Agent Corporate Agent

Agent Bancassurance

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 Customer

The Indian Insurance Sector is exposed to various criticisms like :—

 Relating to service level

 Speed of claim settlement
 Efficiency
 Value for money
 Standards of technical competency in staff

In fact the customer expectations are Tangible :—

 Choice
 Better cost
 Better products
 Better administration

In fact the customer expectation is Intangible:—

 They want to be treated like individuals

 They want attention of their problems
 They want to be understood
 They expect an ethical approach to business

In fact the customer wants to be recognized as being a valuable and integral part of Insurance
business. Insurance companies need innovation and expertise to respond.

The Indian Insurance sector has a vast potential considering the country’s large population, a
growing and affluent middle class, large household saving and increased trade volume. Therefore
Insurance Companies will have to identify the thrust areas i.e. individual or business issues must be
involved in marketing services i.e. trained manpower and designing the marketing strategy in the
changing scenario that understand the customer needs, identification of features the consumer is
looking for in the insurance service and the price the customer is willing to pay for the service. To
protect the interest of customers IRDA has set regulations to appoint various distribution channels and
in the following paragraphs the regulations related to Agents/Corporate Agent/ Insurance broker are
explained:

Agent

An agent can work for any one life insurance and one general insurance company and the
appointment of an agent will be as per regulation prescribed by IRDA as explained below:

Issue of License:

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  IRDA or an officer authorized by it in this behalf will issue a license. These Regulations
specify: – Authorizes designated persons, being officers of Insurers to issue such license for
three years

– The license may be to act as an

 Agent for the “Life Insurer” or z

 Agent for the “General Insurer” or
 Agent as a “Composite Insurance Agent” means Agent for life insurance as well as general
insurance.
 Fee for the license (Rs. 250/-)
 The manner of making an application etc.

Qualification

A person must:—

1. Be at least 18 years
2. Have passed 12th standard or equivalent examination if he is to be appointed in a place with
population of 5,000 and more or 10th standard otherwise.
3. Have undergone practical training in an approved Institute, in life or general insurance as the
case may be for 50 hrs. (on renewal for 25 hours) spread over 3 to 4 weeks for either of the
licenses, and 75 hours spread over 6 to 8 weeks for composite license There are relaxations in
the hours of Training for some Professionals, like CA’s, MBA, Associates/Fellows.
4. Have passed the examination conducted by Insurance Institute of India or any other
examination body recognized by the authority. He will have to qualify 2 hrs. written test by
obtaining 50 marks out of 100 marks.
5. The fees for each license is prescribed as Rs. 250/-. If the application for renewal is late but
made before expiry of the license than Rs. 100/- will be charged extra. In case license has
expired already then application for renewal will normally be turned down but if hardship is
proved then license may be renewed.

Disqualification

A person would be debarred from obtaining a license if he is found to be:—

1. A minor.

2. of unsound mind declared by court of competent jurisdiction.

3. Guilty of criminal breach of trust, misappropriation, cheating, forgery or abetment or attempt to

commit any such offence.

Cancellation of License

The designated person may cancel a license of an insurance agent, if the insurance agent
suffers, at any time during the currency of the license, from any of the disqualification as stated above

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and recover from him the license and the identity card issued earlier. Even on non performance of
minimum business expectation by the Insurer the agency can be terminated.

Corporate Agent:

The provisions of appointment of an agent are applicable for the Corporate Agent subject to the
additional provisions as explained below:

1. Corporate Agent can be only firm or company.

2. Insurer may decide on case to case basis for having share capital of Rs 15 lakhs.

3. A person known as Principal Officer should be qualified as Associate of Insurance Institute of India
Mumbai (AIII) and if a corporate in existence then within 3 years from the date of renewal the
principal office should acquire the said qualifications.

DURATION OR VALIDITY OF LICENSE: —

A license once issued shall be valid for a period of three years from the date of its issue, unless
the same is suspended or cancelled by IRDA.

Fees:—

CAREGORY AMOUNT
Direct Broker Rs 20,000/- at the time of license and every year 0.5% of brokerage earned
minimum Rs 25,000/- & maximum Rs 1,00,000/
Reinsurance Rs 40,000/- at the time of license and every year 0.5% of brokerage earned
Broker minimum Rs 75,000/- & maximum Rs 3,00,000/
Composite Rs 50,000/- at the time of licenses and every year 0.5% of brokerage earned
Broker minimum Rs 1,25,000/- & maximum Rs 5,00,000/
PROFESSIONAL INDEMNITY INSURANCE: —

Every insurance broker shall take out and maintain and continue to maintain a
professional indemnity insurance cover throughout the validity of the period of the license. The
amount of indemnity should be three times of the brokerage earned during last year or Rs 50.00 lakhs
whichever is higher.

CODE OF CONDUCT.

1) Every agent shall adhere to the code of conduct specified below:-

a) Every insurance agent shall, ---

i) identify himself and the insurer of whom he is an insurance agent;
ii) Show the agency identity card to the prospect, and also disclose the agency appointment
letter to the prospect on demand;

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iii) Disseminate the requisite information in respect of insurance products offered for sale by his
insurer and take into account the needs of the prospect while recommending a specific insurance plan;
iv) Where the Insurance agent represents more than one insurer offering same line of products, he
should dispassionately advice the policyholder on the products of all Insurers whom he is
representing and the product best suited to the specific needs of the prospect.
v) Disclose the scales of commission in respect of the insurance product offered for sale, if asked by
the prospect;
vi) Indicate the premium to be charged by the insurer for the insurance product offered for sale;
vi) Explain to the prospect the nature of information required in the proposal form by the insurer, and
also the importance of disclosure of material information in the purchase of an insurance contract;
vii) bring to the notice of the insurer every fact about the prospect relevant to insurance
underwriting, including any adverse habits or income inconsistency of the prospect, within the
knowledge of the agent, in the form of a report called “Insurance Agent’s Confidential Report” along
with every proposal submitted to the insurer wherever applicable, and any material fact that may
adversely affect the underwriting decision of the insurer as regards acceptance of the proposal, by
making all reasonable enquiries about the prospect;

viii) Obtain the requisite documents at the time of filing the proposal form with the insurer; and
other documents subsequently asked for by the insurer for completion of the proposal;

ix) advise every prospect to effect nomination under the policy

x) Inform promptly the prospect about the acceptance or rejection of the proposal by the insurer

xi) render necessary assistance and advice to every policyholder on all policy servicing matters
including assignment of policy, change of address or exercise of options under the policy or any other
policy service, wherever necessary;

xii) Render necessary assistance to the policyholders or claimants or beneficiaries in complying

with the requirements for settlement of claims by the insurer;

2) No insurance agent shall,--

a) Solicit or procure insurance business without being appointed to act as such by the insurer
b) Induce the prospect to omit any material information in the proposal form;
c) Induce the prospect to submit wrong information in the proposal form or documents submitted
to the insurer for acceptance of the proposal;
d) Resort to multilevel marketing for soliciting and procuring insurance policies and/or induct any
prospect/policyholder to join a multilevel level marketing scheme.
e) Behave in a discourteous manner with the prospect;
f) Interfere with any proposal introduced by any other insurance agent;
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g) Offer different rates, advantages, terms and conditions other than those offered by his insurer;
h) Demand or receive a share of proceeds from the beneficiary under an insurance contract;
i) force a policyholder to terminate the existing policy and to effect a new policy from him within
three years from the date of such termination of the earlier policy;
j) Apply for fresh agency appointment to act as an insurance agent, if his agency appointment was
earlier cancelled by the designated official, and a period of five years has elapsed from the date of such
cancellation;
k) Become or remain a director of any insurer;
3) Every insurance agent shall, with a view to conserve the insurance business already procured
through him, make every attempt to ensure remittance of the premiums by the policyholder within the
stipulated time, by giving notice to the policyholder orally and in writing;

4) Any person who acts as an insurance agent in contravention of the provisions of this Act shall
be liable to a penalty which may extend to ten thousand rupees and any insurer or any person acting on
behalf of an insurer, who appoints any person as an insurance agent not permitted to act as such or
transact any insurance business in India through any such person shall be liable to penalty which may
extend to one crore rupees.

5) The insurer shall be responsible for all acts and omissions of its agents including violation of
code of conduct specified under these guidelines, and shall be liable to a penalty which may extend to
one crore rupees.

TERMINATION OF AGENCY

Section 201 Termination of agency: An agency is terminated by the principal revoking his
authority, or by the agent renouncing the business of the agency; or by the business of the agency
being completed; or by either the principal or agent dying or becoming of unsound mind; or by the
principal being adjudicated an insolvent under the provisions of any Act for the time being in force for
the relief of insolvent debtors.

A contract of agency is a species of the general contract. As such, an agency may terminate in
the same way as a contract is discharged except where the agency is irrevocable. The relation of
principal and agent can only be terminated by the act or agreement of the parties to the agency or by
operation of law [vi]. “An agency, when shown to have existed, will be presumed to have continued,
in the absence of anything to show its termination, unless such a length of time has elapsed as destroys
the presumption”. The agent’s duty to act on behalf of the principal comes to an end on the termination
of an agency. The time frame for the termination of an agency can be stipulated by a particular statute
or instrument.

In such a case, if the instrument specifies in plain and unambiguous terms that an agency will
terminate without action on the part of the principal or agent upon the expiration of the time specified
in the instrument, the agency will in fact, terminate [vii]. If, after the expiration of the time so
stipulated in the contract, the parties continue their relationship as principal and agent, a rebuttable

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presumption is raised that their relations are governed by the original contract and that the contract is
renewed for a similar period. For instance, if the parties entered into a contract for one year and
continued to act under the contractual terms after one year, the court will presume that the parties in
fact intended to keep the contract alive for another year.

On the other hand, if the parties did not fix any appropriate time for the termination of contract,
the contract is deemed to be terminated after a reasonable time. “What constitutes a reasonable time
during which the authority continues is determined by the nature of the act specifically authorized, the
formality of the authorization, the likelihood of changes in the purposes of the principal, and other
factors”. Moreover, the burden of proving the termination or revocation of an agency rests on the party
asserting it.

“Parol evidence cannot be admitted to add another term to an agreement even if the writing
contains nothing relating to the particular provision to which the parol evidence is directed”. Thus,
courts will not admit parol evidence while determining the duration of an agency contract where the
written contract is viewed as integrated, or unambiguous, or both. An agency continuing for a
reasonable time can be terminated by one party only after giving sufficient notice to the other party.

UNIT-V COMPLETED

5marks

1. Explain role or responsibilities or duties of insurance agent.

2. Describe the pre- requisites of becoming an agent.
3. Explain on termination of agency.
4. How to cancel and renewal of license.

10marks

1. Explain on code of conduct of an insurance agent.

2. Explain the procedure for granting license.

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