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Akanksha (138)
Harsheen(142)
Kritika(146)
 LIFE INSURANCE
 LIFE INSURANCE is a medium of providing a strong financial
support for your family after your demise.

 It is a sound financial planning of your family for a better

tomorrow.

 It helps you achieve your long term goals in life.

 It is a contract between the insured and the agent or

insurance company.
 PRINCIPLES OF LIFE INSURANCE
 UTMOST GOOD FAITH
 INSURABLE INTEREST

 WARRANTIES

 ASSIGNMENT AND NOMINATIONS

 UTMOST GOOD FAITH
Utmost good faith is also known as UBERRIME FIDES. It means that
both the policyholder and the insurer need to disclose all material
and relevant information to each other before commencement of the
contract. Both the parties must disclosed all the materials facts
affecting risk to each other. There should not be any concealment,
misrepresentation , half disclosure or fraud regarding the subject
matter to be insured, otherwise the contract would be null and void.
For example: if a person suffers from any heart problem and this fact
is not disclosed to insurance company and the person dies due to his
heart problem then the insurance company will not liable.
IN LIFE INSURANCE FOLLOWING
FACTS MUST BE DISCLOSED:

 Name , address and his occupation

 Date of birth, age , height

 Fact about his life and habits

 Information about health

 Family history
 INSURABLE INTEREST
No person can enter into a valid contract of insurance unless he
had insurable interest in the object to be insured. It is an
important element of insurance contract. The insured must have
an insurable interest . One of the key element of a life insurance
policy is the beneficiary. Beneficiary is a person or entity named
on the policy to receive the proceeds when the person die . A
beneficiary can be a person or a business. The insured should
be economically benefitted by the existence of subject matter
and suffer loss on its non existence.
 INSURABLE INTEREST IN LIFE INSURANCE POLICY IS
AS FOLLOWS:
1. Wife has insurable interest in the life of husband because she
will suffer financial loss in the death of her husband and will
financially gain if he survives.
2. Child has insurable interest in the life of his father.
3. A company has insurable interest in the life of senior officer
whose death may affect the profit of business.
4. A person has unlimited interest in his own life.
 WARRANTIES IN LIFE INSURANCE
There are certain conditions and promises in the insurance contract which
are called WARRANTIES. It is very important condition in the insurance
contract which is to be fulfilled by the insured. In life insurance it is required
that insured to make certain warranties .
For example: to obtain a health insurance policy insured party may warrant
that he does not suffer from a terminal disease if a warranty made by
insured party turns out to be untrue the insurer may cancel the policy and
refuse to cover claim. Warranties are an integral part of contract. If any
statement whether material or non material is untrue, the contract shall be
null and void.
 TYPES OF WARRANTIES
 Informative warranties : in life insurance informative warranties are more
important. It is a statement regarding the fact at the time the contract was
made. The insurer is expected to disclose all the material facts to the best of
his knowledge.
 Promissory warranties: it is the statement about future facts or about facts
that will continue to be true through out the terms of policies. If a promissory
warranty becomes true, the insurer may cancel at such time as the warranty
become untrue. For example: the insured
promises that he will not take any hazardous occupation in future and will
inform the insurer if he do so. The insurer may cancel the policy if the
insured start hazardous occupation in future without any notice.
 ASSIGNMENT AND NOMINATIONS IN LIFE
INSURANCE
The life insurance policy can be assigned freely for a legal consideration, for
love and affection. Assignment of life insurance policy means transfer of
rights from one person to another.
The person who assigns the insurance policy is called ASSIGNOR(policy
holder), and the one to whom the policy has been assigned is called
ASSIGNEE. Once the right have been transferred from assignor to assignee
the rights of policy holder stands cancelled and the assignee becomes the
owner of insurance policy.
INDEMNITY NOT A PRINCIPLE OF LIFE INSURANCE
All insurance contract except life insurance are a contract of indemnity.
Indemnity means security or compensation against loss or damage. It is
necessary that a person will get exactly the same amount as he has lost
due to the loss of his goods. Insured cannot be permitted to make profit out
of his loss.
For example: if goods are insured for 10000, and insured suffer a loss of
5000 then he will be compensated for 5000 only. He will not compensate
more than the actual loss.
In case of life insurance this principle is not applicable because life is not
measured in terms of money and the actual loss on death cannot be
calculated.
 SUBROGATION NOT A PRINCIPLE OF LIFE
INSURANCE
Subrogation is the transfer of rights and remedies of the insured to the insurer
who has indemnified the insured in respect of loss. Insurer steps into the
shoes of the insured and become entitled to all the rights against the third
party to cover the loss regarding the subject matter of insurance after the
claim of insured has been fully settled and paid. It is the right of insurer to
stand in the place of insured after the settlement of claim.
Subrogation does not apply to life insurance because principle of indemnity
does not apply to it if the insured dies due to negligence of third party then the
beneficiary has the right to recover the amount of loss to third party along with
the policy amount. No amount of the policy would be subrogated by the
insurer.
PROXIMATE CAUSE NOT A PRINCIPLE OF LIFE INSURANCE

Proximate cause 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 consider.it is the real and actual
cause of loss
The principle of proximate cause is not applicable in life
insurance because what ever may be the reason of death the
insurer is liable to pay the amount of insurance. The cause may
be natural or unnatural but the insurer is bound to pay the claim
in case of death of insured.
 FIRE INSURANCE
A fire insurance maybe defined as ‘an agreement’ whereby
one party in return for a consideration undertakes to
indemnify the other party against financial loss which the
latter may sustain by reason of certain subject-matter being
damaged or destroyed by fire or other defined perils up to
and agreed amount.
 THE TERM FIRE MUST SATISFY TWO
CONDITIONS :
 There must be an actual fire or ignition.

 The cause of destruction should be accidental and the property insured

should be damaged by fire.

It should be kept in mind that the very property damaged by heat or smoke
without ignition won’t be covered under the word ‘fire’.
 ELEMENTS OF FIRE INSURANCE
CONTRACT
a) Proposal : verbally or in writing. The information provided must include
types of property value of properties , construction occupations , etc.
the assured must disclose all the facts and data related to the material
facts.

b) Acceptance : Assessment of the risk on receipt of proposal. When the

subject matter is of the larger magnitude and where the hazard involved
is of a variable unknown nature, the insurer may send his surcharge for
assessment.

c) Commencement of risk : Where risks are unknown and tremendous ,the

payment of premium will be the basis of the completion of the contract.
 PROCEDURE FOR FIRE INSURANCE
1. Selection of Insurance Company
First of all one should identify a fire insurance company from which the policy is to be purchased. In India,
four general insurance companies owned by Government were operating in this field. These companies are:
National Insurance Company, Oriental Fire and General Insurance Company, New India Assurance Company,
and United India Insurance Company.
Now private insurers have also entered the field. These companies can either be directly contacted or through a
broker.

2. Proposal form: The proposer will have to fill in a proposal form which furnishes the basis of the contract.
The proposal form requires the proposer to give details such as his name, address, occupation and value and
nature of property to be insured, type of policy required, amount of assured sum, etc.

3. Evidence of responsibility: Before accepting a risk, the insurance company requests the proposer to
furnish reasonable evidence of his responsibility. Before assuming the risk, the insurer has to ascertain whether
the proposer is a respectable person and is taking policy in utmost good faith. This precaution is mandatory as
the fire insurance involves a high degree of moral hazard which arises from the nature and behaviour of human
beings connected with the subject matter of insurance.
4. Survey of property : The next step in effecting fire insurance is a survey of property proposed to be
insured through qualified experts known as surveyors. These surveyors are deputed to inspect the property carefully and to
assess the degree of risk involved.

5. Acceptance of proposal form: After examining the contents of the proposal form and the
surveyor’s report, the insurer will decide whether to accept the proposal or not.

6. Commencement of Risk: As soon as acceptance of the proposal is conveyed, the proposer will be
asked to pay the premium within a stipulated period of time. On payment of the premium, the fire insurance contract is said
to have entered upon and the risk commences.

7. Issue of Cover note: Once the risk is assumed, the insurer is supposed to issue a fire policy to the
insured. As the preparation of fire policy takes some time, the insurer will issue a provisional document known as Cover
Note. The cover note is in the nature of interim policy and covers the risk immediately on the receipt of first premium.
8. Issue of Fire Insurance Policy: Later on, the insurer prepares the first insurance policy (to replace the
cover note) and sends it to the insured. The policy is the final acceptance of the company and simultaneously it cancels the,
provisional acceptance given before. The fire policy contains the name and address of the insured, the sum insured, the
terms and premiums, date of issuing the policy, policy number, description and location of property covered and other
details. It is generally issued for one year.
 KINDS OF FIRE INSURANCE POLICIES
 Valued policy: The value of the subject-matter is agreed upon at the time of taking up the policy. The insurer
agrees to pay a pre-determined amount if the subject-matter is damaged by fire. The principle of indemnity is
not applicable to this policy. These goods may include works of art, jewellery, paintings, etc.
 Specific policy: The risk is insured for a specific sum. In case of loss of property, the insurer will pay the loss
if it is less than the specified amount. Under this policy the insured is not punished for getting a policy for
lesser sum. The actual value of property is not taken into consideration.
 Average policy: If the ‘average clause’ is applicable to a policy, it is called Average Policy. Average clause is
added to penalise the insured for taking up a policy for a lesser sum than the value of the property. The
compensation payable is proportionately reduced if the value of the policy is less than the value of the
property.
 Floating policy: This policy is useful to those businessmen who are engaged in import and export of goods
and the goods lie in warehouses at different places. The premium charged is generally the average of the
premium that would have been paid, if specific policies would have been taken for all these goods. Average
clause always applies to these policies.
 Comprehensive policy: A policy may be taken up to cover up all types of
risks, including fire. A policy may be issued to cover risk like fire, explosion,
lightening, burglary, riots, labour disturbances etc. This is called a
comprehensive policy or all risk policy.
 Consequential loss policy: Fire may dislocate work in the factory.
Production may go down while the fixed expenses continue at the same
rate. A policy may be taken up to cover up consequential loss or loss of
profits. The loss of profits is calculated on the basis of loss of sales.
 Replacement policy: The underwriter provides compensation on the
basis of market price of the property. The amount of compensation is
calculated after taking into account the amount of depreciation. A
replacement policy provides that compensation will be according to the
replacement price. The new asset should be similar to the one which has
been lost. The amount of compensation will depend upon the market price
of the new assets so that it is replaced without additional cost to the
insured.
 PAYMENT OF CLAIM UNDER FIRE INSURANCE
 Information about loss: On the occurrence of loss, the insured is required to inform the insurance company
at the earliest.
 Appointments of Assessor: The insurance company appoints an assessor to examine the facts of the case
and determine the amount of liability. An assessee is a technical person having the ability and experience
in handling claims. The assessor examines the damaged property and collects all the available
information.
 Checking of documents: The insurer checks the following information for expecting the claim-
1 that the policy is in force on the date of occurrence of loss.
2 the loss is by a peril is insured in the policy.
3 the property affected is the same as insured under the policy.
4 notice of loss is received without undue delay.
After checking the above given information a number is allotted to the claim and is entered in the register.
 Issue of claim form: A claim form is issued to the policy holder. This form requires the following information:
1 Rate of loss, time of loss, place of fire.
2 Cause of fire.
3 Particulars of the property affected by the loss.
4 Statement of other insurances on the property. 5 Sound value of all the property.
 UTMOST GOOD FAITH
 In insurance contracts, the legal doctrine of utmost good faith applies.
The insured has the duty to disclose all material facts, which have a
bearing on the insurance. A breach of this duty may make the contract
void or voidable. The duty of disclosure continues throughout the policy
period.The fire proposal form also includes a declaration by the insured
saying that the statements declared by him are true, and that they can
form the basis of the insurance contract. This principles also expect the
insured to act as if he is uninsured all the time, and takes care and
safeguards his assets from the perils. Following a loss, he is then
expected to salvage as much of the property as possible.
 INSURABLE INTEREST
 The requirement of insurable interest gives legal validity to insurance contracts
and distinguishes them from wagers. It may be defined as the legal right to
insure, where the right arises out of a pecuniary relationship between the
insured and the subject matter of insurance.The destruction or damage to the
latter involves the insured in financial loss. Absolute legal ownership is a clear
example of insurable interest. For e.g, a bank or a financial institution which
has advanced money on the security of a property, has insurable interest in
that property.
 In Fire insurance policy, the insurable interest should exist at the time of taking
the policy, throughout its currency period and also at the time of loss/claim.
Fire insurance policies are personal contracts, so if the property is sold or
transferred, the policy is not transferred automatically.
 INDEMNITY
 The objective of the principle is to place the insured , as far as possible, in the
same financial position after a loss, as that occupied by him, immediately before
the loss.
 In simple words, the principle of indemnity means the insured is indemnified only
to the extent of his loss, no profit or undue benefit is extended. The indemnity is
subject to the sum insured and other terms of the policy. The sum insured can be
fixed on the basis of Reinstatement Value or Market Value. The term ‘Market
value’ means, for insurance purposes, the present cost of construction of similar
buildings, after deducting depreciation based on age, usage, maintenance etc.
 Similarly for plant and machinery, market value is arrived at by deducting suitable
depreciation for age, usage, wear and tear etc, from the current replacement
costs. In all the cases, depreciation refers to the actual intrinsic physical
depreciation and not those used for accounting purposes.
 SUBROGATION
 The principal of subrogation is the corollary of the principle of
indemnity. If the loss suffered by the insured can be recovered from
third parties who are responsible for the loss, the insured’s rights of
recovery are transferred or subrogated to the insurers , when they
indemnify the loss.(v) Contribution – The principle of contribution,
which is also a corollary of the principle of indemnity, provides that if
the same property is insured under more than one policy, the
insured can recover a rate able proportion of the loss under each
policy. Under no circumstances can he recover more than his loss,
and make a profit.
 PROXIMATE CAUSE
 A cause which immediately precedes and produces the effect, as
distinguished from the remote, mediate, or predisposing cause. An act from
which a loss or injury results as a natural, direct, uninterrupted consequence
and without which the loss or injury would not have occurred.
 It is the primary cause of a loss or injury. It is not necessarily the closest
cause in time or space nor the first event that sets in motion a sequence of
events leading to an injury.
 Proximate cause produces particular, foreseeable consequences without the
intervention of any independent or unforeseeable cause. It is the active,
direct, and efficient cause of loss in insurance that sets in motion an
unbroken chain of events which bring about damage, destruction, or injury
without the intervention of a new and independe
WHAT IS MARINE INSURANCE?
Marine insurance is a contract whereby the insurer
undertakes to indemnify the insured in a manner
and to the extent thereby agreed upon against
marine losses. Marine insurance insures ship, cargo
and freight.
 UTMOST GOOD FAITH
The insured should give full information about the subject
to the insured. He should not withhold any information. If a
party does act in good faith, the other party is at liberty to
cancel the contract. The marine contract is based on
utmost good faith on the part of the parties. The burden of
this principles is more on the insured than on the
insurance company.
 INSURABLE INTEREST
Insurable interest means that the insured should have
interest in the subject when it is to be insured. He should
be benefited by the safe arrival of commodities and he
should be prejudiced by loss or damage of goods. The
insured may not have an insurable interest at the time of
acquiring a marine insurance policy, but he should have a
reasonable interest at the time of loss of damage,
otherwise he will not be able to claim compensation.
 INDEMNITY
The principle means that the insured will be compensated
only to the extent of loss suffered. He will not be allowed to
earn profit from marine insurance. The insurer provides to
compensate the insured in cash and not to replace the
cargo or the ship. The money value of the subject matter is
decided at the time of taking up the policy. Sometimes the
value is calculated at the time of loss also.
 CAUSA PROXIMA
This is a Latin word which means the nearest or
proximate cause. It helps in deciding the actual cause
of loss when a number of causes have contributed to
the loss. The immediate cause of loss should be
determined to fix the responsibility of the insurer. The
remote cause for loss is not important in determining
the liability. If the proximate cause is insured against,
the insurer will indemnify the loss.