FORMS/TYPES OF INSURANCE: Insurance may apply to a range of risks relating to life, sickness, fire, theft, accidence and a host of other contingencies. These forms/types of insurance are given below; i. ii. iii. iv.
Life Insurance. Fire Insurance. Marine Insurance. Miscellaneous Insurance Policies.
LIFE INSURANCE: life insurance is a contract of arrangement whereby insurer in consideration of the payment of a sum of money called premium paid in lump sum or periodical instalments, agrees to a pay a specified sum on the occurrence of a stated event(i.e. death) or on reaching a certain age. In the case of death, the payment is made to the insured‟s representative and on reaching a certain age paid to the insured himself. Generally speaking, life insurance is referred to as „life assurance‟ for the reason that death is certain though the time of its happening is rather uncertain. A life assurance contract is a long-term contract and the assured must pay the entire premium agreed at stated intervals. The assurer will then pay the amount of policy either on death or on the maturity of the policy. The liability of the assurer is to pay absolute amount and there is no question of indemnity. The value of human life cannot be calculated in terms of money. The main principles of a life assurance contract are: 1. Utmost Good Faith: The insured insu red must disclose all the material facts and should not hide or state wrongly certain important facts. The proposal form which is to be filled up by the assured has many questions regarding the life of the proposer. If the assurer finds out afterwards that certain material fact are wrong, he can avoid the contract. 2. Insurable Interest: Insurable interest must be present at the time of taking taking the policy. He/she must stand to gain by the safety and suffer loss by its damage. It can be said that every person has an insurable interest in his own life as well as in the lives of his family members. No person can take a life insurance policy of a third person, unless he has got some financial interest in his life.
Kinds of Policy: Different Insurance Companies may introduce different kinds of policies. Broadly speaking they may be classified into the following:
1. Whole Life Policy: In a whole life insurance policy, the specified sum becomes payable to the beneficiary only on the death of the assured. The premium has to be paid on this policy throughout the life of the assured. This type of insurance is the most suitable for family protection after the death of the earning member. Whole life policy makes no provision for old age and becomes due for payment to the beneficiary (mentioned therein) only due after the death of the assured person. 2. Endowment Policy: Under this policy the fixed sum of money becomes payable when the assured reaches the particular age or on the death of the assuered, if it (death) takes place earlier. This policy provides for the payment of a stated sum of money either on attainment of a specified age or death whichever occurs earlier. The premia have to be paid till the date of maturity(i.e., the time when the policy becomes payable). An important advantage of the endownment policy is it combines saving for old age with the protection of the assured‟s family in the event of his premature death.
3. joint Life Policy: This type of policy is taken upon the joint lives of two or more persons. Its amount can be claimed by the survivor whenever one of them dies. A married couple may take a joint-life policy or even a partnership firm can take a joint-life policy on the lives of its partners. 4. Group Insurance Policy: This policy is taken on the lives of the members of a family or by an employer to cover the lives of the employees of his concern. 5. Annuity Policy: In case of such a policy, the amount of the policy is paid in the form of annuities 9fixed periodical payments) for a specified number of years or till the death of the assured. 6. Double Accident Indemnity Policy: S uch a policy provides that if the insured dies because of an accident, his survivors will get double the amount of the policy. 7. With Profit Policy: This kind of policy gives an added advantage to the assured. The policy-holder or his nominees is allowed share in the profits of the corporation in the form of bonus. The profits are declared at intervals and credited to the policy holder as bonuses. It is added to the total sum assured and is payable at the time of maturity of the policy. The rate of premium is slightly higher in the kind of policy as compared to without profit policy. In the case of the without-profit or non-profit policy, the policy holder does not get any right to share in the profit of the insurer. 8. Partnership Assurance Policy: In case of partnership, if any partner dies, the firm is dissolved and the remaining partners who desire to continue the same business will have to pay out the deceased partner‟s capital to his heirs. To pay such a large amount at once, the partners may find it difficult and order to provide for this contingency they make out a suitable life assurance. This is referred to as partnership assurance. 9. Assignment: The assignment of the policy means the transfer of the rights and liabilities of the assured to the third party. The transfer of the rights and liabilities of the assured may be to any one for valuable consideration or as a gift out of affection. The assignment must be in writing and the notice of assignment must be given to the insurer who will register it and inform the assignee about it. 10. Surrender Value: If the assured is unable to continue payment of premium on his policy, he can surrender his policy before its maturity and get the surrender value from the insurer. The amount of surrender value is based on the reserve value of a policy which is only a fraction of the total amount paid by way of premium till the day of surrender. A policy, acquires value after it has run for at least two or three years. 11. Paid – up Value: If the assured is unable to pay up further premiums, he can either surrender the policy or he can take up paid up policy. In case he takes up paid-up value, he will be entitled to the paid up value of the policy. Such a value will however be paid only at the maturity of the policy. As “paid -up value” is not presently payable, it is usually much higher than the “surrender Value”. “Paid -up V alue” is payable either on maturity or on death whichever is earlier. 12. Nomination: when the policy-holder mentions the name of a person in the policy or endorses it thereon, with the object of enabling him to get the amount of the policy after his (policy-holder‟s) death, it is called “nomination”. The person so named is called a nominee. A nomination can be cancelled or changed at any time, before the maturity of the policy. It must be noted here that if the policy becomes due for payment within the life-time of the assured, the money will be paid to the assured only. Only on the death of the assured, the money will be Paid to the nominee. 13. Settlement of Claim: the amount of a life assurance policy becomes a claim either on maturity or on the death of the assured. If the assured survives, the insurance company pays him the amount of the policy on maturity otherwise, the legal heirs/nominee is paid by the insurance company on the death of the assured. Advantages of Life Insurance: 1. A life insurance policy gives financial protection to the dependents of the assured. This is although the more necessary if the assured is the sole bread winner of the family.
2. The policy amount can be planned in advance for utilization in future pre-determined objects like education of children, buying a house, etc. thus, a life insurance policy helps in creating a asset in the future out of our current income. 3. Life insurance is a compulsory form of saving as the payment of premium is compulsory. For persons of limited means, there is no other alternative substitute of savings. 4. Life insurance has the advantage of financial protection against death and a sources of investment for investment for the future. 5. Life policy is a valuable asset and one can raise an emergency loan against it. 6. The policy- holder enjoys peace of mind, since his future is financially secu red.
FIRE INSURANCE: Unlike life insurance, fire insurance is a contract of indemnity and the insured cannot claim anything more than the value of the goods lost or damaged by fire or the amount of policy whichever is lower. Fire insurance is a contract of indemnity against loss or damage arising form fire during an agreed period of time and up to the specified amount. The insured party has to pay the premium and the insurance company agrees to indemnity the insured. When the risk of fire is greater, the rate of insurance is higher. Fire insurance may be defined as a contract by which the insurer in consideration of money called „premium‟ paid or payable by the insured agrees to indemnity him against any loss done to his property due to fire up to the sum agreed upon. The risk of fire is calculated on the basis of past experience and premium rates are determined accordingly. Certain commodities are subjected to greater risk of fire, and the rate of premium charged on such commodities is naturally higher. A claim for loss by fire must satisfy two conditions: i. There must be actual fire; and ii. The fire must be accidental not intentional. The cause of the fire is immaterial, unless it has been caused due to fraud or misconduct on the part of the insured. Fire caused due to negligence of the insured or his servants is covered by fire insurance. Kinds or Types of Fire Policy: there are different types of fire insurance policies. The important policies are explained below: I. Valued Policy: In this type of policy, the value of the property is agreed upon between the insurer and the insured at the time the policy is affected. This kind of policy is taken for such articles like works of art, jewellery etc whose value cannot be decided easily. In the valued policy, the amount of loss is fixed by the valuer and the policy states the value of property as agreed with the company. The insured need not prove the amount of loss when the property is destroyed. The agreed value is paid by the insurer to the insured in case the property is destroyed by fire. II. Specific Policy: In this policy, the property is insured for a specific sum and in case of any loss to the property; the insured is paid the whole loss, provided that it does not exceed the specified sum for which the policy is issued. For example, A property is valued at Rs. 1,00,000/- is insured for Rs. 50,000/-. If the loss is Rs. 25,000/-, the insurance company will pay the whole loss of Rs.25,000/-, If for example the loss is Rs.50,000 the whole loss of Rs.50,000/- is paid. But if the loss is Rs.60,000, the insurance company will pay only the specified sum of Rs.50,000 and not more. III. Floating Policy: This policy covers one or several items of goods belonging to the same owner lying at different locations under one sum and for one premium. Generally this policy is taken by a big manufacturer whose merchandise may be spread in godown, warehouse, railway station etc. the premium charged under such a policy is generally the average of the primia that would have been paid if each lot of the goods have been insured under specific policies for specific amounts.
IV.
Average Policy: The fire policy very often contains a special clause which is called the average clause. The average clause penalizes under insurance by a corresponding under-payment of loss. The normal rule is the payment of actual loss and not the proportional loss. The average clause limits the insured‟s right to indemnify to such portion of any loss incurred as the amount insured bears tot eh total value of the property insured. Thus,if the property is under-insured, the insurer will bear only that proportion of the actual loss as his insurance bears to the total value of the property.
For example, property worth Rs.2,00,000 is insured for Rs.1,00,000 and the loss is Rs.50,000. The insured will recover the full loss. However, under the average policy, the insured will get 1,00,000 /2,00,000 X 50,000 = Rs 25,000 In the above mentioned case, the insured will have to suffer the loss of Rs.25,000 as he had not insured for the full value of the property. The object of this clause is merely to discourage underinsurance. V. VI. VII.
Comprehensive Policy or “All Insurance Policies”: Such policies are generally issued to cover such
risks as fire, explosion, lightning, thunderbolt, burglary, strikes etc. Vi. Blanket Policy: This policy is meant to cover both fixed and current assets of the insured under one insurance. Vii. Excess Policy: When the stock of a merchant fluctuates, he may take out a policy for an amount below which his stocks do not fall, and this policy is called „first loss policy‟. In the case of „excess policy‟ the merchant takes a policy to cover the maximum additional amount by which the stock may arise at times. For example, if a merchant;s stock varies between Rs.100000 and Rs.150000, he may take the first loss policy for Rs.100000 and an excess policy for Rs. 50000.
MARINE INSURANCE: It is possibly the oldest form of insurance. Marine insurance is an arrangement by which the insurance company or the underwriter agrees to indemnify the owner of a ship or cargo against risks which are incidental to marine adventure. Marine insurance is a contract of indemnity. It may cover the ship, the cargo or the freight money. It may be defined as a contract entered into between parties, whereby one party called insurer undertakes to indemnify the other called insured in a manner and to the extent thereby agreed upon against losses incident to marine adventure. The insured pays a certain sum called the premium and in return the insurer agrees to indemnify the insured against loss caused by certain specified perils. Types of Marine Insurance: Marine Insurance policies are of three types:
1. Cargo Insurance: Insurance against risks arising out of an act of god, enemy action, fire etc may be taken by the shipper of the goods shipped. This is called as cargo insurance. 2. Hull Insurance: The ship itself is exposed to risk at sea. The ship owner may, therefore, take hull insurance in order to protect against sea perils. 3. Freight Insurance: Since freight is payable in the arrival of the ship at the port of destination and if the ship is lost, on account of any of the marine perils or the cargo is lost, the shipping company will lose the freight. Therefore, it can take a marine insurance policy against such risk. This is called freight insurance. Types of Policies: Marine Insurance covers a variety of risks depending on the need of the insured. Chief among these marine insurance policies are given below:
1. Time policy: This policy is meant to insure the subject matter for a specified period say 31st March 2004 to 1 st April 2005. Time policy is suitable mainly for hull insurance through it may be taken out for movables as well. 2. Voyage Policy: This policy is meant to insure the subject matter for a particular voyage, say from Mumbai to London. The subject matter insured under such a policy is generally cargo which is exposed to marine risks in the course of transit. 3. Mixed policy: Mixed Policy is also known as time and voyage policy. It seeks to insure the subject matter on a particular voyage for a specific period of time. For example Mumbai to London for six months. 4. Floating Policy: Floating policy is sued by the cargo-owners who make regular shipments of cargoes to insure the shipments expected to be made during a certain period by one policy. According to this policy, the cargo owner takes out a policy for the total amount of his expected shipment. As and when each shipment is made, the insured makes a declaration about the value of the shipment and the value of the policy is reduced by that amount. Such declarations are made from time to time till the total value is exhausted and the policy is “fully declared” or “run off”. 5. Valued Policy: In this policy the value of the subject matter insured is agreed upon between the parties and is specified in the policy itself. 6. Unvalued Policy: in this policy, the value of the subject-matter (generally cargo) of which the insured is not aware while out the policy is not specified. It may also be called as an “open policy” . The value of the subject matter will be ascertained only when the loss takes place. 7. Blanket Policy: This policy is taken for a certain amount but the premium is paid on the whole of it in the beginning of the policy and is re-adjusted at the end of the term of the policy in accordance with the actual amounts and risk as shown by records of the insured. 8. Composite Policy: it is a policy underwritten by more than one underwriter. Under a composite policy the liability of each underwriter is distinct and separate. 9. Port Policy: port policy is meant to cover the ship when it is anchored in some port. 10. Fleet Insurance Policy: it is designed to insure a whole fleet of liners or steamers. Warranty: A warranty means a term or condition the breach of which entitles the insurer to avoid the policy altogether. It may be expressed or implied. There are two types of warranties which must be adhered to and observed by the insured in a contract of marine insurance.
a. Express warranties including the neutrality of the ship and the readiness of the ship to undertake the voyage on a certain day and b. Implied warranties (held good even if not clearly expressed) including seaworthiness of the ship (which must be certified by the port authorities) and the legality of the venture. Implied warranties: 1.Seaworthiness: seaworthiness means that the ship is fit for voyage and fit to carry a particular cargo. This condition extends only to: a) Seaworthiness at the time of sailing and b) Fitness at the time of loading.
The condition of seaworthiness does not apply once the ship has sailed or the goods have been loaded. However, if the voyage is scheduled to be divided into stages, the vessel must be made seaworthy at the commencement of each stage. 2. Non-Deviation: Non-Deviation means that the ship shall proceed on the voyage without necessary deviation on the usual and customary manner. However, this condition does not apply in certain circumstance where
it becomes necessary to deviate from the ususal route for the safety of human life or when the ship is in distress or in circumstance which are beyond the control of the master of the ship. 3. Legality of the voyage: legality of the voyage means that the ship is sued for lawful purpose. The insurer may repudiate the contract of insurance of those goods, which is illegal or even if the ship carrying those goods, which is illegal or even if the ship carrying those goods is sued for illegal purposes. In short, the ship and the goods must be used for lawful purposes. Clause in a Marine Policy: A marine insurance policy is prepared to suit different types of risks. So there are various clauses in the marine policies. Some of the important clauses are given below:
1. Valuation Clause: This clause mentions the insurance value of the object insured. 2. Lost or Not Lost Clause: Under this clause, the goods are insured by the insurer no matter whether they are already lost before the policy is issued. Thus, it covers any loss of goods that occurs between the shipment of goods and the issue of policy. 3. Sue and Labour Clause: this clause permits the insured to make attempts for the preservation of the subject-matter of insurance in case of danger. Any expenses incurred by the insured for the purpose of landing reconditioning, warehousing will be proportionately paid by the underwriters. In other words, the insurer agrees to pay reasonable charge to the insured for expenses incurred for such a purpose. This clause is called S.L.T (Sue, Labour and Travel Clause) 4. Waiver Clause: This clause denotes that no act of the insurer or the insured in preserving the subjectmatter of insurance shall be considered to mean that the insured wants to forego the compensation or that the insurer has accepted such abandonment. This is an extension of the sue and labour clause so as to include both the insured and the insurer. 5. Touch and Stay Clause: this clause mentions the route by which the goods are to eb carried. Any unwarranted deviation from this route entitles the insured to avoid the contract. However the ship can make a deviation from the route covered by the touch and stay clause only when it becomes necessary to do so in order to save the ship and the lives of the people on board in an emergency. 6. Warehouse to Warehouse Clause: this clause covers the risk to goods from the time they leave, the consignor‟s warehouse till they reach the consignee‟s warehouse and not only while they are at sea. 7. Free from Particular Average (FPA) and Free from All Average (FAA) Clauses: FPA relieves the underwriter from particular average liability.FAA makes the underwriter free from all averages (both particular and general). 8. Jettison : the word „Jettison‟ means throwing overboard a part of cargo or any other goods in order to clause in a marine policy covers the loss caused by jettisoning of goods. The deliberate and willingly throwing of some cargo is done with an objective of preventing the ship from further damage. 9. Inchmaree Clause: according to this clause, damage or loss caused to the hull or machinery by the negligence of the master or the cargo is covered. 10. Other Clauses: the other clauses required in a marine policy are the name of the insured or some other person who effects the insurer on his behalf. subject matter insured. the risk insured against. the name of the insurer. The sum insured. the route in which the ship should move and ports to be touched. steps to avert or minimize a loss and the payment to the insured for his expenses for this purpose.
Marine Losses: marine losses can be divided into two main groups: viz 1. Total losses and 2. Partial losses. 1. Total Losses: total losses may be actual or constructive . Actual total loss means that the subject matter insured is totally lost. It occurs when the ship or cargo is completely destroyed. Constructive total loss means the subject matter(ship or cargo) is so damaged or destroyed that recovery or repair expenses are greater than the value of the ship or the cargo from it will be larger than the value of the goods insured. In such a case the subject matter is reasonably abandoned for ti might appear that any attempt to preserve it from actual total loss would involve an expensive expenses which may exceed even the value of the things saved. 2.Partial Losses: A partial loss in marine insurance is called an „average‟. An „average‟ may be either
General or Particular.
particular Average: A particular average is a partial loss happening to a particular object due to a peril of the sea. For example, a part of the cargo damaged by sea water. General Average : it is an extra-ordinary loss or expenditure incurred voluntarily in time of peril to save the ship or the cargo. A general average is that partial loss which is to be met and paid by all interested in a vessel proportionately. It is in the nature of an extraordinary sacrifice or expenditure incurred voluntarily and reasonably in an emergency, for the sole object of preserving the common interest from an impending peril. For example, throwing overboard some cargo to save the ship or the remaining cargo. This loss shall be shared by all the owners of cargoes or ship remaining in tact.
GENERAL AVERAGE VS PARTICULAR AVERAGE GENERAL AVERAGE
PARTICULAR AVERAGE
1. It means an extraordinary loss, damage or 1. It means partial loss or damage accidentally expenditure or sacrifice reasonably and caused to the ship, cargo, or freight or to a voluntarily incurred in time of peril for the particular parcel of goods caused by sea perils purpose of preserving all interests, ship, cargo e.g. water waves coming in and damaging the and freight which are under common danger. cargo or ship. 2. Voluntary or deliberate loss. 2. Purely accidental or fortuitous unforeseen loss. 3. Affecting general or common interest, hence termed “General Average” (loss) 4. It is of an extraordinary character or emergency nature. 5. The loss does not lie where it falls i.e. it is not to be borne by the party on whom the loss originally fell. On the other hand it is equitable shared by all the interest. 6. The cause resulting into a general average loss cannot be duly insured as it anticipated. 7. It must be reasonable and prudent. 8. Example: A ship during a storm is in danger of being lost. Some cargo is thrown out to lighten or save the ship. Owners of lost cargo can recover proportionate contribution from all other parties.
3. Involving only particular property or interest, hence called particular average. 4. No such extraordinary or emergency losses. 5. Such a loss is not shiftable. The incidence of loss lies where it falls. No question of sharing particular average loss. It falls entirely upon the owner. 6. It must be caused by a marine peril against which the property is duly insured. 7. As it is not deliberate it need not have such preconditions. 8. Example: If before the master could take any action, the cargo was washed away by waves, it would be a particular average loss failing only on the owners.
MISCELLANEOUS INSURANCE POLICIES:
a) Motor Insurance: For the purpose of insurance, motor vehicles are divide into 2 categories private vehicles and commercial vehicles. Private vehicles are meant for the private use of the owner whereas commercial vehicles include all the vehicles which are used for commercial purposes (i.e., for profit) for buses, taxies, trucks etc. A motor insurance may cover three types of risks: i. Risk arising from damage to the vehicles by fire or accident or loss due to a theft of the vehicle. ii. Personal injury to the owner of the vehicle. iii. Injury to or death of some other party due to an accident in which the vehicle of the insured is involved. According to the Motor Vehicles Act 1956, it is compulsory for the vehicle owners to take a policy for injury or death of a third party due to an accident in which the vehicle of the insured is involved. This kind of policy is called act policy. It must be clearly understood that the act policy covers only the personal injury to a third party or his death, but does not cover liability arising from damage to the property of a third party caused by an insured vehicle. b) Third Party Insurance: In this policy, not only the risk of injury or death of a third party due to an accident in which the vehicle of the insured is involved is covered, but also the risk of liability that may arise due to damage to the property of a third party is covered. c) Fidelity Insurance: the owner of a business may take a policy covering the risks arising out of fraud and dishonesty on the part of his employees. This is called a Fidelity Insurance Policy. Under this policy, employer may cover himself against a loss due to fraud and dishonesty on the part of his employees. For taking this type of policy the employers should furnish to the insurance company all the particulars relating to the employee and should not make any change in the terms of employment without the consent of the insurer. Fidelity insurance is of considerable use to business houses where cash and goods are handled by employees. d) Credit Insurance: this type of insurance consists in shifting some of the trade losses arising out of bad debts from the merchant to the insurer. Under credit insurance the insurance company undertakes to indemnify the business man against the losses arising from the debtor‟s insolvency . e) Burglary Insurance: under this insurance, the contents of the private houses, shops, factories, commercial establishments etc are insured against burglary and house breaking. If a burglary takes place, the insured can claim compensation from the insured company by furnishing particulars regarding the date and time of burglary, value of articles lost etc. in filling a proposal for burglary insurance, the insured has to furnish information regarding the situation of the house, its construction, the purpose for which it is being used, name of the occupant, the particulars of the belongings, the particulars of values and information regarding the safe in which valuables are kept etc. f) Employer‟s liability Insurance: according to the provisions of certain labour laws, an employer is liable to pay compensation to an employee or his dependents if a worker dies in an occupation or injured in the course of the work. To cover such liability employer can take employer‟s liability insurance.
ITEMS Nature contract
insurable interest
of
LIFE INSURANCE
FIRE AND MARINE INSURANCE
Life insurance is not a contingent contract. Risk or event i.e , death is inevitable certain bound to happen. Every policy becomes a claim-sooner or later.
Fire and Marine contracts of insurance are contingent, risk or event, uncertain, not inevitable i.e. may/may not happen. Every policy need not become a claim.
Unlimited interest in life. Loss due to death is irreparable, non-measurable in money. Insurable interest essential at the time of taking life policy. Loss due to death is irreparable and life’s worth is invaluable.
Insurable interest limited and determinable in money. Loss is measurable in money. For fire 1.1 at the time of taking policy and also at the time of loss. For marine-1.1 required only at the time of loss.
Actual loss on death of a person is nonmeasurable. Hence compensation against actual loss or indemnity not possible. Indemnity not applicable.
