Insurance ch1

Insurance : Insurance is a contract, represented by a policy, in which a policyholder receives financial
protection or reimbursement against losses from an insurance company. Insurance policies hedge against
financial losses resulting from accidents, injury, or property damage. Insurance also helps cover costs
associated with liability (legal responsibility) for damage or injury caused to a third party
TYPES OF INSURANCE
1.Life Insurance : Life insurance is a contract that offers financial compensation in case of death or disability.
Some life insurance policies even offer financial compensation after retirement or a certain period of time.
2.General Insurance : A general insurance is a contract that offers financial compensation on any loss other
than death. It insures everything apart from life. A general insurance compensates you for financial loss due to
liabilities related to your house, car, bike, health, travel, etc.
Types of General Insurance
General Insurance can be of following types:
1. Health Insurance : Health Insurance is a contract between an insurer and an individual or a group in which
the insurer agrees to provide health insurance at an agreed upon price, which is premium. Premium can be paid
in instalments or in lump-sum depending upon the policy taken.
2. Motor Vehicle Insurance : Motor Vehicle insurance protects vehicles from unexpected and unfortunate
events.
3. Burglary Insurance : Burglary insurance falls under the classification of insurance of the property. A
burglary occurs when someone uses force to unlawfully enter someone else’s property, even if they do not steal
anything.
4. Crop Insurance : Crop insurance is a contract which protects agriculturists against financial losses caused
by crop failures due to drought or flood. It compensates for crop losses or damage caused by a variety of factors
such as hail, drought, frost, flood, and disease.
5. Cattle Insurance : When a sum of money is secured to the assured in the event of death of animals like
bulls, buffaloes, cows, etc., it is known as Cattle Insurance. Cattle insurance policies cover cattle deaths
caused by fire, traffic accidents, electricity, drowning, snake bite, strangling, poisoning, and accidental
external causes.
The difference between life insurance and general insurance can be drawn clearly on the following
grounds:
1. The insurance contract, in which the life risk of an individual is covered, is known as life insurance. As
opposed, the insurance, which is not covered under life insurance and includes various types of
insurance, i.e. fire, marine, motor, etc. is general insurance.
2. Life insurance is nothing but an investment avenue. On the contrary, general insurance is a contract of
indemnity.
3. Life insurance is a long-term contract, which runs over a number of years. Conversely, general insurance
is a short term contract, which needs to be renewed every year.
4. In life insurance, the sum assured is paid, either on the happening of the event or the on the maturity of
the term. As against this, in general insurance, the amount of actual loss is reimbursed, or liability
incurred will be repaid on the happening of an uncertain event.
5. In life insurance, the premium is paid throughout the life of the term. In contrast, in general insurance,
one shot payment of premium is made.
6. In life insurance, the insurable interest must be present only at the time of the contract, but in general
insurance, the insurable interest must be present, both at the time of contract and at the time of loss.
7. Life insurance can be done for any value based on the premium the policyholder willing to pay. Unlike,
general insurance the sum payable is confined to the amount of loss suffered, regardless of the policy
amount.
8. The component of saving is normally present in life insurance but not in general insurance.
Principles of Insurance
In insurance, there are 7 basic principles that should be upheld, ie Insurable interest, Utmost good faith,
proximate cause, indemnity, subrogation, contribution and loss of minimization.
1. Principle of Utmost Good Faith : This is a primary principle of insurance. According to this principle, you
have to disclose all the information that is related to the risk, to the insurance company truthfully.You must not
hide any facts that can have an effect on the policy from the insurer. If some fact is disclosed later on, then your
policy can be cancelled. On the other hand, the insurer must also disclose all the features of a life insurance
policy.
2. Principle of Insurable Interest: According to this principle, you must have an insurable interest in the life
that is insured. That is, you will suffer financially if the insured dies. You cannot buy a life insurance policy for
a person on whom you have no insurable interest.
3. Principle of Proximate Cause : While calculating the claim for a loss, the proximate cause, i.e., the cause
which is the closest and the main reason for a loss should be considered.Though it is a vital factor in all types of
insurance, this principle is not used in Life insurance.
4. Principle of Subrogation : This principle comes into play when a loss has occurred due to some other
person/party and not the insured. In such a case, the insurance company has a legal right to reach that party for
recovery.
5. Principle of Indemnity : The principle of indemnity states that the insurance will only cover you for the loss
that has happened. The insurer will thoroughly inspect and calculate the losses. The main motive of this
principle is to put you in the same position financially as you were before the loss. This principle, however, does
not apply to life insurance and critical health policies.
6. Principle of ContributionAccording to the principle of contribution, if you have taken insurance from more
than one insurer, both insurers will share the loss in the proportion of their respective coverage.If one insurance
company has paid in full, it has the right to approach other insurance companies to receive a proportionate
amount.
7. Principle of Loss Minimisation : You must take all the necessary steps to limit the loss when it happens. You
must take all the necessary precautions to prevent the loss even after purchasing the insurance. This is the
principle of loss minimization.

Insurance ch1

Uploaded by

Copyright:

Available Formats

Insurance ch1

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Insurance ch1

Uploaded by

Copyright:

Available Formats

Insurance : Insurance is a contract, represented by a policy, in which a policyholder receives financial

Types of General Insurance

General Insurance can be of following types:

You might also like