What Is Insurance?
Contract between two parties – First is Insurance Company and Second is tha person who buy the Insurance Premium.
Insurer – Insurance Company
Insured – Person OR Entity who buys insurance
Important Term Used In Insurance
- Insurer – ( insurance company)
- Insured – (person OR entity who buys insurance)
- Insurance Policy – (A Contract OR Terms & Conditions Of Insurance)
- Loss – (Decided)
- Premium
- Compensation
- Risk ‐ (uncertainity)
- Insured Amount
- Contingency – (Cause Of Loss)
Features/Characteristics Of Insurance
- Contact
- Consideration
- Sharing of Financial Risk
- Co-operative Device
- Risk Evaluation in Advance
- Good Faith
- Contract Of Indemnity
- Amount of Payment
- Insurance is not Gambling
- Insurable Interest
- Insurance For Pure Risks Only
- Protection Against Risk
- Transfer Of Risk
Types Of Insurance
1. Life Insurance
It is also called Assurance.
Life Insurance = Insurance On Human Life
Payment Assured
Death before 20 years than Compensation Amount will give Otherwise After 20 years Full Policy Amount will give.
2. General Insurance
Fire Insurance- that covers damage and losses caused by fire
Marine Insurance- marine insurance covers the Loss of ships,cargos,terbinds and any transports.
- Ship Insurance – also known as hull Insurance. It is the Insurance Against Loss caused by damage or destruction of ship to the owner.
- Cargo Insurance – the goods sent through waterways is called as Cargo. It covers physical damage Loss of goods while in-transit by Land, Sea and Air.
- Freight Insurance – the amount paid to the owner of ship to transfer the goods from one port to another is called Freight.
- Marine liability – Ship Crashing Types Insurance.
Motor Insurance – Car Motor Cycle Insurance
Social Insurance – Provide Protection Against Economic Risk
Health Insurance – Health care Coverage Treatment Free
Home Insurance – Any losses of home
Liability Insurance – In any law, arise Liability
3. Other types of Insurance
- Double Insurance –
- Reinsurance – Part of Risk Transfer to other Company
- Over Insurance – More than Value of the Product.
- Under Insurance – Less than the Value of the Product.
Essentials Of Insurance Contract
- Offer & Acceptance
- Intention to create Legal relationship
- Parties Competent to Make Contract – Not Minor, Not Lunatic, Not Unsound-mind
- Free Consent
- Lawful Consideration
- Lawful Object
- Certain and possible
(All Rules Of Indian Contract Act 1872)
Principles Of Insurance
1. Principles Of Utmost Good Faith
Principle of utmost good faith means that the insurer and insured both must be transparent and disclose all the necessary information required before signing up for an insurance policy.
2. Principles Of Insurable Interest
Insurable interest means that the subject matter of the contract must provide some financial gain by existing for the insured and would lead to a financial loss if damaged, destroyed, stolen, or lost.
3. Principles Of Indemnity
It is not made for making profits. The main aim of Insurance is to give Compensation in case of any damage or Loss.
Merits Of Principles of Indemnity
- Avoidance of under or over Insurance
- To avoid Anti-social Activity
- To maintain Premium at low level
Conditions for Indemnity
- Insured has to prove that he has suffered a Loss on the subject matter Insured and it is the actual Monetary Loss
- The Compensation cannot exceeds the amount Insured
- Insurer has a right to get back the extra amount, if any paid to the Insured
- The Insurer has a right to get back all amount received by the Insured from the third party ,if the Loss is fully indemnified by the insurer
- The principle of Indemnity is not applicable in case of life Insurance as the actual Loss on Death cannot be Calculated
4. Principles Of Contribution
Principles of Contribution applies when the insured takes more than one insurance policy for the same subject matter. It is same thing as in the principle of indemnity, i.e. the insured cannot make a profit by claiming the loss of one subject matter from different policies or companies.
5. Principles Of Subrogation
Principle of subrogation means surrender of the legal right to receive compensation or recover the damages in the favour of the insurer. This principle works in the following cases:
a) A third party causes the insured loss
b) Certain goods were lost which can be recovered later
6. Principles Of Loss minimization
This principle means that as an owner, it is obligatory on the part of the insurer to take necessary steps to minimise the loss to the insured property. This principle does not allow the owner to be irresponsible or negligent just because the subject matter is insured.
7. Principles Of Causa Proxima
Principles Of Causa Proxima applies when the loss is result of two or more causes Then Insurance company will find nearest cause of loss. If the nearest cause is the one in which the property is insured, then the company must pay compensation. No payment will be made by the insured, If it is not a cause the property is insured against.
Conclusion: In this article we learn that ‘What is Insurance? and its types,Principles,Benefits’.This Article Is Very Important For All students who adopt ‘Banking & Insurance’ Subject.