Types of Insurance
Insurance covers different types of risks. All contracts of insurance can be broadly classified as follows:
1. Life Insurance (or) Life Assurance
2. Non-life Insurance (or) General Insurance
It can be further classified into: (i) Fire Insurance; (ii) Marine Insurance; (iii) Health Insurance and (iv) Miscellaneous Insurance.
1. Life Insurance
Life Insurance may be defined as a contract in which the insurance company called insurer undertakes to insure the life of a person called assured in exchange of a sum of money called premium which may be paid in one lump sum or monthly, quarterly, half yearly or yearly and promises to pay a certain sum of money either on the death of the assured or on expiry of certain period.
Importance of Life Insurance
a. Life insurance provides protection to the family at premature death of an individual.
b. It gives adequate amount at an old age when earning capacities are reduced.
c. Life insurance is not only a protection but is a sort of investment because a certain sum is returnable to the assured at the time of death or at the expiry of a certain period.
Types of Life Insurance Policies
Life insurance policies are of many kinds. Some of them are given below:
i. Whole Life Policy
In this kind of policy, the sum insured is payable only on the death of the assured to the beneficiaries or heir of the deceased. The premium is payable for a fixed period (20 or 30 years) or for the whole life of the assured. If the premium is payable for a fixed period, the policy will continue till the death of the assured.
ii. Endowment Life Assurance Policy
Under this type of policy, the insurer undertakes to pay the assured a specified sum, on the attainment of a particular age or on his death, whichever is earlier. In case of death of the assured before he attains the specified age, the sum is payable to his legal heir or the nominee. Otherwise, the sum is paid to the assured, when he attains a particular age. Thus, the endowment policy matures after a limited number of years.
iii. Joint Life Policy (JLP)
The policy is taken up jointly on the lives of two or more persons is known as Joint Life Policy. On the death of any one person, the assured sum or policy money is paid to the other survivor or survivors. The premium is paid jointly or by either of them in installments or lump sum.
Usually this policy is taken up by husband and wife jointly or by two partners in a partnership firm, where the amount is payable to the survivor on the death of either of the two.
iv. Annuity Policy
Under this policy, the assured sum or policy money is payable in monthly or annual instalments after the assured attains a certain age. In this case, either the whole amount of the premium is paid once or premium is paid in instalments over a certain period. This policy is useful to those who prefer a regular income after a certain age.
v. Children’s Endowment Policy
This policy is taken to provide funds for the education or marriage of children. For example, Jeevan Anurag Policy. In this policy, the amount is payable by the insurer when the children attain a particular age. The premium is paid by the person entering into the contract. However, no premium will be paid, if he/she dies before the maturity of the policy.
2. Non – Life Insurance
It refers as the insurance not related to human but related to properties.
a. Fire Insurance
Fire insurance is a contract whereby the insurer, in consideration of the premium paid, undertakes to make good any loss or damage caused by a fire during a specified period upto the amount specified in the policy.
A claim for loss by fire must satisfy the following two conditions:
· There must be actual loss; and
· Fire must be accidental and non- intentional.
Essential elements of Fire Insurance Contract
· The insured must have insurable interest both at the time of insurance and at the time of loss.
· The contract is based on the principle of utmost good faith.
· It is based on the principle of strict indemnity.
· Fire must be the proximate cause of damage or loss.
b. Marine Insurance
Marine insurance is a contract of insurance under which the insurer undertakes to indemnify the insured in the manner and to the extent thereby agreed against marine losses. The insured pays the premium in consideration of the insurer’s (underwriter’s) guarantee to make good the losses arising from marine perils or perils of the sea.
Marine perils can be collision of ship with the rock, fire, ship attacked by the enemies, etc. These perils cause damage, destruction or disappearance of the ship and cargo and non-payment of freight. Through marine insurance policy, the insurer undertakes to compensate the owner of a ship or cargo for complete or partial loss at sea.
Essential elements of Marine Insurance Contract
· It is based on the principle of indemnity
· The contract is based on utmost good faith.
· The insurable interest must exist at the time of loss.
· The principle proximate cause will apply to marine loss only.
The three different types of marine insurance policies are:
When a ship is insured against any type of danger, it is known as hull insurance. This policy is taken to indemnify the insured for losses caused by damage to ship.
When a marine insurance policy is taken by the cargo owner to be compensated for loss caused to his cargo during the Voyage, it is known as cargo insurance. The cargo to be transported by ship is subject to many risks, like risk of theft, loss of goods in voyage, etc.
When a marine insurance policy is taken to guard against non-recovery of freight, it is known as freight insurance. The shipping company is mainly interested in freight, which it gets either in advance or on the arrival of goods. However, it will not get the freight, if the goods are lost during transit. So, to insure the freight, it takes freight insurance.
A contract of marine insurance covers the ship, cargo and the freight.
In mid 80’s, most of the hospitals in India were government owned and treatment was free of cost. With the advent of Private Medical Care, the need for Health Insurance was felt and various Insurance Companies introduced Health Insurance as a Product. Presently the health insurance exists primarily in the form of ‘Mediclaim policy’.
Health insurance policy is a contract between an insurer and an individual or group, in which the insurer agrees to provide specified health insurance at an agreed upon price (premium).Disability resulting from illness or accident may be peril to family because it not only cuts off income but also creates large medical expenses. Health insurance is taken as safeguard against rising medical costs. It provides risk coverage against unforeseen health expenditure that may result in financial hardship.
There are mainly three types of Health Insurance covers:
It covers the hospitalization expenses for an individual up to the sum assured limit
It covers the hospitalization expenses for entire family up to the sum assured limit.
This policy combines health insurance with investment and pays back an amount at the end of the insurance terms.
Health Insurance provides following types of coverage:
Medical expenses – It covers the expenses of hospitalization/nursing home bills and doctors’ services.
Disability income – It replaces the income lost while the insured is unable to work.
There are two ways by which health insurance claims are settled:
a. Cashless: The claim amount needs to be approved by the TPA and the hospital settles the amount with the TPA. (TPA or Third Party Administrator is a middleman between Insurer and the Customer)
Reimbursement: The insured avails himself or herslef
of the treatment and settles the hospital bills
directly at the hospital. The insured can claim reimbursement later on by
submitting relevant bills/documents for the claimed amount to the TPA
D. Miscellaneous Insurance
This is also known as ‘Auto Insurance’. This policy comes under General Insurance. This insurance has become very popular and is gaining importance. In motor insurance the owner’s liability to compensate people who were killed or injured through an accident is passed on to the insurance company. The premium rate under this policy is standardized.
This policy comes under the category of insurance of property. Any loss of damage due to theft, larceny, burglary, house- breaking and acts of such nature are covered by this policy. Compensation of actual loss is done.
· Insurable interest need not exist at the time of policy but should be present at the time of theft.
· The principle of causa proxima is also applied to it. The insurance company would pay only if the proximate cause falls under the policy
This is a bond in which a sum of money is secured to the insured in case of an event of death of animals like bulls, buffaloes, cows and heifers. The cause of death may be an accident, disease or pregnant condition, etc. The insurer normally agrees to pay excess in case of loss.
This policy is to provide financial support to farmers in case of a crop failure due to drought or flood. It generally covers all risks of loss or damages relating to production of rice, wheat, millets, oil seeds and pulses etc.
This policy is a comprehensive cover for amateur sports persons regarding their sporting equipment, personal effects, legal liability and personal accident risks. If desired it can also be extended to a named member of the insured’s family but it is not available to professional sports person. The cover is generally for following sports or more: Angling, badminton, cricket, golf, lawn tennis, squash and use of sporting guns.
The General Insurance Company offers to secure the education of dependent children under this policy. If the assured parent/legal guardian goes through any bodily injury resulting solely and directly from accident due to external, violent and visible means and if such injury shall within twelve calendar months of its occurrences be the only direct cause of his/her death or permanent total disablement, the insurer shall indemnify the insured student in respect of all covered expenses to be incurred from the date of occurrence of such accident till the expiry of policy or completion of the duration of covered course whichever occurs first and such indemnity shall not exceed the sum assured as stated in the policy schedule.
This policy envisages to provide relief to the family members of insured women in case of their death or disablement due to any kinds of accidents and/or death and / or disablement arising out of other factors incidental to women only.
According to Sec 39 of the Insurance Act, 1938, nomination is the process of appointing or nominating a person or persons by the insured, to receive the payment of the policy, in the event of death. The person who is authorized to receive the payment of the policy is called nominee. If the policy matures by expiry of time, the policy amount is payable to the insured himself and not to the nominee.
The surrender value is the cash value of the policy which is payable to policyholder if he decides to terminate the contract. This surrender value is usually obtained from the paid-up-valuebyapplyingapercentagefactor. This percentage factor will vary according to the plan of assurance, the original term of the policy and the duration elapsed since the commencement of the policy. The surrender value signifies the amount of premiums paid which is returned to the policyholder at the time of surrendering the policy.
It is a contract of insurance, in which an insurer enters into a contract with another insurer to insure the whole or a part of risk covered by the first insurer. It happens when an insurance company feels that it cannot bear the entire risk alone by itself. In such case, it transfers a part of the risk to other insurance companies.
When more than one insurance policy is taken to cover the same subject matter i.e. risk, then it is known as Double Insurance.