What is insurance risk?
What are the 4 types of insurance?
Following are some of the types of general insurance available in India:
- Health Insurance.
- Motor Insurance.
- Home Insurance.
- Fire Insurance.
- Travel Insurance.
What are the 3 main types of insurance?
Insurance in India can be broadly divided into three categories:
- Car insurance. …
- Education Insurance. …
- Home insurance.
What are the principles of insurance?
What is loss in insurance?
What are the 10 Principles of Insurance?
Principles of Insurance
- Utmost Good Faith.
- Proximate Cause.
- Insurable Interest.
- Loss Minimization.
Is this an insurance contract?
Principle of Utmost Good Faith
The basic principle is that both parties to an insurance contract must act in good faith towards each other, i.e. they must provide clear and concise information regarding the terms and conditions of the contract.
The insured must provide all information related to the subject matter, and the insurer must provide specific details regarding the contract.
Example – Jacob took a health insurance policy. While taking insurance, he was a smoker and failed to disclose this fact. Later he got cancer. In such a situation, the insurance company would not be liable to bear the financial burden because Jacob concealed important facts.
Doctrine of Proximate Cause
This is also called ‘Cosa Proxima’ or the principle of proximate cause. This principle applies when the loss is the result of two or more causes. The insurance company will find the proximate cause of the property loss. If the proximate cause is one in which the property is insured, the company must pay compensation. If it is not a cause against which the property is insured, no payment will be made by the insured.
The fire damaged the wall of one of the buildings and the municipal authority ordered its demolition. An adjacent building was damaged during the demolition. The owner of the adjoining building claimed the loss under the fire policy. The court held that the fire was the proximate cause of the damage to the adjacent building, and that the claim was payable because the fall of the wall was an inevitable consequence of the fire.
In the same instance, a wall of a building damaged by fire, before repairs could be made, collapsed due to a storm and damaged an adjacent building. The owner of the adjoining building claimed the loss under the fire policy. In this case, the fire was a remote cause, and the storm the proximate cause; Hence the claim is not payable under the fire policy.
Doctrine of insurable interest
This principle states that the person (insured) must have an insurable interest in the subject matter. Insurable interest means that the subject matter for which one enters into the insurance risk contract should provide some financial benefit to the insured and if there is any loss, destruction or loss it leads to financial loss.
Example – The owner of a vegetable cart has an insurable interest in the cart because he is making money from it. However, if he sells the cart, he will not have an insurable interest in it.
To claim the sum insured, the insured must be the owner of the subject matter both at the time of entering into the contract and at the time of the accident.
Principle of Indemnity
This principle says that insurance risk is done only for the coverage of the loss; hence insured should not make any profit from the insurance risk contract. In other words, the insured should be compensated the amount equal to the actual loss and not the amount exceeding the loss. The purpose of the indemnity principle is to set back the insured at the same financial position as he was before the loss occurred. Principle of indemnity is observed strictly for property insurance and not applicable for the life insurance contract.
Example – The owner of a commercial building enters an insurance risk contract to recover the costs for any loss or damage in future. If the building sustains structural damages from fire, then the insurer will indemnify the owner for the costs to repair the building by way of reimbursing the owner for the exact amount spent on repair or by reconstructing the damaged areas using its own authorized contractors.
Principle of Subrogation
Subrogation means that one party stands in for another party. According to this theory, after the insured, i.e. the person is compensated for the loss caused to him on the subject matter insured, the ownership rights of that property goes to the insurance company, i.e. the company.
Subrogation gives the insurance risk company the right to claim the amount of the loss from the third-party responsible for it.
Example – If Mr. A is injured in a road accident, due to the reckless driving of a third party, the company with which Mr. A has taken accident insurance risk will compensate Mr. A for the loss and also sue the third party for recovery of money. . Paid as claimed.
Principle of contribution
Contribution principle is applicable when the insured takes more than one insurance risk policy for the same subject. It states the same as the principle of indemnity, meaning that the insured cannot profit by claiming one subject loss from different policies or companies.
Example – Property worth Rs. 5 lakh insurance risk with Company A for Rs. 3 lakhs and with Company B Rs. 1 lakh. 3 lakhs in case of property damage the owner can claim the full amount from Company A but then he cannot claim any amount from Company B. Now, Company A can claim proportionate amount of reimbursement cost from Company B.
Types of Insurance
There are two broad categories of insurance:
- Life insurance
- General Insurance
Life Insurance – An insurance risk policy in which the policyholder (insured) can ensure financial independence for their family members after death. It provides financial compensation in case of death or disability.
While purchasing a life insurance risk policy, the insured either pays a lump sum or makes periodic payments to the insurer known as premium. In exchange, the insurer promises to pay the sum assured to the family in case of death or disability or if the insured is on maturity.
Based on the coverage, life insurance risk can be classified into the following types:
Term Insurance: Provides life coverage for a specified period of time.
Whole Life Insurance:
Offer life cover for an individual’s entire life
A portion of the premium goes towards the death benefit, while the rest is invested by the insurance risk company.
Money Back Policy:
A certain percentage of the insurance risk is paid to the insured as survival benefit at intervals throughout the term.
Also called retirement plans are a combination of insurance and investment. A portion of the premium is directed towards the retirement corpus, which is paid as a lump sum or monthly payment after the retirement of the insured.
Provides financial support to the children of the policyholders throughout their lifetime.
ULIPS – Unit Linked Insurance Plans: Similar to endowment plans, a portion of the premium goes towards the death benefit while the rest goes towards mutual fund investment.