Basics & Principles of Insurance
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Transcript of Basics & Principles of Insurance
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BASICS OF INSURANCE
INTRODUCTION TO INSURANCE:
In the modern civilized world even after taking
proper
care at every step, life and property is continuouslyexposed to loss or damage. A person moving on
road
can be killed by a car, a motor bike parked may be
stolen, a factory may be gutted, cargo may bedamaged while in transit by a ship what not - to
say
everything including life is exposed to risk and
there
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BASICS OF INSURANCE
INSURANCE
LIFE INSURANCE GENERAL INSURANCE
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BASICS OF INSURANCE
LIFE INSURANCE GENERAL INSURANCE
Benefit policy Indemnity policy
Renewal cannot be denied Can be denied
Not duty to inform any Changes to be informed
change
Constant Premium Premium varies every yr.
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INSURNCE AS A SOCIAL SECURITY TOOL
General Insurance business was taken over by the
Government in 1972 with objective of severing
better the Needs of Economy.
Hut insurance for poor people.
Crop Insurance for farmers.
Cattle and livestock insurance for the beneficiaries of IRDP
Workmens compensation/Employees State Insurance.
Solatium Scheme (hit and run cases) for road accident victims.
Third party insurance to protect the families of road accidentvictims
Public liability insurance to compensate victims of hazardous
goods manufacturing industries.
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BASICS OF INSURANCE
RISK:
Uncertainty about a Loss.
PERIL :
Cause of Loss
HAZARD :Conditions which may create or increase the
chance of loss arising from any peril.
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INSURABLE RISK
RISK
Pure risks Trade Risks
Risk must be fortuitous in nature
Loss caused must be capable of being measured.
Risk must not be of illegal nature
Insurance must not be against public policy.
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Insurance provides financial security to anindividual
Insurance provides assistance to businessenterprise
Insurance provides financial stability tocommerce, industry, and the community.
Insurance serves as a basis of credit
Insurance plays a vital part in the reduction of
losses Insurance provides fund for investments
Insurance earns foreign exchange
FUNCTIONS OF INSURANCE
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Involves two parties Insured & Insurer
Governed by Indian Contract Act, 1872.
Elements for legal validity of contract:
Offer and Acceptance
Consideration
Agreement between parties consensus ad idem
Capacity of the partiesLegality of the contract
Insurance Contracts
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Insurable Interest
Utmost Good faith
Indemnity
Subrogation and Contribution
Proximate Cause
Principles of Insurance
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There must be property, right, interest, life or
potential liability capable of being insured.
Such property should be the subject matter of
insurance.
The insured must bear a legal relationship to the
subject matter
Insurable interest must exist at the time of loss.
Insurable Interest
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Interest arising from ownership
Interest arising from law
Interest arising from contract
Interest arising from legal liability
Interest of a person in life
Interest arising out of insurance
Insurable Interest
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Duty of Utmost Good faith implies that a proposer
must disclose to the insurer all material facts in
regards to the proposed insurance. The duty
applies not only to the material facts that he knowsbut also extends to the facts that he ought to know.
Material Fact : Fact which would affect the decision
of a prudent underwriter w.r.t acceptance of risk.
Utmost Good Faith
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Excepted Material Fact :
Facts which diminish the risk
Facts which are presumed to be known by
underwriter
Facts which could be ascertained from information
provided.
Matters of law.
Facts in regard to which insurer is indifferent Facts possible of discovery during inspection.
Utmost Good Faith
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A breach of utmost good faith is by :
Non disclosure
Mis-representation.
Utmost Good Faith
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Compensation for loss or injury sustained
Security or protection against loss or damage.
Object:
Loss or damage must be made good in such a
manner that financially the insured should be
neither better off nor worse off as a result of loss.
To place the insured in the same financial position
as he was before a loss.
Prevent insured from making a profit out of a loss.
Principle of Indemnity
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Methods :
Cash Payment
Repairs
Replacement
Reinstatement
Principle of Indemnity
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Subrogation:
Transfer of rights and remedies of insured to the
insurer who has indemnified the insured in respect
of the loss.
This arises from the principle of indemnity.
Collecting claim as well as money/ goods from the
person responsible for loss will be against
indemnity principle.
Subrogation & Contribution
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Contribution :
The right of an insurer who has paid a loss under apolicy to recover a proportionate amount from otherinsurers who are liable for loss.
Arises from the principle of indemnity as theinsured is prevented from claiming from all insurersseparately.
The foll. are reqd.:
Subject matter must be the same.
Peril which causes the loss should be common toall policies.
Policies must be in force at the time of loss.
Subrogation & Contribution
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The active efficient cause that sets in motion a train
of events which brings about a result, without the
intervention of any force started and working
actively from a new independent source. Cause of causes not to be looked into but for the
immediate cause.
Immediate does not mean the cause nearest to the
loss in point of time. It should be understood interms of effectiveness and efficiency.
Proximate Cause
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Pure & Speculative
Pure Risk :
Pure Risk always produce losses. In Pure risks,
there is no possibility of gain.
Speculative Risk:
Speculative risks can result into a gain or loss.
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Offer & Acceptance
Offer from proposer made orally, in paper, over
telephone or by completing a Proposal form.
Acceptance by Insurer usually by issuance of
cover note
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Consideration
Act or Promise offered by one party and accepted
by the other as the price of the promise. In
Insurance, consideration from the insured is
known as Premium and that from the Insurer isthe Promise to Indemnify.
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Capacity of the parties to contract
Insured:
Should have attained age of majority
Is sound of mind
Insurer:
Must have legal capacity to contract.
Authorisation by the Government.
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Legality of contract
Subject matter should be legal.
Object is not lawful if:
it is forbidden by law
Is of such a nature that if permitted would defeat
the provisions of any law.
Involves or implies injury to the person and
property of another.
The court regards it as immoral or opposed topublic policy.