1. Introduction To Insurance

2. The Indian Contract Act 1872 A contract is an agreement between two or more parties to do or toabstain from doing an act and which is intended to create a legally binding relationshipAn Agreement enforceable by Law is a contract 3. Essentials of a Valid Contract Two or FreeMoreConsent Partiesfa s o ctial rant ntLawfulse o LawfulObjectiv Es id CConsider eval ation Offer & Acceptance 4. The Life Insurance ContractInsurer Insured Agreementwill paywill payclaims PremiumsOn happening of insured event orsurvival to a specified term 5. Is Life Insurance a Legal Contract? Intention is legal Proposer offers-insurer accepts Premium is consideration Insured must be major with sound mind-capacity to contract Insured and Insurer are in agreement of same mind and freeconsent Yes, since all essentials of valid contract are present 6. Principles of Life Insurance UtmostInsurablegood Interestfaith Insurance Contract is based on Fair Play 7. Insurance Contract Vs Commercial ContractINSURANCE CONTRACT COMMERCIAL CONTRACT In Life Insurance proposer has all When one buys a TV or Fridge hethe factsexamines the quality/quantity The Insurer Knows only those Buyer has no right to come laterfacts that the proposer disclosesand ask for termination of contract Ordinary faith is not sufficient- Buyer Beware or Caveat EmptorUtmost Good Faith is requiredapplies 8. Utmost Good Faith A Positive Duty to voluntarily disclose,accurately and fully, all factsmaterial to risk being proposed, whether requested or not. 9. What is a material Fact?The Mind of a WhichPrudentAny Fact or Circumstance InfluencesUnderwriterIn determining In Fixing thewhether to take premiumthe risk 10. What must be disclosed? Facts of higher Risk External Factors that make the risk higher Any refusal/special terms imposed on previous proposals Existence of other policies Facts relating to health 11. Declaration Proposal Form is the Basis Of ContractIf any statement/declaration by the proposer is found untrue The Contract can be made Null and Void and Premiums ForfeitedThe Effect of declaration is to turn Representations in the proposalform into warranties 12. Breach Of Utmost Good FaithBreach of Utmost Good FaithMisrepresentationNon-Disclosure 13. Section 45 of the Insurance Act,1938 Policy StartDate2 years If Material Facts discovered The policy cannot be called in question within 2 years of the policy after 2 years, on the grounds of then the insurer can declare inaccurate or false statement unless it is the policy null and void proved to be material and fraudulent. 14. What is Insurable Interest ? Insurable Interest is not defined in Insurance Act 1938 If No Insurable Interest .A contract is a Wagering Contract which is void Section 30IndianInsurable Interest is a Legal Prerequisite Contrac t Act 1872 15. Insurable Interest All risks are not Insurable Insured must suffer a loss, if the risk is not covered Financial interest in Subject matter of Insurance The insured must be interested in the safety and the well being of the subject of Insurance He Should not benefit from loss or damage to it 16. What is Insurable Interest ? Relationship with subject Recognized in Law andMattergives Legal Right to a person To insure that Subject MatterInsurable Interest is the monetary interest 17. Who have insurable interest in each other Any person in himself Husband and wife in each other Creditor on Debtor(To the Extent of Outstanding Mortgage withInterest) Surety on Principal(To the extent of Debt) Partners in business Employer on its employees Parents in Lives of their Minor Children 18. When do these principles apply? Insurable Interest interest is required at the time of entering thecontract Utmost Good Faith is required Throughout the contract 19. Principle Of Indemnity Insurance is meant to compensate the losses The Mechanism of Insurance cannot be used to make profits Amount of claim cannot exceed the amount of loss incurred Insurance makes good the loss In Life Insurance, insurable interest on own life is unlimited hencePrinciple of indeminity does not apply but it does apply in GeneralInsurance 20. Risk ManagementAvoidanceRisk can be managedTransfer Retention 21. Classification of Needs Protection of the standard of living of family incase of early death Future Expenses eg. Children Education Income incase of Retirement or Disability Helps by facilitating borrowing 22. Case Study 1 In a village there are 400 houses, each valued at Rs 20,000. Every year on an average, 4 houses get burnt, resulting into a totalloss of Rs 80,000.Find a Solution 23. Sharing Risk400 owners come togetherand contributed Rs 200 eachFund Fund Size= 400200= Rs 80,000 24. Sharing RiskRisk of 4 house owners4 00rovea d re Sp Spre ad ove r400 25. Type of RisksRisks Pure SpeculativeNo prospect of gain Offers possibility of lossor gainExample: Fire in a Example: Investing inbuilding stocks 26. Type of Risks RisksFundamental ParticularAffect large section Consequences are of societycomparatively restrictedExample: FamineExample: Most insurable risks 27. How to Manage Risk Avoiding Risk Controlling Risk Accepting Risk Transferring Risk 28. Why we need life insuranceDependents Education RetirementEstateSupport CostsIncomePlanning 29. Insurance vs. GamblingInsuranceGamblingRisk already exist Risk not existent. It is created.No total loss. Entire group provides One gains at the cost of others. for themselves.It is based on mathematicalIt is highly speculative. prediction. 30. Basic Life Insurance Policy 31. Term Insurance Provides a death benefit if the insured dies during aspecified period 150,000 benefit Death 100,000 50,0001 2330 No of years the policy is in force 32. Term Insurance In case of death during the policy term, the SA = 100,000 is paid 1 2330 No of years the policy is in force 33. Whole Life Policy Whole life insurance provides insurance coverage throughout the insureds lifetime.Policy purchased at age 30 150,000 Benefit Death 100,000 50,000 304050 60 70100 or deathInsureds Age 34. Types of Whole Life Policies Regular - Premium PoliciesLimited Payment PoliciesPremiums are payablePremiums are payable until the insureds death until some stated periodexpires Date of InsuredsDate of End of policydeathpolicy specifiedpurchase purchase period 35. Endowment Policies Endowment policies provide insurance coverage for a specifiedperiod. On surviving the specified period, policyholder gets the sum assured+ bonuses. On death during the specified term, policyholder gets the sumassured + bonuses. 36. Endowment PoliciesPolicy purchased at age 30 SA + 150,000 Benefit Bonuses Death 100,000SA 50,000 303540 45 5055Insureds Age 37. Endowment PoliciesPolicy purchased at age 30 150,000SA + Benefit Death Bonuses 100,000On death at age 50,000 45 303540 45 50 55Insureds Age 38. Annuities An annuity is a series of periodic payments. In annuity contract, aperson agrees to pay to the insurer a specified capital sum inreturn for a series of payments.Periodic Payments madeAnnuity benefit payment 39. Factors Affecting Annuity Benefits The amount of money invested The interest rate earned on investment The number & timing of annuity payments The time over which money grows at interest 40. How Immediate Annuity WorksYou made Your annuitylump sum payments startpaymentfrom age 31Age 30Age 31 41. How Deferred Annuity worksRetirement Age 60Deferment Period Annuity PeriodAge 85 Age 30Age 60You pay premium Insurer pays youwhile you workannuity/pensionsduring yourretirement