Insurance

Life and Non Life

Insurance Business is a financial service which provide for mitigating the perils arising out of uncertainty.

The Insurance Business is a business in Utmost Good faith.

The insurance business covers both life and non life insurance

Life insurance

It is an Insurance to cover the uncertainty arising out of death and disability of an human being.

The Insurance business is entered into between three parties.

a. The Insured personb. The Insuring Company and c. The Benificiary

In case of life insurance, if the insured person does not die or do not get disabled then they get the benefit of saving from the money paid as insurance premium.

Otherwise it is the beneficiary who get the benefit of the insurance.

The amount that is paid to cover the insured person is called “ Premium”

This can be paid in a lump sum and is generally paid through a period of time for which the life is covered.

The premium is calculated by taking in consideration several factors such as:

a. The age of the person insured b. The life expectancy c. the period of coverage and c. The nature of investment covered.

The premium so received by an insurance company is kept in a corpus called “Life Fund” and is used to pay the beneficiary in eventuality of the peril.

Remember that the insurance company is not bound to pay the amount in whole or part in case it detects a forgery in the death or disablement of the person insured.

Actuarial Science:It is the science of calculation of premium and

maturity value of an insurance.

This is a complex discrete mathematical process which takes into consideration the age, death rate, mortality rate, coverage value and cases of recovery (probability) to calculate such premium.

In India the Institute of Risk and actuarial science gives the degree of certified actuarial.

That apart the London school of actuarial and risk management also gives the degree for the same.

Investment of Life fund

The investment of life fund is subjected to the approval of the Government of India. At present only 20% of it can be invested in market related activity and the rest has to be invested in government securties.

General InsuranceGeneral insurance covers the peril and risk

arising out of any uncertainty in business or life of an individual.

The general insurance provide relife to short term peril and risk

The premium paid in an general insurance is for a period of one year and the service to cover the risk expires after a year.

However, if the premium is paid in continuity then the insurance does not lapse and the insured gets extra bonus on continuity.

Examples of General insurance: (list is illustrative not exhaustive)

i. Fire insuranceii. Earthquakes and flood insuranceiii. Any other peril and vagaries of natureiv. Risk of uncertainty of condition of business, like

crop failure, recession etc.v. Risk to cover the deices of a person and the

eventuality of hospitalization (medical insurance)

vi. Risk under problem of existence of a business

Regulatory authority of InsuranceThe Insurance Regulatory Development

Authority of India (IRDA) is the apex regulatory body of Insurance in India.

The purpose of IRDA is to provide a common platform of activity for insurance in India

The role of IRDA1. Regulator of Insurance companies2. Decide common regulation for business and

conduct of the business3. Act as an Arbiter of Insurance (between

companies)4. Provide ombudsman services5. Decide the investment criteria for the fund

available in the insurance companies