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Insurance

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Meaning of Insurance

Insurance is a contract in which one party

known as the insurance or assured, insures

with another person, known as the insurer,

assurer or underwriter, his property or life, or

the life of another person in whom he has a

pecuniary interest, or property in which he is

interested, or against some risk or liability, bypaying a sum of money as the premium.

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Essential Elements of Insurance

Contracts The insurance is really subject to a risk otherwise

it will amount to betting .

The time and occurrence of risk must involve

some uncertainty.

Both the insurer and the insured should not have

any control over the happening of the event

insured against.

The cost of insurance should not be prohibitive.

The risk must be capable of approximate

mathematical estimation.

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Principal of Insurance

Good Faith

Insurable Interest

Indemnity Mitigation of loss

Attachment of risk

Cause proxima

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Good Faith

A contract based on utmost good faith and if theutmost good faith is not observed by either partythe contract may be avoided by the other.

Insurance shifts risks from one party to another itis essential that there must be the utmost goodfaith and frankness between the insured andinsurer, the whole truth must be told about thesubject matter of insurance and all circumstances

surrounding it, in order that the underwriter mayknow the extend of his risk and how must hemust charge for the insurance of it.

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Insurable Interest

The second principle is that the assured must

have an actual interest called the insurable

interest, in the subject matter of the insurance

either he must own part or whole of it, or he

must be in such a position that injury to it

would affect his adversely.

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Indemnity

The third fundamental principle is that

excepting life assurance and personal accident

and sickness insurance, a contract of

insurance contained in a fire, marine, burglary

or any other policy is a contract of indemnity.

This means that the assured in the case of loss

against which the policy has been made shallbe fully indemnified by never more than fully

indemnified.

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Mitigation of Loss

In the event of some mishap to the insured

property, the owner must act as though he

were uninsured, and make every effort to

preserve his property.

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Risk Must Attach

The next principle is that a contract of

insurance can be enforced only if the risk has

attached. If the risk is not run the

consideration fails, and therefore the

premium received by the insurer must be

returned.

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Causa Proxima

Every loss that clearly and proximately results,

whether directly or indirectly, from the event

insured against is within the policy.

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Contract of Insurance

Premium

Days of Grace

Return ofPremium

Policy

Interim Receipt, Certificate or Cover Note

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Premium

The Premium is the price for the riskundertaken by the insurer. It is the

consideration for the insurance.

The rate of premium is based upon the

average of losses as compared with profits.

The amount of the premium may not always

be a fixed sum, for it may be arranged to varyaccording to the changes in the risk at anytime.

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Days of Grace

The days of grace are the days allowed by the

insurance company after the expiry of the

stipulated period of insurance during which the

assured can pay the premium in order tocontinue or to renew the policy of insurance.

In insurances where the insurer reserves the

option to renew the risk, the insured is not

covered during the days of grace if the renewalpremiums remain unpaid before it is tenderedand accepted.

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Return ofPremium

Premium is the consideration for the risk run

by the insurers, and if the risk insured against

is not run, then the consideration fails, the

policy does not attach, and as a consequences

the premium paid can be recovered from the

insurers.

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Policy

The policy is a formal and enforceable stamped

document signed and issued by the insurance

company embodying the terms of the contract

between the parties. The articles of association of every insurance

company usually provide the mode in which the

company is to be bound, and policies must be

issued in accordance with the provisionscontained therein, before the assured can sue onthe insurance.

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Re-Insurance- If an insurance company finds

that it has entered into an insurance contract

which is an expensive proposition for it or if it

wishes to minimize the chances of any

possible loss, without at the same time giving

up the contract, it will re insure a portion of

the risk with some other insurance companyor companies. This is knows as re insurance.

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Double Insurance- When the same subject-

matter is insured with two or more insurers

and the total sum insured exceeds the actual

value of the subject matter it is known as

double insurance and it amounts to over

insurance.

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Types of Insurance

Marine Insurance

Fire Insurance

Life Insurance

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Marine Insurance

A contract of marine insurance is an

agreement whereby the insurer undertakes to

indemnify the assured, in the manner and to

the extent there by agreed, against marine

losses, that is to say, the losses incidental to

marine adventure.

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The Policy

The name of the assured or of some person

who effects the insurance on his behalf

The subject matter insured and the riskinsured against

The voyage, or period of time, or both as the

case may be covered by the insurance

The sum or sums insured

The name or names of the insurer or insurers.

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Types ofPolicies

Voyage Policy

Time Policy

Valued Policy

Unvalued Policy

Floating Policy

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Fire Insurance

A fire insurance is a contract to indemnify the

insured for destruction of or damage to

property caused by fire. The insurer

undertakes to pay the amount of the assured

loss not in excess of the maximum amount

stated in the policy.

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Average Clause

It is becoming very common in policies of fire

insurance to insert a condition called the

average clause. By which the insured is called

upon to bear a portion of loss.

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