Importance of Life and General Insurance

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Importance of life and General

Insurance



Insurance Services

Insurance is system by which the losses suffered by a few are spread over

many, exposed to similar risks. Insurance is a protection against financial

loss arising on the happening of an unexpected event. Insurance policy

helps in not only mitigating risks but also provides a financial cushion

against adverse financial burdens suffered

The functions of Insurance can be bifurcated into

• Primary Functions

• Secondary Functions

• Other Functions



PRIMARY FUNCTION

• Provide Protection: The primary function of insurance is to provide

protection against future risk, accidents and uncertainty. Insurance cannot

check the happening of the risk, but can certainly provide for the losses of risk. Insurance is actually a protection against economic loss, by sharing

the risk with others.

• Collective Bearing of Risk:Insurance is a device to share the financial loss

of few among many others. Insurance is a mean by which few losses are

shared among larger number of people. All the insured contribute thepremiums towards a fund and out of which the persons exposed to a

particular risk is paid.

• Assessment of Risk:Insurance determines the probable volume of risk by

evaluating various factors that give rise to risk. Risk is the basis for

determining the premium rate also• Provide Certainty:Insurance is a device, which helps to change from

uncertainty to certainty. Insurance is device whereby the uncertain risks

may be made more certain.



Secondary function

• Prevention of Losses: Insurance cautions individuals and businessmen to

adopt suitable device to prevent unfortunate consequences of risk byobserving safety instructions; installation of automatic sparkler or alarm

systems, etc. Prevention of losses cause lesser payment to the assured by

the insurer and this will encourage for more savings by way of premium.

Reduced rate of premiums stimulate for more business and better

protection to the insured.• Small Capital to cover Larger Risks: Insurance relieves the businessmen

from security investments, by paying small amount of premium against

larger risks and uncertainty.

• Contributes towards the Development of Larger Industries: Insurance

provides development opportunity to those larger industries having morerisks in their setting up. Even the financial institutions may be prepared to

give credit to sick industrial units which have insured their assets including

plant and machinery.



Other Functions

• Means of Savings and Investment: Insurance serves as savings and

investment, insurance is a compulsory way of savings and it restricts

the unnecessary expenses by the insured's For the purpose of

availing income-tax exemptions also, people invest in insurance.• Source of Earning Foreign Exchange: Insurance is an international

business. The country can earn foreign exchange by way of issue of

marine insurance policies and various other ways.

• Risk Free Trade: Insurance promotes exports insurance, which

makes the foreign trade risk free with the help of different types of

policies under marine insurance cover.



Life Insurance, India

Life insurance is not for the person who passes away, it for those who survive.It is the responsibility of every bread earner to guard against the eventsthat could affect the family in the unfortunate circumstance of his / herdemise. Thus, having a life insurance policy is very vital. Before going for alife insurance policy it is imperative that you know about various types of life insurance policies. Major among them are:

• Endowment Policy• Whole Life Policy

• Term Life Policy

• Money-back Policy

• Joint Life Policy

•Group Insurance Policy

• Loan Cover Term Assurance Policy

• Pension Plan or Annuities

• Unit Linked Insurance Plan



Whole Life Policy

• As the name suggests, a Whole Life Policy is an insurancecover against death, irrespective of when it happens.

• Under this plan, the policyholder pays regular premiums untilhis death, following which the money is handed over to his

family.• This policy, however, fails to address the additional needs of

the insured during his post-retirement years. It doesn't takeinto account a person's increasing needs either. While theinsured buys the policy at a young age, his requirements

increase over time. By the time he dies, the value of the sumassured is too low to meet his family's needs. As a result of these drawbacks, insurance firms now offer either a modifiedWhole Life Policy or combine in with another type of policy



Endowment policies

• Combining risk cover with financial savings, endowment policies is

the most popular policies in the world of life insurance.

• In an Endowment Policy, the sum assured is payable even if the

insured survives the policy term.

• If the insured dies during the tenure of the policy, the insurancefirm has to pay the sum assured just as any other pure risk cover.

• A pure endowment policy is also a form of financial saving, whereby

if the person covered remains alive beyond the tenure of the policy,

he gets back the sum assured with some other investment benefits.• In addition to the basic policy, insurers offer various benefits such

as double endowment and marriage/ education endowment plans.

The cost of such a policy is slightly higher but worth its value.



Term insurance policy

• A term insurance policy is a pure risk cover for a specified period of time. What this means is that the sum assured is payable only if thepolicyholder dies within the policy term. For instance, if a personbuys Rs 2 lakh policy for 15-years, his family is entitled to themoney if he dies within that 15-year period.

• What if he survives the 15-year period? Well, then he is not entitledto any payment; the insurance company keeps the entire premiumpaid during the 15-year period.

• So, there is no element of savings or investment in such a policy. Itis a 100 per cent risk cover. It simply means that a person pays acertain premium to protect his family against his sudden death. Heforfeits the amount if he outlives the period of the policy. Thisexplains why the Term Insurance Policy comes at the lowest cost.



Money back policies

• These policies are structured to provide sums required asanticipated expenses (marriage, education, etc) over astipulated period of time. With inflation becoming a big issue,companies have realized that sometimes the money value of

the policy is eroded. That is why with-profit policies are alsobeing introduced to offset some of the losses incurred onaccount of inflation.

• A portion of the sum assured is payable at regular intervals.On survival the remainder of the sum assured is payable.

• In case of death, the full sum assured is payable to theinsured.

• The premium is payable for a particular period of time.



Joint Life Insurance policies

• Joint life insurance policies are policies that enables two individuals to be

protected, but the full value of the policy is paid only once at the time of

either insurer's death. This is also referred to as the joint first to die clause.

• Spouses, children, or even a business partner will benefit from a survivorship

life insurance policy. Spouses is the directly benefit from it. Should one of thecouple die, the surviving spouse will get the proceedings of the policy. Theamount should be enough for them to live on, until the whole family gatheredhad gathered their bearings after the loss

• Joint life insurance policies do not only help families. It can be beneficial to

business partners as well. Insurance joint life policy in a business setup hastwo types, the single life annuity and the last to die annuity. The first onecorresponds to the clause that the value of the policy is payable until thefirst partner dies. The second one, on the other hand, says that the policyis in force until the last partner dies.



Group Insurance Policy

• Group insurance offers life insurance protection under group

policies to various groups such as employers-employees,professionals, co-operatives, weaker sections of society, etc. It alsoprovides insurance coverage for people in certain approvedoccupations at the lowest possible premium cost.

• Group insurance plans have low premiums. Such plans areparticularly beneficial to those for whom other regular policies area costlier proposition. Group insurance plans extend cover to largesegments of the population including those who cannot affordindividual insurance.

• A number of group insurance schemes have been designed forvarious groups. These include employer-employee groups,

associations of professionals (such as doctors, lawyers, charteredaccountants etc.), members of cooperative banks, welfare funds,credit societies and weaker sections of society.



• Many employees see group insurance coverage as a major perk forfaithful company service. The premium payments are usuallydeducted automatically from the pay itself. Some companies willabsorb the entire cost of the policy as a benefit for employees. The

main advantages of the group insurance schemes are low premiumand simple insurability conditions. Premiums are based upon agecombination of members, occupation and working conditions of thegroup.

• major feature of group insurance is that the premium cost on an

individual basis may not be risk-based. Instead it is the sameamount for all the insured persons in the group. Another distinctivefeature is that under group insurance a person will normally remaincovered as long as he or she continues to work for a certainemployer and pays their insurance premiums. This is different from

the individual insurance policy where the insurance company oftenhas the right to reject the renewal of a person's policy, dependingon his risk profile.



Loan Cover Term Assurance Policy

• Loan cover term assurance policy is an insurance policy, which covers ahome loan. Such a policy covers the individual's home loan amount in caseof an eventuality. The cover on such a policy keeps reducing with the

passage of time as individuals keep paying their EMIs (equated monthlyinstalments) regularly, which reduces the loan amount.

• This plan provides a lumpsum in case of death of the life assured duringthe term of the plan. The lumpsum will be a decreasing percentage of theinitial sum assured as per the policy schedule. Since this is a non-

participating (without profits) pure risk cover plan, no benefits are payableon survival to the end of the term of the policy

• The premium of loan cover term assurance policy is structured in amanner to cover the outstanding amount of the loan. Therefore, the sizeof the insurance cover declines as the loan's term draws to a close.

Therefore, loan cover term assurance policy has a lower premium vis-à-visa term assurance policy that does not provide investment returns.



Annuities And Pension

• In an annuity, the insurer agrees to pay theinsured a stipulated sum of money periodically.The purpose of an annuity is to protect against

risk as well as provide money in the form of pension at regular intervals.

• Over the years, insurers have added variousfeatures to basic insurance policies in order to

address specific needs of a cross section of people.

G l I I di



General Insurance, India

• General Insurance provides much-needed protection against unforeseenevents such as accidents, illness, fire, burglary et al. Unlike Life Insurance,General Insurance is not meant to offer returns but is a protection against

contingencies. Almost everything that has a financial value in life and has aprobability of getting lost, stolen or damaged, can be covered throughGeneral Insurance policy.

• Property (both movable and immovable), vehicle, cash, household goods,health, dishonesty and also one's liability towards others can be coveredunder general insurance policy. Under certain Acts of Parliament, some

types of insurance like Motor Insurance and Public Liability Insurance havebeen made compulsory.

Major insurance policies that are covered under General Insurance are:

• Home Insurance

•Health Insurance

• Motor Insurance

• Travel Insurance



General Insurance

• Fire

• Marine

• Motor



Fire Insurance

A fire insurance is a contract under which the insurer inreturn for a consideration (premium) agrees to indemnifythe insured for the financial loss which the latter maysuffer due to destruction of or damage to property orgoods, caused by fire, during a specified period. Thecontract specifies the maximum amount , agreed to bythe parties at the time of the contract, which the insuredcan claim in case of loss. This amount is not , however ,

the measure of the loss. The loss can be ascertained onlyafter the fire has occurred. The insurer is liable to makegood the actual amount of loss not exceeding themaximum amount fixed under the policy



A fire insurance policy cannot be assigned without the

permission of the insurer because the insured must

have insurable interest in the property at the time of

contract as well as at the time of loss. The insurableinterest in goods may arise out on account of (i)

ownership, (ii) possession, or (iii) contract. A person

with a limited interest in a property or goods may

insure them to cover not only his own interest but

also the interest of others in them.



Marine Insurance

• Marine Cargo

• Marine Hull



Marine Cargo

• Marine Insurance is the oldest form of insurance in the world.Though the name indicates that the policy covers the transitof goods only by waterways, it is not so. It coverstransportation of goods by rail, road, air as well as couriers.During this entire process of transportation, storage, loading

and unloading, the goods are exposed to a large number of perils. Goods are often lost or damaged due to the operationof these hazards and there is a financial loss to the exporter/importer. It is this loss that is taken care of by marine cargoinsurance or what is more popularly known as transitinsurance.

• This policy covers all goods while in transit depending uponthe needs of the insured



Marine Hull

Marine Hull insurance covers nearly everything thatfloats and moves, starting with rowing boat to hugeocean going tankers. It covers loss or damage to hull

and machinery. The hull is the structure of thevessel. Machinery is the equipment that generatesthe power to move the vessel and control thelighting and temperature system such as boiler,engine, cooler and electricity generator. Just as amotor insurance policy is taken to cover the vehicleson the road, similarly a marine hull policy is taken tocover the vessels.

Importance of Life and General Insurance

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